加载中...
共找到 16,693 条相关资讯
Mary-Ann Chang: Good morning and good afternoon to all our listeners. Welcome to Scancell's results call for the 6 months ended 31st of October 2025. My name is Mary-Ann Chang, Investor Relations. And with us presenting today, we have our CEO, Phil L’Huillier; and our CFO, Sath Nirmalananthan. After the presentation, we'll conduct a Q&A session for which you may submit written questions at any point during the webcast. Before we start, a few housekeeping items. This call is being recorded. [Operator Instructions] Please note, today's discussion will include forward-looking statements, which are based on current expectations and assumptions. Actual results may differ materially, and we encourage you to review our filings for more information on risks and uncertainties. With that, I'll now turn the call over to our CEO, Phil L’Huillier, to get us started. Over to you, Phil. Phillip L'Huillier: Thank you, Mary-Ann. Hello, everybody. Thank you for joining this Scancell update. Both myself and Sath will present this update to you this afternoon. This is our disclaimer. Here's a summary slide of the highlights for the interim period that we're summarizing. iSCIB1+ as a novel DNA active immunotherapy has shown and is showing best-in-class potential. It has the potential to redefine the standard of care in first-line unresectable melanoma, a really terrible condition. This is a significant unmet need and a large market opportunity, blockbuster opportunity as pharma calls it. And we're now at the stage of being registrational ready to move this product forward into a Phase III registrational study. iSCIB1+ has demonstrated progression-free survival of 74% at 16 months. That's a 24% delta over historic studies and real-world data that exists from recent studies. And it has the potential to really double standard of care progression-free survival as the study continues to read out with no potentiating toxicities. We have a strong clinical data package, a translational package also. And these packages illustrate to us that we understand well how our drug is working, and we understand mechanistically what's going on. And we understand why we're seeing long durable responses because we're seeing development of memory T cell responses in our patients and those T cell responses correlate to clinical response. This product and the platform that iSCIB1+ comes from ImmunoBody is really now a differentiated therapy. The platform is validated in the clinic with the recent data and the endorsement from the FDA earlier in the week. It overcomes some of the predecessor challenges that existed with these types of technologies. And we have clinical monotherapy efficacy data as well, which highlights the potential to move into earlier settings in melanoma, what we call neoadjuvant adjuvant setting. We're putting in place the commercial building blocks in parallel with advancing forward the development of the Phase III program. And we have a strong patent protection through to 2041 for the product. So the commercial proposition is really very positive. It's a large market opportunity, and we have protection in that market for a long period of time. Those that follow us closely will have seen we announced this week clearance from the FDA for our Phase III study. That was a very positive interaction we had with the FDA, and I'm delighted that we've got that clearance. There's really nothing standing in our way to move this forward in partnership or alone into the clinic and on our time line and on our plan, as we'll show you, we see the possibility to take this to commercialization in the second half of 2029. We've had a strong focus over the last couple of quarters on the lead program, the ImmunoBody platform and iSCIB1+, but we shouldn't forget the additional assets that make up our pipeline. Modi-1 is in the clinic in 2 studies in head and neck and renal cancer. And we also have the GlyMab's portfolio of antibodies at the preclinical stage, and we continue to progress forward those 2 parts of our pipeline. We also continue and have had good active conversations over the last quarter, evaluating partnering and financing options. As I've said previously, we deploy a two-pronged strategy, build to go it alone whilst be opportunistic for partnering, and we continue to work both of those fronts as we move forward to find the path to take our lead program into the clinic. This slide shows you our pipeline. That's a little more extended than some of the earlier versions we've had. You can see on the top there, the 2 clinical platforms, the ImmunoBody platform with the SCIB product, but also the modified platform with the Modi-1 product. And as I just mentioned, iSCIB1+, we selected that during the year to go forward into development for quite a number of really important reasons. And it's that product we want to take forward into the Phase III later in 2026. As I touched on alongside that, Modi-1 continues in the clinic in the 2 indications, head and neck and renal, and that program is progressing positively. We, of course, have 2 partnered assets, as you can see on the slide, further down here with Genmab. Two antibodies heading towards the clinic under Genmab's development. And those -- both of those programs are on track and an important validation of what we're doing in the antibody space, but also they are potential upsides for us, as Sath will come to. And then in-house, we have 2 programs that we're talking publicly about in the antibody portfolio, GlyMab Therapeutics, one in small cell lung cancer, SC134 and SC27 that could be used in various cancers. We are moving forward those 2 products also. Let me come back to iSCIB1+. It has the potential to redefine the standard of care. This slide shows you the market opportunity and the market potential here. On the left, we lay out some of the indicators of the substantial unmet need that still exists in advanced melanoma. It is the fifth largest cancer. Unfortunately, there are a lot of patients die from this disease and a lot of patients that receive current therapies, but relapse or are resistant and need something else pretty quickly. 5-year survival for late-stage melanoma is very, very low. Only 1/4 of the patients are still alive at 5 years. So a substantial unmet need. And I think we have a product here that will really make a dent in that unmet need. In the middle of the slide here, you can see the patient journey, but also the therapies that are being used or being evaluated as the patient progresses through the stages of melanoma. As you can probably see from this slide, we are down here in the blue box in the frontline advanced melanoma. That's where we're working at the moment. That's where the bulk of our data from the Phase II study comes from, and that's the focus of the Phase III. We know from our estimates of the market opportunity that, that market alone could be as much as $3 billion. On top of that, from our monotherapy data and from other work we've done, we know we also could go up to earlier disease, what we call the neoadjuvant or adjuvant therapy. And that's a real possibility to build out the value proposition in the future for the company. And that market opportunity is even more substantial in the range of $6 billion to $9 billion. So we're very much in blockbuster territory here. Over on the right hand of the slide, you can see the approved therapies. And below that, you can see the U.S. market and how the U.S. market is split for different types of therapies. The important takeaway from this slide -- this part of the slide is that 63% of patients in the U.S. receive still today the combination of ipilimumab and an anti-PD-1, most often nivolumab. And that's the combination of checkpoints that we are working with and that we'll add our iSCIB1+ onto in the Phase III. So even in the U.S., it is the dominant marketplace, let alone in the rest of the world. So a substantial market opportunity, and we have the potential to really create a new standard of care for advanced melanoma. This slide lays out the building blocks that we have put in place and we continue to build on to move forward towards a commercialization. We now have a product that we know is beneficial in the clinic and has an excellent safety profile. We have a protection, an IP protection out to 2041, a really long patent life here. The manufacturing is in place. It is a simple process off the shelf and it's scalable, and we have a long-term stability and the FDA have given us a good tick for our manufacturing process. We have in place a commercial agreement for a needle-free delivery device. This is our partnership with Pharmajet. That partnership includes development where we are at the moment, but also commercialization. We have had really good interaction with the regulators. The FDA clearance is, of course, the highlight this week of those, but we also have conversations going on with MHRA here in the U.K. and EMA in Europe. And then finally, we start to put our eyes on what does commercialization look like, how will we think about partnering and moving forward in a seamless way through registration and into commercialization. We have optionality there, and we start to really think about what that looks like. According to our study plan that we've laid out, we could be into commercialization in the second half of 2029. Just a reminder or an introduction for some of you, if you're new to us, of our iSCIB1+ product. It's a DNA ImmunoBody. It has a very novel mechanism of action. And you can see here that this is the product that's manufactured. It's a DNA molecule, a plasma DNA, we call it, delivered to patients with the needle-free device that I mentioned. It's in fact, a shot into each thigh and a shot into each arm, very quick, very convenient, pain-free for the patient. Scancell has developed 2 generations of this product over the last few years, a first gen that targets a restricted patient population and a second-gen product that targets a much broader patient population. And some of the learnings from the antibody work, as Lindy would say to you, have been applied to the second-generation product to improve its binding. So it's even better than the first-generation product. But importantly, it targets a much broader patient population. And our Phase II data told us which patients it works in. But also, we know it binds and it works better than the first-generation product. The product has epitopes to 2 proteins that come from melanoma from the production of melanin in the skin, epitopes to GP100 and TRP-2. Why are these relevant? Well, these were isolated from patients that have spontaneously recovered from melanoma. So that means the immune system sees them. But also from our translational work, our T cell work, we know that in most patients that they create an immune response to both of those proteins. And that's really important when you start to treat patients with this product because it makes it harder for the cancer to overcome the therapy and become resistant to the therapy because the T cells are working against both those products. So it's 2 shots rather than 1 to protect the patient, and that's really, really important. Our mechanism is a very novel one. The DNA molecule goes direct into muscle cells and is taken up, but it also alongside that, binds a receptor on immune cells, activated immune cells, dendritic cells, they call to stimulate a very potent T cell response. And that's an important part of the way it works and why we see such positive responses. I touched on before that we have some monotherapy activity from an early study that the company did. And monotherapy activity is really important in the pharma discussions that we have, but also that's doing the study in that setting helps us think about that earlier setting of the neoadjuvant adjuvant disease setting. But for now, we're developing the product in combination with the checkpoints. And that's what we want to take forward into the clinic in Phase III. There's quite a lot on this slide, but we've created this slide to illustrate why our iSCIB1+ and our ImmunoBody platform is differentiated from other therapies that have come before, but also why we believe in it for melanoma. So firstly, there is compelling science. Lindy and the team really developed a very compelling product with a very novel mechanism that when you compare it to predecessor products, it's overcome many of the weaknesses that were there. And basically, by creating these very strong high avidity T cells and targeting the 2 proteins, GP100 and TRP-2, we have overcome many of the challenges that led to products not progressing forward in earlier decades. This is also a nonpersonalized approach. It's scalable. It's cost effective. It's easy to manufacture, fast to patients and straightforward to deliver the patients. We have very good clinical validation now. I showed you the PFS data at the beginning. But I think the other thing to take on board now is we have a much better understanding of how to use the immune system to attack a cancer. And the combination of our therapy with the checkpoints is really an important part of success of our product, but products like this going forward. And that's learning over the last decades of testing different immunotherapies on the immune system. We've got the FDA clearance to move forward. We've also identified from our Phase II studies, a biomarker that we can use to enrich for responders as we go into the Phase III. This derisks that development. And then I've touched on the commercial opportunity, a substantial first commercial opportunity and even more substantial one to follow on in the neoadjuvant adjuvant, the resectable disease setting, and we have very good regulatory support to move forward with the study and to seek commercial approval second half of 2029, if the data stacks up in a positive way. This is the PFS curve. This is the data that I just mentioned at the beginning, iSCIB1+ showing you a progression-free survival at 16 months of 74%. You can see here when we overlay it with earlier older studies, that in this case, at 11.5 months, ipi and nivo alone show a median PFS that means 50% at 11.5 months. So we've got this big delta of 24%. Now let me just try to put that into a context for you. In the study that led to this -- the combination of ipi/nivo being -- becoming a blockbuster, at the same stage, the ipi/nivo combination was only 6% better than nivo alone. We are at 24%. So this is why we get excited about what we've got in front of us. Look at the difference in that delta. Now I have to caution that the ipi/nivo nivo comparison is from a single controlled study. And what I've done here is to compare across 2 studies. There's a bit of license there, but if you look at that delta, we're very excited about what's happening. And then -- so that's the clinical parameter. Clinical success is based on that progression-free survival. The commercial success really comes down to we make a difference to the overall survival. And at the moment, with the SCIB1 product, because we went into the clinic earlier, we've started to get data there, and we've got a 16% improvement for SCIB1 compared to that red line that I showed you. So the commercial proposition is also starting to build positively. And just to give you a comparison, some of you might have seen that Moderna published some data, 5-year follow-up recently. In their data, the risk of death was reduced in that study, and that's what they publicized. When I do that same calculation based on our data, we're actually at a similar order of magnitude. So we're tracking very well with the Moderna data that is published. But of course, remember, we're off the shelf. We don't have the high-cost logistics and the other challenges with our product. So I'm excited about this data as it builds both, as I say, for PFS, that's about the clinical impact, but also overall survival, that's about the commercial impact potential going forward. This is the indicative plan for the registrational study. It's a simple 2-arm study, as we call it. The control arm is the standard of care now, the ipi and nivo, and we put a placebo into that. And then the treatment arm is the ipi/nivo with our product, iSCIB1+ added on to that. The study will have about 230 patients per arm. So a substantial study that will be carried out across the U.K., Europe, the U.S., Australia and maybe some other locations. So a substantial study for us. And we have an initial readout as we go through the study, and that will be a registrational readout. But we also want to follow the patients for a longer period of time to do a post in-market follow-up on the survival of the patients. Down the bottom here, we've got a number of factors that we stratify the patients coming into the study for. So that means we just balance each side of the study with patients of particular types so that it's a balanced study. This is the design that the FDA have seen and -- let me just comment on how do we think about risk mitigation in a study like this. There is still risk there. That's the nature of what we do. But we believe we can really mitigate and are mitigating risk in the study design. First of all, we did a fairly substantial Phase II translational or exploratory study with 140 patients in it. It was designed to determine the parameters, the key parameters for the Phase III study, and it was successful. We've been able to identify those parameters. We use some of those parameters to give us a statistical model to design the Phase III study, but we've used a conservative delta on that design. So we feel comfortable about the delta that we're using for that design. We've also built in a piece that we call an adaptive design. So if we get through towards the end of the study and we see we, for example, might not quite have enough patients in there, then we've built in the ability to add some more patients to make sure we hit the end goal. And also then we've looked very hard at our patient characteristics. We often compare our data with that historic standard of care, as I was showing you earlier. Okay. So then you ask the question, how do our patient characteristics look compared to those patients from that study, CheckMate 067, but also alongside real-world studies that have been recently conducted. And we know our patient profiles are very similar. So in other words, we've not inadvertently or on purpose selected patients that are one type or another, and they are not directly comparable with those older studies. They are very, very comparable. And then as I've showed you previously, we've also looked at subgroups of patients where the benefit of particularly the checkpoints is less because of a particular condition of the patients. And we know when you add iSCIB1+ on top, that adds a benefit in all of those, I call them poor prognosis subgroups. So we've done a detailed analysis of our patient characteristics and feel really comfortable we're comparing like with like, and therefore, that helps us mitigate the risk going forward. In terms of market risk mitigation, it's worth recognizing that we have that study in metastatic disease, but we have the possibility of doing the neoadjuvant study also. And the neoadjuvant study is derisked because we've seen monotherapy activity in that setting previously. Of course, investor risk is also mitigated, I have to say, by the other components of our portfolio, the Modi program, but also the GlyMab's part of the portfolio. So I feel really comfortable that we have a design. It's been endorsed by the FDA, and we've really thought through how do we mitigate risk here to be successful in the outcome. Here's a summary of the regulatory conversations. Massive tick here on Monday or Friday, but Monday when we announced that we've got IND clearance. Getting IND clearance for a Phase III registrational study is a pretty rare beast, but it's an even rare beast as a U.K. biotech company. I'm really proud of what we did there. What it means in breakdown is the FDA have said, we accept your proposal for the dose and how you deliver the dose Scancell. We accept and we agree with the design of the study, the stats plan, the endpoints and all of those things. Your manufacturing process is satisfactory for this late stage of study. And then on other information and other studies, preclinical, nonclinical, other sorts of studies, they agreed that we had satisfied all of those criteria. They've granted us a safe to proceed and IND is open, and they've granted that with a surrogate primary endpoint. That's effectively granting us an accelerated approval in the one swipe of the pen. So it's a really big outcome for us and a really exciting time for us. As I touched on earlier, we progressed forward with the MHRA and EMA and other regulatory bodies because it will be a global study. Now with the IND under our belt, we are also moving forward with a breakthrough designation application and other regulatory applications and the CTA is near completion. CTA's clinical trial agreement, the next step down underneath the IND clearance that you need to move forward a study. So really strong progress on the regulatory front. This slide comes back -- this slide and the next slide are really where we start to think about what's the longer term look like, now with a validated ImmunoBody platform? We're able to start to think about what's beyond iSCIB1+ in advanced melanoma. So perhaps for the first time down the bottom of this slide, we've started to think about how else could we use this platform. And there are a lot of possibilities here. So this makes the market opportunity and the value potential of the company even more substantial going forward. I think we've probably shown SCIB2 before with the NY-ESO antigen. There are a number of others now we are in concept stage, I'll say, thinking about. I'm not going to disclose those antigens. We're in a world in the biotech industry where things get copied very quickly these days. And then if you look more broadly across the Scancell portfolio, my last slide, I think, but just to say to you, we have the iSCIB1+ program in melanoma, and there's multiple ways we can move that forward in multiple indications in the future this product could be taken into. But the ImmunoBody platform, iSCIB1+ -- iSCIBx has the potential to go into quite a number of other therapy areas. So a lot of potential in that platform. But on top of that, there's the Modi program, which is applicable to a broad range of solid tumors, and that has its own potential and is making good progress. And then, of course, there's the antibody portfolio where there are a number of products at various stages of preclinical development. So as a company, the potential currently is substantial, I think, but the future is even larger for us. Let me finish there and hand over to Sath to walk you through the financials. Sathijeevan Nirmalananthan: Thank you, Phil. I'm pleased to give you the key highlights from the interim financial results for the 6 months ended 31st of October 2025 before updating you on some key upcoming milestones this year. Starting with revenues. Whilst there were no revenues in the period, as previously highlighted, there is potential for near-term milestones from our partnered assets with Genmab. Development of those antibodies remain in progress. And based on recent updates from the company late last year, we anticipate further milestones this year. As a reminder, there are up to $630 million in further milestone payments with low single-digit royalties and commercial sales on each antibody license with Genmab. Research and development expenses were $6.2 million in the period. Research and development costs predominantly reflect our in-house clinical, manufacturing and research costs, where the majority of the spend is discretionary in nature. The reduction in the expense from the prior period primarily reflects lower manufacturing costs. We made additional investment in iSCIB1+ manufacturing in the prior period to ensure readiness for future stages of development. We have a robust, scalable manufacturing process for iSCIB1+ with a high-quality formulation and long-term stability. It has allowed us to move seamlessly through regulatory approval for late-stage development, the recent IND clearance being a mark of the team's diligent preparation and execution on this front. Administrative expenses were GBP 2.7 million with continued focus on cost control. The increase primarily noncash share-based payments following the last set of leadership appointments and share issues. This leaves our operating loss at GBP 8.9 million. We record a profit on finance and other income of GBP 2.1 million and recorded tax credit of GBP 1.1 million, resulting in a net loss for the year of GBP 5.7 million. Our cash of GBP 8.6 million at the end of October 2025 was enhanced by the timing receipt of the R&D tax credit of GBP 3 million. This leaves our cash runway in line with previous guidance as the second half of 2026 beyond key development milestones and with runway for ongoing partnering and finance discussions. We do have upside on this runway, too, namely the development milestones for SC129 anticipated this calendar year. Furthermore, the discretional nature of our spend allows us to take decisions if needed. We have good investor support too and remain confident of our near-term runway as we evaluate the right way to develop all of our assets. Next slide, please. Here are the key milestones for Scancell. We've made really strong progress over the last 18 months with solid execution from the team behind the scenes and on time, too. For iSCIB1+, we have already delivered U.S. IND clearance and we'll pursue U.S. Fast Track status on the back of this. Fast Track status has multiple benefits, including regular interactions with the U.S. FDA, which will favorably impact time lines and costs. In parallel, we are pursuing regulatory clearances in the U.K. and Europe, and we have already received some positive feedback in discussions so far. We continue to build our capabilities to execute development in-house while we assess the right way to finance the next stages of development. And on that, the recent IND clearance represents an important development milestone. It strengthens our development plans and discussions. And off the back, we are actively evaluating our options to ensure the right way forward with timely development and shareholder value in mind. In addition to the lead asset, we expect to report data on Modi-1 in the first half of this year, following which we will assess the right development path for that asset. Further, Genmab milestones, as I previously highlighted, are expected in the next -- in this calendar year. And finally, GlyMab Therapeutics, we continue our partnering and strategic discussions with the preclinical portfolio of antibodies targeting these novel glycans. This includes the most progressed antibody, SC134 for small cell lung cancer with -- which has a novel co-dosing approach, which we're quite excited about. We're also focusing on further antibody discovery in this space, too. So lots of upcoming milestones, and we remain confident of our ability to develop these assets and realize their true potential. Thank you for listening. I will now turn over to the operator for questions. Operator: [Operator Instructions] We'll take our first question from Julie Simmonds with Panmure Liberum. Julie Simmonds: Congratulations on all the good progress over the last few months. Initially, I was just wondering about -- you're talking about the sort of stratification of the patients in the iSCIB1+ Phase III. I was just wondering whether you have any idea whether you're expecting to see any geographical variation in that when you start bringing geography into the patient recruitment? Phillip L'Huillier: Julie, I'll take that one. Thank you for that question. We've looked very, very closely at the HLA types across geographical locations. So understand those details, which, as you know, our product works on that basis. And in the territories that I mentioned that we will go into in the Phase III study, I think we understand the patients from that perspective and don't anticipate major differences. Julie Simmonds: Excellent. That should simplify that. And then I was thinking you're currently applying for breakthrough designation for iSCIB1+ as well. From a sort of practical perspective, at what point do you think that might be likely to be received? And what difference does it make for you whilst the trial is ongoing? Phillip L'Huillier: It's a relatively fast process. It's kind of probably a 2- or 3-month process. So we should have an outcome on that fairly quickly. I'm a hostage to fortune now, but it's a relatively quick process. And what it means, as Sath mentioned, is that we'll be able to have more regular and ongoing dialogue with the FDA. And that's important as we go forward. You will have seen it over the last 18 months, the changing regulatory landscape out there with the FDA, but also elsewhere. So being able to have an active dialogue is important in this process as we move through this study. And I have to say the conversations to date that we've had over the last quarter with the FDA have been really collaborative and really positive. So I'm very pleased where we are with our interaction. But these other designations will help us have further interaction as we move through the Phase III study. Julie Simmonds: Excellent. And then just on the GlyMab program, you talked about a co-dosing approach for your sort of lead one there. Can you tell us a little bit more about that? Phillip L'Huillier: Yes. We have shared a little bit of data. I think I shared a little bit of data to tantalize everybody at the AGM on that, and we've now filed a patent over that approach. But Lindy and the team have identified an approach that uses a co-formulation of a code antibody and a T cell engager in combination and that has shown much greater efficacy. And also in at least our laboratory studies shows reduced toxicity. So what we could have in our hands here is a generally applicable approach to improve both the efficacy of this type of product, but also reduce the toxicity. And you'll know, Julie, that CRS toxicity is a feature of T cell engagers. So we're excited about this product and this new development and potentially have a best-in-class in small cell lung cancer on the back of this co-dosing approach. Operator: Our next question comes from the line of Edward Sham with Singer Capital Markets. Edward Sham: Congratulations on another great update. So I think my -- I've got 2 questions really. So congratulations on the IND clearance. And I'm just thinking whether that will change the quality of conversations you're having with potential partners for the Phase III? Phillip L'Huillier: Yes. Good question. Yes, absolutely. I think it's an important catalyst for both the conversations we're having with pharma and mid-caps, the strategics, but also with investors. And in both cases, it illustrates, I think, not only the quality of the product, but the quality of the data. And as Sath touched on, the quality of the team that executed this, we're executing with pace and with precision. So it makes a difference to all of those conversations, and it is, I think, a key catalyst for the next stage. Edward Sham: That's really helpful. And then just my next question, just really on as you wait for the funding for the Phase III, what preparation activities can you continue to progress? So for example, the CTA? Sathijeevan Nirmalananthan: Yes, absolutely. I'll take that one, Ed. Absolutely. We've got a decent runway, and we've got things planned that allows us to move as quickly as possible into Phase III development. The team are working diligently just to make sure that we're prepared and well planned as possible, subject to financing, of course, but we are making good steps so that we can start the study and build capabilities this year and start the study this year. Operator: As there are no further questions on the conference line, we will now address the written questions submitted via the webcast page. I will hand over to Mary-Ann Chang, Investor Relations to read this out. Mary-Ann Chang: Thank you. So we have a follow-up for you, Sath. This is from Frank Gregory at Trinity Delta. I have read and heard about your plans to explore partnering arrangement, but I guess this is directed to Sath as he used to be an analyst in former life. Why are you not thinking of going it alone more proactively? The scope data is very solid, and you can identify the patients likely to respond. We reckon the study around 500 patients. So the risks are containable and the funding doable. The arithmetic is quite compelling, go it alone until the interim data in and retained with so much more of the value. So Sath, those are his words. Over to you. Sathijeevan Nirmalananthan: Thank you, Frank. Thanks. It is an option, as Phil has highlighted, that we will actively consider. We are pursuing a dual track process. But Frank is right. The market potential, as we've highlighted, this has blockbuster potential. And so when we do the financial modeling and when we think about the value that this has, we have that go alone strategy firmly in our sight too, and it provides a nice proxy for conversations that we have on the partnering side. But it is something that we are actively evaluating. And the market potential and the sums that we have in mind for further development would make it compelling if we did decide to go alone as well. Mary-Ann Chang: Okay. So it's related to that, a similar question on financing, but from a different angle. So if we could just continue Sath. With your cash runway to H2 2026, could you please provide more commentary on options being explored, in particular, how you think about dilution risk? Sathijeevan Nirmalananthan: Sure. I think it's definitely something very topical. But as I want to give a strong confidence on our runway. We feel very confident with the assets and the milestones and the pipeline that we have. And we have optionality. We've got multiple assets and multiple ways to raise funds as well. We are in active conversations on the partnering side. And one of those is thinking about how to drive shareholder value, too. So when we think about the individual assets and how we can drive value and drive development of iSCIB1+ forward, we continuously evaluate what it means for shareholder value too. So that is something that we will take into consideration when we pick a path forward. Phillip L'Huillier: It's perhaps worth adding there, Sath. If you read between the lines with Frank's question, when he does the numbers on the potential upside of going it alone, it's less about, I think, dilution risk and more about retain value and grow value by going it alone. Sathijeevan Nirmalananthan: That's very true as well. I think the long-term potential, even if we did go alone, will definitely drive shareholder value. This is a blockbuster market, and we've got multiple assets. So a very good point, the long-term potential, whichever way we go, there's huge value to be gained here. Mary-Ann Chang: So going back to the data, Phil, there's a question about the chart that you showed. Forgive me if I missed it. Could you please explain why the PFS chart on Slide 10 is flat for iSCIB1+ versus standard of care? If you could just give a little bit more explanation there, please. Phillip L'Huillier: Well, that's a nice question. Thank you. It's flat because no patients are relapsing. So it's flat because all of the patients that are still on therapy are still getting a benefit from the therapy. So it just adds to our duration of response that these patients are on therapy, responding and remaining on therapy. It's very positive, unusual, too, but very positive for us. Mary-Ann Chang: Yes. And then related to that, another shareholder has asked looking out, could the results improve from here? So can you give a sort of an indication of should that -- where could that line be going? I think is the question. Phillip L'Huillier: Could the results improve even further? Yes, if you look at that PFS curve we were just talking about and it's flat, and you can see that as it's flat and the other red line is going down and down and down. So if our curve continues to stay flat or near flat, then the delta continues to grow. So it could become even more a greater delta. Mary-Ann Chang: Yes. Right. So the delta is the key to watch. Very good. Okay. We have another question on the Phase III trial. I understand the registration trial is to read out second half of 2029. Will there be any or even many updates during the trial? Or do we have to wait until the end, Michael Hart? Phillip L'Huillier: That's a very good question. By the nature of the design as a double-blinded study, as we call it, it means there are not data updates as you go through the study, like has been possible with, say, the Phase II study, where we do get data updates and we can share those. We won't even as a company, see results going through the Phase III study. It's double blinded. So that means we and the patients and the clinicians don't see the results as it progresses. And that's an important feature of the study because that feeds into the statistical power you have to analyze the results at the end. So it is a study that we take on board and then we execute that study. Where there will be readouts as we progress through that is things like our recruitment rate, our recruitment success because that then impacts on the time line. So I think that's the sort of milestones we will monitor is our recruitment, our execution of the study. I should also say there will be news flow also coming out of the company over this period of time from other components of the pipeline. If we start a neoadjuvant study, there will be news related to that study. That won't be a double-blinded closed study. So there will still be a lot of news coming from the company, but that Phase III registrational study is blinded for statistical reasons and for patient reasons. Mary-Ann Chang: Good. Question on SCIB1+ -- sorry, SCIB1 was granted FDA orphan drug status in the U.S. Does that automatically transfer to iSCIB1+? Or would you have to apply again for iSCIB1+? And if so, will it still meet qualification criteria given the expanded patient population? Phillip L'Huillier: That's a good question about orphan drug status. I'm not totally sure about the process of changing over from one product to the other. I think it possibly is a new application. But perhaps what's more important here is an orphan drug designation relates to a defined and small patient population. So whereas SCIB1 could get it because it just treated the A2 patients, about 30% of melanoma patients. Because iSCIB1+ works in 80% of the patient population, I think it's probably too big to get orphan drug designation. It's a good problem to have. We've got a large commercial opportunity now, which we may not get orphan drug designation for. But what's more important now is accelerated approval and breakthrough to move us forward to registration. Mary-Ann Chang: Good. Looking at the rest of the portfolio, there's a question if you can give more of an update on the rest of the portfolio. You've given some update, but any more detail you can add for either of the 2, Modi-1 or GlyMab? And in particular with GlyMab, there's a question on the progress in setting up the subsidiary status. Phillip L'Huillier: Yes, yes. Okay. Let me, first of all, take Modi-1 there from the modified platform. As we touched on through the presentation, it's in -- Modi-1 is in a Phase II program in the U.K. in head and neck and renal cell carcinoma kidney cancer. That study progresses well. We are progressing towards full recruitment, in fact, in that study. So recruitment has progressed nicely. We continue to follow up and monitor the patients. We're now looking for a PFS readout, which will happen over this quarter, this half year. And then that could well be a driver subject to that data to a potential licensing opportunity and non-diluting financing for the company. That's certainly how Sath and I think about the opportunity. So we're excited about the program and about the progress of the product, but we don't have sufficiently mature data yet to talk about it either here or quite yet to talk about it with pharma companies about working with us to take it forward. The second part of the portfolio and the second part of the question was around GlyMab Therapeutics. We have gone through the process of setting up the subsidiary entity, and we've done a lot of work around conversations with pharma, strategics as well as investors to join us in the journey to make a wholly owned subsidiary and then bring investment on to progress that portfolio forward. The -- we've had a lot of conversations, and we continue to have further conversations there, and it's something that we continue to progress to move both the portfolio forward, but also move forward the concept of creating the GlyMab Therapeutics entity and then putting in place the management and investment to move forward the portfolio. Mary-Ann Chang: All right. We have one more question that just came in. In today's RNS, you mentioned partnering the broader ImmunoBody platform. Could you explain a little more about this, please? Phillip L'Huillier: Yes. You will have seen as we went through the slides that what we've got in our hands now is a validated platform that really is very effective to treat late-stage cancers. And I wouldn't call it quite plug and play, but in fact, we are exploring at a concept stage, how else do we move this platform forward and what else can we apply it to. And there is possibility, I think, now because of the validation from the iSCIB1+ and the scope study to contemplate other products being developed with this platform. And those even at an early stage may tickle the fancy of pharma companies to come on board and collaborate with us in disease areas where they are focused. Mary-Ann Chang: Very good. Going back to -- Miles Dixon has come back. He asked about the Kaplan-Meier curve. And he's asking on this, just how unusual is it to have a completely flat curve for 10-plus weeks in these patients? What is the end number? Phillip L'Huillier: How unusual is it to have a completely flat curve? That's a hard one for me to answer. You do -- I have seen in many other studies, curves like we see here where there's a rapid decline initially because of comorbidities of patients at the early stage and then the curves typically flatten out, maybe not absolutely flat, but flatten out as they progress over time. So it's not unusual. In the context of a long-term study here, we need to be -- remember that what we're talking about here is we have 16 months data. So it's a short snapshot of data that we're looking at, at the moment relative to long-term benefit for patients over 3, 4, 5 years. But I am really delighted to see that once a patient goes on to therapy and responds, that response is very, very durable. Mary-Ann Chang: Very good. Good. We have one final question asking about liquidity. And given the conservative nature, the question says of U.K. fund managers, have you looked at a stock rotation on the U.S. market to broaden the shareholder base? Sathijeevan Nirmalananthan: Yes, we have. It is something that we've evaluated and I'd be quietly confident of our capabilities to be able to dual list, and it's something that we will continue to consider with development and access to capital in the U.S. and liquidity in mind. So I think the potential of a NASDAQ listing for pretty much all biotech is there for everyone to see. And it's something that we have actively considered and we have the capabilities to deliver. And if the time is right, we will definitely look to pursue that at the right stage in terms of a dual listing. But we're evaluating all our options at this stage, and we'll keep investors updated as we make decisions. Mary-Ann Chang: Very good. There are no further questions. So I'll hand back to Phil L’Huillier for closing remarks. Phillip L'Huillier: Good. Thank you, Mary-Ann. Today, my closing remark goes to acknowledge the team that put together the IND application. You'll remember those that follow us that during midyear or at the end of the summer, we said we're pivoting, going forward with the intramuscular approach, and we needed to get on with regulatory submission and planning for a study. A team put together 104 documents and submitted this to the FDA just before Christmas. They took a breath and waited over the Christmas, New Year period and into January to see how many questions would come back from the FDA on our 104 documents. There were, in fact, no questions back from the FDA. The FDA read all of that material and endorsed what we proposed as our study, back the data, back the manufacturing. It was a Herculean effort. I'm really proud of the team that did this, and it's now moved Scancell to a pretty special place for any company, let alone a U.K. biotech company. So my last word goes to the team in Scancell and our advisers that have got us the IND in pretty damn quick time. Thank you, everyone, for listening.
Per Brilioth: Okay. Welcome, everyone our Q4 call, the VNV Global Q4 call. So welcome to this call. I'm Per. I'm joined by Bjorn and Dennis, my colleagues, who'll walk you through the results, what's going on in the portfolio, touch upon a few of the holdings. And there is -- so we'll walk through the presentation and then there will be Q&A afterwards. We -- so if you want to ask a question, please use the Zoom Q&A sort of function. This is the same as we've done in previous calls. So I think it's self-explanatory. So let's kick things off. And first numbers. I pass the microphone to my colleague, Bjorn. Björn von Sivers: Thank you, Per. If you can move to the next slide, we'll start with that. So as per year-end 2025, VNV Global's NAV stood that $547 million or roughly $4.25 per share, down 5.9% in USD during the quarter. In SEK terms, NAV is SEK 5 billion or roughly SEK 39.1 per share, down 8% over the quarter. For the 12 months period, NAV in USD terms is down 4.2% and down close to 20% in SEK terms. If you come to the next slide, Per, we go into sort of the simplified balance sheet here. And so we have a total investment portfolio that amounts to $589 million, consisting of investments of $537 million and cash and cash equivalents of $51 million. Borrowings at year-end '25 totaled $46.6 million following the partial redemption of the outstanding bond earlier in the quarter. We continue to trade at a material discount to NAV as per share close yesterday, January 28, at 19.9%. We're trading at sort of implied 49% discount NAV. During this quarter, we've continued to repurchase shares that we started in Q3. And as per year-end, company holds close to 2.4 million common shares, representing approximately 1.8% of the outstanding common shares. And the fair value change during the quarter is a per usual, primarily driven by the movements across the largest holdings in the portfolio. And if we move to the next slide, I'll quickly just go through the main drivers here before we jump in to a more broader view of latest developments and the key portfolio holdings. So starting from the top, we have BlaBlaCar, which has -- this quarter is valued at $164 million for our stake based on the same sort of model as per previous quarter, down 11% or roughly $20 million in the quarter, primarily driven by lower peer multiples. Second, we have Voi valued at $127 million for VNV's stake, down roughly 7% or $10 million during the quarter. Numan, third largest holding valued base -- still valued based on the latest transaction at $37 million, so flat over the quarter. HousingAnywhere also valued at $37 million based on EV sales model, relatively flat during the quarter. And then sort of final 6 of the largest holding Breadfast also valued based on the latest transaction in the company. We also have a Bokadirekt at model-based valuation, which is relatively flat during the quarter. All in all, these 6 companies represent close to SEK 30 per share in aggregate or 80% of the NAV. Finally sort of just a brief comment on the cash and cash equivalents. We ended Q4 with $55 million in cash following an eventful quarter in terms of cash movements. The primary inflows during the quarter were the final closing proceeds from the Gett transaction and also closing proceeds from the Tise exit, which we previously announced, and main outflow again, was the partial bond redemption where we sort of cut outstanding debt in half. With that, I'll leave it back to Per, who will start and continue walking through the latest developments and the key holdings. Per Brilioth: Thanks, Bjorn. Yes, the portfolio is sort of similar to what you've seen in prior quarters over the course of '25. BlaBla and Voi sort of nearly 50% of the portfolio. And yes, the -- it's -- I know we marked the NAV downwards this quarter to the order of -- it is 6% in dollar terms. And it's -- and as Bjorn walked you through, this is technical. Sort of we do our valuation models, we look at peer groups in the listed world. Much of this sort of downtick is due to that these peers are down, but the actual companies, these big companies in our portfolio and the small ones are really doing well. And so it's -- the quarter-to-quarter movements don't necessarily sort of correspond to sort of the progression of the companies, which is sort of performance-wise revenues and EBITDA is doing really well. And also sort of how they're positioned in this sort of volatile world we live in with new sort of softwares, AI, et cetera. I think the portfolios are really robust, whereas, in other sectors, software, et cetera, it's kind of scary what's going on. But here, for example, what's going on in the much sort of focused on AI world, these companies will benefit from all those sort of new products and new AI sort of apps, et cetera. So I think that's an important starting point. We obviously trade at this discount. It was 49% we're down today, so it's a higher discount. And we think our NAV -- the NAV, these green bars, will deliver substantial returns annually over -- for the coming years. So we can't really find anything better to do than to buy our own stock. If we can buy that NAV at a 50% discount, 50%-plus discount, it's the best use of shareholder cash. And we have -- Bjorn gave you some numbers. Over the course of the second half of last year since we sold, we got the Gett cash and went to net cash, we have been buying back stock, and we'll continue to do this. We have a bunch of gross cash. We still have some debt outstanding. And that leaves a little net cash, but we also have progression of some further exits in the portfolio. So we intend to sort of work, operate, execute in accordance what markets tell us and that is to sort of sell at NAV and buy the stock. I think it's $170 million that we have exited over the past 2 years have all been around NAV. And the transactions that we sort of look at concluding going forward are also around that level. So that's where deals happen, and our stock trades at half that, we're very focused on it. And so spent some time in writing up this report and sort of trying to discuss, if you will, the reasons why this discount is there. I sort of thought that net debt was part of the reason, and I guess it's not because we're in net cash, and there's still that the discount is persistent. It's not that the portfolio creates a lot of cash. Sort of just shy of 80% of it is EBITDA positive in this number. We have Voi at EBIT positive, well, obviously, because they own and depreciate these assets. If you use their EBITDA figure, it's -- this 76% of course goes up, of course. The decline here a little bit is predominantly driven by that Gett is sold over this past year. So we're -- the portfolio is doing well. It's not craving cash. And in fact, it's not only profitable, it's also -- there's still growth. This shows the growth of the 6 largest holdings. And we've seen that growth sort of accelerating over the course of the year that we're now closing, so 40%. We see growth sort of continuing in '26, maybe to the order of like 30% and earnings at this -- at the bottom level here, gone from a negative in '23 to positive now, and one that we see growing much, much faster than revenues in the coming years. I think Dennis helped put together some numbers. And if you look at the '26 earnings, you are looking at -- and just using our share of these 6 companies, so these 6 companies, during the course of 2025, generated about SEK 1 billion in revenues. And so our share of that is like SEK 150 million. And if you take that into '26, the way we see sort of earnings growing, I think you got -- if you compare our market cap to our percentage of these guys' earnings, you're looking at a price to EBITDA of, call it, just above [ 20% ]. And how earnings is growing over the next year, you're looking at, in '27, our market cap, again, to the same sort of earnings -- our percentage earnings of these 6 companies getting down to levels of [ 10% ]. And that's then using the market cap and comparing it to the performance of these 6 companies. If you -- and that's assuming everything else is at 0. And everything else is very far from 0. Here is a bunch of the companies that show up in that are the part of the portfolio Flo. I think all of you know, it's the world's largest peer tracker, OURA. I'm sure many people on this call use OURA Rings. Ovoko is Europe's fastest-growing marketplace for used car parts. Yuv in the hair coloring space is doing fantastically well, growing fast, no traffic. Company predominantly selling their product within traffic control in the U.S. Tise actually just sold at above our NAV. It's the Vinted of Norway, was recently sold to eBay. Just to give you a sense that outside of these 6 companies, there's a lot of stuff going on in our portfolio. And as we've talked about before, I sort of say that in this other part of the portfolio, we have the next BlaBla, the next Voi that, in a few years' time when maybe BlaBla and Voi are exited, you have one of these companies will have taken their place and become one of the bigger parts of our portfolio. And in fact, just to go back to that NAV and us trading at this NAV sort of our NAV, we try to keep it conservative. Our auditors tell us that we should -- it should be fair. It should be correct, should be the true market value. If we are wrong, we'd like to be wrong that we're a little bit conservative. And I think these are 3 examples of late where Tise was sold for $11 million to us, we had it at [ 6.6 ]. Yuv raised money at equivalent of [ 4.7 ]. We had it [ 2.8 ]. And Yuv was done around the mark and OURA was done way, way above our mark. So sort of high-level intro to what's going on at large at VNV. So just to take you through BlaBlaCar, where there's not that much new to talk about. I think most of you know BlaBlaCar well by now. It's been many years in our portfolio. It's a marketplace for long-distance traffic where supply comes from -- predominantly from cars, but also bus and train operators offering seats into a marketplace where -- which has a very large and very fragmented demand side on the other side. It's a European business. Every little green dot here is BlaBlaCar on route on the car. So you see it's very, very active marketplace in Europe, but the fastest-growing countries for this company right now, it's in emerging markets where India has overtook France last year to become the largest market in terms of passengers and that's not yet monetized. And in fact, over the course of this year, one of the things that we are really eager to see the company perform, and we're confident that they will sort of execute on, is to monetize emerging markets, which they have in other parts of the world, but we see first up Brazil, where they've been at it for a long time, monetization is now starting to become well underway after they've spent some time on testing different sort of routes to monetize. Not every market is France. France is, of course, heavily monetized and very profitable. Brazil, they have sort of tested some new products and found the right one and now getting going in earnest with that. And then India, Mexico are to follow. But -- and in Europe, which is really profitable and not as fast-growing market as those emerging markets, there's still a potential to growth as the company sort of really improves the product to pick up the sort of the big demand that's out there when they offer a point-to-point solution in this sort of long distance sort of travel. So it's not only going from a big central station in Paris to big central station in Lyon or Madrid, for example, but this company actually offers a route from a small city like [indiscernible] to a small city like [indiscernible] where, today, you need to sort of take -- or outside of BlaBlaCar, rather, you need to take a train to [indiscernible] or bus to [indiscernible], take a train to Paris, change station in Paris, train to [indiscernible], bus to [indiscernible], which takes 6 hours and costs a lot of money. So the alternative in BlaBla trip is much more comfortable. It's door-to-door, it's faster, it's much, much cheaper. So as the product sort of starts to sort of cater even more to this sort of door-to-door kind of concept, we think there's also growth to be had out of places like France, which has been more sort of a profit center than a growth center of late. And just summing up, we're the second largest shareholder of this company now 14%. I mean that's not changed since we last spoke. And yes, we're very, very keen on this upside. I think, for the course of this year, monetization in emerging markets will be a very, very interesting thing to follow. But also beyond that, just generally from the sort of volatile year of '23, very, very sort of profitable and then '24 with the sort of the ceasing of these green revenues that they had in France, they're now on a very sort of stable footing and are profitable in earnest, and we see that those profits really sort of growing well into the coming years. So really, really keen to see this company now having just normal times and being able to grow in their -- in all their markets, but -- and especially in emerging markets and also monetize those, which will be obviously driver for revenues. And then a lot of that money, not to say all that money falls down to the bottom line. So those are few words on BlaBla. I'll hand over to Dennis to walk us through Voi. Dennis Mohammad: Thank you, Per. As we've highlighted in previous calls, Voi has had a very strong 2025, with net revenue growth in the 30% range and margin expansion across the board. On the back of this, VNV has written up its value in Voi by over 25% during the year, taking it from around 15% of the VNV portfolio to more than 22% of our portfolio this quarter. So given that performance and its increasing importance for VNV, we thought it made sense to do a bit of a deeper dive on Voi on this call. Starting with the basics, which I assume most of you are aware of, Voi is a leading European micromobility company. They operate both shared e-scooters and shared e-bikes in more than 110 cities in 12 countries. Whilst the hardware is the most visible part of the business, as you can see on the left most side of this slide, Voi is fundamentally a vertically integrated hardware, software and operations platform working as one system. On the software side, Voi has invested heavily in everything from machine learning for fleet optimization to ensure that supply and demand are matched in each city at any given point in time, to inventory and fleet tracking, the rider app that users see, but also the various types of data products for cities in the locations where Voi operates. On the operations side, Voi manages the full vehicle life cycle from sourcing and designing of the hardware to predictive maintenance and fleet management and ultimately, resale. To date, Voi has resold more than 60,000 vehicles when upgrading to newer models has made more economic sense than continuing to operate, which shows you how far this business model has come from where it started back in 2018. All of this makes this a highly complex industry and company, I believe, with meaningful barriers to entry. And it really strongly favors to operators that have invested in technology and operational excellence to drive down cost per ride, a metric we are fairly certain Voi is leading on in this industry. If you go to the next slide, Per, and apologies in advance for a slightly wordy slide, but I'll walk you through the highlights. Today, Voi has a highly diversified revenue base with over 100 cash-generating cities. The largest city accounts for only 8% of revenues. And we were often asked, I'm often asked what happens if Voi were to lose a major tender in cities such as Oslo or London or Paris. And the answer is really that the downside is quite limited here. The portfolio is diversified, as I said, and the fleet would just be reallocated to cities where they can continue to generate revenue, perhaps at a slightly lower pace in the beginning, but that is a very key component to the fact that it's a very kind of diversified portfolio of cities. Voi also has a very loyal and growing rider base with active users up more than 33% in 2025, highlighting that penetration remains very early in many European cities. And I'll show you a slide on that just after this one. Voi also holds the highest regulated market share in Europe at around 30%. And close to 80% of its revenues actually come from these regulated markets where competition is limited and unit economics are structurally more attractive. And then I think this is one part of why Voi has managed to achieve this margin expansion that we've seen over the course of the past 12 to 24 months. On hardware, Voi is now operating its ninth generation vehicle with roughly 1-year payback periods and an asset lifetime that exceeds 10 years. Also that a big improvement versus the first models that we saw in 2018. And during 2025, Voi scaled its e-bike offering quite meaningfully with further expansion planned also now in 2026. The benefit with e-bikes is that it not only diversifies the fleet, but it also broadens the user base and significantly expands the addressable market for Voi. You have more users willing to use the service. And over time, we expect additional vehicle types to be available on the platform as well. Finally, on this slide, Voi has industry-leading safety performance. On average, a rider will need to travel around 6 laps around the globe on Voi before being involved in a serious L2+ accident. And as a food for thought here, I think safety remains a core focus for Voi, but city infrastructure and car prevalence are also critical factors in that equation. If we go to the next slide, Per, as I alluded to before, what we're seeing here is the share of city population that are monthly and/or yearly active riders with Voi in a number of cities, but also for the top 50 European cities that Voi is active in. And as you can see, even in Voi's strongest cities, penetration remains quite low. In places like Stockholm and Oslo, more than 60% of the population remains untapped. And in larger cities such as Berlin, that runway is close to 90%. Voi has around 1 million retained monthly active users today, while more than 150 million people are aware of the brand and over 600 million people live in Europe. And I think this highlights how early the journey still is and how much growth there is to come from just growing user base. As mentioned earlier, Voi grew monthly active riders by 33% in 2025 with essentially no marketing spend, making this a highly efficient acquisition engine as well, and this is a metric we expect to continue to drive growth going forward. Going to the next slide and turning to this quarter or the fourth quarter of 2025. We've written down our stake in Voi by 7%. And -- while peer multiples have been volatile with mixed movements across the group and actually a net positive impact from the [ median ] multiple. VNV has essentially taken a more conservative view on the near-term LTM EBITDA forecast for 2026. This essentially reflects increased investments in mega cities such as London and Paris, which carry lower margins initially, but are likely to become the largest contributors to both revenues, but also profitability over time. Another thing worth highlighting here is that Voi is also investing in its first refurbishment hub in Poland, which expands vehicle lifetimes, improves unit economics and increases control over the supply chain, all positive long-term initiatives, but also part of explaining why we're taking down the EBITDA forecast in 2026. For the [indiscernible], however, we expect positive adjusted EBITDA and adjusted EBIT in 2026 with expanding margin versus 2025, but this will not be a year of steady-state margins. Instead it will be a year of continued investment within healthy positive margins, but prioritizing growth at the right price over short-term margin maximization, all of which we believe will drive long-term value for Voi. If we go to the final slide, this is actually not new from when we last looked at it in Q3. This shows Q3 LTM figures. And we -- as I said, we also did that in our last call as Voi actually reported ahead of us. This quarter, they're reporting after us, so Voi will release its Q4 results in February. So we encourage you to follow that on their IR site. But in essence, you're looking at growth in the 30% range with significant market expansion across the board. That was it on Voi. If we move to the next slide, we're seeing HousingAnywhere, which is the leading platform for medium-term accommodation rentals, typically 3 to 9 months in Europe. Over the past year housing -- past years, sorry, HousingAnywhere has grown roughly 20% per year and has been adjusted EBITDA positive since 2024. During 2025, at the beginning of the year, we updated the management team and instated a new CEO, Antonio Intini. Antonio brings tons of experience in the real estate and tech sector, having served both as Chief Business Development Officer at Immobiliare, which is Italy's leading housing platform, and several years at Amazon before that. During the year, we've also spent time and resources on updating the company's long-term strategy, where VNV, through me, have supported operationally as well. And as part of this work, HousingAnywhere is expected to complete a new funding round in the near term to finance its updated management plan, expected to close during this quarter or the first quarter of 2026. VNV is committed to invest around EUR 1 million in this round. And in the fourth quarter of 2025, since that was already decided, we have reflected -- we've adjusted the carrying value of HousingAnywhere to reflect that transaction, which is done at a small premium to our NAV. If we go to the last slide on my end, that is Numan, which is a digital health platform for specialized health in the U.K. As we've talked about in the past, this company has seen massive growth in its weight loss vertical from GLP products -- sorry GLP-1 products in the past couple of years. And it's expected to close 2025 with triple-digit growth on revenues and positive EBITDA despite increasing volatility in this market following Eli Lilly's price increases in the third quarter of 2025. This marks the second consecutive year with over 100% growth on top line and positive EBITDA for Numan. We also note that our sector colleague, Kinnevik, made an investment into this broader space, different business model, different company called Oviva, but definitely shows the interest in weight loss market in the U.K. In this fourth quarter, we value our stake in Numan on the back of a transaction that took place during the summer of 2025, where Numan raised both equity and debt to the order of around $60 million. So for that reason, the valuation is essentially flat in Q4 of 2025. That's it on my end. Handing it over to my colleague, Bjorn, to speak about Breadfast. Björn von Sivers: Thank you. A few quick words on Breadfast here, which we value at $30 million for the VNV stake based on the capital raising they have done during 2025. The company has been doing really well and accelerating growth during the year, ending the year with sort of a run rate GMV of around $290 million. And again, as a reminder, Breadfast is online grocery, quick commerce business based in Egypt. Primary market is Cairo, where they're currently expanding their footprint across the city with a lot of new fulfillment points. And importantly, while also sort of sustaining healthy contribution margins. We're super excited about this company, and I think they will have, hopefully, a stellar 2026. And if we move to the next slide, I'll also mention a few words on Bokadirekt, the SaaS beauty marketplace out of Sweden, a dominant player in the market, also a company that's doing well. Stable growth, 2025 looking to close short of just shy of SEK 200 million in net revenue with EBITDA of SEK 50 million. So in absolute terms, sort of still on the smaller side, but really solid business, which we think sort of have both potential to continue sort of stable double-digit top line growth, while improving margins, not maybe to the sort of full classifieds type level, but definitely increasing it compared to where they are today. And with that, I think we're sort of through the sixth largest holding, and I believe it's time to open up for Q&A. Björn von Sivers: As Per mentioned, and sort of if you want to ask a question, please type it in sort of in the chat or Q&A function here in Zoom, and we'll try to address them. And the sort of, I think, 2 BlaBlaCar related questions to kick off with. We already received this one, is there any new information on these energy saving certificates that we've discussed historically that were there and that's moved -- got away. And then also is BlaBla -- sort of more general question on the BlaBla product. Is this more focused on national users in their different markets? Or is it also sort of a visitor/tourist element to the product? Per Brilioth: Okay. Thanks. I'll take those. So yes, the energy saving certificates in France for transportation is gone for now. So the French government opted to sort of tax the energy -- heavy energy users rather than sort of let the market sort out. Trying to get the heavy users sort of reducing energy and the ultimate sort of goal of this. So in France, it's not present at the moment. It may come back, but we don't know. I think it will need sort of more stable sort of politics and sort of budgetary processes. Having said that, it's been started in Spain a few year ago and it's really growing fast in Spain, and it's -- the Spanish government thinks it's the best things in [indiscernible]. So it's like really popular across the board there and starting to contribute meaningfully. It's not yet meaningfully to sort of BlaBla revenues, but most importantly, to earnings because this is obviously very higher-margin revenue for the company. It's not yet to sort of the very high levels that we saw in France in 2023 when there was the base sort of -- the base level of these energy savings certificates, but in '23, they also had a booster on it. So Spain is still below that, but still a very good contributor and take a few years and be at the French level, but that's a very positive. And then we'll see what happens in France going forward, but it's not present for now. And the BlaBlaCar, yes, it's mostly sort of local, national, sort of going to visit parents or going to work, university, et cetera, inside the countries, but there's also a fair bit of cross-border stuff also for inside Europe for work purposes, but also for, we'll call it, tourists, that use it to go from Amsterdam to Paris, et cetera, when -- as it's -- again, using it for the same sort of reasons that sort of locals use it. It's cheap and it's also point-to-point. Björn von Sivers: And then I think we have a Voi-related question. You referred to a potential listing of Voi also sort of on the back of a potential IPO of its competitor. Why not move ahead and become the first and leading one? Better to be first than second. What's holding you back or Voi back in this case, I guess? Per Brilioth: Yes. Voi is not in need of equity funding right now. And so from a company perspective, it doesn't have to do this. And if Lime were to IPO or when Lime IPOs, I guess maybe it's more fair to say because there's been a lot of talk and they seem to be heading in that direction. And that IPO sort of establishes a certain sort of attractive cost of equity capital for the industry, then, in my view, I think that accelerates Voi's path to also being listed. But sort of putting that aside, I think sort of the timetable in my perspective for Voi is more to provide liquidity to shareholders who need liquidity, that being a reason from do a listing. That's more something that maybe happens in 2027. So -- but things could change on the back of a Lime IPO. Björn von Sivers: Thank you. And then we have 2 questions sort of around the discount and buybacks. So the question is, discount is persisting, we've done sort of relatively modest buybacks to date. Have you considered being more aggressive on that side, or can you? And what's the sort of considerations there? Per Brilioth: We will -- we've been buying back stock in VNV for, I don't know, at leat -- I mean, as long as I've been around, since 20 years. I think if you look across past 10 years, we bought back stock and distributed sort of cash to shareholders to the order of like, is it $750 million? So -- but throughout these years, we've done this in a very opportunistic way, not sort of buying on a downtime, but not chasing on an update kind of thing. And so that's the way we've sort of approached it over the autumn, and I think we'll continue to approach it. And then if sort of certain sort of block size opportunities come up, we'll look at those, too. But otherwise, we'll just be optimistic in the market. That's our way about it. We have quite a lot of gross cash, so there's firepower to do a lot. I know the net cash is smaller. But we're also working on a few exits, none of the sort of big, major things, but in the other part of the portfolio. There's some exits happening outside of us, which could lead to more liquidity. So yes, it's -- for us, who has this sort of insight into the performance of the portfolio and the development and the way we see that from the level of NAV, substantial returns, we'll be able to -- it will generate substantial returns from the NAV level. There's just nothing better for us to do. So I think you should expect us to continue doing this, but in an opportunistic way. I mean, speaking of Voi, I mean, I know we have Voi marked wherever it is. It's at $127 million today. I, in fact, think that you could argue in some ways that Voi -- our position in Voi today is, the way we value it, understates it massively perhaps to the extent that our stake in Voi sort of makes up the entire market cap of VNV and everything else is for free. I know that sort of requires having sort of a little bit of faith into them performing over the coming years. But the way from where we sit, we think that's entirely possible. But yes, so to give you a sense of buybacks. Björn von Sivers: Thank you. Another question here. Looking at the pro rata share of earnings, which you communicated, it looks like 2025 margin assumption is slightly lower quarter-on-quarter compared to third quarter. What has driven this development? Dennis, can you take this one? Dennis Mohammad: Happy to. So I think the question is on the $3.2 million of pro rata adjusted EBITDA, so that's the VNV share of the pro rata EBITDA of the portfolio companies in the top 6 list. As a reminder, Voi is on adjusted EBIT here, not on EBITDA. The biggest difference, so this is around 2%, 2.2%, I think, percent margin versus, I think, 2.5% to 3% range that we had before. And the biggest driver of that delta is -- a couple of hundred thousand is Breadfast that has invested quite heavily in growth, as Bjorn alluded to earlier. So they have seen a bigger kind of top line growth than anticipated, but done so at a slightly lower margin. So that's the biggest driver for 2025. And then 2026, we will get back to you in a couple of quarters' time. Björn von Sivers: Thank you. There's also a question here that says, arguably, you've been hurt by the dollar decline without any underlying assets that actually have dollar exposure. Have you considered changing your reporting currency? And so -- I mean, it's true that today, it's very little dollar exposure across the portfolio and, more importantly, on our sort of cash side. It was more dollar exposure in the beginning of 2025, where we still had Gett, which arguably could be sort of was priced in dollars and made up a sort of meaningful part of the portfolio. The historical sort of our reporting currency of USD has historical background. We've been reporting in dollar terms since the very first iteration of the company, which many years ago when we sort of still was a [ Bermuda Topco ] and had the [indiscernible] listed in Stockholm and that sort of continued while did the redomestication back in 2020. But given the change in the sort of portfolio, we have reviewed this topic, but haven't sort of made a decision or come to a conclusion. And again, sort of given that the portfolio is not dollar-denominated, the value sort of is what it is irrespective in which currency you reported. But there's obviously sort of pros and cons in communication especially in these times of very volatile effects. With that, I'm checking here if there's questions that we have missed. I think, sort of -- there was a few questions here on a more broader topic around our larger holdings and how we think about sort of -- when we do an investment, how do we think about and review the sort of original thesis we had when we did the initial investment? How sort of -- what frequency do we will review that? And if we realize that our original thesis was not, or is not sort of playing out, how do we think about that? And how do we sort of try to proactively work with those type of examples in the portfolio? So maybe if we can give a broad answer there. Per Brilioth: Yes. I think that's done sort of continuously. It's not that we have a meeting on a special position sort of every quarter and we go through it. I think it's done very continuously. And I think the way you should -- the way this sort of works out is that if -- typically, if we invest in something very early stage, then -- well, the tickets are very small. And if it doesn't work out, we stop funding it basically. It's not really possible to sell the market for those sort of really early-stage positions. It's very illiquid and seldom sort of works to sort of sell, but we stop sort of -- we've made a small check and then we don't do any more checks. There have been situations where we have sold where it has some sort of really, for various reasons, not sort of fitted in the portfolio. And then we have been proactive in sort of trying to find a buyer. We have found buyers typically and then sold them. And then there are situations where we -- I mean, Numan, which is the -- yes, it's the fourth largest of our positions and -- which is a really good company, a really strong company, but it's not quite what we invested in, in the beginning when it was much more community-based sort of phenomenon around male health. And well, the larger the community, the better the product kind of thing. So you sort of get this natural network effects around it. It's evolved from there to being more of a teledoctor, with an e-pharmacy attached to it. And it's a good company, but it's not really network effect. So here, we -- it's a big position for us. We're on the Board. We're quite active around the company. But yes, it's -- the original thesis hasn't really worked out, but it's developed into something good anyway. And we're not -- the sort of the good performance has not made it -- made any sense for us to sell into because prices have improved. So we've held on to it. Björn von Sivers: Thank you. I believe we're through the questions that I see here. If we missed anything, please ping us on e-mail or whatever, we'll try to address it offline. But with that, I'm sort of -- yes, over to you, Per, for final few words. Per Brilioth: Yes. No, thanks for joining, and you know where to find us. As Bjorn said, please, please, it's always great and fun to talk and address your questions in this format, but also on a one-on-one basis, if you want to kick things around. We report next time, I think it's April 22. So if not before, then please join us for a similar exercise for our Q1 of 2026. Thank you. Björn von Sivers: Thank you.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the West Bancorporation, Inc. Q4 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Jane Funk, Chief Financial Officer. Please go ahead. Jane Funk: Thank you. Good afternoon, everybody. I'm Jane Funk, the CFO at West Bancorporation, Inc., and I'd like to welcome the participants on our call today, and thank you for joining us. With me today are Dave Nelson, CEO; Harlee Olafson, Chief Risk Officer; Brad Winterbottom, Bank President; Brad Peters, Minnesota Group President; and Todd Mather, West Bank's Chief Credit Officer. I'll begin by reading our fair disclosure statement. During today's conference call, we may make projections or other forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward-looking statement disclosure in our 2025 fourth quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is accurate as of December 31, 2025, and we undertake no duty to update the information. With that, I'll turn it over to Dave Nelson. David Nelson: Thank you, Jane. Good morning, and thank you, everyone, for joining us. We appreciate your interest in our company. I have a few general comments and then others will add more detail. We had a really good fourth quarter. And during the quarter, we executed a securities loss trade to better position ourselves for 2026. Jane will speak more to this, but despite the loss trade, net income on the year was up 35% over last year. We also maintained a problem-free loan portfolio. Deposits are growing quite nicely. Margins are expanding with more of that to come. Loan growth is expected to pick up when the economic expansion begins. We are in a really good shape to grow and are looking forward to a special year. West Bank has declared a $0.25 dividend payable February 25 to shareholders of record as of February 11. Those are the extent of my prepared remarks. I'd now like to turn the call over to Mr. Harlee Olafson. Harlee Olafson: Thank you, Dave. Good afternoon, everyone. For the year-end 2025, credit quality is very strong. We have no past dues over 30 days. We have no other real estate owned. We have no nonaccruals. We have no substandard loans. Our watch list has increased, but our watch list of total loans is still at a very low 1.7% of loans. 70% of our watch list is related to the trucking industry. The trucking industry has been suffering through low freight and excess capacity. The industry has a history of going through good times and bad times. Our portfolio is well secured, and we believe the businesses are making good decisions to remain viable. Our commercial real estate portfolio continues to perform very well. We are diversified in both the type of commercial real estate we have and by location. Our commitment to strong underwriting is the foundation of our credit quality, customer relationships with multiple sources of repayment and liquidity are sought after. Our portfolio is strong because we have chosen good customers that have the financial characteristics that align with our underwriting. After all prepared remarks, I'm available for questions. And now I'll turn it over to Todd Mather, our Banking Manager and Chief Credit Officer. Todd Mather: Thank you, Harlee. For the quarter ended 12/31/25, our loan outstandings were down slightly at just under $3 billion. We experienced a few larger payoffs from asset sales and refinance activity. The majority of those assets were priced below the current rate environment. We replaced those assets with quality new assets at better interest rates. Deposit gathering efforts continue to be an emphasis, and we have been successful in attracting new depositors. During the quarter, deposit balances increased just over $162 million with increases in core commercial and retail deposits. We remain selective in obtaining new loan opportunities, and those opportunities are less than in prior years. We are confident in our abilities to create and maintain positive relationships with our customers and prospects that we are pursuing in a highly competitive market. I will now turn it over to Brad Peters, our Minnesota Group President. Bradley Peters: Thanks, Todd. Good afternoon, everyone. I'm going to provide you a brief update on our Minnesota banks. But first, I want to describe to you a history of where we started and how we have built our Minnesota regional center banks. Each of our locations started as a loan production office with 0 revenue, beginning with our Rochester Bank in 2013. We added the St. Cloud, Mankato and Owatonna locations in early 2019 with our lift-out strategy. Our bankers had existing relationships with business owners, key executives and community leaders. We built an efficient model using a small staff supplemented with community leaders as advisory board members. These leaders have been key in building our business through their endorsement and advocacy efforts. Each market grew quickly with a time line of 8 months to achieve a positive run rate. We then constructed permanent single bank locations in each market that became full-service banks. These facilities are designed as a relationship building tool, hosting client and prospect entertaining events and high-quality one-on-one conversations. These unique facilities align perfectly with our strategy of building business based on strong relationships. Our team has embraced this and has done an outstanding job of leveraging our buildings to grow our business. Today, we are seeking new business opportunities with the recent M&A activity from our competitors in our markets. Our bankers have specific activity plans that target high-quality prospects. Each market has been successful in attracting new business to West Bank. Our bankers are focusing on full relationships, including deposit-rich business banking opportunities. Our disciplined calling approach has enabled our team to have success in building this new business. Our business banking focus and our seasoned group of bankers set us apart from our competition. As part of our relationship focus, we are also targeting high-value retail deposits. We have been successful in winning the retail deposits of our business owners, key executives and employees. We are also attracting new deposits from high-earning individuals in our communities. Those are the end of my comments. I will now turn the call back over to Jane. Jane Funk: Thanks, Brad. I will make just a couple of financial comments, and then we'll open it up for questions. So net income was $7.4 million for the fourth quarter compared to $9.3 million in the third quarter of 2025 and $7.1 million in the fourth quarter of last year. Net income for 2025 was $32.6 million compared to $24.1 million in 2024. As Dave mentioned, in the fourth quarter, we sold $64 million of securities available for sale and realized a pretax net loss of $4 million. We believe this transaction improves the flexibility of our balance sheet. Proceeds may be used for strategic improvement in our long-term earnings profile through redeployment into higher earning assets or repayment of high-cost funding. Without incurring the loss of the security sale, our fourth quarter net income would have exceeded $10 million. We are very pleased with the continuous improvement in core earnings and believe we are set up for a strong 2026. Net interest income continued to improve through improvement in our net interest margin. Margin increased 11 basis points compared to third quarter and 49 basis points compared to fourth quarter last year. The cost of deposits declined 28 basis points compared to third quarter and 64 basis points compared to fourth quarter last year. Core deposit balances, excluding brokered funds, increased approximately $212 million in the fourth quarter and $223 million for the year. We saw increases in all sectors, including retail, commercial and public fund deposits. We consider our public funds to be core deposits because of the relationships we have with those municipalities. As described earlier, the credit quality remains pristine and no provision for credit losses was recorded this quarter. Those are the end of our comments, and we'll open it up for questions. Operator: [Operator Instructions] Your first question comes from Nathan Race with Piper Sandler. Nathan Race: I was wondering if you could just kind of walk us through some of the loan growth dynamics in the quarter. It sounds like maybe payoffs were elevated. And I would just be curious to get a sense for how the loan pipeline stands heading into this year? I know Brad mentioned there's a lot of opportunities going on in around the twin cities and south of there across the locations in those geographies. So I would just love to get some more color along those lines. Brad Winterbottom: This is Brad Winterbottom. We had one specific customer sell some medical office buildings, and that was north of $50 million in payoffs. We've had some other customers sell or refinance out into the secondary markets and multifamily, large multifamily. So we've -- that activity was very active in the fourth quarter. And I think we'll have a little bit more of that in the first quarter, but we've -- we're out trying to replace that volume. Bradley Peters: Nate, this is Brad Peters. The other -- I mean, I mentioned the opportunities we've had with the M&A. We kind of see that as continuing into next year, even though that transition took place with the [ Bremer ] merger. But we've also seen some opportunities with the [ Aleris ] transaction as well. So I see that continuing into 2026. Nathan Race: Okay. Great. And then, Jane, can you just update us in terms of the amount of loans you have repricing over the balance of this year and kind of what the yield pickup could be [ on the fixed [indiscernible] side of things ]? Jane Funk: Yes. The fixed rate portfolio that reprices in 2026, I think it's just under $400 million. And the pickup is probably going to be around 1.5%, maybe 2% on those. So they're in the 4s. I think the average rate on that, what's maturing is in the low 4s. Nathan Race: Okay. Great. And then as you described, the deposit growth among core categories was quite pronounced in the quarter. Any seasonality there or any kind of unique flows? And just generally, are you expecting kind of continued mid-single-digit growth in terms of both loans and deposits this year? Jane Funk: Yes. I would say our outlook on deposits is a little bit uncertain at this point just because some of that growth comes from public funds. We've got some public entities that did some bonds, raised funds through bond offerings this year. We know that money is going to flow out in 2026. So whatever growth we can transact in retail and commercial might be offset by public funds, but that would just be normal public fund volatility. Nathan Race: Okay. Great. And then maybe just one last one. It seems that securities portfolio repositionings have been pretty well received among investors these days, and I think that's reflected in your stock today and among other banks that have executed securities portfolio repositionings lately. So just curious what the appetite and potential magnitude would be to execute additional kind of bite-sized repositionings over the course of 2026? Jane Funk: Yes. We look at it on a regular basis. I think part of that depends on kind of our liquidity and our needs for that cash, where else can we deploy it. So that's an ongoing evaluation that we do. So we don't have any set goal or plans for 2026, but we will continue to evaluate that. Nathan Race: Okay. Great. And then, Jane, if I could just sneak one more in, I apologize. Just any thoughts on kind of a good starting point for the margin, just given the timing of the repositioning in the quarter? And just it seems like you guys still have some opportunities to reduce deposit costs on the heels of the December rate cut. So just trying to put all the pieces that we discussed together in terms of margin starting point for the first quarter. Jane Funk: Yes. I would say right now, kind of for the December end of year, January, beginning of year, we're probably running around 2.5% margin. And we think that there's room certainly to improve that throughout the year without any changes in the rate environment. Operator: [Operator Instructions] Thank you. I'm showing no further questions in queue. I'd like to turn the conference back over to Jane Funk for closing remarks. Jane Funk: We appreciate everybody's interest in our company that's on the call today and just want to thank you for joining us. Have a good day. Operator: This concludes today's conference call. You may now disconnect.
Joseph Ahlberg: Good morning, and a warm welcome, everyone. Today, we present the fourth quarter and the full year results for 2025 for the H&M Group. My name is Joseph Ahlberg, and I'm Head of Investor Relations. Before I hand over to our CEO, Daniel Erver, let me briefly outline today's agenda. As usual, Daniel will start with a high-level overview of the quarter and the full year. This will be followed by a more detailed financial review from our CFO, Adam Karlsson. Daniel will then highlight strategic progress, priorities going forward, and Adam will share a financial outlook. We will close the conference with a Q&A session, where Daniel, Adam and I will be available to answer your questions. So with that, please welcome Daniel. Daniel Erver: Good morning, everyone, both those of you joining us here and those of you joining us online. Today, I'm concluding my second year as CEO of the H&M Group. And with that, I feel confident that we are on the right track. I want to start by saying that the progress that we saw in the third quarter has continued into the fourth quarter across several key areas, even though the world around us continues to be uncertain. Sales in the quarter increased by 2% in local currencies. We increased our operating profit by 38% in the quarter, corresponding to a margin of 10.7% for the quarter. This increase was mainly due to a further strengthening of our customer offering as well as maintained good cost control and an improved inventory efficiency. Looking at the full year 2025, it shows a solid progress across all our key areas, and we continue to strengthen our foundation for future profitable growth. The sales trend was positive over the year as a whole and profitability strengthened during the second half. For the full year, sales increased by 2% in local currencies and our operating margin increased to 8.1%. Earnings per share increased by 5% during 2025. And according to the first preliminary figures, we see that we have reduced our CO2 emissions in Scope 3 by 30% compared to the base year 2019. Overall, these results confirm that we are making a solid progress towards all our important long-term targets. I will now hand us back to you, Adam, and you will take us through more of the financial numbers, and then we come back to the strategic outlook for . Adam Karlsson: Thank you, Daniel, and a warm welcome, and good morning, everyone. As Daniel highlighted, we have a strong foundation to build on as we have made solid progress during the year. So let me take you through some of the key financial developments for the fourth quarter and the full year. In the fourth quarter, sales increased in local currencies by 2%. And for the full year, sales also increased by 2% in local currencies, confirming a stable underlying trend. We saw sales increasing across a vast majority of our regions in both Q4 and the full year. Online continued to perform well. The sales development should also be seen in the light of 4% fewer stores compared to last year, and we have now also concluded our closures of Monki physical stores. As we're showing a stable trend in the underlying sales performance, the appreciation of the Swedish crown has negatively affected the reported numbers versus last year and with a currency translation effect as big as 7% during Q4. And given the current FX situation, this effect is expected to be even more negative in the first quarter of 2026. The positive gross margin trend that we saw in the third quarter continued into the fourth quarter with 130 basis points year-over-year improvement. After this strong second half year, we reached a gross margin of 53.4% for the full year. The majority of this development was supported by our improvement work in our supply chain, where the sourcing excellence work and the initiatives drives gross margin improvements. External factors affecting gross margins were positive in the quarter. In the fourth quarter, selling and administrative costs decreased by 3% in local currencies compared to the same quarter last year. As mentioned, cost control is and remains an important focus across the organization. And just to highlight a few of the key drivers behind our improved cost base throughout 2025, I'd like to mention logistic efficiencies. We have continued ongoing renegotiations of lease agreements. We have strengthened our indirect sourcing and also found more effective and efficient ways to use our marketing resources. Operating profit increased significantly in the quarter and operating margin for Q4 was 10.7% compared to 7.4% during last year, an improvement of 330 basis points. For the full year, operating margin increased from -- increased to 8.1% compared to 7.4% last year. And with a strong profitability improvement in the second half of 2025, the long-term rolling 12-month trend continues in a positive direction towards our long-term profit targets. This development comes as we sharpen focus on our core business, as Daniel was outlining, strengthening product, our experience, our brand and with a firm focus on cost control. Inventory productivity improved during the year, and we ended the quarter with a stock in trade in relation to sales of 15.5% compared to 17.2% last year. This improvement reflects the strengthened demand planning capabilities, more efficient buying and overall good stock management. The composition of the inventory is good. Looking at the long-term trends for gross margin and stock in trade relative to sales, we continue to strengthen both of these measures during 2025 and particularly in the second half. Looking at the graph, you see the dark gray line representing the quarterly gross margin and the light gray line representing the stock in trade versus sales development. And as you can see, the gross margin trajectory continues towards what we have previously discussed as normalized levels. Leverage has been maintained inside the H&M Group's net debt-to-EBITDA ratio, and that is 1 to 2x. In the fourth quarter, we proactively secured a long-term financing with an 8-year EUR 500 million bond at attractive terms under our EMTN program. And with that, we have continued high degree of financial flexibility and liquidity buffer, and that makes us able to navigate the volatility and set us up to be well positioned for capturing future opportunities. Cash conversion remains strong, and it's helped by active working capital management where we have seen good progress. And in order to distribute surplus liquidity and thereby adjust the company's capital structure, a share buyback program was initiated in November, and it was concluded by the 23rd of January. The Board of Directors are proposing a dividend increase to SEK 7.1 per share for 2025. And if approved by the AGM, it will be split into 2 installments in May and November as in previous years. So before handing back to you, Daniel, to summarize, we strengthened our gross margin in the second half. We improved inventory productivity, and we delivered strong cost control. Together, these factors supported a significant improvement in the profitability for the quarter and enabled a positive margin development for the full year. So with that, I'll hand back to you, Daniel. Thank you. Daniel Erver: So throughout 2025, we have continued to focus on what matters most to our customers, and that is really offering great products, inspiring customer experiences and building strong brands. On the product side, we have made improvements in several foundational areas during the year. We have made our product creation process more effective by a number of things. We have strengthened creativity and craftsmanship. We have improved our demand planning. We are working on becoming faster in our decision-making by strengthening how we spot and analyze trends and through a closer collaboration with our suppliers, as you already have mentioned, Adam. Combined, these different initiatives helps us to respond better and faster to customer needs and strengthens our availability to deliver more on-trend current fashion. At the same time, we have also continued to develop our customer experience across all of our channels. During the year, we have completed a comprehensive upgrade and rollout of our online store across the globe, where we offer more inspirational content, better product pages and improved search functionality. And that has been very well received by customers, and that has led to a strong sales performance in the online channel during the year. We have also, while improving our digital experience, accelerated upgrades across our physical store portfolio, including improvements in both technology layout as well as product presentation. We will continue to optimize our store portfolio. And for 2026, we see and estimate that the sales effect from the optimization will turn around to become slightly positive in support of our sales. In addition, we will continue with our digital expansion as well. In August, we reached a really important milestone for the H&M Group when we launched the H&M brand in Brazil. The pride of our teams and the excitement in the eyes of our customers clearly showed us that our elevated customer offering, inspiring experiences and a strong brand truly resonated with the local Brazilian consumer. During the fourth quarter, we continued to strengthen the physical presence with several other exciting openings in key locations across the globe. We opened new stores in Athens, in Los Angeles as well as in Shanghai, where we reopened our store on Huaihai Road, giving new life to a really iconic location for H&M. Another example is our new store in Le Marais in Paris, where we are offering our customers a more curated and both assortment and experience. And in October, we opened a fantastic new concept store in Seoul in the historical district of Seongsu. Creativity and brand strength remains central to our strategy as we move forward. And during the year, both the H&M brand as well as COS presented their autumn/winter collections at the fashion weeks in London and New York. And I particularly want to highlight and point out that this was important for 2 different reasons. Both it shows our fashion credibility that we can show up at the world's most important fashion weeks as well as it enables us to reach audiences and engage them in relevant social channels in a way that we haven't done before. And here, you see a few examples from our London fashion show with the H&M brand during September. During the year, we also entered several important external creative collaborations, continuing our ambition to democratize great design and make it accessible to the many. In November, the H&M brand launched a well-received designer collaboration together with Glenn Martens, who is the highly regarded Creative Director of Maison Margiela and Diesel. H&M also announced that we will launch a new collaboration with Stella McCartney during the spring of 2026. I'm very proud together with the team to make real progress in reducing our climate impact. Since 2019, we have reduced our CO2 emissions in Scope 3 by around 30% compared to the 2019 baseline. That puts us well on track to meet our science-based targets to reduce emissions by 56% 2030. And these results did not come from one single initiative. They come from a hard work of integrating sustainability into how we run and operate our business on a daily basis. So to achieve this, what we have done is we have increased the use of lower impact materials such as certified recycled or organic fibers. And we are decarbonizing our supply chain by working differently with our suppliers. This means that we have fewer but stronger partnerships. We have suppliers that we want to grow with long term, which is possible for us to offer them more stable volumes and better visibility of what to expect from us. And in return, that leads to them investing in renewable energy, more energy-efficient processes and a phaseout of coal. This close collaboration is truly what makes the difference. When business and sustainability come together, we can truly reduce emissions at scale and show that fashion can be both affordable and sustainable at the same time. And the impact of the work that we've been doing is not only obvious in the results, the work we do both for climate but as well as for all the other sustainability areas. The work is also being recognized externally, where we are seen as one of the leaders in the industry, as you can see here on the slide. Firstly, the report, what fuels Fashion 2025 by Fashion Revolution. In this ranking, H&M, we were ranked as the #1 out of 200 major fashion companies for our public disclosure on climate as well as energy. Secondly, you can see the Stand.earth, who ranks us as #1 out of 42 different fashion companies in their 2025 fossil-free fashion scorecard, and that's for the second year in a row. Thirdly, you can see the NGO Remake 2024 Fashion Accountability report that rates 52 different fashion companies in 6 different categories. And here, we came out on the second place overall. And finally, we were just A listed by CDP for our work on climate as well as water. CDP is one of the world's leading environmental disclosure system that assesses thousands of companies each year. So before we wrap up, I want to take the opportunity to have a look with you on some of the key highlights that we just talked about that has happened during 2025. So please enjoy a very short film on what has happened. [Presentation] Daniel Erver: 2025 was a year that was characterized by both geopolitical and economical uncertainty affecting both consumers and as well markets in general. And we see similar conditions continuing into 2026, which underlines the importance of us having an effective organization with short decision-making paths being close proximity to our customers and having high flexibility as well as you spoke about Adam's strong cost control. Looking ahead, we will continue to strengthen the foundation for continuous profitable and sustainable growth looking into 2026. Our focus will remain on what's most important to our customers, and that is to always offer the best value for money. We will continue to expand into growth markets such as Brazil and other parts of Latin America, for example. We are also happy to share that we will reopen the H&M location here in Stockholm on the iconic location of Hamngatan later on this spring. And alongside investments in new markets and upgraded customer experiences across many of our existing stores, we will also continue to invest in our tech infrastructure. By enabling a more data-driven decision-making and increased use of AI, we will be able to make better informed decisions, which will strengthen our flexibility and further enhance our creative capabilities. Altogether, that will help us to deliver a more inspiring, relevant and competitive customer offer. So now back to you, Adam, for an outlook -- financial outlook at 2026. Adam Karlsson: Yes. Just try to frame the year then in terms of how it will potentially affect our numbers then. Starting with the gross margin. Our sourcing excellence initiatives continues both in Tier 1 and through the Tier 2 supplier base. We see that the improved inventory productivity enables lower need for end-of-season clearances. But as you were also pointing out, Daniel here, we see a weak consumer sentiment, particularly in many of the European markets, and that could drive an increased need for temporary activations and deals. For the first quarter of 2026, we assess that the overall effect of external factors to be somewhat positive compared to the corresponding period last year. However, the cost impact of tariffs that we've already spoke about and that we've already paid are now starting to fully funnel through into our cost base. We see that we have a somewhat increased cost pressure for 2026, for instance, coming from a low level of one-offs in the cost base for 2025 and connected to the implementation of new tech infrastructure in 2026. Our focus remains on enabling a continued strong cost control and through further efficiency measures that, for example, are including continued rationalization of our store portfolio, implementation of a more efficient organization and of course, continuously allocating resources to the highest area of impact. With this, our ambition is to grow sales and admin costs at the low single-digit levels, and that will continue into 2026. Daniel, you pointed out currency volatility. It has continued also into 2026. A stronger euro versus U.S. dollar contributes positively to the gross margin. And this factor positively contribute as one of the external factors in the gross margin development for the fourth quarter and also affects our outlook for the first quarter in 2026. However, then the opposite, a stronger Swedish crown leads to negative currency translation effects. This affected our result in the fourth quarter and is expected to have an even greater effect on the first quarter based on the current FX development. We continue to implement demand planning improvements. We continue to strengthen our in-season buying. We continue to improve availability in our warehousing network. And we have an investment frame of SEK 9 billion to SEK 10 billion throughout 2026. And just to point that where the main investment will lie, it will continue to be in the store portfolio and investments in the tech infrastructure that will now lift to be the second biggest area. After a high period of investments in the supply chain, we are now deploying new warehouses during the year, leading to increased availability and flexibility through across our channels. So that was a broad outlook into 2026. And with that, over to you, Daniel. Daniel Erver: So all in all, we know that we have more work to do and that we are not done at all. But the progress that we have made so far, combined with a clear plan for where we're moving ahead, gives us confidence that we are moving in the right direction and that we are making progress across all of our long-term targets. I'm proud of what we have achieved, improving our results, our financial results while also staying true to our long-term climate ambitions. And at the center of that progress are our people. It's our great teams that I and colleagues that I meet in stores, warehouses, offices around the globe that truly makes this possible every day. Driven by creativity, engagement and shared values, all of us, we worked really hard to offer fashion, quality and sustainability at a price that is accessible to the many. Thank you for listening. And then we will now go to the Q&A. So Joseph, will you take us through? Joseph Ahlberg: I will indeed. Thank you, Daniel. We will now start our Q&A. We will begin with questions from participants in this room and then open up for questions from the telephone participants. [Operator Instructions] With that, we start with the gentleman to the right here. Niklas Ekman: Niklas Ekman here from DNB Carnegie. I guess the biggest surprise in the results here was the low OpEx. Can you elaborate a little bit here on the reasons for the decline? And you just said here at the end of the presentation that you expect a single-digit increase of SG&A during '26. So I guess this is not a lasting impact. Is this due to a reduction of one-off items or anything? Just if you can elaborate a little bit on that. Adam Karlsson: On top of the more sort of structural improvements that we've done throughout sort of logistic efficiency, how we operate our stores and how we improve sort of marketing productivity. We have also improved because of the work that we've done in the supply chain, the levels of write-downs and also somewhat affecting the result in the fourth quarter, the depreciation level. So it's -- some of those effects are more sort of isolated connected to Q4 effects, and that is where sort of they end up in the book and I think reinforces the overall trend we have in the more general OpEx development. So I think that is the area to highlight connected to the development in the fourth quarter. Fredrik Ivarsson: Fredrik Ivarsson, ABG. Question on the start of Q1, minus 2% December, January. Can you say anything about the sort of momentum through those 2 months, whether maybe January was a little bit stronger than December? Daniel Erver: So when we guide for current trading, it's always important to take that number with caution because on that short-term perspective, there are so many different short-term effects affecting the trading. So there are a number of effects that are, I think, good to be aware of when we look at -- when we looked at the first quarter development. On one is we see a shift in the market around Black Friday. We see Black Friday becoming Black Week. We see 11/11 Singles Day becoming a phenomenon. That also helped us to drive a strong end of the fourth quarter with a strong performance in the fourth -- in November, and that had a muted effect on the start of December, which we could see across the markets, but also for us. So that's one effect. Then there is a calendar effect in Q1, the fact that the Chinese New Year is in February this year that was in January last year. So that has a significant effect on the number. Then we have seen muted market demand in some of the large European markets that are important for us. We see that in public numbers and figures for Central Europe. We also see it in some of our competitors reporting. And we believe that we are performing better than the market, but the market sentiment has gone down in Central Europe. And then the last thing to be aware of is we -- looking at the U.S., we speak about the report that we went into the fall with a very prudent planning, given everything that was happening around tariffs and with a big respect for the U.S. consumer. We've seen that the demand has stayed very strong, and it's positively surprised us, and we haven't been able to fully supply to that demand. And that we worked hard on using the flexibility that we have in our supply chain to really catch up on the supply, but that also have a spillover effect into the first quarter, which is a quarter that is a lot about reductions of the fall season. So those are the different components that we think are important to take into account when we look at Q1 trading. Fredrik Ivarsson: And also quick, if you could reflect on the marketing investments you've done during the last few years and then maybe especially if you have seen any great impacts on younger generations? Daniel Erver: So the marketing investments, we believe, are truly important. As a brand, we have all of our brands, but especially the H&M brand has an important job to always attract and onboard new generations that are coming and marketing plays a crucial role in how we keep the brand interesting, that there's a heat around the brand. So we're happy that we do invest in marketing to be resilient for the long term. We did start and as you know, when we -- in 2024 with increasing the level of investments. And as we have moved ahead, we have learned. So in the beginning, it was a lot about the brand position at large. When we came into 2025, we shifted more into using our product and the product offering as the core engine of marketing. And that's why we decided for the first time since 2004 to put the H&M's main collection on the catwalk at London Fashion Week because we see that we get a stronger efficiency and effect out of the marketing when we tie it closer to our product offering. And that's -- that has helped us, as Adam mentioned, to continue to stay very active and see marketing as a tremendously important tool, but improve the efficiency, and that work will continue into 2026. Daniel Schmidt: Daniel from Danske. Previously, you have singled out the performance in different sort of gender segments. Would you shed some light on that, womenswear, kids, men's in Q4 into Q1? Daniel Erver: So as we talk about also today, product and the product offering truly is the most important for our customers. And we worked really hard, as we mentioned, on a lot of different areas to improve how we leverage our creativity in craftsmanship, how we improve the supply chain, how we improve trend precision. And that work started within womenswear, and that's where we started to see effects during 2025. And it has performed really well during 2025. As we come out of the year, we start to spread those learnings and that development to all the customer groups. So we expect to see effect from the learnings we made on womenswear also spreading to the other customer groups throughout 2026. Daniel Schmidt: Is it sort of kids before men's? And I think you've said before that kids are maybe 1 year behind in terms of spreading the learnings. Daniel Erver: I think we have assessed that doing work at that scale as we have done in womenswear, it probably takes a year. And sort of as we started the work in womenswear, it takes some time to catch on. But we don't -- we see no need for holding menswear back as we accelerate kids, they can accelerate in parallel. Daniel Schmidt: But are you seeing that sort of the learnings being translated into kids and men's? And is that now having an impact? Or is that still too early to see a real impact? Daniel Erver: We're starting to see really positive receipts and indications, especially looking at the new spring season that has come in that we start to get traction on menswear and kids wear -- that makes us confident that they will benefit from the same development as ladies did. Daniel Schmidt: Yes. And then just maybe a question for Adam. You mentioned the tech investments. Is that going to be evenly spread through the year? Or is that sort of front-end, back-end loaded in any way? Adam Karlsson: We will see an elevated level of investments coming into the end of '26. And then we believe some of these things that we're doing, changing sort of the fundamental ERP systems for a group and so forth will take multiple years. So I think we will see the first beginning of it in this year and then will be fairly evenly spread over the coming years. So it's more of a late '26 effect for this year, but then ongoing on an elevated level to capture this potential that Daniel was speaking about, AI improvements and such. Daniel Erver: We have invested significantly in our logistic network, and we start to see that, that comes to life and start to generate benefits in '26 and then that investment level goes down as we ramp up the tech investment. And that's not only for necessity, it's really to build the foundation for future success for H&M that we need to do these tech investments. Joseph Ahlberg: So with no further questions from the room currently, let's hand over and receive some questions from telephone participants. Operator: [Operator Instructions]First question comes from Adam Cochrane with Deutsche Bank. Adam Cochrane: First question, you're talking about your supply chain improvements. Can you just try and either quantify or at least qualitatively describe what the -- what you're doing in terms of the supply chain improvements, what it means for the customers, the speed of lead times? Just a way of thinking how much have you done on it compared to where we were? And how much have you still got to go looking forward? Daniel Erver: So we're doing a number of different things when it comes to supply chain. One important thing we spoke about that helps us both with the speed, with the quality as well as sustainability is to consolidate our supplier base, where we work with fewer, but really the best suppliers out there, and we build long-term strategic partnership with them, which helps us both to improve the product making, but also price quality as well as sustainability. So consolidating the supplier base and improving the way we negotiate and build strategic partnerships is one important piece. That also allows us to leverage some of their capabilities and strength when it comes to trend detection, design, supply and leveraging some of their best capabilities to a bigger extent helps us to further improve our entire sort of flexibility and speed of reaction. Then we are working with improving the way we forecast demand and then how we build a strong logistics network to match supply to that demand and that is leveraging data and now further on looking to leverage also AI into that process to become much more precise in how we forecast demand down to every single stock node, and that helps us to better match supply to that demand. So -- and then we work intensely with our design teams here, which is also part of the supply chain on improving their trend forecasting capabilities, leveraging their craftsmanship, giving them AI tools that really can enhance their creativity at scale. So those things combined helps us to reduce lead times. And as we talked about before, we don't need to reduce lead times everywhere, but in certain product lines within certain categories, that speed and flexibility is tremendously important, and that we can really make sure that we within 5 to 6 weeks can take a product from idea to the shelf and present it to the customer. So on the cost side, we have come far. It's been a big part of how we have been driving the -- gross margin improvement has been through the sourcing excellence initiatives that Adam described. But as we also mentioned, we see continued potential into 2026 and beyond on how we work with both Tier 1 and 2 suppliers on that side. When it comes to leveraging the capabilities and developing our own capabilities for being more reactive and more relevant, I think we have taken one important steps, but there are several more important steps to be taken to further improve the current fashion level of the collections that we present to our customers. I don't know, Adam, if you want to complement this. Adam Karlsson: But also mentioning the investments that we have done in the sort of just pure logistic network also enables us to stock pool effectively and not to be sort of channel-specific in how we steer the stock. So it's, as you said, a full end-to-end approach that we're taking, everything from leveraging data in our creative processes to enabling just physically simplifying that we ensure that the stock is supporting the customer in the right place at the right time, so... Daniel Erver: And the tech investments that we speak about will also heavily focus around not only, but to a large extent, also around supply chain improvements and new capabilities. Adam Cochrane: Are those in supply chain changes, do they go across all of the cost of goods sold, all of the products that you're doing? Or is it only at the moment, a limited proportion of your products and there's still some to come? Daniel Erver: It goes across all. But I think, as I said, there is some potential that we have captured and more potential to be captured still, but it goes across all the categories. Then there is different benefits in different product categories. If you look at Essentials and Basics that have a very high predictability. It's more about having a good safety stock, high availability, low cost of transportation. That's where we can optimize. And then if you look at the latest fashion is, of course, to make decisions later with better data, which reduces the fashion risk and increase the precision. Adam Cochrane: Great. And the second question I've got was really the market we're hearing from some others is that they're having in Europe, particularly to invest more of the gross margin gains into pricing, maybe the market has become more competitive. Chinese retailers or others. How are you thinking about -- you've obviously got your gross margin external factor gains coming into 2026. You've got to make some investments into OpEx. How are you balancing the equation with thinking about investing gross margin to get that top line moving in the current customer environment? Is it something that you can do with regard to pricing and promotions to stimulate demand? Do you think that's likely to happen? Daniel Erver: Yes, that was what Adam mentioned. So we have a couple of factors working in our favor. It's the external effect on the gross margin, but it's also a lot of the improvements we do ourselves in the sourcing excellence work. But then it's also the fact that the collections have been very well received by the consumer, which allows us to sell a wider range of products and also helps us to reach a much better stock composition. And coming out of the fourth quarter, we also see that we have a very healthy stock level. So as Adam said, we don't need to use as much of promotion investments to solve overstock because the stock is very healthy and the collections are being well appreciated. But we do see a given the muted demand and that there is a large part of the customer base who is really looking for making not only great value for money, but also finding -- making a great deal and finding products at discounts. So that's why we are using reductions as a lever to drive top line and stimulate that demand. If you look just at how collection has been received and how our stock levels, we could be more aggressive in reducing the reductions, but we do see a need that we need to stimulate the demand. Adam Karlsson: And on the investment side, that's where we also reiterate -- our speaking about normalized gross margin. So we don't aim to have a gross margin elevation, I mean, to the stars given the somewhat temporary external factors, but we'd rather take that and as what you said and then reinvest in the product, so to say. But there's still some improvement potential in how we work, but then also that allows us together with external factors to reinvest in the product to strengthen the customer offer. Operator: We now turn to Vandita Sood with Citi. Vandita Sood Chowdhary: The first one was just on the CapEx. So I think it's -- you guided to SEK 9 billion to SEK 10 billion, which is lower than this year. And I know you've commented on sort of completing the supply chain investments, but you're ramping up tech. But I guess it's still a bit surprising in the context of a net positive contribution from stores. So just wondering if you can walk us through your plans for CapEx. Adam Karlsson: Well, if we then divide it from the top then, so we will see a lower level of closures this year and a higher share of new openings. And then we were pointing out some of the markets we continue to invest in. Then we are also finding ways to leverage learnings from sort of rebuilds over the last couple of years to really deploy that into many stores and make many customers get the upgraded shopping experience. And that allows us to be sort of CapEx effective during 2026, but then, of course, leveraging the learnings in an effective way. Secondly, we have the logistics side that has been on elevated levels, both '24 and '25, and that is more of a cyclical level. Now we're sort of seeing that we have a very strong setup that will be started to take into operations during end of the year that allows us for the benefits that we're outlining then with flexibility and availability. And thirdly then, tech is also somewhat cyclical. During 2018, 2019, we did big sort of fundamental investments in our online platforms. Now it's time again to do those and also leveraging a lot of the new technology that comes to ensure that we are future-proof here. So we're shifting focus to ensuring that the core of our technology is future-proof, and that is also somewhat cyclical. But it's, at this time, countercyclical towards the logistic investments. So the net effect will be negative as the elevated levels are coming down on the logistics side. And as I mentioned, the increase on the tech side is starting this year, but it's likely to increase on a somewhat elevated level also into '27 and '28. I don't know if you want to add anything on. Daniel Erver: I think you can connect to the store portfolio. I think we spoke with that before that we are opening as well as closing stores. The stores that we are opening are stronger than the stores that we are closing. So -- and now we come down given that we are moving out of a period of high level of consolidations, both with Monki as we closed the last Monki physical store this year and also coming into a lower level of closures in Asia, the net effect becomes positive. And then we have worked with the team intensely on how do we build an exciting, inspiring physical store experience. And part of that is completely rebuilding a store, which is high CapEx intensive, but part of it is also identifying what are the key levers that really makes the difference for the customer and their perception and picking out some of those pieces and putting that into a program that can reach a further -- a much larger part of the portfolio is the work that we initiated in the end of 2025 that would spread into 2026. So that means that we'll touch a lot of stores, but at a lower CapEx level than if we would go through with a full level rebuild where we sort of clear out ceiling, flooring, HVAC and everything. Now we're going to touch the key value drivers instead. And that allows us then to touch more customers and their experience. Vandita Sood Chowdhary: And just one more sort of more long-term question. You also own Sellpy. Could you just comment on how you see the increasing sales in the customer-to-customer platforms and the resale market and if you're seeing any impact on that in the first-time market? Daniel Erver: No, we see an increasing consumer interest and the behavior shifting to be a more natural complement to the first-time market is how you shop secondhand. And we are really proud and grateful to have Sellpy as a part of our group, and they have delivered a very strong year when it comes to growth, tapping into to that shift in customer sentiment. We see it in Northern Europe, but we also see a very strong year in Central Europe for Sellpy, which is great to see. And we see, of course, on the site -- so Sellpy is not the peer-to-peer. That's sort of a well-managed service, which makes life very easy for the customer where you sort of have your garments picked up, you have them sold for you and you're part of splitting with the profit, which makes it very easy to reuse your wardrobe and be more sustainable. And it also is a clear customer benefit of having a monetary sort of gain from doing it. The peer-to-peer, we see are accelerating. We are -- have a few venture investments in our venture into peer-to-peer platform because we see that is also a great service for the customer and that we will see continuing. But we are monitoring through Sellpy and through our venture investments, how the market is developing. And we are continuously looking at how can we combine these 2, where does it make sense to combine it for the customer behavior and where is it more that it runs in separate channels. But it is an interesting development and a development that we see as very positive that our garments are made to be used many, many times and they can be used through generations and having more ways for the consumer to do that is something very, very positive for our long-term transformation. Operator: Now I'll turn to Richard Chamberlain with RBC. Richard Chamberlain: I've got 2 questions as well, please. First one is around FX. Obviously, there's been some quite extreme FX moves going on with a stronger SEK and a stronger euro against the dollar and so on. And I wondered if you can talk about how you approach pricing in that environment, especially in markets where the currency has been particularly weak against the Swedish crown and whether you're trying to sort of smooth some of that pricing impact out for this year? Daniel Erver: Should I start and then please fill in. So for us, the most important thing is to always offer the best value for money and be truly competitive so that all customers coming to us can feel really confident that they always make the best deal and get the best value for the money they spend when they come to us as the combination of relevant fashion, quality, price and sustainability. So that means that we are monitoring our positioning in the market, assessing the strength in our customer offer, how strong are we? And based on that, we are adjusting our price positioning. We are not adjusting price in markets that are euro markets or dollar markets because of the SEK strengthening. We are looking at each individual market because that's the market where our customer lives. And then, of course, those markets are shifted depending on how their currency is affecting inflation and the local market position. But we are not -- by being a Swedish company and translating into SEK, our top line, we are not making currency adjustment because of that. We do it from the end of looking at the competitiveness and the strength of the customer offer that we want to see in each market. Adam Karlsson: So our hedging strategy then supports that way of thinking. Richard Chamberlain: Got it. Okay. Brilliant. And my second one is on the U.S. performance that looks to have been a bit sluggish in Q4. I think you mentioned that you felt you're a bit tight on stock availability there. Are you now building back stock availability in the U.S.? Do you think it will -- it sounds like there's still going to be some effects in Q1, but are you expecting that to be sort of more normalized by the end of this first half? Or should we still expect a pretty cautious sales outlook for the U.S. market? Daniel Erver: So when we looked at the U.S. this spring with all the changes that were happening around tariffs and the situation, we decided to apply a prudent way to approach the U.S. And then we were positively surprised by the continuous demand for our offering and the resilience of the U.S. consumer. And then we have used the flexibility that we built up in the supply chain to gradually catch up on the supply to match it better to the demand, but there is a delayed effect. And we see now looking at the spring season that we have a better composition and a better supply in the U.S. But with that said, U.S. continues to be a very volatile market. We have seen a very high level of inflation and price increases in the U.S. markets across competitors. So -- we are accelerating supply, but we are still monitoring to make sure we don't pivot to the other side of overallocating to the U.S. But we see that the composition of the spring season is better fit to the demand expectations that we have for the U.S. Operator: We now turn to William Woods with Bernstein Societe Generale Group. We will now turn to Georgina Johanan with JPMorgan. Georgina Johanan: I have 2 questions related to the gross margin, please. The first one was just in terms of the tailwinds from external factors that are coming through. You've obviously been very clear that there's tailwinds in Q1, but less so than in Q4 if we include tariff effects. As we go through the rest of the year, would you expect the magnitude of that tailwind to widen? Or actually is Q1 like sort of a peak point for that tailwind, please? And then my second one was just in terms of the translation drag on the gross margin that you call out. Is it possible to quantify what that was in Q4, please? That's something I at least find very difficult to estimate. Adam Karlsson: Yes. So looking at the external factors, as we have called out, we have seen that some of those were positive in the third quarter, also in the fourth quarter, but somewhat less positive than in the third quarter connected to increased cost for tariffs that we have been paying throughout the year. And that sort of trajectory continues also expectedly into Q1, where we maintain an overall positive impact from external factors, but on the margin, more cost impact from tariffs. Overall, looking at 2026, it is positive outlook from the start of the year and with the visibility we have from these external factors. So currency, freight, materials and so forth, looking net positive, also including tariffs. Then to your second question connected to the currency translation drag. Here, we have seen a -- connected to the strengthening of the Swedish krona and increased impact sequentially in the fourth quarter compared to the third quarter. As we have disclosed, our sales impact from currency translation was negative of 7% in the fourth quarter compared to 6% in the third quarter. And given how currencies have developed so far in this quarter, we also see that this could be also a more negative impact in the first quarter compared to the fourth quarter. So that is what we're seeing. And since we are calling out this effect, it does have a significant effect on the reported outcomes. Georgina Johanan: Just one follow-up, if I may. May I check, does that external tailwind, does that get larger as the year -- as this year progresses? Adam Karlsson: It's very difficult, of course, to predict where it's going. But we had a very sharp drop and a sharp difference, at least in the effects that we ended your answer with the SEK to the U.S. dollar. So that was very sharp during the first quarter of last year with then yes, difficult to predict, but we will have a big effect in Q1 and then potentially a less negative relative effect throughout the rest of the year. But that's only sort of speculating, of course, in how the currencies will move. But we are assessing the situation that we're meeting a sharp drop in the first quarter. So that is what we have visibility on right now. Operator: We now turn to Sreedhar Mahamkali with UBS. Sreedhar Mahamkali: Maybe just a couple from me then, please, both on margins, just to build on what Georgina was asking. Maybe again, trying to stand back from the detail a little bit. Adam, I think you referred to normalized gross margin and not wanting, obviously, the margins to go through the stock. I think in the past, you've referred to 54% to 55% being the sort of what you see as normalized gross margin and that being consistent with a 10% operating margin. So maybe just if you can take a look at it that way, it feels like this is a year where you could be at least at the lower end of that 54% to 55%. Then the question is, how do you sustain it is an important one because clearly, there's a lot of volatility, a lot of moving parts here. So even if you were to get the 54%, 55%, and that sort of range? How do you sustain it? What are your thoughts there? That's the first one. Secondly, going back to a margin target that we have talked about in the past, the 10% operating margin target. What conditions do you now need if you're already within the sort of thresholds of the normalized gross margin to then achieve the sort of 10% operating margin? And do you get -- is your confidence and conviction in reaching that growing based on what you've seen over the past year? Adam Karlsson: You're starting with the gross margin, you are right that there are opportunities now to continue given the external factors to move in closer to that normalized interval as we were speaking about. But also reinforcing what Daniel said here is that the product is the most important thing we do. So it's not about short-term sort of increase in gross margin. It's to build a stronger long-term offer. And I think that is then the strongest hedge towards gross margin pressure over time that we take the opportunity now to invest in the product to further then improve our stock availability, reducing the need for sort of clearance markdown and over time, then also through the product, strengthen our brand, the pricing power that will sort of help us to sustain gross margin levels over time. So it's -- for us, it's a long-term journey where we have an opportunity now to both, I think, take steps towards the more normalized gross margin level whilst then continuously strengthening the offer and the product and the value to the consumer. So I think that is sort of the long-term strongest hedge we can do connected to volatility. The second question was the 10% margin target. And I sort of mechanically see that if we then move into this range, let's estimate that we have another 100 bps if you're in the middle of that range on the gross margin, that takes us then to plus 9% and then -- or like north of 9% EBIT margin. And then connected to what we also call out that we've been showing that we have the ability despite an inflationary pressure in our cost base to have a sort of positive delta in local currencies in how much sales grows and how much our cost base grows. So that is our clear intention to continue that journey. And that over time, of course, with normalized gross margin levels will sequentially then take us closer to the long-term margin targets. Daniel Erver: While continuing to have strong collections, inspiring experiences -- excitement around -- with the positive sales momentum to make sure that... Adam Karlsson: Absolutely. Sreedhar Mahamkali: Very small follow-up on the sales point. Clearly, externally, as we see, there's quite a lot of volatility in the quarterly sales data that you report. I guess if there is something that you can share perhaps in terms of the loyalty data, customer data in terms of transactions or average selling prices items per transaction. Anything you can talk to that is giving you really are firmly on the right track on sort of rebuilding the sales in H&M brand? Daniel Erver: If you look back to the year, I think we have been posting growth around 1% to 2% and in that interval consistently through the quarters, which is, as Adam explained in the report and higher level of consistency what we've seen in the past, and we attribute that 100% to more appreciation for our customer offer from customers across the board. And what we see positive is that the customers that we have within our customer base really want to trust us in a wider range of categories. And that means they're referring from trusting us not only maybe on basics where we've been very appreciated or in kids clothes, but also trusting us in their sportswear, H&M Move has performed very well, but also trusting us in other product categories like in dresses, in dresses for occasions and that they widen their spend with us, which we see as a receipt that they are appreciating what we're doing. So when looking at the customer base, we see that the loyal customer truly want to widen their spend with us. And we see when we perform well and when we deliver strong collections that are really relevant, they are also very keen on sort of deploying a larger share of their wallet with us. That gives us confidence that we are on the right way, but we really are from our own ambitions, just getting started. We do believe there is much more potential to tap into as we move along in implementing the plan, strengthening our foundation to then further accelerate growth as we look ahead. Joseph Ahlberg: And I think these clear receipts we see across regions and also over time, each quarter, we have seen the same pattern repeating. So we -- with that, we feel this is a clear trend. Daniel Erver: Trend is the right way, but we believe that we have higher ambitions. Joseph Ahlberg: The level can be improved. Operator: And our final question comes from Matthew Clements with Barclays. Matthew Clements: The first question was on Agentic Commerce. Just wondering how you're positioning H&M in that world. The second question was on logistics. You're talking about new European warehouses that you're launching. Just wondering how you're managing that capacity amid relatively muted volumes and what you're looking for from that new logistics capacity. And the final one is on the work you're doing in the assortment relative to how that's being -- how the brand is perceived by customers. So obviously, you've done a lot of work over the last 2 years, investing quality, value, stretching out the high end of the price architecture. But have you seen a meaningful shift in how customers actually perceive the H&M brand? And where is the brand now relative to where you would like it to be? And what are the biggest areas of improvement or future improvements? Daniel Erver: Okay. I'll try to, and then please remind me if I miss any of the questions. So if we start -- what was the first one? Agentic. Agentic -- yes. It's a very, very interesting area that I believe will drive a big impact on how we meet the customer over time. And then as always, with really new disruptive technologies, the speed of adaptation is difficult to assess. But we know that a large amount of our customers, they want to be better guided in how they make their choices. Fashion is fantastic. It's fun. It's energizing, but not for everyone. It also -- it can be painful and difficult to find what you want to wear and how you want to dress. And anyone who has tried to get a little bit of help of any agentic AI know that it's early, but you can start to see the signs of that you actually get help on how to dress, how to express your personality, how to look good. So I think it will drive a lot of change. We are looking at it from different angles. We're looking at for how can we apply agentic AI into our own experience. We have seen the first tests that we have done in improving search, for example, applying conversational search as opposed to just normal keyword search, reduces the amount of 0 search results and sort of increase the relevance for the customer. We see a young consumer being more used to the conversational search pattern. That also helps us to apply many more attributes to the product so that the results can be more relevant and more guiding. So we are working on looking at how can we implement Agentic AI into our own digital experience to better serve and guide the customer. At the same time, we are curiously looking at what does it mean for the customer -- for the consumer journey in what way will they show up to us in the future. How do we make sure that we are present in the journey regardless of where they start the journey. So that is, of course collaborating with Google, OpenAI, with other platforms that are driving that change to see sort of how do we tap into that ecosystem. And that is a very, very, very early stage where there is a lot to be learned and a lot to be seen, but something that we are curious about. And I believe an area where outstanding value for money will become more important than ever that truly our product lives up to standing out from competition when it comes to value. The better the customer becomes of making that assessment, the more important is that we really stand out on the value that we offer in the specific product. So area of big disruption, very, very early stages, and we are exploring it both in our own sort of world, but also in the ecosystem outside of our own channels. Yes. Secondly, logistics. So the key here is to increase availability. We see an opportunity to create better stock pooling, both in general, but also especially between the channels so that we truly can use our omni presence to drive better availability for our customers so that we can use online stock to serve a store customer, that we can use stores as a stock node to serve online customers, and that's a lot of the work we do when we look at the European network, how can we leverage the total stock of Europe to better serve our European customer in improving the availability while we reduce the total stock levels and increase the precision of the stock that we carry. So a lot of the work goes into making sure that we have capacity, but especially that we increase availability. And then, of course, that we make -- this is one area where we need to manage the inflationary pressure on costs, and that's also an important work of the logistic investments that we do in Europe. And then thirdly was... Joseph Ahlberg: The brand perception... Daniel Erver: The brand perception. So we see also that we have taken steps that we get signs that we're moving in the right direction. We get those receipts from customers in the way they act, but also what they say when we ask them in quantitative surveys. But we are not where we want to be yet. We are on a long journey. We are putting the foundations in place. I'm confident that the direction that we have set are taking us towards the right direction, but a lot of the effect of the work that we have started is yet to be seen and a lot of the work that we have not yet started is also yet to be done. So we are starting to take steps, but impact is not yet where we want it to be. We are in 81 markets, and we are changing the perception of a wide demography of customers, and there's a lot of work left for us to be done in that area. Matthew Clements: And just a follow up very quickly on the logistics point to say, are you -- how are you managing capacity across the network? Are you moving capacity from old centers and closing those down? Or what's the management of the network? Adam Karlsson: Right now, we're opening new warehouses to ensure that we have created the -- what we said, the capabilities and the capacities to grow and grow in a way which is then truly then enabling the omni setup we have with stores and the digital store sort of combined and through the customer demand more clearly than served through a more flexible logistic network. Daniel Erver: And we work both how we optimize own operated 3PL as well as where we -- how far we go on automation, and that's different depending on sort of the different circumstances. Full strategic network puzzle that we're working on. Operator: We have no further questions. Joseph Ahlberg: Thank you for clarifying. And I take it we don't have any more questions in the room either. So with that, thank you all very much for joining today's conference and for your continued engagement with the H&M Group. We wish you a very nice day. Adam Karlsson: Thank you so much. Daniel Erver: Thank you.
Operator: Welcome to the Liberty Energy Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Anjali Voria, Vice President of Investor Relations. Please go ahead. Anjali Voria: Thank you, Dave. Good morning, and welcome to the Liberty Energy Fourth Quarter 2025 and Full Year 2025 Earnings Conference Call. Joining us on the call are Ron Gusek, Chief Executive Officer; and Michael Stock, Chief Financial Officer. Before we begin, I would like to remind all participants that some of our comments today may include forward-looking statements reflecting the company's view about future prospects, revenues, expenses or profits. These matters involve risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed in our earnings release and other public filings. Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA, adjusted net income, adjusted net income per diluted share, adjusted pretax return on capital employed and cash return on capital invested are not a substitute for GAAP measures and may not be comparable to similar measures of other companies. A reconciliation of net income to EBITDA and adjusted EBITDA, net income to adjusted net income and adjusted net income per diluted share and the calculation of adjusted pretax return on capital employed and cash return on capital invested as discussed on the call are available on our Investor Relations website. I will now turn the call over to Ron. Ron Gusek: Good morning, everyone. And thank you for joining us to discuss our full year and fourth quarter 2025 operational and financial results. Liberty's strong fourth quarter results capped a year marked by heightened oil market uncertainty and softer industry completions activity. Our team's focus on technological innovation and strong operational execution drove superior performance and a resilient CROCI of 13% in a volatile year. We delivered revenue of $4 billion, adjusted EBITDA of $634 million and a return of capital of $77 million from cash dividends and early year share buybacks, all while investing for growth and long-term value creation. We strengthened our customer relationships by expanding our simulfrac offering with strategic dedicated customers and delivered meaningful efficiencies, leveraging Liberty developed AI-driven asset optimization software and our digiTechnologies transition, we reduced total maintenance cost per unit of work by approximately 14%. Concurrently, we built the LPI execution platform for earnings growth with strategic partnerships and targeted investments. We have been strong commercial traction, capitalizing on the revolutionary transformation of power supply and delivering that is redefining the energy landscape. We are at the forefront of a seismic shift in how data centers and other large loads are sourcing power. On-site generation has emerged as the preferred long-term energy strategy for large consumers of power due to evolving in grid dynamics and market pressures. Our robust power execution platform is built upon 15 years of industry-leading experience in the design manufactured, engineering and operation of complex industrial scale assets, leveraging our broad North American geographic footprint, expansive supply chain and AI-enhanced operations and maintenance systems. Our comprehensive power solution is designed to address our customers' top priorities, rapid, scalable deployment with uninterrupted operations and predictable power costs. LPI's Power-as-a-Service offering underpinned by the Forte generation platform, Tempo power quality management system and our midstream services delivers resilience, economic efficiency and operational flexibility. Our core solution could further unlock power cost advantages through grid integration while also transforming our customers into active contributors to grid reliability for local communities. LPI's distributed power solutions are a strategic cornerstone of resilient future-proof energy planning for our customers. Earlier this year, we announced an agreement with Vantage Data Centers to develop and deliver at least 1 gigawatt of utility-scale high-efficiency power solutions, supporting the energization of Vantage data center projects for hyperscale end users. The agreement is anchored by a firm reservation of 400 megawatts delivered during 2027 with a contracted payment structure that aligns with the expected returns under an ESA with end users. This agreement creates a collaborative framework to accelerate the deployment of power solutions for Vantage's Data Centers, preserving flexible execution to meet customer needs across a broad portfolio of data center sites. We also entered into a power reservation and preliminary ESA with another leading data center developer for a 330-megawatt data center expansion in Texas. The project is currently expected to begin operations in 2 phases, with the first half online in Q4 2027 and the second half in Q2 2028. The agreement defines the economic terms of the expected ESA as well as the construction schedule, cost recovery and termination payment provisions in the event the final agreement is not executed. Our project portfolio is both deep and diverse, which reflects the breadth of the LPI distributed power solution. We are working with clients that want a pure behind-the-meter solution for the life of their project, clients that want to interconnect the project to the grid as soon as possible and all flavors in between. LPI is one of the only companies that can scale effectively between 100 megawatts to multi-gigawatt power plants and have the geographic footprint to own and operate generation across North America. Our projects will be developed using LPI's Forte modular standardized construction approach, designed to derisk project execution and will include the Tempo power quality system to manage the high-amplitude, cyclical load variations of AI workloads. These customers could also benefit from the core solution with a potential grid integration, optimizing power costs and providing access to grid attributes that they value. As we enter the new year, Liberty's premier completions business and rapidly scaling power infrastructure platform position the company to lead through market cycles and capitalize on power growth potential. During 2025, we strengthened our core oil field service operations while aggressively expanding our reach into the growing power market. U.S. power demand is rising at the fastest pace in decades. The convergence of AI-driven data center expansion, the onshoring of domestic manufacturing and increasing industrial electrification has created structural demand growth for power. Under investment in grid infrastructure, transmission constraints and evolving commercial realities and utility reforms, driven in part by public concerns have catalyzed broader market recognition of the inherent strategic value of distributed power solutions. Against this backdrop, data center demand for power is projected to grow threefold by 2030 and already long interconnection queues continue to lengthen, highlighting the urgent need for flexible, scalable capacity to meet rapidly evolving energy requirements. LPI is well positioned to support this call, providing power consumers with predictable long-term power prices. Our platform is designed to be economically competitive with today's grid prices at our targeted returns and is increasingly advantaged as grid power prices rise overtime. Within North American oil and gas markets, conditions have now stabilized after a protracted period of softening activity as the industry has largely adjusted to last year's OPEC+ supply concerns, and tariff-related volatility. Fourth quarter completions activity defied normal seasonal sequential declines, surpassing expectations. Completions demand is projected to hold firm in 2026. North American producers are responding to global oil and gas dynamics with flat oil production targets and modest growth in gas-directed activity. Global oil markets are currently balancing a structural oil surplus, elevated geopolitical risk and an OPEC+ production pause, keeping oil prices largely range bound. Natural gas markets are supported by significant expansion in LNG export capacity and multiyear growth in power consumption. Industry fundamentals are expected to improve over time as supply side dynamics gradually rebalance with completions demand. Recent pricing pressures on completion services, combined with the slowdown in activity have driven an acceleration in equipment cannibalization and attrition, while underinvestment in next generation technology has limited the replacement of lost capacity. As the market recalibrated at the start of the year, fewer crews are available to meet any incremental completions demand. E&Ps remain focused on harnessing efficiency gains and engineering solutions to lower the total cost per unit of energy, driving the bar higher for technologically superior services and operational success to achieve these results. Few service providers are positioned to meet the increasing demand for multi-frac jobs, 24-hour continuous operations and AI-optimized automation and real-time operational transparency that enhances completions execution and data-driven decision-making. This ongoing flight to quality is fundamentally reinforcing Liberty's market leadership as producers rely on our total service platform, seamlessly aligning our integrated services to deliver a superior service and drive relative outperformance. This quarter, we launched Atlas and Atlas IQ, a unified technology platform that transforms real-time data into actionable insights, enabling faster decision-making and improved operational efficiency for both our customers and Liberty's operations. Atlas is a cloud-based completions data platform that automatically deploys with every Liberty crew, delivering subsecond operational equipment and performance data without requiring additional customer infrastructure. By consolidating live and historical field data, documents and automated reporting into a single secure portal, Atlas gives customers immediate visibility into their operations. Atlas IQ extends this capability with an AI-powered assistant that enables natural language queries across operational data and technical knowledge,, delivering fast context-aware insights while keeping all data private within Liberty's environment. Together, these platforms enhance data visualization, improved decision-making and enable both Liberty teams and customers to respond more effectively in a dynamic operating environment. Liberty has evolved from a premier North American completions company into a diversified energy technology and power infrastructure platform. We invested in our technology and culture, while growing our oilfield market share and developing LPI. This proactive stance has left us well positioned to capitalize on the dual tailwinds of a potential completions inflection and the generational surge in U.S. power demand. Our differentiated power execution platform and a robust pipeline of power projects position us to capture structural growth in power demand. We now plan to deploy approximately 3 gigawatts of power projects by 2029 to deliver sustained long-duration earnings and high returns for our investors. Our first quarter is expected to reflect the full realization of pricing headwinds and winter weather disruption to drive lower sequential revenue and adjusted EBITDA. While the precise timing of a broader oil market recovery remains uncertain, we are anticipating stabilization in completions markets, significant demand for our digiTechnologies platform at improved economics and a powerful growth engine with AI and cloud data center power demand. We are focused on driving value creation, prioritizing long-term returns with our industry-leading completions business and our Power growth platform. Our success is fueled by the combination of cutting-edge technology, a dedicated workforce and strategic partners across the energy ecosystem, powering innovation today to shape the future of the industry. I will now turn the call over to Michael to discuss our financial results and outlook. Michael Stock: Good morning, everyone. I'd like to begin by first echoing Ron's sentiments. Congratulations to the entire Liberty team for navigating such a volatile year with strong results. We drove this achievement by delivering operational and safety records quarter after quarter, leveraging our vertical integration to deliver superior service and capture a larger part of our customers' spend and advancing our industry-leading AI enhanced digital solutions to not only optimize our performance but also provide customers with enhanced visibility into our operations. New technologies and AI-driven software development are making a fundamental difference in driving margin enhancement and differentiating our service offering to customers. As we look ahead, we're using the full resources of the Liberty platform to drive success in our distributed power solutions business. LPI's durable competitive advantages are built upon our differential culture and exceptional people and are structured to deliver strong cash returns from disciplined organic investments in technology and equipment over the long term. Our most recent announcements with 2 leading data center developers represent important milestones in our journey. These contracts reflect the strength of our strategy of investing in differential technology and assets that provide sustainable long-term commercial advantages. Engineering sophisticated power quality systems to meet complex and evolving load requirements and unlocking price optimization through opportunities through grid participation. Over the next 3 years, we have a variety of projects within our pipeline that we expect to execute with underpinning our goal of monetizing 3 gigawatts of power by 2029. These projects are expected to carry the same economics we have discussed in the past, approximating a high teens unlevered returns profile with long duration ESAs. Let's turn to our earnings results. For the full year, revenue was $4 billion compared to $4.3 billion in 2024. Net income totaled $148 million, and adjusted net income was $25 million, excluding $123 million of tax-effected gains on investments. Fully diluted net income per share was $0.89. Adjusted net income per fully diluted share was $0.15, and full year adjusted EBITDA was $634 million compared to $922 million in the prior year. In the fourth quarter of 2025, revenue was $1 billion, representing a sequential increase of 10% driven by activity levels that meaningfully exceeded the industry. Fourth quarter net income of $14 million compared to $43 million in the prior quarter, adjusted net income of $8 million compared to a loss of $10 million in the prior quarter and excludes $6 million of tax-affected gains on investments. Fully diluted net income per share in the fourth quarter was $0.08 compared to $0.26 in the prior quarter, and adjusted net income per diluted share was $0.05 compared to a loss of $0.06 in the prior quarter. Fourth quarter adjusted EBITDA was $158 million, increasing from $128 million in the prior quarter. General and administrative expenses totaled $65 million in the fourth quarter, compared to $58 million in the prior quarter and included noncash stock-based compensation of $6 million. Excluding stock-based compensation, G&A increased $6 million primarily due to higher variable compensation costs associated with better-than-expected full year financial results. Other than expense items totaling $3 million for the quarter, inclusive of $7 million of gains on investments, offset by interest expense approximately $10 million. Fourth quarter tax expense was $3 million, approximately 20% pretax income. We expect the tax expense rate in 2026 to be approximately 25% of pretax income and do not expect to pay material cash taxes in the year. We ended the year with a cash balance of $28 million and net debt of $219 million. Net debt increased by $49 million from the prior year. In 2025, cash flows were used to fund capital expenditures, $53 million in cash dividends and $24 million in share buybacks. Total liquidity at the end of the year, including availability under the credit facility, was $281 million. Net capital expenditures and long-term deposits were $203 million in the fourth quarter and $571 million for the full year, which included investments in digiFleets, capitalized maintenance spending, LPI infrastructure, power generation and other projects. Fourth quarter capital expenditures included $79 million in deposits for long lead time power generation equipment. In 2025, we returned $77 million to shareholders primarily through quarterly cash dividends and modest share repurchases in the first quarter. We also invested $15 million in acquisitions and monetized $151 million of investments. Looking forward in 2029, we anticipate revenue will be approximately flat year-over-year, as we expect higher fleet utilization will be offset by industry-driven pricing headwinds. We anticipate increased development and overhead costs for the expansion of our LPI, distributed power solutions business of approximately $15 million to $20 million. Together, these will drive lower adjusted EBITDA year-over-year. Over time, we expect frac fleet supply attrition as demand will tighten markets, driving an opportunity for price improvement. We also anticipate strong contribution from the distributed power solutions projects in the coming years. Our completions capital expenditure moderated in 2026 to approximately $250 million, including $175 million in maintenance capital expenditures. The remaining related to the approximately 3 to 4 digiFleets we intend to build. We continue to see strong demand for our digi offering and investment is further underscored by superior economic profile from lower maintenance costs related to other fleet technologies. Looking at our Power business, we expect to take delivery of approximately 500 megawatts of power generation equipment to 2026. Our capital expenditures are expected to be split between approximately $275 million to $350 million in long lead time deposits and approximately $450 million to $550 million of project-related expenditures. The latter of which are expected to be funded by project financing as we discussed on our last earnings call. The LPI distributed power solutions business inherently carries a longer duration time horizon with multiyear execution cycle for projects and long-duration earnings profile. We have a diverse portfolio of projects in our pipeline and an execution plan that position us to reach 3 gigawatts deployed plants by 2029. These opportunities are at different stages of the development cycle from early planning and design to near-term ESA execution. The technical solutions we've engineered and the strong partnerships across developers, hyperscalers and OEMs position us well to achieve these targets. Our capital is focused on investments to create lasting competitive advantages. We continue to reinforce our leadership in completions while building a differentiated power business with diverse end markets, less cyclicality in targeting strong long-term returns. By combining advanced technology, strong partnerships and advantaged assets, we are creating an enduring business for decades to come and aiming to be the partner of choice for all of our customers. We are excited for the years ahead. I will now turn it back to the operator for Q&A, after which Ron will have some closing comments at the end of the call. Operator: [Operator Instructions] our first question comes from Stephen Gengaro with Stifel. Stephen Gengaro: 2 questions for me. I think first, Ron, Last quarter, you talked about the pipeline of opportunities and how it has significantly strengthened over the prior 3-month period. Can you talk a little bit, I mean, given your comments about expanding the 3 gigawatts and what you're seeing in the market commercially right now? Ron Gusek: Yes. I'll add some comments and maybe Michael will have some to add on after me. But I would say, we seen a continued trend in what we saw over even the middle months of last year, which was this idea that rather than co-located behind-the-meter power being a bridge idea, a transition towards co-located behind-the-meter power representing the best solution for long-term power provision at a data center site. They've recognized that not only does it check the boxes you continue to hear about like speed to market and concerns around grid stability and public concerns around the -- what it's going to mean for the price of power, but also from a commercial standpoint, recognize that if you're looking for surety of power price over the long term, we have the best ability to provide that with a co-located behind-the-meter solution. And then we can, of course, layer on top of that, the potential attributes that come with any grid interaction should that be of interest to them. So we have that commercial strategy available to them. to leverage the grid to the extent it makes sense. As that snowball has continued to roll down hill and get bigger and bigger and bigger, the interest in having partners like Liberty alongside you for power provision has just gotten greater and greater and greater. What you've seen then as a result of that is some real urgency to lock up power to have surety of that supply, and you've seen that in these 2 most recent agreements we've announced, first with Vantage and then with this subsequent data center fabricator that they wanted to be able to guarantee to their end use customer. We have the power. We can show that to you. We know where it's coming from and we've got it locked up with a reliable partner. That continues to gain momentum. And as a result, the gigawatts we had talked about can -- I would say, continue to get firmer and firmer and firmer and the opportunity set has gotten larger and larger and larger. Michael, anything to add there? Michael Stock: No, I'd say -- I just would reiterate what Ron said. I mean for the large tech companies, their business growth and what is going to change the world is driven off the surety of being able to expand their data center volume and AI growth. And the key about that is having surety of when you can bring these billions of capital to bear and organizing that supply chain. As you've seen with sort of the investments from the Big 6 go deep into their supply chain. And the key -- one of the key factors of that is surety of power and surety of time when that compute can come online because there is a long supply chain that they have to organize to make sure that happens. And we provide that security and that is valuable to the Big 6. Stephen Gengaro: And then the follow-up was just -- I know that your initial investments are in recip -- recips. And when you think about the expansion to 3 gigawatts and maybe also like what -- does the customer have a preference. So how do you -- do you see your mix evolving into the customers care? Or are they just really focused on securing power? Ron Gusek: I would say a couple of things to that, Stephen. First of all, we can absolutely achieve that 3 gigawatts entirely with recip in our supply chain today. We've got line of sight to that as we sit here right now. So absolutely confident we could do that. To the extent it made sense to have turbines as a part of that mix for a particular project. That's absolutely a possibility as well. If you think specific to the technology, and this is something we've certainly talked about in the past. The value of recips is really inherent in a couple of factors. Number one, efficiency of capital deployment. When you think about the plus [ N+ equation ] for achieving the sort of reliability that data center providers desire on their site, that's very efficiently achieved with a modular approach using gas recips. Layered on top of that is the heat rate or efficiency of that asset, and we've talked about that as well. If you think about the platform of gas recips that we're going to use the -- first of all, the high-speed smaller, more modular engines, 2.5 and 4.3 megawatts, but then layered on top of that, these larger medium-speed assets. You're talking about an asset that has a -- particularly in the case of the medium-speed engines, a heat rate that's competitive with many of the earlier generation combined cycle plants think '90s through 2010 time frame in a simple cycle environment and under challenging operating conditions, not far off of even modern combined cycle plants today. So you have a very, very efficient asset in terms of converting natural gas into electricity, meaning a very, very competitive power price, not just today, but tomorrow and well into the future. So I think from that standpoint, operators recognize the value that gas recip brings to the table. Again, not to say there won't be turbines in our world down the road. But at this point in time, I would say our focus remains gas recip as the technology of choice for deployment. Michael Stock: And I think that is recognized by our customers, Stephen. The construct to the gas recip, which probably a year ago was more unfamiliar to the power teams that were being built inside the Big 6. Now there is a lot of familiarity about the efficiency of the N+ equation and the inherent benefits of the execution and the ability of putting those to work. And I think that is a key factor. If you think about the fact that we will use 1/3 less fuel than a simple cycle turbine. Just when you -- we think about the emissions profile, it is significant. So therefore, we believe that we have a -- we are having the right technical solution for our clients. Very like when we built -- started building and electrifying our digital assets, digiFrac assets. We did this -- we did -- we looked at all of the technologies, we're technology-agnostic company, and we are a team that is based around an engineering -- excellent engineering leadership that focuses on what is the right solution, not the easy button. Operator: The next question comes from Keith MacKey with RBC Capital Markets. Keith MacKey: Just wondering if you can comment on the delivery of equipments, where you are in the process there with respect to delivery packaging and ultimately, what underpins your confidence in being able to meet the time lines for the upcoming deals that you've got to commit to? Michael Stock: Yes, Keith, I'll take a lot of that. In reality, we've spent a lot of the last 6 months developing -- expanding our deep relationships with our supply chain. And when you think about it, we always had very, very strong relationships in the high-speed arena with the Jenbacher and Caterpillar, and we've expanded those relationships to all of the large medium-speed engine manufacturers. And we have been -- we spent some time in Europe. We spent a lot of time on their factories, their factory floors with their production planning and have shored up the delivery schedules out as far as through the end of '29 in some cases, for the ability to execute on these long lead projects for our customers. When you think about it, these projects are going to start with initial implementations and it is much more capital efficient, cost-efficient and better to expand a data center -- in an existing current data center than it is to build greenfield. So as we build these initial campuses, those campuses will continue to expand right through the 2030S to hit the compute levels that are being demanded by our ultimate end users. Keith MacKey: Okay. And just 1 more question, if I could. So 3 gigawatts by 2029. Can you just comment on will that likely be more deals with multiple customers? Or the existing deals you've announced will likely have some potential add-on capacity through time? Ron Gusek: It will be a combination of both of those, Keith. We certainly expect that with our current customers, those will be growing opportunities together as we continue you to expand those, not only starting initial facilities, but additional facilities beyond that. And certainly, we expect to add additional customers in that mix as well. We've got ongoing conversations with a number of different partners in that space. So expect to have a number of legs on that stool, ultimately down the road. Operator: And the next question comes from Marc Bianchi with TD Cowen. Marc Bianchi: I guess maybe, Michael, this is probably 1 for you. So if I heard you right, it sounded like you talked about $1 billion worth of spending for 2026 and maybe half of that is covered by project finance. Do you anticipate the other half to be funded through free cash flow? And maybe you could talk a little bit more precisely about how you're thinking about EBITDA for '26? Michael Stock: So Marc, the -- while I talked -- I split the spending into a long lead time deposits and specific project spending that we funded by project finance. Those long lead time deposits are really for long-lead ton generation that as soon as that generation is assigned to a project, that will then move into the project financing roll. That is all being sourced, package, manufactured engineered through our Liberty Advanced Equipment Technologies group, which is a registered manufacturer and purchasing company. That will eventually be sold to the project companies and then there will be project financing -- structural funding at the project level that will support that spend. So you see, I would expect to see those deposits that I've talked about for the year '26 actually move into project financing runs within the majority of that within that year. So there will be a movement between those 2 categories. But I wanted to give you kind of a split on that. So there will be more project finance capability that is given by those numbers. The rest of the spending, we believe that we will easily handle with very, very fortress-like balance sheet that we have now and our ability to fund that through free cash flow and debt availability. Marc Bianchi: Okay. And how should we think about the level of EBITDA? I mean, I think if I sort of read back what I heard, revenue is flat in '26, higher utilization, offset by pricing, EBITDA down, but just any steer on sort of the magnitude there? Things were quite strong in 4Q, so you're starting from a nice level? Michael Stock: Right. Yes, I think 4Q was an anomaly. We had the visibility, we had almost the opposite effect of the seasonal swing. We had, I think, what was some people finishing our programs that they had may be delayed from the beginning part of the year due to economic uncertainty and geopolitical worries. So that was -- I think I would look at somewhat of that bounce up in Q4 as a bit of an anomaly. And so yes, so the EBITDA will be down, which is, as you would imagine is, but virtually all driven by the completions [ business ], as EBITDA will start to kick in for the power business in a significant way in '27. Ron Gusek: Marc, I would say just -- I'll just add a little more color to that and maybe a few things to keep in your mind about this year. I would say we probably got pricing off low to mid-single digits as rough order of magnitude to give you some sense of how that will impact us on the EBITDA line. And then I would also keep in mind that whether we've also had a pretty meaningful weather event already this year. We -- over the course of this past weekend prioritize safety for our crews and the subcontractors that work with us out in the field. Obviously, road conditions very, very challenging in Texas and Louisiana. And as a result, through close communication with our customers, made appropriate decisions around activity levels out in the field, that probably impacted close to 2/3 of our capacity. The majority of the equipment operating in Texas and Louisiana, over a period of maybe as long as 5 days. Probably a bit early to tell exactly what the true impact of that is going to be, but it was a meaningful event for sure. Operator: Next question comes from Jeff LeBlanc with TPH. Jeffrey LeBlanc: I believe in the past, you've mentioned that LPI intends to help their hyperscaler partners secure the fuel source. And I want to make sure this is still the case. And if so, has there been a greater urgency from your partners on securing these agreements as demand continues to increase. Does it make the LPI platform more attractive to your customers? Ron Gusek: Jeff, I think you described it perfectly. Certainly, just like in our completions business, we aim to building an LPI a business that really is a full-service business, power-as-a-service from beginning to end. And so that includes, of course, the midstream side of things. We've got a very capable team under Richard Bradsby that is absolutely capable of going out and making arrangements for interconnect pipeline. We can interact on behalf of the customer with respect to natural gas and the supply of that. We're not going to take on any risk in that regard. But we absolutely have the capability and expertise to play a significant role in that. And I would say, it's one of the things that makes us a very, very valuable partner in this space is not only that midstream capability, but all of the other pieces of the puzzle we bring to the table. I think you've heard from us that we've been very thoughtful around the construction of that business and the capabilities that we have built within it beyond the midstream side of things, the commercial interaction with the grid, the packaging capabilities, the engineering solutions around power quality services, all of these things are assets that we think differentiate us from somebody who might be able to bring generation to the table. Operator: And the next question comes from Josh Silverstein with UBS. Joshua Silverstein: So you mentioned that you have confidence in getting the 3 gigawatts delivered -- or sorry, deployed in 2029. Can you just talk about how this additional 2 gigawatts may change from a cost regular -- relative to the first gigawatt? Or is there additional cost because of the tightness in the market or similar economics to what you were paying before? Ron Gusek: No, I would say you wouldn't -- you shouldn't expect meaningful change in economics at all. One of the great things about having strong partners on the supply chain side, a strong relationship with those counterparties that we're doing business with is that those relationships don't change. And we are not -- we're not finding ourselves in a position where the wins of the market are impacting our ability to procure the equipment we need at costs in line with our expectations. And so we've suggested in the past about $1 million a megawatt of the generation as a nice round number. And then maybe $1.5 million, $1.6 million, depending on complexity of the load case for all-in with balance of plant. And at this point in time, I would tell you that our expectations around those costs have not changed. Joshua Silverstein: Got it. And then when you're having discussions with data centers or other operators, are they still interested in signing these 10-, 15-year agreements? Or is there some sort of out that they're trying to get and maybe 5- to 10-year window, assuming that there's going to be an improvement in grid connectivity then? Ron Gusek: No, definitely not. I would say, if anything, the pendulum swinging the other way with more openness to the idea of distributed, co- located, behind the meter power is the right long-term answer. I think we've been able to demonstrate and the market has recognized over the last 12 months that this solution is the better long-term solution for a whole host of reasons, reliability, economics, the commercial optionality that the grid brings, addressing public concerns around cost of energy and the list goes on. So I would say that the willingness to enter into a 15-year ESA with a distributed power generation company like Liberty is absolutely getting greater and greater and greater. My guess is that you're going to see how we think about power systems evolve over the coming years with the recognition that distributed power is going to play a much, much bigger role in our world, that we're going to build these data centers, as Michael alluded to, they will continue to expand. But that in the event the grid arrives, we are not going to be there as backup but actually is the primary supply for the data center and then additional resilience for the grid. I think we can bring a story to the community that says we are a benefit to that community and their cost of power over the long term, not a detriment as a presence there. Michael Stock: Let me give us just a little bit of color to Ron's comments there as well, I think you have to remember the underlying economics that drive everything in the industry. We are bringing a solution to bear that provides power at grid parity now. That grid parity has a much lower -- that power has a much lower inflationary component because the vast majority of the variable cost is related to natural gas. And the estimation of the inflation rate of gas over the next years 15 years compared to the estimation of grid power prices over the next 15 years are very, very different. Gas prices will range -- relatively range-bound. Grid power prices, everybody expects to increase significantly because we are rebuilding a 50-year-old transmission system, and that is going to be passed along either directly to the large loads or as part of a general upgrade to the system. So we are grid parity now with -- and 5, 10, 15 years from now, we're going to be significantly lower than the grid price, right? Now we can, with our Coras system and the team that we're building there that we have built there provide you integration with grid, if there are other attributes that you wish to take advantage of or the ability to actually bring your sort of peak power price down by taking where there is oscillations where there is cheap power available, we're providing you a machine heat [ rate ] guarantee, and we will never go above this power price. But if the power price in certain parts of the day or certain seasons, where it's very sunny in the winds blowing all the time, and therefore, there's a little bit of excess kind of that renewable power. We can buy that power when we are grid integrated and bring down your costs significantly below the grid on average pricing. So we have a solution that works economically for the next 15 years, and that is what's driving our customers. They are incredibly, incredibly financially focused business people, and we bring them an economically winning solution. Operator: And the next question comes from Derek Podhaizer with Piper Sandler. Derek Podhaizer: Just wanted to get your take on the supply side for power generation assets. Obviously, it feels like every day, we're hearing a number of OEMs entering this recip and turbine space, talk about converting and repurposing older jet engines to power data centers. So obviously, this creates a bit of an oversupply concern that's emerging in the market. but it really sounds like you're creating this integrated power services infrastructure solution to defend this moat. Just could you help us understand a bit more about -- we hear about all the supply potentially coming into the market, but what makes it different for you guys in building that moat and why you really should -- we shouldn't have any concerns as far as this excess or flood of supply or the perception of that supply coming into the market? Ron Gusek: Thanks for the question, Derek. Of course, it's not as straightforward as just bringing supply to the table. If you think about the complexity of the load and the other components that have to be brought to bear to be successful in the power generation space, particularly for a data center. It's a lot more than showing up with a used turbine repurposed to run generation. I think we have talked about all the components that we have built into the LPI platform. And I think a real testament to the success we've had there and the belief that people have in that are these recent deals that we have announced. Vantage has vetted the LPI platform, the capabilities we bring to the table that range from the midstream capabilities, the packaging and supply chain capabilities, our power quality systems and the technology that we will deploy there. And with respect to that technology, the specificity of that with regards to the type of load that we are going to be addressing the grid interaction capabilities that Michael just spent some time talking about and our commercial optionality there. As you bring -- as you think about that entire portfolio of services really our LPI Power-as-a-Service platform, that stands far apart from somebody who could bring a gray market turbine to the table and some generation attached to that. As a result, I think we remain extremely confident in our space in the market and our ability to continue to grow this business despite the fact that you're going to see abundant supply there. I'd argue that's beneficial maybe from a time line standpoint that will potentially enable us to get these projects across the finish line quicker rather than worrying about a stretched out supply chain, that maybe adds a little bit of flexibility there. But in terms of displacing LPI and our place in that market, absolutely not. Michael Stock: Yes. I think the only thing that it will do, when you think by the time you take a gray market turbine and refurbish it to 0 hours, you're really not talking much difference in total costs, from the brand new version of it. And then obviously, that -- all that does is actually speed up the supply time line from the delays of expanding the turbine factories themselves. So that really just changes that. And the only thing that they will do with our partners and our ability to put generation into multiple sources of generation into our power solutions group will just enable us to speed our growth rather than slow it down. Derek Podhaizer: Right. No, that makes sense. That's is very helpful color. And I mean, clearly, recreating the integrated solutions that you've done in frac, in the power side and the position that you've been able to build with frac. So it's exciting to see. I guess on the follow-up side, sticking with the [ Power 3 ]. Maybe just talk about M&A, not necessarily from buying power generation assets. But as far as supporting Forte, Tempo, Coras, this is -- these are the clear pillars to your integration strategy. What could we potentially see from Liberty, whether it's bolt-on tuck-in to support the build-out of this integrated solution? Michael Stock: I think I'll take this as well. As you know, we're organic builders, right? That is our focus. We will develop partnerships where we've got very, very close partnerships. But very much along as we've built the frac business, look to us to add technology or things over time that make sense that really that increase our vertical stack and increase our technological heft. So as we add things like that, those are the key things that will be small additions where they bring and they expand and they fit nicely within the puzzle that we have built. Ron Gusek: We've always been thoughtful about making sure we understand the things that are -- have significant implications in terms of our ability to execute. So if you think about on the oilfield services side, we recognize that in the transition of natural gas, we had to control the CNG supply that when we transition to an electric fleet, we wanted to control power generation, that we've recognized we had to have some manufacturing capability in-house, that it made sense to have some sand production capabilities to support our business. We find those things that are key inputs critical to our success. And those are the things you should expect us to focus on to the extent those show themselves on the power generation side. Michael Stock: Key long lead items that you can make sure that you have access that allows you to derisk execution are also valuable to us. Operator: And the next question comes from Dan Kutz with Morgan Stanley. Daniel Kutz: Ron, I just wanted to put a finer point on the pricing comment that you shared earlier, I think you said that, frac was down maybe in the low single digit, mid-single-digit range. And I was just wondering if you could share what the time frame was for that comment, whether it was kind of like a year-over-year or expected in 1Q or kind of cumulative in 4Q through 1Q, just so we can think about how much of those kind of pricing decrementals we should flow through our estimates for 2026? Ron Gusek: Dan, I think you want to think about that as really relative to the second half of '25. The pricing that we're going to see in '26 is really a reflection of RFP season, that's taking place against a second half '25 backdrop as we're going through that. In some cases, in Q3, some of that stretching out into Q4. But that's really the time frame against which you want to measure that going forward. Daniel Kutz: Understood. And then -- go ahead. Ron Gusek: No, sorry, go ahead. Daniel Kutz: And then maybe just on the improved utilization comment in 2026. I guess just ballpark, should we think about normal incrementals on the higher utilization? And maybe if you could kind of unpack some of the good drivers in a little bit more detail, whether it's just fleet demand resilience versus further increases in horsepower per fleet from more final frac and continuous frac? Or if a big factor is the kind of like the quality that you flagged and the associated Liberty market share gains? Ron Gusek: Yes, that's a very good question. And to your point, there is a lot to -- there are a lot of pieces of the puzzle there that are moving, in some cases, counter to one another, in some cases, supportive of one another. I would say that in terms of utilization, it's probably fair to think about that from a normal incremental standpoint. But there are some puts and takes to that. We continue to be asked for that drive towards continuous pumping. And so that remains a very specific goal for some of our customers, and we are working hard alongside of them to plot a path to accomplishing that outcome. As you noted, intensity continues to climb and fleets continue to get larger. As you think about an environment, I'll can out the Western Haynesville as an example. That will be the deepest, highest-pressure work we do, I think, anywhere in North America and will require the largest amount of horsepower on any given location that we would have any place. So as we continue to see people -- operators trend into those sorts of environments. Our fleets are going to continue to get bigger. The amount of intensity on the well site going to continue to climb. Alongside of that, we'll continue to push for that 24-hour a day, 7-day a week pumping environment that will be offset to the extent we can manage it by efficiencies that we gain in our operations through the use of AI. We've alluded to some of the savings that have come through the implementation of our software platform, but that's meant from a maintenance standpoint. And in parallel with that, the deployment of the digiTechnologies and the impact -- the positive impact that they have had from an operations standpoint. So there's a lot of things moving there, and as a result, probably makes it a little difficult to get to exactly the puts and takes, but you're thinking about all of the right variables in the math. Operator: And the next question comes from Eddie Kim with Barclays. Edward Kim: I just wanted to ask about the end markets for your power generation equipment. In the past, you've talked about commercial and industrial and potentially even deploying equipment for Permian micro grids. But at this point in time, is it fair to say the vast majority of the 2 gigawatts incremental 2 gigawatts you plan to deploy by 2029 are likely all -- most, if not all, going to be deployed for data center operators? Or just curious on your thoughts on the end markets for your power gen equipment. Ron Gusek: I would certainly say, Eddie, that relative to my comments on this call last year, where I said I thought we'd probably be primarily C&I opportunities, maybe some oil field electrification as the largest slice of the pie ultimately growing into data centers. The reverse is true today. Certainly, the large percentage of the assets that we will deploy projects that we will take on will be in the data center space. But we are absolutely still pursuing a number of C&I opportunities. There still continues to be this desire to electrify operations in the oilfield and we are at the table for a number of those conversations as well. So I don't want to suggest that those have gone away by any stretch of the imagination. But to your point, they will represent the smaller piece of the pie relative to the data center opportunities in front of us. Edward Kim: Understood. Understood. That makes sense. And then shifting over to pricing. In the past, you've talked about for some kind of the longer-term opportunities, like, say, 10 or 15 years maybe a 5, 6 year payback on the upfront cost of the equipment was appropriate. Is that still your expectation? Or have your thoughts on pricing and payback changed at all? Ron Gusek: No, no changes there at all. I think we still believe that a 5 to 6 year payback is very, very reasonable that we should expect unlevered returns in the high teens. So no changes from what we've guided to in the past. Operator: And the next question comes from Caitlin Donohue with Goldman Sachs. Caitlin Donohue: Can you provide some color on what you're seeing in the market in terms of different size megawatt units as a packaging solution for your customers. I know we've been seeing some of these units come in at 2.5 and 5.5 megawatt units, but there's the possibility of 10 megawatt units coming into the market over time. What is the customer interest in this? And how do you see Liberty potentially offering this over the longer term? Ron Gusek: You're going to see a mix of both of those technologies in our world for sure. We absolutely have a good amount of the smaller high-speed gas engines, the 2.5 and 4.3-megawatt assets that will be a part of our world. The wonderful advantage to those assets is that as a high-speed asset, they're very, very responsive to load dynamics and so they can play a very, very important role in a complex load use situation. They also remove a lot of the EPC risk on location, in that we prepackage those assets. So they come into the Liberty Advanced Equipment Technologies group. We're packaging those up. And that results in relatively minimal construction required on location. They show up in a container. We do a little bit of interconnection work with the central control facility, some plumbing and wiring and whatnot, and you have a power plant ready to go. You transition to that larger medium-speed asset in the 10 to 12 megawatt range. You get some inherent advantages there in that. You have a large, stable platform, a lot of rotating inertia there and incredible efficiencies. You're talking about an asset with a heat rate that's probably sub-7,000, not exactly in line with modern combined cycle but very, very close to modern combined cycle for a fraction of the cost. And so to the point Michael was making earlier around the economics of our power generation, effectively the efficiency of the conversion from natural gas into electricity and the reduced emissions footprint that comes with that efficient conversion. These large assets play an important role in that. You can expect to see on these larger installations, I think the gigawatt type scale campuses, power hauls, 200-megawatt blocks of these large medium-speed engines that are going to be a key piece of that. Depending on the end use case potentially paired with some amount of smaller high-speed engines and then, of course, our power quality system to go along with that to deliver that load. But both of those technologies critical to the path forward, and you're going to see both of them play a very, very important role in Liberty's supply chain and execution going forward. Caitlin Donohue: That makes sense. And then just 1 last quick one on, in terms of that 3 gigawatt number deployment by 2029, is there a cadence that we should be looking for in terms of that deployment over the next few years? Or can we expect it to be a little bit more lumpy as contracts or signed over time? Michael Stock: Yes. As far as -- contracts are signed over time, but it will accelerate from now through to the end of '28 with the and service. That's the way you should think about it. The contract -- you'll hear the contract amounts when the contract announcements are made, but really, that will be defined by the accelerating speed of our supply chain and then our ability to install those in the field. Obviously, when we talk about that 3 gigawatts by 2029, given the time frame of our shipments arriving, you take you take ownership in Europe, you've got to ship them to the U.S., you've got to move them to side. We will have -- it's not like we are stopping in 2029. So 2029 will continue to accelerate beyond there. We've just had our '29 announcement. Operator: I will now turn it back to Ron for closing remarks. Ron Gusek: I received an unexpected letter this past Friday. It was from a woman named Nancy, and it came to me through a bit of mistaken identity. As it turns out, the local utility provider where Nancy lives in Massachusetts is also called Liberty and she was writing to the CEO of Liberty to express her concerns with the cost of heating their home. We've since sent the letter off to the correct Liberty with the hope that they will address her concerns. But in her letter, she raises an important issue that I want to close with today. Nancy wrote that she and her husband are in their 70s and living on social security, she went on to say that last month, their gas bill was $226, of which $68 was the gas and $158 was the delivery charge. This month's bill was $319, of which $102 was the gas and $217 was the delivery charge. She pointed out that the delivery charge is more than 2x the cost of the gas and wanted to know why. One in 3 American households today experiences energy poverty or the inability to access sufficient amounts of electricity and other energy sources due to financial constraints. And yet, States like Massachusetts continue to settle their residents with additional financial burden in the pursuit of net zero targets and other similar energy initiatives, a program called Mass Save in this case which is an integral part of the state's plan to become carbon neutral by 2050. The cost of this program is carried by the rate payers, people like Nancy and her husband through a fee added on to their cost of delivery for natural gas. People in Massachusetts have seen their gas bills climb by as much as 20% or out $60 this month in Nancy's case directly because of this program. Net zero policies raise energy costs for American families and businesses, threaten the reliability of our energy system and undermine energy and national security. They have also achieved precious little in reducing global greenhouse gas emissions. The fact is that energy matters. It's what keeps people alive on weekends like this past one, putting families in a position where they are forced to choose between a comfortable or even safe indoor temperature and putting food on the table is simply unacceptable. And state mandates like Mass Save are only amplifying this issue. Liberty turns 15 this year. I am incredibly proud of the Liberty team for the significant contributions we've made over those years to enable and advance, the shale revolution, a step change in U.S. energy supply that ensures abundant, affordable, reliable energy for families like Nancy and her husband. I am equally energized by the opportunities ahead to carry on this important work, continuing to grow our core oilfield service this business while also expanding our new and growing LPI business to provide the necessary power for growing data center demand, helping ensure American families also have abundant, affordable and reliable electricity to meet their daily needs without hardship. Thank you, everyone, for joining us today. Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Joseph Ahlberg: Good morning, and a warm welcome, everyone. Today, we present the fourth quarter and the full year results for 2025 for the H&M Group. My name is Joseph Ahlberg, and I'm Head of Investor Relations. Before I hand over to our CEO, Daniel Erver, let me briefly outline today's agenda. As usual, Daniel will start with a high-level overview of the quarter and the full year. This will be followed by a more detailed financial review from our CFO, Adam Karlsson. Daniel will then highlight strategic progress, priorities going forward, and Adam will share a financial outlook. We will close the conference with a Q&A session, where Daniel, Adam and I will be available to answer your questions. So with that, please welcome Daniel. Daniel Erver: Good morning, everyone, both those of you joining us here and those of you joining us online. Today, I'm concluding my second year as CEO of the H&M Group. And with that, I feel confident that we are on the right track. I want to start by saying that the progress that we saw in the third quarter has continued into the fourth quarter across several key areas, even though the world around us continues to be uncertain. Sales in the quarter increased by 2% in local currencies. We increased our operating profit by 38% in the quarter, corresponding to a margin of 10.7% for the quarter. This increase was mainly due to a further strengthening of our customer offering as well as maintained good cost control and an improved inventory efficiency. Looking at the full year 2025, it shows a solid progress across all our key areas, and we continue to strengthen our foundation for future profitable growth. The sales trend was positive over the year as a whole and profitability strengthened during the second half. For the full year, sales increased by 2% in local currencies and our operating margin increased to 8.1%. Earnings per share increased by 5% during 2025. And according to the first preliminary figures, we see that we have reduced our CO2 emissions in Scope 3 by 30% compared to the base year 2019. Overall, these results confirm that we are making a solid progress towards all our important long-term targets. I will now hand us back to you, Adam, and you will take us through more of the financial numbers, and then we come back to the strategic outlook for . Adam Karlsson: Thank you, Daniel, and a warm welcome, and good morning, everyone. As Daniel highlighted, we have a strong foundation to build on as we have made solid progress during the year. So let me take you through some of the key financial developments for the fourth quarter and the full year. In the fourth quarter, sales increased in local currencies by 2%. And for the full year, sales also increased by 2% in local currencies, confirming a stable underlying trend. We saw sales increasing across a vast majority of our regions in both Q4 and the full year. Online continued to perform well. The sales development should also be seen in the light of 4% fewer stores compared to last year, and we have now also concluded our closures of Monki physical stores. As we're showing a stable trend in the underlying sales performance, the appreciation of the Swedish crown has negatively affected the reported numbers versus last year and with a currency translation effect as big as 7% during Q4. And given the current FX situation, this effect is expected to be even more negative in the first quarter of 2026. The positive gross margin trend that we saw in the third quarter continued into the fourth quarter with 130 basis points year-over-year improvement. After this strong second half year, we reached a gross margin of 53.4% for the full year. The majority of this development was supported by our improvement work in our supply chain, where the sourcing excellence work and the initiatives drives gross margin improvements. External factors affecting gross margins were positive in the quarter. In the fourth quarter, selling and administrative costs decreased by 3% in local currencies compared to the same quarter last year. As mentioned, cost control is and remains an important focus across the organization. And just to highlight a few of the key drivers behind our improved cost base throughout 2025, I'd like to mention logistic efficiencies. We have continued ongoing renegotiations of lease agreements. We have strengthened our indirect sourcing and also found more effective and efficient ways to use our marketing resources. Operating profit increased significantly in the quarter and operating margin for Q4 was 10.7% compared to 7.4% during last year, an improvement of 330 basis points. For the full year, operating margin increased from -- increased to 8.1% compared to 7.4% last year. And with a strong profitability improvement in the second half of 2025, the long-term rolling 12-month trend continues in a positive direction towards our long-term profit targets. This development comes as we sharpen focus on our core business, as Daniel was outlining, strengthening product, our experience, our brand and with a firm focus on cost control. Inventory productivity improved during the year, and we ended the quarter with a stock in trade in relation to sales of 15.5% compared to 17.2% last year. This improvement reflects the strengthened demand planning capabilities, more efficient buying and overall good stock management. The composition of the inventory is good. Looking at the long-term trends for gross margin and stock in trade relative to sales, we continue to strengthen both of these measures during 2025 and particularly in the second half. Looking at the graph, you see the dark gray line representing the quarterly gross margin and the light gray line representing the stock in trade versus sales development. And as you can see, the gross margin trajectory continues towards what we have previously discussed as normalized levels. Leverage has been maintained inside the H&M Group's net debt-to-EBITDA ratio, and that is 1 to 2x. In the fourth quarter, we proactively secured a long-term financing with an 8-year EUR 500 million bond at attractive terms under our EMTN program. And with that, we have continued high degree of financial flexibility and liquidity buffer, and that makes us able to navigate the volatility and set us up to be well positioned for capturing future opportunities. Cash conversion remains strong, and it's helped by active working capital management where we have seen good progress. And in order to distribute surplus liquidity and thereby adjust the company's capital structure, a share buyback program was initiated in November, and it was concluded by the 23rd of January. The Board of Directors are proposing a dividend increase to SEK 7.1 per share for 2025. And if approved by the AGM, it will be split into 2 installments in May and November as in previous years. So before handing back to you, Daniel, to summarize, we strengthened our gross margin in the second half. We improved inventory productivity, and we delivered strong cost control. Together, these factors supported a significant improvement in the profitability for the quarter and enabled a positive margin development for the full year. So with that, I'll hand back to you, Daniel. Thank you. Daniel Erver: So throughout 2025, we have continued to focus on what matters most to our customers, and that is really offering great products, inspiring customer experiences and building strong brands. On the product side, we have made improvements in several foundational areas during the year. We have made our product creation process more effective by a number of things. We have strengthened creativity and craftsmanship. We have improved our demand planning. We are working on becoming faster in our decision-making by strengthening how we spot and analyze trends and through a closer collaboration with our suppliers, as you already have mentioned, Adam. Combined, these different initiatives helps us to respond better and faster to customer needs and strengthens our availability to deliver more on-trend current fashion. At the same time, we have also continued to develop our customer experience across all of our channels. During the year, we have completed a comprehensive upgrade and rollout of our online store across the globe, where we offer more inspirational content, better product pages and improved search functionality. And that has been very well received by customers, and that has led to a strong sales performance in the online channel during the year. We have also, while improving our digital experience, accelerated upgrades across our physical store portfolio, including improvements in both technology layout as well as product presentation. We will continue to optimize our store portfolio. And for 2026, we see and estimate that the sales effect from the optimization will turn around to become slightly positive in support of our sales. In addition, we will continue with our digital expansion as well. In August, we reached a really important milestone for the H&M Group when we launched the H&M brand in Brazil. The pride of our teams and the excitement in the eyes of our customers clearly showed us that our elevated customer offering, inspiring experiences and a strong brand truly resonated with the local Brazilian consumer. During the fourth quarter, we continued to strengthen the physical presence with several other exciting openings in key locations across the globe. We opened new stores in Athens, in Los Angeles as well as in Shanghai, where we reopened our store on Huaihai Road, giving new life to a really iconic location for H&M. Another example is our new store in Le Marais in Paris, where we are offering our customers a more curated and both assortment and experience. And in October, we opened a fantastic new concept store in Seoul in the historical district of Seongsu. Creativity and brand strength remains central to our strategy as we move forward. And during the year, both the H&M brand as well as COS presented their autumn/winter collections at the fashion weeks in London and New York. And I particularly want to highlight and point out that this was important for 2 different reasons. Both it shows our fashion credibility that we can show up at the world's most important fashion weeks as well as it enables us to reach audiences and engage them in relevant social channels in a way that we haven't done before. And here, you see a few examples from our London fashion show with the H&M brand during September. During the year, we also entered several important external creative collaborations, continuing our ambition to democratize great design and make it accessible to the many. In November, the H&M brand launched a well-received designer collaboration together with Glenn Martens, who is the highly regarded Creative Director of Maison Margiela and Diesel. H&M also announced that we will launch a new collaboration with Stella McCartney during the spring of 2026. I'm very proud together with the team to make real progress in reducing our climate impact. Since 2019, we have reduced our CO2 emissions in Scope 3 by around 30% compared to the 2019 baseline. That puts us well on track to meet our science-based targets to reduce emissions by 56% 2030. And these results did not come from one single initiative. They come from a hard work of integrating sustainability into how we run and operate our business on a daily basis. So to achieve this, what we have done is we have increased the use of lower impact materials such as certified recycled or organic fibers. And we are decarbonizing our supply chain by working differently with our suppliers. This means that we have fewer but stronger partnerships. We have suppliers that we want to grow with long term, which is possible for us to offer them more stable volumes and better visibility of what to expect from us. And in return, that leads to them investing in renewable energy, more energy-efficient processes and a phaseout of coal. This close collaboration is truly what makes the difference. When business and sustainability come together, we can truly reduce emissions at scale and show that fashion can be both affordable and sustainable at the same time. And the impact of the work that we've been doing is not only obvious in the results, the work we do both for climate but as well as for all the other sustainability areas. The work is also being recognized externally, where we are seen as one of the leaders in the industry, as you can see here on the slide. Firstly, the report, what fuels Fashion 2025 by Fashion Revolution. In this ranking, H&M, we were ranked as the #1 out of 200 major fashion companies for our public disclosure on climate as well as energy. Secondly, you can see the Stand.earth, who ranks us as #1 out of 42 different fashion companies in their 2025 fossil-free fashion scorecard, and that's for the second year in a row. Thirdly, you can see the NGO Remake 2024 Fashion Accountability report that rates 52 different fashion companies in 6 different categories. And here, we came out on the second place overall. And finally, we were just A listed by CDP for our work on climate as well as water. CDP is one of the world's leading environmental disclosure system that assesses thousands of companies each year. So before we wrap up, I want to take the opportunity to have a look with you on some of the key highlights that we just talked about that has happened during 2025. So please enjoy a very short film on what has happened. [Presentation] Daniel Erver: 2025 was a year that was characterized by both geopolitical and economical uncertainty affecting both consumers and as well markets in general. And we see similar conditions continuing into 2026, which underlines the importance of us having an effective organization with short decision-making paths being close proximity to our customers and having high flexibility as well as you spoke about Adam's strong cost control. Looking ahead, we will continue to strengthen the foundation for continuous profitable and sustainable growth looking into 2026. Our focus will remain on what's most important to our customers, and that is to always offer the best value for money. We will continue to expand into growth markets such as Brazil and other parts of Latin America, for example. We are also happy to share that we will reopen the H&M location here in Stockholm on the iconic location of Hamngatan later on this spring. And alongside investments in new markets and upgraded customer experiences across many of our existing stores, we will also continue to invest in our tech infrastructure. By enabling a more data-driven decision-making and increased use of AI, we will be able to make better informed decisions, which will strengthen our flexibility and further enhance our creative capabilities. Altogether, that will help us to deliver a more inspiring, relevant and competitive customer offer. So now back to you, Adam, for an outlook -- financial outlook at 2026. Adam Karlsson: Yes. Just try to frame the year then in terms of how it will potentially affect our numbers then. Starting with the gross margin. Our sourcing excellence initiatives continues both in Tier 1 and through the Tier 2 supplier base. We see that the improved inventory productivity enables lower need for end-of-season clearances. But as you were also pointing out, Daniel here, we see a weak consumer sentiment, particularly in many of the European markets, and that could drive an increased need for temporary activations and deals. For the first quarter of 2026, we assess that the overall effect of external factors to be somewhat positive compared to the corresponding period last year. However, the cost impact of tariffs that we've already spoke about and that we've already paid are now starting to fully funnel through into our cost base. We see that we have a somewhat increased cost pressure for 2026, for instance, coming from a low level of one-offs in the cost base for 2025 and connected to the implementation of new tech infrastructure in 2026. Our focus remains on enabling a continued strong cost control and through further efficiency measures that, for example, are including continued rationalization of our store portfolio, implementation of a more efficient organization and of course, continuously allocating resources to the highest area of impact. With this, our ambition is to grow sales and admin costs at the low single-digit levels, and that will continue into 2026. Daniel, you pointed out currency volatility. It has continued also into 2026. A stronger euro versus U.S. dollar contributes positively to the gross margin. And this factor positively contribute as one of the external factors in the gross margin development for the fourth quarter and also affects our outlook for the first quarter in 2026. However, then the opposite, a stronger Swedish crown leads to negative currency translation effects. This affected our result in the fourth quarter and is expected to have an even greater effect on the first quarter based on the current FX development. We continue to implement demand planning improvements. We continue to strengthen our in-season buying. We continue to improve availability in our warehousing network. And we have an investment frame of SEK 9 billion to SEK 10 billion throughout 2026. And just to point that where the main investment will lie, it will continue to be in the store portfolio and investments in the tech infrastructure that will now lift to be the second biggest area. After a high period of investments in the supply chain, we are now deploying new warehouses during the year, leading to increased availability and flexibility through across our channels. So that was a broad outlook into 2026. And with that, over to you, Daniel. Daniel Erver: So all in all, we know that we have more work to do and that we are not done at all. But the progress that we have made so far, combined with a clear plan for where we're moving ahead, gives us confidence that we are moving in the right direction and that we are making progress across all of our long-term targets. I'm proud of what we have achieved, improving our results, our financial results while also staying true to our long-term climate ambitions. And at the center of that progress are our people. It's our great teams that I and colleagues that I meet in stores, warehouses, offices around the globe that truly makes this possible every day. Driven by creativity, engagement and shared values, all of us, we worked really hard to offer fashion, quality and sustainability at a price that is accessible to the many. Thank you for listening. And then we will now go to the Q&A. So Joseph, will you take us through? Joseph Ahlberg: I will indeed. Thank you, Daniel. We will now start our Q&A. We will begin with questions from participants in this room and then open up for questions from the telephone participants. [Operator Instructions] With that, we start with the gentleman to the right here. Niklas Ekman: Niklas Ekman here from DNB Carnegie. I guess the biggest surprise in the results here was the low OpEx. Can you elaborate a little bit here on the reasons for the decline? And you just said here at the end of the presentation that you expect a single-digit increase of SG&A during '26. So I guess this is not a lasting impact. Is this due to a reduction of one-off items or anything? Just if you can elaborate a little bit on that. Adam Karlsson: On top of the more sort of structural improvements that we've done throughout sort of logistic efficiency, how we operate our stores and how we improve sort of marketing productivity. We have also improved because of the work that we've done in the supply chain, the levels of write-downs and also somewhat affecting the result in the fourth quarter, the depreciation level. So it's -- some of those effects are more sort of isolated connected to Q4 effects, and that is where sort of they end up in the book and I think reinforces the overall trend we have in the more general OpEx development. So I think that is the area to highlight connected to the development in the fourth quarter. Fredrik Ivarsson: Fredrik Ivarsson, ABG. Question on the start of Q1, minus 2% December, January. Can you say anything about the sort of momentum through those 2 months, whether maybe January was a little bit stronger than December? Daniel Erver: So when we guide for current trading, it's always important to take that number with caution because on that short-term perspective, there are so many different short-term effects affecting the trading. So there are a number of effects that are, I think, good to be aware of when we look at -- when we looked at the first quarter development. On one is we see a shift in the market around Black Friday. We see Black Friday becoming Black Week. We see 11/11 Singles Day becoming a phenomenon. That also helped us to drive a strong end of the fourth quarter with a strong performance in the fourth -- in November, and that had a muted effect on the start of December, which we could see across the markets, but also for us. So that's one effect. Then there is a calendar effect in Q1, the fact that the Chinese New Year is in February this year that was in January last year. So that has a significant effect on the number. Then we have seen muted market demand in some of the large European markets that are important for us. We see that in public numbers and figures for Central Europe. We also see it in some of our competitors reporting. And we believe that we are performing better than the market, but the market sentiment has gone down in Central Europe. And then the last thing to be aware of is we -- looking at the U.S., we speak about the report that we went into the fall with a very prudent planning, given everything that was happening around tariffs and with a big respect for the U.S. consumer. We've seen that the demand has stayed very strong, and it's positively surprised us, and we haven't been able to fully supply to that demand. And that we worked hard on using the flexibility that we have in our supply chain to really catch up on the supply, but that also have a spillover effect into the first quarter, which is a quarter that is a lot about reductions of the fall season. So those are the different components that we think are important to take into account when we look at Q1 trading. Fredrik Ivarsson: And also quick, if you could reflect on the marketing investments you've done during the last few years and then maybe especially if you have seen any great impacts on younger generations? Daniel Erver: So the marketing investments, we believe, are truly important. As a brand, we have all of our brands, but especially the H&M brand has an important job to always attract and onboard new generations that are coming and marketing plays a crucial role in how we keep the brand interesting, that there's a heat around the brand. So we're happy that we do invest in marketing to be resilient for the long term. We did start and as you know, when we -- in 2024 with increasing the level of investments. And as we have moved ahead, we have learned. So in the beginning, it was a lot about the brand position at large. When we came into 2025, we shifted more into using our product and the product offering as the core engine of marketing. And that's why we decided for the first time since 2004 to put the H&M's main collection on the catwalk at London Fashion Week because we see that we get a stronger efficiency and effect out of the marketing when we tie it closer to our product offering. And that's -- that has helped us, as Adam mentioned, to continue to stay very active and see marketing as a tremendously important tool, but improve the efficiency, and that work will continue into 2026. Daniel Schmidt: Daniel from Danske. Previously, you have singled out the performance in different sort of gender segments. Would you shed some light on that, womenswear, kids, men's in Q4 into Q1? Daniel Erver: So as we talk about also today, product and the product offering truly is the most important for our customers. And we worked really hard, as we mentioned, on a lot of different areas to improve how we leverage our creativity in craftsmanship, how we improve the supply chain, how we improve trend precision. And that work started within womenswear, and that's where we started to see effects during 2025. And it has performed really well during 2025. As we come out of the year, we start to spread those learnings and that development to all the customer groups. So we expect to see effect from the learnings we made on womenswear also spreading to the other customer groups throughout 2026. Daniel Schmidt: Is it sort of kids before men's? And I think you've said before that kids are maybe 1 year behind in terms of spreading the learnings. Daniel Erver: I think we have assessed that doing work at that scale as we have done in womenswear, it probably takes a year. And sort of as we started the work in womenswear, it takes some time to catch on. But we don't -- we see no need for holding menswear back as we accelerate kids, they can accelerate in parallel. Daniel Schmidt: But are you seeing that sort of the learnings being translated into kids and men's? And is that now having an impact? Or is that still too early to see a real impact? Daniel Erver: We're starting to see really positive receipts and indications, especially looking at the new spring season that has come in that we start to get traction on menswear and kids wear -- that makes us confident that they will benefit from the same development as ladies did. Daniel Schmidt: Yes. And then just maybe a question for Adam. You mentioned the tech investments. Is that going to be evenly spread through the year? Or is that sort of front-end, back-end loaded in any way? Adam Karlsson: We will see an elevated level of investments coming into the end of '26. And then we believe some of these things that we're doing, changing sort of the fundamental ERP systems for a group and so forth will take multiple years. So I think we will see the first beginning of it in this year and then will be fairly evenly spread over the coming years. So it's more of a late '26 effect for this year, but then ongoing on an elevated level to capture this potential that Daniel was speaking about, AI improvements and such. Daniel Erver: We have invested significantly in our logistic network, and we start to see that, that comes to life and start to generate benefits in '26 and then that investment level goes down as we ramp up the tech investment. And that's not only for necessity, it's really to build the foundation for future success for H&M that we need to do these tech investments. Joseph Ahlberg: So with no further questions from the room currently, let's hand over and receive some questions from telephone participants. Operator: [Operator Instructions]First question comes from Adam Cochrane with Deutsche Bank. Adam Cochrane: First question, you're talking about your supply chain improvements. Can you just try and either quantify or at least qualitatively describe what the -- what you're doing in terms of the supply chain improvements, what it means for the customers, the speed of lead times? Just a way of thinking how much have you done on it compared to where we were? And how much have you still got to go looking forward? Daniel Erver: So we're doing a number of different things when it comes to supply chain. One important thing we spoke about that helps us both with the speed, with the quality as well as sustainability is to consolidate our supplier base, where we work with fewer, but really the best suppliers out there, and we build long-term strategic partnership with them, which helps us both to improve the product making, but also price quality as well as sustainability. So consolidating the supplier base and improving the way we negotiate and build strategic partnerships is one important piece. That also allows us to leverage some of their capabilities and strength when it comes to trend detection, design, supply and leveraging some of their best capabilities to a bigger extent helps us to further improve our entire sort of flexibility and speed of reaction. Then we are working with improving the way we forecast demand and then how we build a strong logistics network to match supply to that demand and that is leveraging data and now further on looking to leverage also AI into that process to become much more precise in how we forecast demand down to every single stock node, and that helps us to better match supply to that demand. So -- and then we work intensely with our design teams here, which is also part of the supply chain on improving their trend forecasting capabilities, leveraging their craftsmanship, giving them AI tools that really can enhance their creativity at scale. So those things combined helps us to reduce lead times. And as we talked about before, we don't need to reduce lead times everywhere, but in certain product lines within certain categories, that speed and flexibility is tremendously important, and that we can really make sure that we within 5 to 6 weeks can take a product from idea to the shelf and present it to the customer. So on the cost side, we have come far. It's been a big part of how we have been driving the -- gross margin improvement has been through the sourcing excellence initiatives that Adam described. But as we also mentioned, we see continued potential into 2026 and beyond on how we work with both Tier 1 and 2 suppliers on that side. When it comes to leveraging the capabilities and developing our own capabilities for being more reactive and more relevant, I think we have taken one important steps, but there are several more important steps to be taken to further improve the current fashion level of the collections that we present to our customers. I don't know, Adam, if you want to complement this. Adam Karlsson: But also mentioning the investments that we have done in the sort of just pure logistic network also enables us to stock pool effectively and not to be sort of channel-specific in how we steer the stock. So it's, as you said, a full end-to-end approach that we're taking, everything from leveraging data in our creative processes to enabling just physically simplifying that we ensure that the stock is supporting the customer in the right place at the right time, so... Daniel Erver: And the tech investments that we speak about will also heavily focus around not only, but to a large extent, also around supply chain improvements and new capabilities. Adam Cochrane: Are those in supply chain changes, do they go across all of the cost of goods sold, all of the products that you're doing? Or is it only at the moment, a limited proportion of your products and there's still some to come? Daniel Erver: It goes across all. But I think, as I said, there is some potential that we have captured and more potential to be captured still, but it goes across all the categories. Then there is different benefits in different product categories. If you look at Essentials and Basics that have a very high predictability. It's more about having a good safety stock, high availability, low cost of transportation. That's where we can optimize. And then if you look at the latest fashion is, of course, to make decisions later with better data, which reduces the fashion risk and increase the precision. Adam Cochrane: Great. And the second question I've got was really the market we're hearing from some others is that they're having in Europe, particularly to invest more of the gross margin gains into pricing, maybe the market has become more competitive. Chinese retailers or others. How are you thinking about -- you've obviously got your gross margin external factor gains coming into 2026. You've got to make some investments into OpEx. How are you balancing the equation with thinking about investing gross margin to get that top line moving in the current customer environment? Is it something that you can do with regard to pricing and promotions to stimulate demand? Do you think that's likely to happen? Daniel Erver: Yes, that was what Adam mentioned. So we have a couple of factors working in our favor. It's the external effect on the gross margin, but it's also a lot of the improvements we do ourselves in the sourcing excellence work. But then it's also the fact that the collections have been very well received by the consumer, which allows us to sell a wider range of products and also helps us to reach a much better stock composition. And coming out of the fourth quarter, we also see that we have a very healthy stock level. So as Adam said, we don't need to use as much of promotion investments to solve overstock because the stock is very healthy and the collections are being well appreciated. But we do see a given the muted demand and that there is a large part of the customer base who is really looking for making not only great value for money, but also finding -- making a great deal and finding products at discounts. So that's why we are using reductions as a lever to drive top line and stimulate that demand. If you look just at how collection has been received and how our stock levels, we could be more aggressive in reducing the reductions, but we do see a need that we need to stimulate the demand. Adam Karlsson: And on the investment side, that's where we also reiterate -- our speaking about normalized gross margin. So we don't aim to have a gross margin elevation, I mean, to the stars given the somewhat temporary external factors, but we'd rather take that and as what you said and then reinvest in the product, so to say. But there's still some improvement potential in how we work, but then also that allows us together with external factors to reinvest in the product to strengthen the customer offer. Operator: We now turn to Vandita Sood with Citi. Vandita Sood Chowdhary: The first one was just on the CapEx. So I think it's -- you guided to SEK 9 billion to SEK 10 billion, which is lower than this year. And I know you've commented on sort of completing the supply chain investments, but you're ramping up tech. But I guess it's still a bit surprising in the context of a net positive contribution from stores. So just wondering if you can walk us through your plans for CapEx. Adam Karlsson: Well, if we then divide it from the top then, so we will see a lower level of closures this year and a higher share of new openings. And then we were pointing out some of the markets we continue to invest in. Then we are also finding ways to leverage learnings from sort of rebuilds over the last couple of years to really deploy that into many stores and make many customers get the upgraded shopping experience. And that allows us to be sort of CapEx effective during 2026, but then, of course, leveraging the learnings in an effective way. Secondly, we have the logistics side that has been on elevated levels, both '24 and '25, and that is more of a cyclical level. Now we're sort of seeing that we have a very strong setup that will be started to take into operations during end of the year that allows us for the benefits that we're outlining then with flexibility and availability. And thirdly then, tech is also somewhat cyclical. During 2018, 2019, we did big sort of fundamental investments in our online platforms. Now it's time again to do those and also leveraging a lot of the new technology that comes to ensure that we are future-proof here. So we're shifting focus to ensuring that the core of our technology is future-proof, and that is also somewhat cyclical. But it's, at this time, countercyclical towards the logistic investments. So the net effect will be negative as the elevated levels are coming down on the logistics side. And as I mentioned, the increase on the tech side is starting this year, but it's likely to increase on a somewhat elevated level also into '27 and '28. I don't know if you want to add anything on. Daniel Erver: I think you can connect to the store portfolio. I think we spoke with that before that we are opening as well as closing stores. The stores that we are opening are stronger than the stores that we are closing. So -- and now we come down given that we are moving out of a period of high level of consolidations, both with Monki as we closed the last Monki physical store this year and also coming into a lower level of closures in Asia, the net effect becomes positive. And then we have worked with the team intensely on how do we build an exciting, inspiring physical store experience. And part of that is completely rebuilding a store, which is high CapEx intensive, but part of it is also identifying what are the key levers that really makes the difference for the customer and their perception and picking out some of those pieces and putting that into a program that can reach a further -- a much larger part of the portfolio is the work that we initiated in the end of 2025 that would spread into 2026. So that means that we'll touch a lot of stores, but at a lower CapEx level than if we would go through with a full level rebuild where we sort of clear out ceiling, flooring, HVAC and everything. Now we're going to touch the key value drivers instead. And that allows us then to touch more customers and their experience. Vandita Sood Chowdhary: And just one more sort of more long-term question. You also own Sellpy. Could you just comment on how you see the increasing sales in the customer-to-customer platforms and the resale market and if you're seeing any impact on that in the first-time market? Daniel Erver: No, we see an increasing consumer interest and the behavior shifting to be a more natural complement to the first-time market is how you shop secondhand. And we are really proud and grateful to have Sellpy as a part of our group, and they have delivered a very strong year when it comes to growth, tapping into to that shift in customer sentiment. We see it in Northern Europe, but we also see a very strong year in Central Europe for Sellpy, which is great to see. And we see, of course, on the site -- so Sellpy is not the peer-to-peer. That's sort of a well-managed service, which makes life very easy for the customer where you sort of have your garments picked up, you have them sold for you and you're part of splitting with the profit, which makes it very easy to reuse your wardrobe and be more sustainable. And it also is a clear customer benefit of having a monetary sort of gain from doing it. The peer-to-peer, we see are accelerating. We are -- have a few venture investments in our venture into peer-to-peer platform because we see that is also a great service for the customer and that we will see continuing. But we are monitoring through Sellpy and through our venture investments, how the market is developing. And we are continuously looking at how can we combine these 2, where does it make sense to combine it for the customer behavior and where is it more that it runs in separate channels. But it is an interesting development and a development that we see as very positive that our garments are made to be used many, many times and they can be used through generations and having more ways for the consumer to do that is something very, very positive for our long-term transformation. Operator: Now I'll turn to Richard Chamberlain with RBC. Richard Chamberlain: I've got 2 questions as well, please. First one is around FX. Obviously, there's been some quite extreme FX moves going on with a stronger SEK and a stronger euro against the dollar and so on. And I wondered if you can talk about how you approach pricing in that environment, especially in markets where the currency has been particularly weak against the Swedish crown and whether you're trying to sort of smooth some of that pricing impact out for this year? Daniel Erver: Should I start and then please fill in. So for us, the most important thing is to always offer the best value for money and be truly competitive so that all customers coming to us can feel really confident that they always make the best deal and get the best value for the money they spend when they come to us as the combination of relevant fashion, quality, price and sustainability. So that means that we are monitoring our positioning in the market, assessing the strength in our customer offer, how strong are we? And based on that, we are adjusting our price positioning. We are not adjusting price in markets that are euro markets or dollar markets because of the SEK strengthening. We are looking at each individual market because that's the market where our customer lives. And then, of course, those markets are shifted depending on how their currency is affecting inflation and the local market position. But we are not -- by being a Swedish company and translating into SEK, our top line, we are not making currency adjustment because of that. We do it from the end of looking at the competitiveness and the strength of the customer offer that we want to see in each market. Adam Karlsson: So our hedging strategy then supports that way of thinking. Richard Chamberlain: Got it. Okay. Brilliant. And my second one is on the U.S. performance that looks to have been a bit sluggish in Q4. I think you mentioned that you felt you're a bit tight on stock availability there. Are you now building back stock availability in the U.S.? Do you think it will -- it sounds like there's still going to be some effects in Q1, but are you expecting that to be sort of more normalized by the end of this first half? Or should we still expect a pretty cautious sales outlook for the U.S. market? Daniel Erver: So when we looked at the U.S. this spring with all the changes that were happening around tariffs and the situation, we decided to apply a prudent way to approach the U.S. And then we were positively surprised by the continuous demand for our offering and the resilience of the U.S. consumer. And then we have used the flexibility that we built up in the supply chain to gradually catch up on the supply to match it better to the demand, but there is a delayed effect. And we see now looking at the spring season that we have a better composition and a better supply in the U.S. But with that said, U.S. continues to be a very volatile market. We have seen a very high level of inflation and price increases in the U.S. markets across competitors. So -- we are accelerating supply, but we are still monitoring to make sure we don't pivot to the other side of overallocating to the U.S. But we see that the composition of the spring season is better fit to the demand expectations that we have for the U.S. Operator: We now turn to William Woods with Bernstein Societe Generale Group. We will now turn to Georgina Johanan with JPMorgan. Georgina Johanan: I have 2 questions related to the gross margin, please. The first one was just in terms of the tailwinds from external factors that are coming through. You've obviously been very clear that there's tailwinds in Q1, but less so than in Q4 if we include tariff effects. As we go through the rest of the year, would you expect the magnitude of that tailwind to widen? Or actually is Q1 like sort of a peak point for that tailwind, please? And then my second one was just in terms of the translation drag on the gross margin that you call out. Is it possible to quantify what that was in Q4, please? That's something I at least find very difficult to estimate. Adam Karlsson: Yes. So looking at the external factors, as we have called out, we have seen that some of those were positive in the third quarter, also in the fourth quarter, but somewhat less positive than in the third quarter connected to increased cost for tariffs that we have been paying throughout the year. And that sort of trajectory continues also expectedly into Q1, where we maintain an overall positive impact from external factors, but on the margin, more cost impact from tariffs. Overall, looking at 2026, it is positive outlook from the start of the year and with the visibility we have from these external factors. So currency, freight, materials and so forth, looking net positive, also including tariffs. Then to your second question connected to the currency translation drag. Here, we have seen a -- connected to the strengthening of the Swedish krona and increased impact sequentially in the fourth quarter compared to the third quarter. As we have disclosed, our sales impact from currency translation was negative of 7% in the fourth quarter compared to 6% in the third quarter. And given how currencies have developed so far in this quarter, we also see that this could be also a more negative impact in the first quarter compared to the fourth quarter. So that is what we're seeing. And since we are calling out this effect, it does have a significant effect on the reported outcomes. Georgina Johanan: Just one follow-up, if I may. May I check, does that external tailwind, does that get larger as the year -- as this year progresses? Adam Karlsson: It's very difficult, of course, to predict where it's going. But we had a very sharp drop and a sharp difference, at least in the effects that we ended your answer with the SEK to the U.S. dollar. So that was very sharp during the first quarter of last year with then yes, difficult to predict, but we will have a big effect in Q1 and then potentially a less negative relative effect throughout the rest of the year. But that's only sort of speculating, of course, in how the currencies will move. But we are assessing the situation that we're meeting a sharp drop in the first quarter. So that is what we have visibility on right now. Operator: We now turn to Sreedhar Mahamkali with UBS. Sreedhar Mahamkali: Maybe just a couple from me then, please, both on margins, just to build on what Georgina was asking. Maybe again, trying to stand back from the detail a little bit. Adam, I think you referred to normalized gross margin and not wanting, obviously, the margins to go through the stock. I think in the past, you've referred to 54% to 55% being the sort of what you see as normalized gross margin and that being consistent with a 10% operating margin. So maybe just if you can take a look at it that way, it feels like this is a year where you could be at least at the lower end of that 54% to 55%. Then the question is, how do you sustain it is an important one because clearly, there's a lot of volatility, a lot of moving parts here. So even if you were to get the 54%, 55%, and that sort of range? How do you sustain it? What are your thoughts there? That's the first one. Secondly, going back to a margin target that we have talked about in the past, the 10% operating margin target. What conditions do you now need if you're already within the sort of thresholds of the normalized gross margin to then achieve the sort of 10% operating margin? And do you get -- is your confidence and conviction in reaching that growing based on what you've seen over the past year? Adam Karlsson: You're starting with the gross margin, you are right that there are opportunities now to continue given the external factors to move in closer to that normalized interval as we were speaking about. But also reinforcing what Daniel said here is that the product is the most important thing we do. So it's not about short-term sort of increase in gross margin. It's to build a stronger long-term offer. And I think that is then the strongest hedge towards gross margin pressure over time that we take the opportunity now to invest in the product to further then improve our stock availability, reducing the need for sort of clearance markdown and over time, then also through the product, strengthen our brand, the pricing power that will sort of help us to sustain gross margin levels over time. So it's -- for us, it's a long-term journey where we have an opportunity now to both, I think, take steps towards the more normalized gross margin level whilst then continuously strengthening the offer and the product and the value to the consumer. So I think that is sort of the long-term strongest hedge we can do connected to volatility. The second question was the 10% margin target. And I sort of mechanically see that if we then move into this range, let's estimate that we have another 100 bps if you're in the middle of that range on the gross margin, that takes us then to plus 9% and then -- or like north of 9% EBIT margin. And then connected to what we also call out that we've been showing that we have the ability despite an inflationary pressure in our cost base to have a sort of positive delta in local currencies in how much sales grows and how much our cost base grows. So that is our clear intention to continue that journey. And that over time, of course, with normalized gross margin levels will sequentially then take us closer to the long-term margin targets. Daniel Erver: While continuing to have strong collections, inspiring experiences -- excitement around -- with the positive sales momentum to make sure that... Adam Karlsson: Absolutely. Sreedhar Mahamkali: Very small follow-up on the sales point. Clearly, externally, as we see, there's quite a lot of volatility in the quarterly sales data that you report. I guess if there is something that you can share perhaps in terms of the loyalty data, customer data in terms of transactions or average selling prices items per transaction. Anything you can talk to that is giving you really are firmly on the right track on sort of rebuilding the sales in H&M brand? Daniel Erver: If you look back to the year, I think we have been posting growth around 1% to 2% and in that interval consistently through the quarters, which is, as Adam explained in the report and higher level of consistency what we've seen in the past, and we attribute that 100% to more appreciation for our customer offer from customers across the board. And what we see positive is that the customers that we have within our customer base really want to trust us in a wider range of categories. And that means they're referring from trusting us not only maybe on basics where we've been very appreciated or in kids clothes, but also trusting us in their sportswear, H&M Move has performed very well, but also trusting us in other product categories like in dresses, in dresses for occasions and that they widen their spend with us, which we see as a receipt that they are appreciating what we're doing. So when looking at the customer base, we see that the loyal customer truly want to widen their spend with us. And we see when we perform well and when we deliver strong collections that are really relevant, they are also very keen on sort of deploying a larger share of their wallet with us. That gives us confidence that we are on the right way, but we really are from our own ambitions, just getting started. We do believe there is much more potential to tap into as we move along in implementing the plan, strengthening our foundation to then further accelerate growth as we look ahead. Joseph Ahlberg: And I think these clear receipts we see across regions and also over time, each quarter, we have seen the same pattern repeating. So we -- with that, we feel this is a clear trend. Daniel Erver: Trend is the right way, but we believe that we have higher ambitions. Joseph Ahlberg: The level can be improved. Operator: And our final question comes from Matthew Clements with Barclays. Matthew Clements: The first question was on Agentic Commerce. Just wondering how you're positioning H&M in that world. The second question was on logistics. You're talking about new European warehouses that you're launching. Just wondering how you're managing that capacity amid relatively muted volumes and what you're looking for from that new logistics capacity. And the final one is on the work you're doing in the assortment relative to how that's being -- how the brand is perceived by customers. So obviously, you've done a lot of work over the last 2 years, investing quality, value, stretching out the high end of the price architecture. But have you seen a meaningful shift in how customers actually perceive the H&M brand? And where is the brand now relative to where you would like it to be? And what are the biggest areas of improvement or future improvements? Daniel Erver: Okay. I'll try to, and then please remind me if I miss any of the questions. So if we start -- what was the first one? Agentic. Agentic -- yes. It's a very, very interesting area that I believe will drive a big impact on how we meet the customer over time. And then as always, with really new disruptive technologies, the speed of adaptation is difficult to assess. But we know that a large amount of our customers, they want to be better guided in how they make their choices. Fashion is fantastic. It's fun. It's energizing, but not for everyone. It also -- it can be painful and difficult to find what you want to wear and how you want to dress. And anyone who has tried to get a little bit of help of any agentic AI know that it's early, but you can start to see the signs of that you actually get help on how to dress, how to express your personality, how to look good. So I think it will drive a lot of change. We are looking at it from different angles. We're looking at for how can we apply agentic AI into our own experience. We have seen the first tests that we have done in improving search, for example, applying conversational search as opposed to just normal keyword search, reduces the amount of 0 search results and sort of increase the relevance for the customer. We see a young consumer being more used to the conversational search pattern. That also helps us to apply many more attributes to the product so that the results can be more relevant and more guiding. So we are working on looking at how can we implement Agentic AI into our own digital experience to better serve and guide the customer. At the same time, we are curiously looking at what does it mean for the customer -- for the consumer journey in what way will they show up to us in the future. How do we make sure that we are present in the journey regardless of where they start the journey. So that is, of course collaborating with Google, OpenAI, with other platforms that are driving that change to see sort of how do we tap into that ecosystem. And that is a very, very, very early stage where there is a lot to be learned and a lot to be seen, but something that we are curious about. And I believe an area where outstanding value for money will become more important than ever that truly our product lives up to standing out from competition when it comes to value. The better the customer becomes of making that assessment, the more important is that we really stand out on the value that we offer in the specific product. So area of big disruption, very, very early stages, and we are exploring it both in our own sort of world, but also in the ecosystem outside of our own channels. Yes. Secondly, logistics. So the key here is to increase availability. We see an opportunity to create better stock pooling, both in general, but also especially between the channels so that we truly can use our omni presence to drive better availability for our customers so that we can use online stock to serve a store customer, that we can use stores as a stock node to serve online customers, and that's a lot of the work we do when we look at the European network, how can we leverage the total stock of Europe to better serve our European customer in improving the availability while we reduce the total stock levels and increase the precision of the stock that we carry. So a lot of the work goes into making sure that we have capacity, but especially that we increase availability. And then, of course, that we make -- this is one area where we need to manage the inflationary pressure on costs, and that's also an important work of the logistic investments that we do in Europe. And then thirdly was... Joseph Ahlberg: The brand perception... Daniel Erver: The brand perception. So we see also that we have taken steps that we get signs that we're moving in the right direction. We get those receipts from customers in the way they act, but also what they say when we ask them in quantitative surveys. But we are not where we want to be yet. We are on a long journey. We are putting the foundations in place. I'm confident that the direction that we have set are taking us towards the right direction, but a lot of the effect of the work that we have started is yet to be seen and a lot of the work that we have not yet started is also yet to be done. So we are starting to take steps, but impact is not yet where we want it to be. We are in 81 markets, and we are changing the perception of a wide demography of customers, and there's a lot of work left for us to be done in that area. Matthew Clements: And just a follow up very quickly on the logistics point to say, are you -- how are you managing capacity across the network? Are you moving capacity from old centers and closing those down? Or what's the management of the network? Adam Karlsson: Right now, we're opening new warehouses to ensure that we have created the -- what we said, the capabilities and the capacities to grow and grow in a way which is then truly then enabling the omni setup we have with stores and the digital store sort of combined and through the customer demand more clearly than served through a more flexible logistic network. Daniel Erver: And we work both how we optimize own operated 3PL as well as where we -- how far we go on automation, and that's different depending on sort of the different circumstances. Full strategic network puzzle that we're working on. Operator: We have no further questions. Joseph Ahlberg: Thank you for clarifying. And I take it we don't have any more questions in the room either. So with that, thank you all very much for joining today's conference and for your continued engagement with the H&M Group. We wish you a very nice day. Adam Karlsson: Thank you so much. Daniel Erver: Thank you.
Johan Akerblom: So welcome, everyone. Today, myself and Masih will take you through our Q4 report, and our strategic review. We will start with the fourth quarter and the year-end 2025, then we will go through the strategic review presentation, and we will wrap up with Q&A. Moving into the fourth quarter, and looking at the developments, we've had a continued underlying business progress in both servicing and investing. We have had underlying costs that continue to go down. And we did take as part of the yearly review, a goodwill write-down, and we did also a tax asset write-down. We continue to focus on deleveraging. And if you look on year-on-year, the leverage ratio has improved from 5.3 down to 4.8. On top of that, we're continuously working on strengthening the balance sheet, and we did announce a sale in January '26 of the remaining stake of our joint venture with Brocc. This will have a positive impact on the leverage when we close it. On the servicing side, we see a continued organic growth. The margins remain elevated and steady, and we have had a strong sales execution in the fourth quarter. On the investing side, collection index continued to be above 100%. We did close SEK 436 million of new investments with an IRR of 18% in Q4, and we have, for the year done SEK 1.2 billion with an IRR of 20%. As you can see on the chart, the service margin has steadily been going up, and it continues up in Q4 as well. In Q4, we have a 31% margin on the quarter standalone. If we look at the servicing income, it's very positive to see 2 quarters now in a row, we have external servicing income growth, taking into account FX-neutral assumptions. On top of that, we continue to increase our pipeline, so we're moving into 2026 with SEK 2 billion in our pipeline. And we have continuously been working on the pricing model and strengthening the sales team. Investing displays another quarter of high collections, and we continue to extract a lot of value out of our portfolios. If we compare it to the original forecast, we're now at 109%. And it's interesting to see that our investing book and the performance on it remains very strong, even though we sold a large part of the back pool (sic) [ book ] in 2024. The ERC as we end 2025 sits at SEK 46 billion. Moving over to Masih, and the financials. Masih Yazdi: Thank you, Johan. So let's go into the Q4 P&L a bit more in detail. So income is down compared to a year ago, 7%. That is almost exclusively driven by FX. The investment book is a bit smaller as well, but a large share of decline in the investment book is also driven by FX this quarter. As Johan alluded to before, we did have a goodwill write-down. It's coming from a few different countries, we had preannounced that at SEK 3.1 billion, it ended up at SEK 2.9 billion, and the difference there is really driven by FX changes from the announcement to the end of the year, as well as some small adjustments to the WACC we use in the goodwill calculations. The adjusted EBIT is largely unchanged as the income decline has been largely offset with cost reductions. And here are the cost reductions, so the underlying costs continue to go down. It's down about SEK 1.6 billion on an annual basis in Q4, if you look at the 12-month trend, and it's mainly driven by personnel reductions. So FTEs are now down at year-end to around 8,500 people in the company. Looking into servicing, as Johan mentioned, so we do see organic growth for the second quarter running, but we do have FX headwinds here. So the income is down 3% year-on-year. But as I said, 1% organic growth underneath the surface. Cost development continues to be good. Here is the area where we continuously do take out costs and plan to do that also going forward, which means that we continue to have a good development of adjusted EBIT, which is up 31% compared to -- so full year 2025 compared to full year 2024. On the investing side, income is down more, 11% year-on-year if you compare '25 to '24 and 17% Q4 versus Q4 2024, very much driven by the fact that we have a portfolio that is shrinking as our new investments are less than what is being amortized. But at the same time, the performance we have, keep performing above the 100% means that the investment book, the income from the investment book is going down less than the size of the investment book, which is obviously a good development that we are extracting more value than what was initially thought in the forecast that we had. On leverage, we see a decline of leverage, 5.3 a year ago to 4.8 at the end of the year. It is marginally going up quarter-on-quarter. That increase is largely driven by the fact that we have improvement on the servicing side, but the cash flow improvements on servicing is not sufficient to offset the decline of cash flows coming from investing. That's the case in this quarter. Obviously, the plan going forward is to make sure that the improvements we see in servicing is more than offsetting the decline coming from the investing side. Johan is going to summarize the quarter. Johan Akerblom: Yes. So I mean, to wrap up, I think we said it all, but Q4 delivered continued underlying business progress. And we've also spent a large amount of time to actually do the strategic review. And I think with that, we move into the next section, and talk about what we have discovered. So let's talk about the strategic review. We have obviously spent a lot of time during the fall to look at where the company is, what the recapitalization entails, but also in terms of strategy and the way forward. I think the previous strategy was done in 2023. Some of the targets that were mapped out then has either been fulfilled or partly become obsolete. The company has changed dramatically. A lot of events that probably wasn't part of the first strategic review in '23 has happened. So it was time to do a strategic review, and really to set the foundation for the way forward. We will take you through what we think is the strategy for 2030, how we will execute, and then finally, what the financial impact will be delivering the strategy. So talking about Intrum 2030, it all starts with a continued focus on deleveraging and derisking. This has been very important over the last year. It will continue to be very important going forward, and it will be one of the guiding stars in everything we do in terms of activities. At the same time, we will also start working on our '26 to 2030 priorities, which are servicing performance, growth acceleration, and expanding our holistic view as an investing partner. When doing so, we will cement our positioning as the leading credit management servicer, and most attractive investment partner in Europe. And this will set a reinforcing wheel of value creation, an emotion, and that will deliver our 2030 financial targets, which are around service leveraging, total cost, and servicing EBIT margin. If we talk about Intrum and where we are today, first of all, we are already Europe's largest debt collector, and we have the scalability. We operate in 20 markets and the markets has slightly different characteristics, and we manage 400,000 customer interactions on a daily basis. We are working with 70,000 clients, and we are, as I said, in 20 countries. And every year, we basically have around 6 million debtors fully repaying their debt, out of 22 million active on an ongoing basis. When it comes to the markets, we have split them into three segments. One is the investing focused markets, which would be the Eastern European markets, Czech, Slovakia and Hungary. Then you would have the specialized markets where we have a composition of the business, which is built on something that has happened in the history. So there you would have Spain, you would have Italy, you would have Greece, and the U.K. And then you have the rest of our traditional servicing and investing markets. The way we operate is with the dual engine. We have the servicing where we collect debt on behalf of the clients, and we have the investing where we purchase debt portfolios either into our own balance sheet or together with the partner. These 2 engines are highly complementary and they're also reinforcing. Moving over to Masih. Masih Yazdi: Thanks, Johan. So already in the last couple of years, there's been a large transition in the company, moving more into becoming a servicer. You can see it in the financials. So the investment book has come down by 40% over the last couple of years. Obviously, a big chunk of that is due to the book sale that was done in 2024. But at the same time as that has happened, we've seen an increase of the external servicing revenue of 8%. The margin has gone up by more than 50% in the same period, and the share of the revenues generated for the company has increased when it comes to servicing from about 1/3 or 30% in '23 to now being the majority of the revenues being generated. And simultaneously to this happening, the net debt has gone down by 23% or almost SEK 14 billion. I think also just to add to this, I think when you make this transition from more of an investing focus to servicing company, you actually remove the business risk in the franchise, which is an important part of the strategy going forward as well. Johan Akerblom: Yes. When it comes to the market environment, we think there are a few trends that we believe are favorable for us. A large reason for why these are favorable for us is that we are a large company in a dominating position in Europe with significant scale. If you look at the competitive landscape, we can see that companies in our industry are specializing more, either becoming investor and servicer, and there are a few that have this full range of services that they offer as we do. On the technology side, this is still a very manual industry, and we know that there is a lot of new tech that has come into the market the last few years and will come into the market the next few years. And it's very difficult to find an industry where this can be more applicable than within our industry. And with the scale we have, we can justify the investments in the technology, because basically, what they do is that they help you with something that is repetitive and scalable, and we think we have a large advantage there. And the same goes with regulation, more regulation means that you need more scale to be able to absorb it and comply with everything that is being introduced. When it comes to the market as a whole, we know that the economy goes in cycles. And with the dual engine we have, we know that those 2 business lines generally offset each other. So when the market is benign, servicing does better, we have an easy way of collecting. And when the market is going down to a rough cycle, we know that the nonperforming loans typically increase, and we have a better opportunity investing. We've gathered some data on how these 2 business lines could grow in the market in the coming years. On servicing, we expect about 3% annualized growth until 2030. When it comes to servicing collections within the financial industry, we think that's going to grow slightly more, about 4%. And that's also where we have the bulk of our business today. So about 60%, 70% of the servicing revenues we have today is coming from financial sector. But at the same time, 90% of the collection business is outside of financial services. And what we plan to do is penetrate that part to a lot much larger degree than what we have historically going forward. On the portfolio side, there's been a significant decline of nonperforming loans in recent years after the increase we had post the financial crisis. The general expectation is that we are at the trough point. We're at trough point in 2024, and we'll see an increase of portfolio investments going forward, and that that will grow by about 9% annually until 2030. So talking about the 2030 strategy. First of all, as I said, in the near term, we will have a lot of focus on deleveraging and derisking. We have already started this journey. We started that journey already a year ago. I think we have started with an acceleration by the sale of the portfolio that we announced in January this year with the intent to repay the 2027 maturities. We are, as part of the strategic review, also looking into other type of divestments when it comes to either portfolios or nonstrategic assets, and this is carefully being evaluated. And again, the guiding star is that we can improve our leverage ratio. We will continue to apply very strict cost control. We are guiding a 5% lower cost in '26 versus '25 on the underlying basis, and also with the FX rates as we are experience right now. And the limited portfolio investments with a focus on return will continue, as we said, focusing on the deleveraging, which means that the cash flow will be used to a large degree for debt repayments. And this is necessary to give us the full flexibility in our strategy execution. So talking about the strategic priorities. We have a strategic ambition to become and cement the leading credit management servicer and the most attractive investing partner in Europe. That means that we need to have a superior servicing performance, we need to achieve growth acceleration, and we need to be the preferred investing partner in this segment. And I think Masih alluded to that before, we think a lot of this can be achieved by actually just starting to use technology data and AI in a completely different manner and scale than we do today. When we look at this, and both me and Masih are coming from the banking industry, we've been through the transition that the banking industry did. And we actually think that this industry is an even better used case than the banking industry, and the banking industry has received a massive amount of value from applying technology data and AI. We think that there is more value to be captured in this industry. To be a bit more concrete, what do we mean, i.e., where are we today, and what do we want to be in 2030? Talking about servicing performance and excelling in that area. Today, we have a quite bespoke and largely manual collection process. We need to be highly digital, automated, and we need to be very standardized across our processes. This means that we have to make a lot of changes in the way we work. On top of that, in order to make that changes happen and to be effective in our collection process when it's more digital, we need to leverage the data we have. Today, data is used in some processes and some decision-making, but it's not fully utilized. When we operate this in 2030, it should be a fully data-driven operations decision-making process. And that's going to give us not only much better predictability on what we can do, but it will give us a lot of other benefits. On accelerating the growth, we have very much a financial services focus today. We need to diversify our presence across other segments, and we need to be competitive, and we will explain later on how we will become competitive in those segments. And we are already today competitive in those segments in some markets. We have today a value chain expansion in some markets. So when we look at the collection business, there's a lot of services around it that are non-collection, but very closely related, that's why we see us as a full credit management service provider in the future. On the investing side, is just the fact that the investing volumes today are impacted by our funding cost and our capital structure. We need to create a very sustainable and competitive funding cost to be able to invest more and mainly continue to invest through the partnerships. And finally, we have been in a capital partnership now for a year, we need to build something which is more of a full stop shop full service offering for investors, because we have all those capabilities. So how will we make this happen? Well, first of all, we now have a new executive management team. It's not fully in place, but everyone has been recruited, and everyone has either started or is about to start. And I think a couple of common denominators for this management team is, first of all, they have a very long experience in the financial industry, which has been going through quite some changes if you look back 20 years, 25 years. Secondly, they have experience of being part of transformation or driving transformation journeys, which is exactly what we need to do going forward. And I think thirdly, they've been in a business where technology, data and -- not AI yet, but a little bit the ember of AI has made a huge difference in the way you operate. And those are the things we'll take with us. And on top of that, we have a lot of collection experience in our markets with our experienced managing directors. So in terms of strategy execution, we'll start talking about the servicing performance. We have basically an ambition to drive our platform optimization. And the way we do that is, first of all, we will consolidate our platform further, and this is a little bit coming back to how we think about our markets. Secondly, or in parallel actually, we have basically 5 major areas across the collection process that plays an impact. You have the inbound customer contact, and we have millions of calls, the outbound customer contacts where we also have millions of calls, you have the whole capacity management. And remember here, we have roughly 6,000 people working in this process. So to get the capacity management right makes a huge difference. So you can get the efficiency of every operator and every agent as high as possible. Then we have the agent productivity. So actually, when they are on a call, how do you make that call as productive as possible and how do you coach them and create a continuous learning to make sure that, yes, tomorrow is going to be a little bit better than today and the day after tomorrow will be even better than tomorrow. And then finally, there's a lot of work to be done on the noncore process optimization. In here, you would find pure process reengineering levers, you would find levers that are around performance management. So everything is not driven by just tech or data or AI. But if you apply the basic process optimization tools, and then you add technology, data and AI in there, you get very fast traction on that transformation. But it also has to have a lot of focus. So as you can see, the bars on the bottom basically shows how big the cost-out potential could be. And with 6,000 people in operations, we think that the cost trajectory that we've had in the past will continue going forward. At the same time, we will also make the user experience much, much better. To give an example of what we have done, and this is basically just illustrating how much you can do without actually making -- even starting to adopt some of the more modern technologies. In Norway, we've had a top line that has been flattish, slightly declining for structural reasons. The production cost to collect has gone down 36%. The collection per FTE has gone up 46%. And in the end, the adjusted EBIT margin has increased almost 50%. This not only gives us a much more competitive business today, it also allows us to win and be more -- much more competitive in winning new business going forward. So we think that this is the starting point to actually become a growing entity. You need to be efficient first and then you can basically become much more competitive in your offering. Yes. I mean, Norway is probably the prime example we have of adopting new ways and improving the processes. But they already have all the tools. So we have that in the group. So just getting every other market to be on par with Norway in terms of how you collect and how you can perform that more efficiently takes us a long way across this journey we're planning for. Obviously, in addition to that, we will apply new tools that everyone will use as well as Norway to become even better. And Norway has not done this through AI or some massive technology shift, this has mainly been done on standardization, process optimization, and proper capacity and performance management. Another area which we have just sort of scraped the surface on is how we can use the data. Today, we have 20,000 PI portfolios, so we have invested historically over 20,000 portfolios. We use that data, but that data is just a small fraction of all the data that we sit on in the group. Today, in the group, we have 70,000 clients, as I said before. A lot of those clients, they actually have several different portfolios that we have been or are collecting on. So when we can start pulling some of the insights out of that data stack, which we already started working on, so we're basically taking the same approach that we've done on our PI portfolio data analysis, and we're trying now to apply that for the bigger universe of servicing data. Then we can move from the current use of data to something that is much more value-enhancing going forward, which is around improving the underwriting data on the portfolio investments. We can add a lot of value-adding client services. Essentially, we can go and advise the client on the best way to collect on their debt, and the best way to structure insourcing versus outsourcing and so forth. We will use it more and more in our action decision engine to make the right decision rather than to make a decision based on your own experience. And then we can also do very good statistical servicing pricing and benchmarking to identify best practice both across verticals, but also in -- across geographies. On growth acceleration, which is the next element of the strategy, we think that the first part, what we talked about servicing performance, that is a very important foundation to accelerate the growth, because as we discussed with Norway, but in general, you need to be the best service performers in order to actually grow in the existing segments more than we do today. When you have the best competitive offering by being the most efficient and the smartest on how you collect, you can be much more competitive in pricing, you can get a better result for your clients, and you can also protect and grow your existing business. And when you have done that, you also underwrite to grow a new segments, because the new segments outside the FS, they are usually smaller tickets and it's usually faster processes, and they need to be driven by a very efficient collection process. So in order to excel there, we need to be the best when it comes to service performance. The top line that we're looking at is quite significant. So just to do more where we stand, i.e., close the white space within financial services, strengthen our strategic partnerships, continue adding value to our services, and be better in sales effectiveness, we think there's roughly SEK 0.5 billion to capture. And this is, again, comparing 2030 to 2025. If we can start capturing the untapped potential outside the large non-FS segments, there's another maybe SEK 2 billion of potential. And that means that we need to enhance our offering, and we need to be more on the digital collections, and we also need to start being better in offering adjacent services. Lastly, on the B2B segment, there's a little bit more than SEK 0.5 billion in potential. And that is a little bit aligned with the second part, because the need there is very much similar, and you can almost create a plug-and-play platform where SMEs plug in, load their cases and they run on our platform. So again, to be very concrete, for example, in Switzerland, where we've been very successful in growing outside the collection space, we have roughly 15% to 20% of our revenue in the non-collection. We make almost 3x as much the group average income per FTE. On the group, we would say we have somewhere around 5%. So by moving into this non-collection, you can actually capture a much bigger part of the value chain, and you actually get the leverage on the services you already provide as a collection partner. In Germany, we have a different situation, where the market size is really, really big. We have a 10% to 15% market share in the FS segment. In the other collections -- in the other industries, we have less than 1%. But the total market size is SEK 2 billion. So by just being able to move in and capture our fair share in the other services, there's a big, big upside in terms of income, and in the end, in terms of generating more profit. Finally, we also have, as you all know, Ophelos, which is a digital standalone platform. Here, we have now pivot from the fully integrated approach where we started to a standalone model. We think Ophelos should almost compete with us as a different business offering. We are today doing this by plugging it in, in Portugal, and then we're moving either existing clients onto that platform and also using to acquire new businesses. And then we were going to scale it across the group. And we already have good progress with some of the leading buy now pay later players, not only in Portugal, because it exists -- Ophelos still exists in pockets across the group, and that works extremely well. And the benefit with Ophelos is that there's a massive improvement in terms of speed, scalability, product innovation and the performance uplift. But to be a little bit conservative here, we have actually not fully -- we have not included the upside from Ophelos in the base case financial plan. So with that, I'm going to hand over to Masih to take you through the last element of the strategy. Masih Yazdi: Thanks, Johan. So let's talk about the third leg, investing partner. Here, our current situation is a bit different compared to the servicing side, where there are clear improvements to be made. On the investing side, we are clearly a dominant force in Europe. We see basically every deal that goes through, we get to analyze them, we get to see the deal flow. Obviously, recently, we've invested less, but at the same time, we see all the deals, we see all the data, and we've been able to combine some larger deals that typically have lower returns with smaller deals, which typically have higher returns and have a good enough blended return. As you know, most of you, in the last year or so, we've done this in one partnership with Cerberus. If you look at performance, the performance here has been very good. So every portfolio has a forecast, where we have an assumption of future cash flows that index is 100%, whereas if you look at the actual performance of the last 20 years, it's been at 107%. So the book value that we have and have had historically, this company has basically almost outperformed on that book value. Even in deep economic downturns, the performance has been almost in line with the forecast that has been used. Johan Akerblom: I would just like to add here. I mean, I think there was some skepsis in the market when we sold the back book in 2024. Now we sold the second part of that back book that the rest of the portfolio would actually not perform in line with historical performance. What we see now being basically more than a year down the road is that we continue to perform almost even better than we've done in the past. Yes. Masih Yazdi: So if you look at the strategy we aim to have when it comes to investing, we look at this in sort of a few different perspectives. There are investments on our own balance sheet. So the investments we do ourselves. In the near term, as we start out saying, we will be more conservative. We will have more limited volumes, and we'll focus quite a bit more on returns. We need to do that to make sure that we use the cash flows we generate to reduce the debt burden of the company. In the longer term, and this will be dependent on the evolution of funding costs, as the funding costs come down, we'll be more competitive on new investments and investments will be ramped up. And we believe that during the period '26 to 2030 at some point, investing more will be a contribution to the income growth we have as a company. On the capital partnership side, we will continue that. This is something we want to expand. We want to have capital partners. We believe that there are investors out there that would like to benefit from the underwriting capabilities we have, and the deal flow we see, and the fact that we can help servicing the portfolios and invest together with us. We typically take a smaller share, but we can offer other capabilities that they typically don't have. And we want to continue to work on that. And in the future, we'd like to add more partnerships in different shapes and forms than what we have today. Then there's an SDR option. In the near term, it's probably not feasible. We are continuously evaluating if there is a scope for us to have an access to an SDR vehicle. It could be a minority access, it could be a majority access. There are pros and cons with both of those. But during 2026, we expect to have fully evaluated that and have understood what the next best step for us is. And obviously, if we get that access, then that will also have a significant impact on the investment volumes we can do in the SDR vehicle given the funding cost we'll have at that point. So let's move into the financials and starting with the 3 new financial targets we've set. So the reason we set these targets is that we want -- for it to be something extremely relevant, help us in our strategy execution, but also be something that we feel that we have fairly good control over. Clearly, the most important one is leverage. We need to reduce leverage, and we've set a new target, which is 3x that the net debt when excluding 80% of whatever the book value is investing. So the book value is assumed to consume debt up to 80% of the book value. And then all the rest of the debt is allocated to the servicing business, and that leverage needs to come down to 3x. If you compare this to the current way of formulating the leverage, which was 4.8x, 3x on servicing and 80% LTV on investing is just below 3x leverage on the current definition. So it's a more ambitious target than we've had in the past, but we're giving ourselves a bit more time to get there, because obviously this needs to be realistic. On the cost side, the underlying cost in '25 were SEK 12.3 billion, we've guided for that to be reduced by another 5% in '26. And then we expect cost to come down every single year until 2030 to reach a level of SEK 10 billion to SEK 11 billion. And this level will be dependent on the actual growth on the servicing top line. If we have growth of, say, low single digits, we're more likely to be at the SEK 10 billion mark. And if growth is, let's say, high single digit, it's likely to be more closer to SEK 11 billion level. Then on the margins, there's been good margin improvement, and we are targeting to increase that further to somewhere between 30% and 35% by 2030. The reason we have an upper limit here is that we want to strike a balance between finding cost efficiencies and then transforming those efficiencies to our offering, so that we can offer a better price for customers, and therefore, gain market shares. So we want to find a good combination of a sufficiently good margin, but also growing our business faster. If you look at all of these 3 targets we're setting, and the development we've had, we actually are already moving in the right direction. Service deleveraging is coming down. The cost level is already down more than SEK 2 billion in the last couple of years, and servicing EBIT margin is up by 9 percentage points last couple of years. And if you look at those 2 targets, actually the trajectory at forward has a slower pace of improvement than the improvements we've seen in the last couple of years. So we think this is clearly realistic and something that we can achieve. And obviously, it's going to be a guiding star for the company. So let's talk about the debt we have and our view on how to deal with that. So we have about SEK 45 billion of nominal debt outstanding, the first maturities are in 2027. We had -- the announcement of the portfolio sale in January, the proceeds from that sale, combined with the organic cash flow we believe we will generate will be sufficient to completely redeem or pay back the second lien maturities in 2027, which is about EUR 370 million. When it comes to the other maturities in 2027, given the market input we have and the secondary market trading of those instruments, we believe we can refinance those at better terms than currently outstanding, and we plan to do so first half of 2026. When it comes to future maturities, we have made a plan of our P&L development and looked at the organic cash flow generation in that plan. And we believe that there will be a certain part of each year's maturities that we will be able to repay or redeem. And in combination throughout these years, we believe that we can reduce the debt by somewhere between SEK 10 billion and SEK 15 billion. Obviously, almost SEK 4 billion out of that is coming from the 2027 maturities already probably this year. And the SEK 10 billion to SEK 15 billion is really dependent on, obviously, the success of executing on the organic path, but also to what extent we can extract the value from the balance sheet by selling nonstrategic portfolios or assets that we have. And obviously, we're working on those different projects. Then at the bottom of the slide, you can see this is not a guidance or -- it's a forecast or guiding for us when we come up with the deleveraging plan that we have. Maybe just pointing out a couple of things here. On the servicing income, we expect it to be largely flat this year, and that's mainly due to the fact that already going into the year, we have fairly significant FX headwinds with the Swedish krona strengthening by about 5% versus the euro. So we need to see clearly good organic growth to offset that. Then on interest expense, we assume that will come down over the coming years as our debt burden comes down as we continue to see improvements in our operating performance. And portfolio investments, slightly lower in '26 than '25, and then we expect to be able to ramp that up slowly, and then at some point in time, invest more than what we are amortizing and this being a contribution to the general income growth of the company. Repeating what we started with, near-term focus, deleveraging and derisking, this is something we need to have to have flexibility in our strategy. We have the priorities, servicing performance, growth acceleration and being a good investing partner. We believe that we could be on the verge of coming into this positive momentum of deleveraging, lowering funding costs, being able to accelerate growth, which will continue to delever and so forth. And we have the guiding stars in our financial targets we will be working on. That's the end of the presentation, and we will open up for Q&A. Johan Akerblom: Yes. Before we start on the Q&A, I just want to say that the strategy here, what it actually accomplishes is not only creates shareholder value, but by transforming the company in this direction and working on these levers, we will actually create a much more stable business model. And that's the whole idea to create something that could sustain for a long, long time and that can carry a certain level of debt, but also give the flexibility to manage that up and down depending on the opportunities that are out there. So part of the strategy is actually creating something that fundamentally removes a lot of risk in what we've had as a previous franchise model. Masih Yazdi: Q&A? Johan Akerblom: Yes. Let's start the Q&A. Johan Akerblom: So as we kick off the Q&A, we will actually start with some of the questions coming from the teleconference. Operator: [Operator Instructions] The next question comes from Jacob Hesslevik from SEB. Jacob Hesslevik: Maybe we could begin on your financial target regarding the servicing EBIT margin. Could you provide some details on the drivers behind the margin expansion? Is it mainly from lower cost or rather growing top line to better scale the cost base? Masih Yazdi: Jacob, yes, I mean, it will be initially a lower cost. That's been the main driver between -- behind the improvements of the margin, and that will be the case at least in 2026. Then obviously, we're hoping and planning to see some revenue growth, which this year will be more difficult, because of FX headwinds, but organic growth is something we're planning for. And as we expand into new industries, you'll see that as well. When it comes to some of the other industries, so outside financial services, margins are typically lower than what we have today. So that expansion doesn't improve margins that much. So margin improvements really comes from lower costs. And we are planning as we lower the cost level to be able to translate some of that or pass that on to customers, because we think that's a good lever for us to grow the business more. So the real combination between sort of revenues or income and cost over this whole period is difficult to say. But I would say at the early parts of the period, it's going to be mainly a cost reduction. Johan Akerblom: Yes. And an important part is also to create the scalability. So when we start adding on more volumes on the income side, it actually implicitly increases the margin. So you add on basically more variable cost or more -- sorry, you add on more income with the limited variable cost on a scalable platform. So that will also help eventually the margin improvements. But as Masih said, initially, when entering all these new segments, they would probably come with slightly lower margin than we have today. Jacob Hesslevik: Great. And then a follow-up on the cost message there. Could you pinpoint it to which division do you see the largest potential to streamline? Is it within servicing? Or is it rather investing, which you are shrinking somewhat given the divestment you announced in January? Masih Yazdi: You mean in terms of cost? Jacob Hesslevik: Yes. Masih Yazdi: I mean the big bulk of cost sits in servicing. Investing, they are using servicing as a supplier, but the bulk of cost is in our collection process. Then obviously, when the investment book goes down, we have to adjust the servicing provided to the investing business, but the cost out and the process optimization is happening within our servicing business. Jacob Hesslevik: Great. And final question from my side is just on how large share of today's collection are automated? And how does that compare to the industry average? Masih Yazdi: We have less than 10% automated. So it's a small piece. And the problem is when you start talking about the industry, I think on average, the industry is probably slightly worse than we are, but then there's a couple of players, but they mainly operate outside the financial service industry. They have a higher level of automation. Okay. Moving on to the next. Operator: The next question comes from Ermin Keric from DNB Carnegie. Ermin Keric: Maybe first, do you expect any kind of implementation or execution costs for getting to a lower cost? And also, given that you're going to automate more, will you capitalize any IT investments and kind of how much will that CapEx be included in your leverage in any way? Masih Yazdi: Yes. Yes, there will be some implementation costs when it comes to future technology. I would say in the first couple of years, '26, '27, we basically have the tools we need. We just need to apply them to a larger base of the collection process, just like Norway has done. But when it comes to implementation costs in general, we will be fitting those into the cost targets that we have. So the cost target you see and what you will see over the course of the next few years underneath that target, we will have the implementation cost being fitted. So there won't be additional costs than the targets that we've had. On CapEx, I think we already have had CapEx on the balance sheet, and I don't think that's going to be higher in the future than it's been historically, to be honest. I don't see that as a big headwind going forward. And then I think also, I mean, in terms of -- I mean, we're obviously a people's business today. We have a lot of employees working across our processes. But so far, I mean, there's been a couple of bigger programs announced externally. I think going forward and what we've basically done during the last year is that a lot of this comes through natural attrition. We have a fairly high attrition rate in some of the -- especially in the sort of the more of the collection part of our business, and we intend to kind of continue working with that rather than announcing any big programs. I think it will be a very natural evolution as we sort of implement new services and new solutions. Ermin Keric: Then about your leverage targets. How are you doing with central costs? Where are they allocated in the leverage target? And also, do you include the full contribution from your kind of consolidated JVs in the servicing, because I suppose you need to pay some of that minorities later on? Masih Yazdi: Yes. I mean today, basically, all the central expenses have been allocated. So it's very, very little left centralized. On the JVs, we will be updating our reporting. So these targets are now set. So we had the old target of '25, and we'll be updating our reporting to reflect the new targets from Q1 2026. So exactly how we're going to do that, you'll see that in the coming quarters. But I would say, in general, the target we're setting now means a lower leverage than the old target we had as a company. Ermin Keric: Then the last one would be on the better usage of data. Do you mainly expect that to lower your cost to collect? Or how much more do you expect that you can increase your collections, for instance, on your own NPL book? Masih Yazdi: I think the data is probably more a driver of collection performance rather than cost to collect. Cost to collect is a way to -- I mean, you can automate a lot of things, and you can get your cost to collect very low, right? But if your recovery rate suffers, the equation might not hold. So I think data is for me to basically decide on what is the next best action. So that's one used case, that's going to be very helpful. The other part on the data is to use it to be better in advising our clients on the best way to structure their thinking around collections and maximize the money they get back on every late payment. So those are two areas. Then, of course, you can use data for many other things. But -- and then sorry, the third sort of used case is obviously to further enhance our underwriting capacities. Ermin Keric: Can I just put in one last question? It would just be on -- you showed the example with Norway, which I think is helpful, and its impressive improvements you've done there. But how replicable is it to Southern Europe? Because aren't the claims quite different that you're managing in Southern Europe and digitalization generally in those countries compared to Norway? Masih Yazdi: I mean, absolutely. I mean the way we think about our markets is that you have your 13 traditional servicing and investment markets where you would have Norway as a cluster in the Nordics, you have Germany, Austria, Switzerland, you have Ben there, so Belgium, Netherlands, you would have France and then you would have Portugal. Spain, Italy and Greece are different. And we will also manage them differently, and we will have different tactics in terms of implementing the strategy. So we think about the 30 markets, that's where we can apply a lot of common levers. And then for Italy, Spain and Greece and also the U.K., which is more of a BPO market, at least for us right now, we would have to be a little bit more specialized in how we implement the strategy. So one solution doesn't fit all. So let's go to the next question. Operator: The next question comes from Patrik Brattelius from ABG. Patrik Brattelius: So my first question would be regarding the income trajectory in the investing side, the coming years. As we saw on the last slide, you will invest less in portfolios the coming year in the short term. And we have seen investing falling for the last few quarters. Should we expect further decline? And when do you foresee in your financial planning that this will level out and more flat line? Masih Yazdi: Yes, I can start. The only thing we're guiding on today is that in '26, we're likely to invest less than we did in '25, because the priority we have is to reduce our leverage. When it comes to the evolution of investing beyond '26, it really depends on the evolution of our funding costs. We will make sure that we get a sufficient uplift in the returns we have on investing versus our funding cost. So the faster our funding costs come down, the more we can invest earlier. So we can't really dictate that. What we're trying to say is priority 1 is to delever, and then we will be disciplined on price, and we won't have volume targets. We do expect, we believe, and we want investing to contribute to income growth for this company at some point in time during this period, whether that's going to be '26, '27 -- or it's not probably not '26, '27, '28 or later, it's difficult for us to say. We have a plan of deleveraging. And to what extent and when the market translates that plan into a better rating and lower funding cost, it's very difficult to say without actually seeing it. And obviously, we need to execute quarter-by-quarter, so that -- I mean, presenting the strategy is one thing, executing on it is a different thing, and we need to execute on it to get the trust and see the funding costs come down, and that will lead to higher investment volumes eventually. Johan Akerblom: But I think also, I mean, on the slide where Masih shows sort of some estimates on how we think things will evolve, you clearly see when we see trends shifting. And I think that's probably your best input on how we see the future. Patrik Brattelius: My next and final question is regarding the JVs. We saw a divestment here announced at the beginning of the year. So could you talk a little bit how you see the divestment environment currently? And also when we look at the presentation, you have almost just below SEK 5 billion in JVs out of your ERC. Can you talk a little bit more and elaborate how much that is for sale and a little bit on that topic, please? Johan Akerblom: I mean I'll start, and then I think Masih can continue. We are always looking to optimize our portfolio. So if that means that we can recycle and we can sell something where we think the value is X and someone else ready to pay more, that makes -- I mean, that creates value for us. There's also the balance between cash now and cash later in terms of how the collection curve looks like, especially with our focus on deleveraging. But specifically on the JVs, I think we're going to have an opportunistic approach. And as we said, we already have a couple of things that we have identified that we continue to work on. Masih Yazdi: Yes. I mean there are differences between the JVs. And we have a JV, [ kind of LOP ], you can see it in our IR presentation. We are expecting cash flows from that JV of about SEK 1.5 billion between '27 and '29. It's not paying anything now. And the question there is that should we keep it and get those cash flows? Or is there a way to do something else? So it's this balance, as Johan mentioned, do we need the cash flows today? Or do we have the time and patience to wait for it? And we do that assessment for all the JVs we have. I mean accelerating cash is for us a good thing if we can clearly show that it adds value. At the same time, we also need to find someone on the other side who's ready to make that transaction happen. Johan Akerblom: Okay. So we have one more question on the phone. Operator: The next question comes from Johan Ekblom from UBS. Johan Ekblom: Just a couple of quick ones, please. So first, on the deleveraging target. Am I understanding correct that we should look at the cash EBITDA from servicing without any adjustments for Central or JVs or anything like that to be on a like-for-like basis? That's the first question. Masih Yazdi: You should look at the EBITDA, not the cash EBITDA. We will not be using the cash EBITDA. Johan Ekblom: But it's servicing only. There is no adjustments. And I guess we'll get the new structure at some point before Q1? Masih Yazdi: Yes, correct. Johan Ekblom: Perfect. And then on the margin assumptions, I think, Johan, when we met back in September and debated kind of what AI could do to servicing margins, et cetera. I think your view was that there's a kind of upper bound what the industry will accept before you kind of get intensified competition. And my sense was that at the time, you thought that was lower than the 30% to 35%. So just interesting to see if there's been any change in your thinking or if there are interim specific things that think you can be a huge outlier versus your peers? Masih Yazdi: I think we do think that there's more to capture. I mean here, you always need to be humble in terms of how much margin you can take and when it becomes unsustainable. But moving from '25 -- I mean, we already see today that we do deals that has a 30% margin. So if we can operate today with a 30% margin in an environment which we think is more inefficient than it will be in the future, I don't think it's very aggressive to assume that the margins in the future can actually be between 30% and 35%. So I think that's the simple logic. I think when we have done the analysis, we have come to realize that we can probably continue to expand our margins a little bit. Johan Akerblom: Yes. I mean just to add, I mean, we are reporting 25% on average. When you're in 17 markets, it means that you have markets that are clearly above that level and the markets that are clearly below. We can see in the data that where we are clearly below that, we actually have more structural issues, and we are markets -- we have markets operating at 35% today, without really seeing increased competition. We've just done more things. I mean, Norway is a good example, which is higher than the 25% we have as a group. So based on that data, we think that this is possible. And obviously, to some extent, we are trying and will be a first mover and adapt things faster than others. And that's a way, obviously, to improve your margin. I think another point which we never discussed, I think, it's also when you move into value-adding services, your margins should be higher, but they will still contribute to our servicing margin. And that's something that we can clearly see when we look at some of the markets where we have expanded into the value chain. Johan Ekblom: Yes. Perfect. And then I guess in an interview in the press today, you were -- or you made a comment that it would be nice to get a new core shareholder or a larger shareholder. And I don't know to what extent the journalist is putting words in your mouth. But is there anything you can tell us? I mean, is there any strategic action being taken to try and source that or anything you can share? Or was it kind of an offhand? Johan Akerblom: I mean -- I think what I said was we are always meeting investors. We are always welcoming long-term investors that shares our view on what can be achieved in the future. And I mean, it's a very generic statement, and I think that's where we will leave it. But I mean, the fact is that we have one major shareholder that has gone from plus 30% to maybe 10% or 11% -- and then we don't really have much institutional ownership. So of course, we would welcome a long-term investor or a couple of long-term investors that shares our view on what we can create in the future. Johan Ekblom: Perfect. That's how I thought I should understand it. And then just finally, I mean, you say you're going to be opportunistic about things like JVs, et cetera. I mean when we think about it, when you say, okay, this one has cash flow 2 or 3 years out, your funding cost, I guess, on the margin, at least today is high single digits. I mean, should we interpret that as you would be maybe not very willing, but at least willing to consider selling things at a book loss, because it would allow you to deleverage faster. I mean you haven't sold at any meaningful loss in the past. So I just wondered if there's a change in how you view these things now? Johan Akerblom: I mean -- I think we are going to be very sensitive to selling anything below book value. I think the recent transaction just shows what kind of appetite we have. So I mean, I think there's a strong hurdle before we actually go ahead and do something opportunistic. And that is we can clearly show there's a value for Intrum and its shareholders, and it helps us on the deleveraging. And I think that's where we're going to leave it. But there are -- there's a lot of people out there who looks into the space and what might be less value to us might be much more value to them. And I think that's the kind of the type of combinations we're trying to find. Masih Yazdi: I'm going to transform myself from a CFO to a moderator, because we have a few questions coming in, in writing format as well. I'll ask you one. So the first one is, what are your major considerations when assessing the advantages and disadvantages between owning 100% and minority stake in an SDR? Johan Akerblom: I mean that's a very interesting question, because owning a majority of an SDR comes with a lot of benefits. I mean, first of all, we would control the investment decisions. We would control the definitions of how much CapEx should be spent, how much dividend should be paid out. Of course, we would be regulated, but in line with all the regulatory requirements, we would still be the driver of that agenda. The downside of owning an SDR is that it creates regulatory complexity. It puts another pressure on how we run the group. And there's also a question around consolidation. So if we flip that into minority, being a minority, we need to have a very high comfort that whoever we own this with and whatever shareholder agreement we have, we have a lot of input when it comes to CapEx and dividend distribution. And also, we are probably then maybe an outsource provider of some underwriting advice. So I think those are the things. And then also having a minority stake, I think our partner needs to be someone where we feel that there's a natural flow. Either there's a natural flow of business that can go into the SDR or it's an investor that needs our support to basically build their book in this area. I don't know if you want to add something. Masih Yazdi: No. That's very good. I'll ask myself a question. So we have a question here on what the leverage ratio would have been had FX not moved in the quarter. And there's same person has asked a question about what targets we have in terms of servicing revenue. On the leverage ratio, generally, if the krona weakens, we benefit, because income is greater than cost. So you have a long period of weakening krona, we make more money and that has a positive impact on leverage. In a single quarter, that could differ. It depends on what the FX ended that quarter at versus the average during that quarter. In Q4, I would say the effect was very marginal from FX on the actual outcome of the leverage ratio. On the revenue target on servicing, it is by design. We have 3 financial targets and none of them are related to revenues. I mean, obviously, margins in combination with cost, that is to some extent, related to revenues, but we don't have an actual income target, because it's something we can't fully dictate. We've presented the data we have, which is that the market should grow by 3%. We presented data on pockets we think we can penetrate, which is up and above the 3%. So obviously, the goal for us is to grow faster than the market by improving our servicing performance and penetrating portions of the potential we've seen -- we see in financial services, nonfinancial services and SMEs. That's the ambition, but we don't set a target, because it's very difficult to know exactly at what pace, how quickly we can execute on the things we see in the market. So one more question to you then. Can future partnerships be different -- different type of investors than private equity like Cerberus and with different or better fee structures? Johan Akerblom: I think the future partnerships, if I understand the question, can it be different than Cerberus? Masih Yazdi: Than private equity? Johan Akerblom: Than private equity. Yes. Okay, the like. So basically, yes, definitely. I mean, I think that future partnerships, as I think I said earlier, could also be more of a passive investor that actually wants to have the experience and the capacity and also the servicing aspect of working with someone who's been in the industry for a long time. That could be one type of partner. It could also be an industrial partner. I mean, today, we see the dynamics in the industry changing. And a lot of the players are moving into either a pure servicing direction or a pure investing direction. We have both channels. We're obviously focusing more on the servicing, because we're changing the franchise model. But to work with someone who's in a pure play on the investing side, I don't necessarily think that that's ruled out either. So I think there's many opportunities. We just need to be treading carefully to always keep our credibility and our professionalism in every time we work with someone who's sometimes in conflict in business with us, sometimes in conflict of business with other partners we have. Masih Yazdi: Good answer. There's one more question. I'll take that myself. We have mentioned Norway as a leading example. Could you provide some color on how the EBIT margin in Norway compares to other geographies? The margin in Norway is higher than the average we show for the group of 25%. And this is despite the fact that in Norway, you've had a regulation in place since 2018, where you haven't been allowed to adjust servicing fees. So basically, with the exact same servicing fee for 8, 9 years, we've been able to improve the margin quite significantly only by reducing costs through operational efficiency. So that shows you the force in being able to do that across all the traditional markets that we have. The debtor fees has been locked. But now we actually are -- they are getting unlocked in '26, and there will be an adjustment to partly compensate for the historical non-adjustments. And that hopefully will make the Norwegian market even more interesting going forward. Johan Akerblom: Okay. We have one more question from the telephone. So let's go to that. Operator: The next question comes from Jacob Hesslevik from SEB. Jacob Hesslevik: Just one more question on Slide 31. You state that you plan to redeem SEK 10 billion to SEK 15 billion until 2030. Does that mean your net debt is expected to be SEK 29 billion to SEK 34 billion, where you aim to have a 3x leverage? Was that too simple to look at it? I'm just trying to see if I can backtrack the EBITDA target for servicing going forward. Masih Yazdi: Yes. No, that's the right way we're looking at it. What you also need to make an assumption for is how large our investment book is at that point in time, because that will consume some of the remaining debt we will have at that point. So -- and we're not guiding on that, but you can make your own assumptions based on the guidance we have, which is more limited investments in the short term, ramping up later on, and hopefully contributing to income growth later in this period '26 to 2030. But sure, I mean, you can start with the current net debt, reduce that with that amount and you get an understanding of where the debt will be and then assume something on the investment book and what is required from EBITDA and servicing to get to the 3x. Jacob Hesslevik: Great. And is it possible to state anything what your replacement CapEx level is currently on your portfolio investments? Masih Yazdi: It's slightly below SEK 3 billion, around SEK 3 billion. SEK 2.5 billion to SEK 3 billion. Johan Akerblom: So I think with that, we are concluding today's session. I think we have basically shown you where Intrum is heading. In 2030, the company will be a completely different franchise. We have taken a more ambitious approach when it comes to our targets. We have also said that it will take slightly longer. But in the end, we want to focus on the leverage. We want to deleverage. We want to create a much more stable franchise. We are continuing to take out the cost and be more efficient and basically make ourselves ready to compete outside the space where we're operating today. And thirdly, by doing so and capturing more business, both within where we work today, but also with outside in new verticals and new value-adding services, we will increase our margin. And with that, we basically create a much more stable business model. I would like to thank you all for listening. Thank you for many good questions. It's always great that Jacob is the first, and now he was also the last question. And yes, I guess we will have some bilaterals with some of you going forward. Thank you very much, and have a nice afternoon.
Per Brilioth: Okay. Welcome, everyone our Q4 call, the VNV Global Q4 call. So welcome to this call. I'm Per. I'm joined by Bjorn and Dennis, my colleagues, who'll walk you through the results, what's going on in the portfolio, touch upon a few of the holdings. And there is -- so we'll walk through the presentation and then there will be Q&A afterwards. We -- so if you want to ask a question, please use the Zoom Q&A sort of function. This is the same as we've done in previous calls. So I think it's self-explanatory. So let's kick things off. And first numbers. I pass the microphone to my colleague, Bjorn. Björn von Sivers: Thank you, Per. If you can move to the next slide, we'll start with that. So as per year-end 2025, VNV Global's NAV stood that $547 million or roughly $4.25 per share, down 5.9% in USD during the quarter. In SEK terms, NAV is SEK 5 billion or roughly SEK 39.1 per share, down 8% over the quarter. For the 12 months period, NAV in USD terms is down 4.2% and down close to 20% in SEK terms. If you come to the next slide, Per, we go into sort of the simplified balance sheet here. And so we have a total investment portfolio that amounts to $589 million, consisting of investments of $537 million and cash and cash equivalents of $51 million. Borrowings at year-end '25 totaled $46.6 million following the partial redemption of the outstanding bond earlier in the quarter. We continue to trade at a material discount to NAV as per share close yesterday, January 28, at 19.9%. We're trading at sort of implied 49% discount NAV. During this quarter, we've continued to repurchase shares that we started in Q3. And as per year-end, company holds close to 2.4 million common shares, representing approximately 1.8% of the outstanding common shares. And the fair value change during the quarter is a per usual, primarily driven by the movements across the largest holdings in the portfolio. And if we move to the next slide, I'll quickly just go through the main drivers here before we jump in to a more broader view of latest developments and the key portfolio holdings. So starting from the top, we have BlaBlaCar, which has -- this quarter is valued at $164 million for our stake based on the same sort of model as per previous quarter, down 11% or roughly $20 million in the quarter, primarily driven by lower peer multiples. Second, we have Voi valued at $127 million for VNV's stake, down roughly 7% or $10 million during the quarter. Numan, third largest holding valued base -- still valued based on the latest transaction at $37 million, so flat over the quarter. HousingAnywhere also valued at $37 million based on EV sales model, relatively flat during the quarter. And then sort of final 6 of the largest holding Breadfast also valued based on the latest transaction in the company. We also have a Bokadirekt at model-based valuation, which is relatively flat during the quarter. All in all, these 6 companies represent close to SEK 30 per share in aggregate or 80% of the NAV. Finally sort of just a brief comment on the cash and cash equivalents. We ended Q4 with $55 million in cash following an eventful quarter in terms of cash movements. The primary inflows during the quarter were the final closing proceeds from the Gett transaction and also closing proceeds from the Tise exit, which we previously announced, and main outflow again, was the partial bond redemption where we sort of cut outstanding debt in half. With that, I'll leave it back to Per, who will start and continue walking through the latest developments and the key holdings. Per Brilioth: Thanks, Bjorn. Yes, the portfolio is sort of similar to what you've seen in prior quarters over the course of '25. BlaBla and Voi sort of nearly 50% of the portfolio. And yes, the -- it's -- I know we marked the NAV downwards this quarter to the order of -- it is 6% in dollar terms. And it's -- and as Bjorn walked you through, this is technical. Sort of we do our valuation models, we look at peer groups in the listed world. Much of this sort of downtick is due to that these peers are down, but the actual companies, these big companies in our portfolio and the small ones are really doing well. And so it's -- the quarter-to-quarter movements don't necessarily sort of correspond to sort of the progression of the companies, which is sort of performance-wise revenues and EBITDA is doing really well. And also sort of how they're positioned in this sort of volatile world we live in with new sort of softwares, AI, et cetera. I think the portfolios are really robust, whereas, in other sectors, software, et cetera, it's kind of scary what's going on. But here, for example, what's going on in the much sort of focused on AI world, these companies will benefit from all those sort of new products and new AI sort of apps, et cetera. So I think that's an important starting point. We obviously trade at this discount. It was 49% we're down today, so it's a higher discount. And we think our NAV -- the NAV, these green bars, will deliver substantial returns annually over -- for the coming years. So we can't really find anything better to do than to buy our own stock. If we can buy that NAV at a 50% discount, 50%-plus discount, it's the best use of shareholder cash. And we have -- Bjorn gave you some numbers. Over the course of the second half of last year since we sold, we got the Gett cash and went to net cash, we have been buying back stock, and we'll continue to do this. We have a bunch of gross cash. We still have some debt outstanding. And that leaves a little net cash, but we also have progression of some further exits in the portfolio. So we intend to sort of work, operate, execute in accordance what markets tell us and that is to sort of sell at NAV and buy the stock. I think it's $170 million that we have exited over the past 2 years have all been around NAV. And the transactions that we sort of look at concluding going forward are also around that level. So that's where deals happen, and our stock trades at half that, we're very focused on it. And so spent some time in writing up this report and sort of trying to discuss, if you will, the reasons why this discount is there. I sort of thought that net debt was part of the reason, and I guess it's not because we're in net cash, and there's still that the discount is persistent. It's not that the portfolio creates a lot of cash. Sort of just shy of 80% of it is EBITDA positive in this number. We have Voi at EBIT positive, well, obviously, because they own and depreciate these assets. If you use their EBITDA figure, it's -- this 76% of course goes up, of course. The decline here a little bit is predominantly driven by that Gett is sold over this past year. So we're -- the portfolio is doing well. It's not craving cash. And in fact, it's not only profitable, it's also -- there's still growth. This shows the growth of the 6 largest holdings. And we've seen that growth sort of accelerating over the course of the year that we're now closing, so 40%. We see growth sort of continuing in '26, maybe to the order of like 30% and earnings at this -- at the bottom level here, gone from a negative in '23 to positive now, and one that we see growing much, much faster than revenues in the coming years. I think Dennis helped put together some numbers. And if you look at the '26 earnings, you are looking at -- and just using our share of these 6 companies, so these 6 companies, during the course of 2025, generated about SEK 1 billion in revenues. And so our share of that is like SEK 150 million. And if you take that into '26, the way we see sort of earnings growing, I think you got -- if you compare our market cap to our percentage of these guys' earnings, you're looking at a price to EBITDA of, call it, just above [ 20% ]. And how earnings is growing over the next year, you're looking at, in '27, our market cap, again, to the same sort of earnings -- our percentage earnings of these 6 companies getting down to levels of [ 10% ]. And that's then using the market cap and comparing it to the performance of these 6 companies. If you -- and that's assuming everything else is at 0. And everything else is very far from 0. Here is a bunch of the companies that show up in that are the part of the portfolio Flo. I think all of you know, it's the world's largest peer tracker, OURA. I'm sure many people on this call use OURA Rings. Ovoko is Europe's fastest-growing marketplace for used car parts. Yuv in the hair coloring space is doing fantastically well, growing fast, no traffic. Company predominantly selling their product within traffic control in the U.S. Tise actually just sold at above our NAV. It's the Vinted of Norway, was recently sold to eBay. Just to give you a sense that outside of these 6 companies, there's a lot of stuff going on in our portfolio. And as we've talked about before, I sort of say that in this other part of the portfolio, we have the next BlaBla, the next Voi that, in a few years' time when maybe BlaBla and Voi are exited, you have one of these companies will have taken their place and become one of the bigger parts of our portfolio. And in fact, just to go back to that NAV and us trading at this NAV sort of our NAV, we try to keep it conservative. Our auditors tell us that we should -- it should be fair. It should be correct, should be the true market value. If we are wrong, we'd like to be wrong that we're a little bit conservative. And I think these are 3 examples of late where Tise was sold for $11 million to us, we had it at [ 6.6 ]. Yuv raised money at equivalent of [ 4.7 ]. We had it [ 2.8 ]. And Yuv was done around the mark and OURA was done way, way above our mark. So sort of high-level intro to what's going on at large at VNV. So just to take you through BlaBlaCar, where there's not that much new to talk about. I think most of you know BlaBlaCar well by now. It's been many years in our portfolio. It's a marketplace for long-distance traffic where supply comes from -- predominantly from cars, but also bus and train operators offering seats into a marketplace where -- which has a very large and very fragmented demand side on the other side. It's a European business. Every little green dot here is BlaBlaCar on route on the car. So you see it's very, very active marketplace in Europe, but the fastest-growing countries for this company right now, it's in emerging markets where India has overtook France last year to become the largest market in terms of passengers and that's not yet monetized. And in fact, over the course of this year, one of the things that we are really eager to see the company perform, and we're confident that they will sort of execute on, is to monetize emerging markets, which they have in other parts of the world, but we see first up Brazil, where they've been at it for a long time, monetization is now starting to become well underway after they've spent some time on testing different sort of routes to monetize. Not every market is France. France is, of course, heavily monetized and very profitable. Brazil, they have sort of tested some new products and found the right one and now getting going in earnest with that. And then India, Mexico are to follow. But -- and in Europe, which is really profitable and not as fast-growing market as those emerging markets, there's still a potential to growth as the company sort of really improves the product to pick up the sort of the big demand that's out there when they offer a point-to-point solution in this sort of long distance sort of travel. So it's not only going from a big central station in Paris to big central station in Lyon or Madrid, for example, but this company actually offers a route from a small city like [indiscernible] to a small city like [indiscernible] where, today, you need to sort of take -- or outside of BlaBlaCar, rather, you need to take a train to [indiscernible] or bus to [indiscernible], take a train to Paris, change station in Paris, train to [indiscernible], bus to [indiscernible], which takes 6 hours and costs a lot of money. So the alternative in BlaBla trip is much more comfortable. It's door-to-door, it's faster, it's much, much cheaper. So as the product sort of starts to sort of cater even more to this sort of door-to-door kind of concept, we think there's also growth to be had out of places like France, which has been more sort of a profit center than a growth center of late. And just summing up, we're the second largest shareholder of this company now 14%. I mean that's not changed since we last spoke. And yes, we're very, very keen on this upside. I think, for the course of this year, monetization in emerging markets will be a very, very interesting thing to follow. But also beyond that, just generally from the sort of volatile year of '23, very, very sort of profitable and then '24 with the sort of the ceasing of these green revenues that they had in France, they're now on a very sort of stable footing and are profitable in earnest, and we see that those profits really sort of growing well into the coming years. So really, really keen to see this company now having just normal times and being able to grow in their -- in all their markets, but -- and especially in emerging markets and also monetize those, which will be obviously driver for revenues. And then a lot of that money, not to say all that money falls down to the bottom line. So those are few words on BlaBla. I'll hand over to Dennis to walk us through Voi. Dennis Mohammad: Thank you, Per. As we've highlighted in previous calls, Voi has had a very strong 2025, with net revenue growth in the 30% range and margin expansion across the board. On the back of this, VNV has written up its value in Voi by over 25% during the year, taking it from around 15% of the VNV portfolio to more than 22% of our portfolio this quarter. So given that performance and its increasing importance for VNV, we thought it made sense to do a bit of a deeper dive on Voi on this call. Starting with the basics, which I assume most of you are aware of, Voi is a leading European micromobility company. They operate both shared e-scooters and shared e-bikes in more than 110 cities in 12 countries. Whilst the hardware is the most visible part of the business, as you can see on the left most side of this slide, Voi is fundamentally a vertically integrated hardware, software and operations platform working as one system. On the software side, Voi has invested heavily in everything from machine learning for fleet optimization to ensure that supply and demand are matched in each city at any given point in time, to inventory and fleet tracking, the rider app that users see, but also the various types of data products for cities in the locations where Voi operates. On the operations side, Voi manages the full vehicle life cycle from sourcing and designing of the hardware to predictive maintenance and fleet management and ultimately, resale. To date, Voi has resold more than 60,000 vehicles when upgrading to newer models has made more economic sense than continuing to operate, which shows you how far this business model has come from where it started back in 2018. All of this makes this a highly complex industry and company, I believe, with meaningful barriers to entry. And it really strongly favors to operators that have invested in technology and operational excellence to drive down cost per ride, a metric we are fairly certain Voi is leading on in this industry. If you go to the next slide, Per, and apologies in advance for a slightly wordy slide, but I'll walk you through the highlights. Today, Voi has a highly diversified revenue base with over 100 cash-generating cities. The largest city accounts for only 8% of revenues. And we were often asked, I'm often asked what happens if Voi were to lose a major tender in cities such as Oslo or London or Paris. And the answer is really that the downside is quite limited here. The portfolio is diversified, as I said, and the fleet would just be reallocated to cities where they can continue to generate revenue, perhaps at a slightly lower pace in the beginning, but that is a very key component to the fact that it's a very kind of diversified portfolio of cities. Voi also has a very loyal and growing rider base with active users up more than 33% in 2025, highlighting that penetration remains very early in many European cities. And I'll show you a slide on that just after this one. Voi also holds the highest regulated market share in Europe at around 30%. And close to 80% of its revenues actually come from these regulated markets where competition is limited and unit economics are structurally more attractive. And then I think this is one part of why Voi has managed to achieve this margin expansion that we've seen over the course of the past 12 to 24 months. On hardware, Voi is now operating its ninth generation vehicle with roughly 1-year payback periods and an asset lifetime that exceeds 10 years. Also that a big improvement versus the first models that we saw in 2018. And during 2025, Voi scaled its e-bike offering quite meaningfully with further expansion planned also now in 2026. The benefit with e-bikes is that it not only diversifies the fleet, but it also broadens the user base and significantly expands the addressable market for Voi. You have more users willing to use the service. And over time, we expect additional vehicle types to be available on the platform as well. Finally, on this slide, Voi has industry-leading safety performance. On average, a rider will need to travel around 6 laps around the globe on Voi before being involved in a serious L2+ accident. And as a food for thought here, I think safety remains a core focus for Voi, but city infrastructure and car prevalence are also critical factors in that equation. If we go to the next slide, Per, as I alluded to before, what we're seeing here is the share of city population that are monthly and/or yearly active riders with Voi in a number of cities, but also for the top 50 European cities that Voi is active in. And as you can see, even in Voi's strongest cities, penetration remains quite low. In places like Stockholm and Oslo, more than 60% of the population remains untapped. And in larger cities such as Berlin, that runway is close to 90%. Voi has around 1 million retained monthly active users today, while more than 150 million people are aware of the brand and over 600 million people live in Europe. And I think this highlights how early the journey still is and how much growth there is to come from just growing user base. As mentioned earlier, Voi grew monthly active riders by 33% in 2025 with essentially no marketing spend, making this a highly efficient acquisition engine as well, and this is a metric we expect to continue to drive growth going forward. Going to the next slide and turning to this quarter or the fourth quarter of 2025. We've written down our stake in Voi by 7%. And -- while peer multiples have been volatile with mixed movements across the group and actually a net positive impact from the [ median ] multiple. VNV has essentially taken a more conservative view on the near-term LTM EBITDA forecast for 2026. This essentially reflects increased investments in mega cities such as London and Paris, which carry lower margins initially, but are likely to become the largest contributors to both revenues, but also profitability over time. Another thing worth highlighting here is that Voi is also investing in its first refurbishment hub in Poland, which expands vehicle lifetimes, improves unit economics and increases control over the supply chain, all positive long-term initiatives, but also part of explaining why we're taking down the EBITDA forecast in 2026. For the [indiscernible], however, we expect positive adjusted EBITDA and adjusted EBIT in 2026 with expanding margin versus 2025, but this will not be a year of steady-state margins. Instead it will be a year of continued investment within healthy positive margins, but prioritizing growth at the right price over short-term margin maximization, all of which we believe will drive long-term value for Voi. If we go to the final slide, this is actually not new from when we last looked at it in Q3. This shows Q3 LTM figures. And we -- as I said, we also did that in our last call as Voi actually reported ahead of us. This quarter, they're reporting after us, so Voi will release its Q4 results in February. So we encourage you to follow that on their IR site. But in essence, you're looking at growth in the 30% range with significant market expansion across the board. That was it on Voi. If we move to the next slide, we're seeing HousingAnywhere, which is the leading platform for medium-term accommodation rentals, typically 3 to 9 months in Europe. Over the past year housing -- past years, sorry, HousingAnywhere has grown roughly 20% per year and has been adjusted EBITDA positive since 2024. During 2025, at the beginning of the year, we updated the management team and instated a new CEO, Antonio Intini. Antonio brings tons of experience in the real estate and tech sector, having served both as Chief Business Development Officer at Immobiliare, which is Italy's leading housing platform, and several years at Amazon before that. During the year, we've also spent time and resources on updating the company's long-term strategy, where VNV, through me, have supported operationally as well. And as part of this work, HousingAnywhere is expected to complete a new funding round in the near term to finance its updated management plan, expected to close during this quarter or the first quarter of 2026. VNV is committed to invest around EUR 1 million in this round. And in the fourth quarter of 2025, since that was already decided, we have reflected -- we've adjusted the carrying value of HousingAnywhere to reflect that transaction, which is done at a small premium to our NAV. If we go to the last slide on my end, that is Numan, which is a digital health platform for specialized health in the U.K. As we've talked about in the past, this company has seen massive growth in its weight loss vertical from GLP products -- sorry GLP-1 products in the past couple of years. And it's expected to close 2025 with triple-digit growth on revenues and positive EBITDA despite increasing volatility in this market following Eli Lilly's price increases in the third quarter of 2025. This marks the second consecutive year with over 100% growth on top line and positive EBITDA for Numan. We also note that our sector colleague, Kinnevik, made an investment into this broader space, different business model, different company called Oviva, but definitely shows the interest in weight loss market in the U.K. In this fourth quarter, we value our stake in Numan on the back of a transaction that took place during the summer of 2025, where Numan raised both equity and debt to the order of around $60 million. So for that reason, the valuation is essentially flat in Q4 of 2025. That's it on my end. Handing it over to my colleague, Bjorn, to speak about Breadfast. Björn von Sivers: Thank you. A few quick words on Breadfast here, which we value at $30 million for the VNV stake based on the capital raising they have done during 2025. The company has been doing really well and accelerating growth during the year, ending the year with sort of a run rate GMV of around $290 million. And again, as a reminder, Breadfast is online grocery, quick commerce business based in Egypt. Primary market is Cairo, where they're currently expanding their footprint across the city with a lot of new fulfillment points. And importantly, while also sort of sustaining healthy contribution margins. We're super excited about this company, and I think they will have, hopefully, a stellar 2026. And if we move to the next slide, I'll also mention a few words on Bokadirekt, the SaaS beauty marketplace out of Sweden, a dominant player in the market, also a company that's doing well. Stable growth, 2025 looking to close short of just shy of SEK 200 million in net revenue with EBITDA of SEK 50 million. So in absolute terms, sort of still on the smaller side, but really solid business, which we think sort of have both potential to continue sort of stable double-digit top line growth, while improving margins, not maybe to the sort of full classifieds type level, but definitely increasing it compared to where they are today. And with that, I think we're sort of through the sixth largest holding, and I believe it's time to open up for Q&A. Björn von Sivers: As Per mentioned, and sort of if you want to ask a question, please type it in sort of in the chat or Q&A function here in Zoom, and we'll try to address them. And the sort of, I think, 2 BlaBlaCar related questions to kick off with. We already received this one, is there any new information on these energy saving certificates that we've discussed historically that were there and that's moved -- got away. And then also is BlaBla -- sort of more general question on the BlaBla product. Is this more focused on national users in their different markets? Or is it also sort of a visitor/tourist element to the product? Per Brilioth: Okay. Thanks. I'll take those. So yes, the energy saving certificates in France for transportation is gone for now. So the French government opted to sort of tax the energy -- heavy energy users rather than sort of let the market sort out. Trying to get the heavy users sort of reducing energy and the ultimate sort of goal of this. So in France, it's not present at the moment. It may come back, but we don't know. I think it will need sort of more stable sort of politics and sort of budgetary processes. Having said that, it's been started in Spain a few year ago and it's really growing fast in Spain, and it's -- the Spanish government thinks it's the best things in [indiscernible]. So it's like really popular across the board there and starting to contribute meaningfully. It's not yet meaningfully to sort of BlaBla revenues, but most importantly, to earnings because this is obviously very higher-margin revenue for the company. It's not yet to sort of the very high levels that we saw in France in 2023 when there was the base sort of -- the base level of these energy savings certificates, but in '23, they also had a booster on it. So Spain is still below that, but still a very good contributor and take a few years and be at the French level, but that's a very positive. And then we'll see what happens in France going forward, but it's not present for now. And the BlaBlaCar, yes, it's mostly sort of local, national, sort of going to visit parents or going to work, university, et cetera, inside the countries, but there's also a fair bit of cross-border stuff also for inside Europe for work purposes, but also for, we'll call it, tourists, that use it to go from Amsterdam to Paris, et cetera, when -- as it's -- again, using it for the same sort of reasons that sort of locals use it. It's cheap and it's also point-to-point. Björn von Sivers: And then I think we have a Voi-related question. You referred to a potential listing of Voi also sort of on the back of a potential IPO of its competitor. Why not move ahead and become the first and leading one? Better to be first than second. What's holding you back or Voi back in this case, I guess? Per Brilioth: Yes. Voi is not in need of equity funding right now. And so from a company perspective, it doesn't have to do this. And if Lime were to IPO or when Lime IPOs, I guess maybe it's more fair to say because there's been a lot of talk and they seem to be heading in that direction. And that IPO sort of establishes a certain sort of attractive cost of equity capital for the industry, then, in my view, I think that accelerates Voi's path to also being listed. But sort of putting that aside, I think sort of the timetable in my perspective for Voi is more to provide liquidity to shareholders who need liquidity, that being a reason from do a listing. That's more something that maybe happens in 2027. So -- but things could change on the back of a Lime IPO. Björn von Sivers: Thank you. And then we have 2 questions sort of around the discount and buybacks. So the question is, discount is persisting, we've done sort of relatively modest buybacks to date. Have you considered being more aggressive on that side, or can you? And what's the sort of considerations there? Per Brilioth: We will -- we've been buying back stock in VNV for, I don't know, at leat -- I mean, as long as I've been around, since 20 years. I think if you look across past 10 years, we bought back stock and distributed sort of cash to shareholders to the order of like, is it $750 million? So -- but throughout these years, we've done this in a very opportunistic way, not sort of buying on a downtime, but not chasing on an update kind of thing. And so that's the way we've sort of approached it over the autumn, and I think we'll continue to approach it. And then if sort of certain sort of block size opportunities come up, we'll look at those, too. But otherwise, we'll just be optimistic in the market. That's our way about it. We have quite a lot of gross cash, so there's firepower to do a lot. I know the net cash is smaller. But we're also working on a few exits, none of the sort of big, major things, but in the other part of the portfolio. There's some exits happening outside of us, which could lead to more liquidity. So yes, it's -- for us, who has this sort of insight into the performance of the portfolio and the development and the way we see that from the level of NAV, substantial returns, we'll be able to -- it will generate substantial returns from the NAV level. There's just nothing better for us to do. So I think you should expect us to continue doing this, but in an opportunistic way. I mean, speaking of Voi, I mean, I know we have Voi marked wherever it is. It's at $127 million today. I, in fact, think that you could argue in some ways that Voi -- our position in Voi today is, the way we value it, understates it massively perhaps to the extent that our stake in Voi sort of makes up the entire market cap of VNV and everything else is for free. I know that sort of requires having sort of a little bit of faith into them performing over the coming years. But the way from where we sit, we think that's entirely possible. But yes, so to give you a sense of buybacks. Björn von Sivers: Thank you. Another question here. Looking at the pro rata share of earnings, which you communicated, it looks like 2025 margin assumption is slightly lower quarter-on-quarter compared to third quarter. What has driven this development? Dennis, can you take this one? Dennis Mohammad: Happy to. So I think the question is on the $3.2 million of pro rata adjusted EBITDA, so that's the VNV share of the pro rata EBITDA of the portfolio companies in the top 6 list. As a reminder, Voi is on adjusted EBIT here, not on EBITDA. The biggest difference, so this is around 2%, 2.2%, I think, percent margin versus, I think, 2.5% to 3% range that we had before. And the biggest driver of that delta is -- a couple of hundred thousand is Breadfast that has invested quite heavily in growth, as Bjorn alluded to earlier. So they have seen a bigger kind of top line growth than anticipated, but done so at a slightly lower margin. So that's the biggest driver for 2025. And then 2026, we will get back to you in a couple of quarters' time. Björn von Sivers: Thank you. There's also a question here that says, arguably, you've been hurt by the dollar decline without any underlying assets that actually have dollar exposure. Have you considered changing your reporting currency? And so -- I mean, it's true that today, it's very little dollar exposure across the portfolio and, more importantly, on our sort of cash side. It was more dollar exposure in the beginning of 2025, where we still had Gett, which arguably could be sort of was priced in dollars and made up a sort of meaningful part of the portfolio. The historical sort of our reporting currency of USD has historical background. We've been reporting in dollar terms since the very first iteration of the company, which many years ago when we sort of still was a [ Bermuda Topco ] and had the [indiscernible] listed in Stockholm and that sort of continued while did the redomestication back in 2020. But given the change in the sort of portfolio, we have reviewed this topic, but haven't sort of made a decision or come to a conclusion. And again, sort of given that the portfolio is not dollar-denominated, the value sort of is what it is irrespective in which currency you reported. But there's obviously sort of pros and cons in communication especially in these times of very volatile effects. With that, I'm checking here if there's questions that we have missed. I think, sort of -- there was a few questions here on a more broader topic around our larger holdings and how we think about sort of -- when we do an investment, how do we think about and review the sort of original thesis we had when we did the initial investment? How sort of -- what frequency do we will review that? And if we realize that our original thesis was not, or is not sort of playing out, how do we think about that? And how do we sort of try to proactively work with those type of examples in the portfolio? So maybe if we can give a broad answer there. Per Brilioth: Yes. I think that's done sort of continuously. It's not that we have a meeting on a special position sort of every quarter and we go through it. I think it's done very continuously. And I think the way you should -- the way this sort of works out is that if -- typically, if we invest in something very early stage, then -- well, the tickets are very small. And if it doesn't work out, we stop funding it basically. It's not really possible to sell the market for those sort of really early-stage positions. It's very illiquid and seldom sort of works to sort of sell, but we stop sort of -- we've made a small check and then we don't do any more checks. There have been situations where we have sold where it has some sort of really, for various reasons, not sort of fitted in the portfolio. And then we have been proactive in sort of trying to find a buyer. We have found buyers typically and then sold them. And then there are situations where we -- I mean, Numan, which is the -- yes, it's the fourth largest of our positions and -- which is a really good company, a really strong company, but it's not quite what we invested in, in the beginning when it was much more community-based sort of phenomenon around male health. And well, the larger the community, the better the product kind of thing. So you sort of get this natural network effects around it. It's evolved from there to being more of a teledoctor, with an e-pharmacy attached to it. And it's a good company, but it's not really network effect. So here, we -- it's a big position for us. We're on the Board. We're quite active around the company. But yes, it's -- the original thesis hasn't really worked out, but it's developed into something good anyway. And we're not -- the sort of the good performance has not made it -- made any sense for us to sell into because prices have improved. So we've held on to it. Björn von Sivers: Thank you. I believe we're through the questions that I see here. If we missed anything, please ping us on e-mail or whatever, we'll try to address it offline. But with that, I'm sort of -- yes, over to you, Per, for final few words. Per Brilioth: Yes. No, thanks for joining, and you know where to find us. As Bjorn said, please, please, it's always great and fun to talk and address your questions in this format, but also on a one-on-one basis, if you want to kick things around. We report next time, I think it's April 22. So if not before, then please join us for a similar exercise for our Q1 of 2026. Thank you. Björn von Sivers: Thank you.
Johan Akerblom: So welcome, everyone. Today, myself and Masih will take you through our Q4 report, and our strategic review. We will start with the fourth quarter and the year-end 2025, then we will go through the strategic review presentation, and we will wrap up with Q&A. Moving into the fourth quarter, and looking at the developments, we've had a continued underlying business progress in both servicing and investing. We have had underlying costs that continue to go down. And we did take as part of the yearly review, a goodwill write-down, and we did also a tax asset write-down. We continue to focus on deleveraging. And if you look on year-on-year, the leverage ratio has improved from 5.3 down to 4.8. On top of that, we're continuously working on strengthening the balance sheet, and we did announce a sale in January '26 of the remaining stake of our joint venture with Brocc. This will have a positive impact on the leverage when we close it. On the servicing side, we see a continued organic growth. The margins remain elevated and steady, and we have had a strong sales execution in the fourth quarter. On the investing side, collection index continued to be above 100%. We did close SEK 436 million of new investments with an IRR of 18% in Q4, and we have, for the year done SEK 1.2 billion with an IRR of 20%. As you can see on the chart, the service margin has steadily been going up, and it continues up in Q4 as well. In Q4, we have a 31% margin on the quarter standalone. If we look at the servicing income, it's very positive to see 2 quarters now in a row, we have external servicing income growth, taking into account FX-neutral assumptions. On top of that, we continue to increase our pipeline, so we're moving into 2026 with SEK 2 billion in our pipeline. And we have continuously been working on the pricing model and strengthening the sales team. Investing displays another quarter of high collections, and we continue to extract a lot of value out of our portfolios. If we compare it to the original forecast, we're now at 109%. And it's interesting to see that our investing book and the performance on it remains very strong, even though we sold a large part of the back pool (sic) [ book ] in 2024. The ERC as we end 2025 sits at SEK 46 billion. Moving over to Masih, and the financials. Masih Yazdi: Thank you, Johan. So let's go into the Q4 P&L a bit more in detail. So income is down compared to a year ago, 7%. That is almost exclusively driven by FX. The investment book is a bit smaller as well, but a large share of decline in the investment book is also driven by FX this quarter. As Johan alluded to before, we did have a goodwill write-down. It's coming from a few different countries, we had preannounced that at SEK 3.1 billion, it ended up at SEK 2.9 billion, and the difference there is really driven by FX changes from the announcement to the end of the year, as well as some small adjustments to the WACC we use in the goodwill calculations. The adjusted EBIT is largely unchanged as the income decline has been largely offset with cost reductions. And here are the cost reductions, so the underlying costs continue to go down. It's down about SEK 1.6 billion on an annual basis in Q4, if you look at the 12-month trend, and it's mainly driven by personnel reductions. So FTEs are now down at year-end to around 8,500 people in the company. Looking into servicing, as Johan mentioned, so we do see organic growth for the second quarter running, but we do have FX headwinds here. So the income is down 3% year-on-year. But as I said, 1% organic growth underneath the surface. Cost development continues to be good. Here is the area where we continuously do take out costs and plan to do that also going forward, which means that we continue to have a good development of adjusted EBIT, which is up 31% compared to -- so full year 2025 compared to full year 2024. On the investing side, income is down more, 11% year-on-year if you compare '25 to '24 and 17% Q4 versus Q4 2024, very much driven by the fact that we have a portfolio that is shrinking as our new investments are less than what is being amortized. But at the same time, the performance we have, keep performing above the 100% means that the investment book, the income from the investment book is going down less than the size of the investment book, which is obviously a good development that we are extracting more value than what was initially thought in the forecast that we had. On leverage, we see a decline of leverage, 5.3 a year ago to 4.8 at the end of the year. It is marginally going up quarter-on-quarter. That increase is largely driven by the fact that we have improvement on the servicing side, but the cash flow improvements on servicing is not sufficient to offset the decline of cash flows coming from investing. That's the case in this quarter. Obviously, the plan going forward is to make sure that the improvements we see in servicing is more than offsetting the decline coming from the investing side. Johan is going to summarize the quarter. Johan Akerblom: Yes. So I mean, to wrap up, I think we said it all, but Q4 delivered continued underlying business progress. And we've also spent a large amount of time to actually do the strategic review. And I think with that, we move into the next section, and talk about what we have discovered. So let's talk about the strategic review. We have obviously spent a lot of time during the fall to look at where the company is, what the recapitalization entails, but also in terms of strategy and the way forward. I think the previous strategy was done in 2023. Some of the targets that were mapped out then has either been fulfilled or partly become obsolete. The company has changed dramatically. A lot of events that probably wasn't part of the first strategic review in '23 has happened. So it was time to do a strategic review, and really to set the foundation for the way forward. We will take you through what we think is the strategy for 2030, how we will execute, and then finally, what the financial impact will be delivering the strategy. So talking about Intrum 2030, it all starts with a continued focus on deleveraging and derisking. This has been very important over the last year. It will continue to be very important going forward, and it will be one of the guiding stars in everything we do in terms of activities. At the same time, we will also start working on our '26 to 2030 priorities, which are servicing performance, growth acceleration, and expanding our holistic view as an investing partner. When doing so, we will cement our positioning as the leading credit management servicer, and most attractive investment partner in Europe. And this will set a reinforcing wheel of value creation, an emotion, and that will deliver our 2030 financial targets, which are around service leveraging, total cost, and servicing EBIT margin. If we talk about Intrum and where we are today, first of all, we are already Europe's largest debt collector, and we have the scalability. We operate in 20 markets and the markets has slightly different characteristics, and we manage 400,000 customer interactions on a daily basis. We are working with 70,000 clients, and we are, as I said, in 20 countries. And every year, we basically have around 6 million debtors fully repaying their debt, out of 22 million active on an ongoing basis. When it comes to the markets, we have split them into three segments. One is the investing focused markets, which would be the Eastern European markets, Czech, Slovakia and Hungary. Then you would have the specialized markets where we have a composition of the business, which is built on something that has happened in the history. So there you would have Spain, you would have Italy, you would have Greece, and the U.K. And then you have the rest of our traditional servicing and investing markets. The way we operate is with the dual engine. We have the servicing where we collect debt on behalf of the clients, and we have the investing where we purchase debt portfolios either into our own balance sheet or together with the partner. These 2 engines are highly complementary and they're also reinforcing. Moving over to Masih. Masih Yazdi: Thanks, Johan. So already in the last couple of years, there's been a large transition in the company, moving more into becoming a servicer. You can see it in the financials. So the investment book has come down by 40% over the last couple of years. Obviously, a big chunk of that is due to the book sale that was done in 2024. But at the same time as that has happened, we've seen an increase of the external servicing revenue of 8%. The margin has gone up by more than 50% in the same period, and the share of the revenues generated for the company has increased when it comes to servicing from about 1/3 or 30% in '23 to now being the majority of the revenues being generated. And simultaneously to this happening, the net debt has gone down by 23% or almost SEK 14 billion. I think also just to add to this, I think when you make this transition from more of an investing focus to servicing company, you actually remove the business risk in the franchise, which is an important part of the strategy going forward as well. Johan Akerblom: Yes. When it comes to the market environment, we think there are a few trends that we believe are favorable for us. A large reason for why these are favorable for us is that we are a large company in a dominating position in Europe with significant scale. If you look at the competitive landscape, we can see that companies in our industry are specializing more, either becoming investor and servicer, and there are a few that have this full range of services that they offer as we do. On the technology side, this is still a very manual industry, and we know that there is a lot of new tech that has come into the market the last few years and will come into the market the next few years. And it's very difficult to find an industry where this can be more applicable than within our industry. And with the scale we have, we can justify the investments in the technology, because basically, what they do is that they help you with something that is repetitive and scalable, and we think we have a large advantage there. And the same goes with regulation, more regulation means that you need more scale to be able to absorb it and comply with everything that is being introduced. When it comes to the market as a whole, we know that the economy goes in cycles. And with the dual engine we have, we know that those 2 business lines generally offset each other. So when the market is benign, servicing does better, we have an easy way of collecting. And when the market is going down to a rough cycle, we know that the nonperforming loans typically increase, and we have a better opportunity investing. We've gathered some data on how these 2 business lines could grow in the market in the coming years. On servicing, we expect about 3% annualized growth until 2030. When it comes to servicing collections within the financial industry, we think that's going to grow slightly more, about 4%. And that's also where we have the bulk of our business today. So about 60%, 70% of the servicing revenues we have today is coming from financial sector. But at the same time, 90% of the collection business is outside of financial services. And what we plan to do is penetrate that part to a lot much larger degree than what we have historically going forward. On the portfolio side, there's been a significant decline of nonperforming loans in recent years after the increase we had post the financial crisis. The general expectation is that we are at the trough point. We're at trough point in 2024, and we'll see an increase of portfolio investments going forward, and that that will grow by about 9% annually until 2030. So talking about the 2030 strategy. First of all, as I said, in the near term, we will have a lot of focus on deleveraging and derisking. We have already started this journey. We started that journey already a year ago. I think we have started with an acceleration by the sale of the portfolio that we announced in January this year with the intent to repay the 2027 maturities. We are, as part of the strategic review, also looking into other type of divestments when it comes to either portfolios or nonstrategic assets, and this is carefully being evaluated. And again, the guiding star is that we can improve our leverage ratio. We will continue to apply very strict cost control. We are guiding a 5% lower cost in '26 versus '25 on the underlying basis, and also with the FX rates as we are experience right now. And the limited portfolio investments with a focus on return will continue, as we said, focusing on the deleveraging, which means that the cash flow will be used to a large degree for debt repayments. And this is necessary to give us the full flexibility in our strategy execution. So talking about the strategic priorities. We have a strategic ambition to become and cement the leading credit management servicer and the most attractive investing partner in Europe. That means that we need to have a superior servicing performance, we need to achieve growth acceleration, and we need to be the preferred investing partner in this segment. And I think Masih alluded to that before, we think a lot of this can be achieved by actually just starting to use technology data and AI in a completely different manner and scale than we do today. When we look at this, and both me and Masih are coming from the banking industry, we've been through the transition that the banking industry did. And we actually think that this industry is an even better used case than the banking industry, and the banking industry has received a massive amount of value from applying technology data and AI. We think that there is more value to be captured in this industry. To be a bit more concrete, what do we mean, i.e., where are we today, and what do we want to be in 2030? Talking about servicing performance and excelling in that area. Today, we have a quite bespoke and largely manual collection process. We need to be highly digital, automated, and we need to be very standardized across our processes. This means that we have to make a lot of changes in the way we work. On top of that, in order to make that changes happen and to be effective in our collection process when it's more digital, we need to leverage the data we have. Today, data is used in some processes and some decision-making, but it's not fully utilized. When we operate this in 2030, it should be a fully data-driven operations decision-making process. And that's going to give us not only much better predictability on what we can do, but it will give us a lot of other benefits. On accelerating the growth, we have very much a financial services focus today. We need to diversify our presence across other segments, and we need to be competitive, and we will explain later on how we will become competitive in those segments. And we are already today competitive in those segments in some markets. We have today a value chain expansion in some markets. So when we look at the collection business, there's a lot of services around it that are non-collection, but very closely related, that's why we see us as a full credit management service provider in the future. On the investing side, is just the fact that the investing volumes today are impacted by our funding cost and our capital structure. We need to create a very sustainable and competitive funding cost to be able to invest more and mainly continue to invest through the partnerships. And finally, we have been in a capital partnership now for a year, we need to build something which is more of a full stop shop full service offering for investors, because we have all those capabilities. So how will we make this happen? Well, first of all, we now have a new executive management team. It's not fully in place, but everyone has been recruited, and everyone has either started or is about to start. And I think a couple of common denominators for this management team is, first of all, they have a very long experience in the financial industry, which has been going through quite some changes if you look back 20 years, 25 years. Secondly, they have experience of being part of transformation or driving transformation journeys, which is exactly what we need to do going forward. And I think thirdly, they've been in a business where technology, data and -- not AI yet, but a little bit the ember of AI has made a huge difference in the way you operate. And those are the things we'll take with us. And on top of that, we have a lot of collection experience in our markets with our experienced managing directors. So in terms of strategy execution, we'll start talking about the servicing performance. We have basically an ambition to drive our platform optimization. And the way we do that is, first of all, we will consolidate our platform further, and this is a little bit coming back to how we think about our markets. Secondly, or in parallel actually, we have basically 5 major areas across the collection process that plays an impact. You have the inbound customer contact, and we have millions of calls, the outbound customer contacts where we also have millions of calls, you have the whole capacity management. And remember here, we have roughly 6,000 people working in this process. So to get the capacity management right makes a huge difference. So you can get the efficiency of every operator and every agent as high as possible. Then we have the agent productivity. So actually, when they are on a call, how do you make that call as productive as possible and how do you coach them and create a continuous learning to make sure that, yes, tomorrow is going to be a little bit better than today and the day after tomorrow will be even better than tomorrow. And then finally, there's a lot of work to be done on the noncore process optimization. In here, you would find pure process reengineering levers, you would find levers that are around performance management. So everything is not driven by just tech or data or AI. But if you apply the basic process optimization tools, and then you add technology, data and AI in there, you get very fast traction on that transformation. But it also has to have a lot of focus. So as you can see, the bars on the bottom basically shows how big the cost-out potential could be. And with 6,000 people in operations, we think that the cost trajectory that we've had in the past will continue going forward. At the same time, we will also make the user experience much, much better. To give an example of what we have done, and this is basically just illustrating how much you can do without actually making -- even starting to adopt some of the more modern technologies. In Norway, we've had a top line that has been flattish, slightly declining for structural reasons. The production cost to collect has gone down 36%. The collection per FTE has gone up 46%. And in the end, the adjusted EBIT margin has increased almost 50%. This not only gives us a much more competitive business today, it also allows us to win and be more -- much more competitive in winning new business going forward. So we think that this is the starting point to actually become a growing entity. You need to be efficient first and then you can basically become much more competitive in your offering. Yes. I mean, Norway is probably the prime example we have of adopting new ways and improving the processes. But they already have all the tools. So we have that in the group. So just getting every other market to be on par with Norway in terms of how you collect and how you can perform that more efficiently takes us a long way across this journey we're planning for. Obviously, in addition to that, we will apply new tools that everyone will use as well as Norway to become even better. And Norway has not done this through AI or some massive technology shift, this has mainly been done on standardization, process optimization, and proper capacity and performance management. Another area which we have just sort of scraped the surface on is how we can use the data. Today, we have 20,000 PI portfolios, so we have invested historically over 20,000 portfolios. We use that data, but that data is just a small fraction of all the data that we sit on in the group. Today, in the group, we have 70,000 clients, as I said before. A lot of those clients, they actually have several different portfolios that we have been or are collecting on. So when we can start pulling some of the insights out of that data stack, which we already started working on, so we're basically taking the same approach that we've done on our PI portfolio data analysis, and we're trying now to apply that for the bigger universe of servicing data. Then we can move from the current use of data to something that is much more value-enhancing going forward, which is around improving the underwriting data on the portfolio investments. We can add a lot of value-adding client services. Essentially, we can go and advise the client on the best way to collect on their debt, and the best way to structure insourcing versus outsourcing and so forth. We will use it more and more in our action decision engine to make the right decision rather than to make a decision based on your own experience. And then we can also do very good statistical servicing pricing and benchmarking to identify best practice both across verticals, but also in -- across geographies. On growth acceleration, which is the next element of the strategy, we think that the first part, what we talked about servicing performance, that is a very important foundation to accelerate the growth, because as we discussed with Norway, but in general, you need to be the best service performers in order to actually grow in the existing segments more than we do today. When you have the best competitive offering by being the most efficient and the smartest on how you collect, you can be much more competitive in pricing, you can get a better result for your clients, and you can also protect and grow your existing business. And when you have done that, you also underwrite to grow a new segments, because the new segments outside the FS, they are usually smaller tickets and it's usually faster processes, and they need to be driven by a very efficient collection process. So in order to excel there, we need to be the best when it comes to service performance. The top line that we're looking at is quite significant. So just to do more where we stand, i.e., close the white space within financial services, strengthen our strategic partnerships, continue adding value to our services, and be better in sales effectiveness, we think there's roughly SEK 0.5 billion to capture. And this is, again, comparing 2030 to 2025. If we can start capturing the untapped potential outside the large non-FS segments, there's another maybe SEK 2 billion of potential. And that means that we need to enhance our offering, and we need to be more on the digital collections, and we also need to start being better in offering adjacent services. Lastly, on the B2B segment, there's a little bit more than SEK 0.5 billion in potential. And that is a little bit aligned with the second part, because the need there is very much similar, and you can almost create a plug-and-play platform where SMEs plug in, load their cases and they run on our platform. So again, to be very concrete, for example, in Switzerland, where we've been very successful in growing outside the collection space, we have roughly 15% to 20% of our revenue in the non-collection. We make almost 3x as much the group average income per FTE. On the group, we would say we have somewhere around 5%. So by moving into this non-collection, you can actually capture a much bigger part of the value chain, and you actually get the leverage on the services you already provide as a collection partner. In Germany, we have a different situation, where the market size is really, really big. We have a 10% to 15% market share in the FS segment. In the other collections -- in the other industries, we have less than 1%. But the total market size is SEK 2 billion. So by just being able to move in and capture our fair share in the other services, there's a big, big upside in terms of income, and in the end, in terms of generating more profit. Finally, we also have, as you all know, Ophelos, which is a digital standalone platform. Here, we have now pivot from the fully integrated approach where we started to a standalone model. We think Ophelos should almost compete with us as a different business offering. We are today doing this by plugging it in, in Portugal, and then we're moving either existing clients onto that platform and also using to acquire new businesses. And then we were going to scale it across the group. And we already have good progress with some of the leading buy now pay later players, not only in Portugal, because it exists -- Ophelos still exists in pockets across the group, and that works extremely well. And the benefit with Ophelos is that there's a massive improvement in terms of speed, scalability, product innovation and the performance uplift. But to be a little bit conservative here, we have actually not fully -- we have not included the upside from Ophelos in the base case financial plan. So with that, I'm going to hand over to Masih to take you through the last element of the strategy. Masih Yazdi: Thanks, Johan. So let's talk about the third leg, investing partner. Here, our current situation is a bit different compared to the servicing side, where there are clear improvements to be made. On the investing side, we are clearly a dominant force in Europe. We see basically every deal that goes through, we get to analyze them, we get to see the deal flow. Obviously, recently, we've invested less, but at the same time, we see all the deals, we see all the data, and we've been able to combine some larger deals that typically have lower returns with smaller deals, which typically have higher returns and have a good enough blended return. As you know, most of you, in the last year or so, we've done this in one partnership with Cerberus. If you look at performance, the performance here has been very good. So every portfolio has a forecast, where we have an assumption of future cash flows that index is 100%, whereas if you look at the actual performance of the last 20 years, it's been at 107%. So the book value that we have and have had historically, this company has basically almost outperformed on that book value. Even in deep economic downturns, the performance has been almost in line with the forecast that has been used. Johan Akerblom: I would just like to add here. I mean, I think there was some skepsis in the market when we sold the back book in 2024. Now we sold the second part of that back book that the rest of the portfolio would actually not perform in line with historical performance. What we see now being basically more than a year down the road is that we continue to perform almost even better than we've done in the past. Yes. Masih Yazdi: So if you look at the strategy we aim to have when it comes to investing, we look at this in sort of a few different perspectives. There are investments on our own balance sheet. So the investments we do ourselves. In the near term, as we start out saying, we will be more conservative. We will have more limited volumes, and we'll focus quite a bit more on returns. We need to do that to make sure that we use the cash flows we generate to reduce the debt burden of the company. In the longer term, and this will be dependent on the evolution of funding costs, as the funding costs come down, we'll be more competitive on new investments and investments will be ramped up. And we believe that during the period '26 to 2030 at some point, investing more will be a contribution to the income growth we have as a company. On the capital partnership side, we will continue that. This is something we want to expand. We want to have capital partners. We believe that there are investors out there that would like to benefit from the underwriting capabilities we have, and the deal flow we see, and the fact that we can help servicing the portfolios and invest together with us. We typically take a smaller share, but we can offer other capabilities that they typically don't have. And we want to continue to work on that. And in the future, we'd like to add more partnerships in different shapes and forms than what we have today. Then there's an SDR option. In the near term, it's probably not feasible. We are continuously evaluating if there is a scope for us to have an access to an SDR vehicle. It could be a minority access, it could be a majority access. There are pros and cons with both of those. But during 2026, we expect to have fully evaluated that and have understood what the next best step for us is. And obviously, if we get that access, then that will also have a significant impact on the investment volumes we can do in the SDR vehicle given the funding cost we'll have at that point. So let's move into the financials and starting with the 3 new financial targets we've set. So the reason we set these targets is that we want -- for it to be something extremely relevant, help us in our strategy execution, but also be something that we feel that we have fairly good control over. Clearly, the most important one is leverage. We need to reduce leverage, and we've set a new target, which is 3x that the net debt when excluding 80% of whatever the book value is investing. So the book value is assumed to consume debt up to 80% of the book value. And then all the rest of the debt is allocated to the servicing business, and that leverage needs to come down to 3x. If you compare this to the current way of formulating the leverage, which was 4.8x, 3x on servicing and 80% LTV on investing is just below 3x leverage on the current definition. So it's a more ambitious target than we've had in the past, but we're giving ourselves a bit more time to get there, because obviously this needs to be realistic. On the cost side, the underlying cost in '25 were SEK 12.3 billion, we've guided for that to be reduced by another 5% in '26. And then we expect cost to come down every single year until 2030 to reach a level of SEK 10 billion to SEK 11 billion. And this level will be dependent on the actual growth on the servicing top line. If we have growth of, say, low single digits, we're more likely to be at the SEK 10 billion mark. And if growth is, let's say, high single digit, it's likely to be more closer to SEK 11 billion level. Then on the margins, there's been good margin improvement, and we are targeting to increase that further to somewhere between 30% and 35% by 2030. The reason we have an upper limit here is that we want to strike a balance between finding cost efficiencies and then transforming those efficiencies to our offering, so that we can offer a better price for customers, and therefore, gain market shares. So we want to find a good combination of a sufficiently good margin, but also growing our business faster. If you look at all of these 3 targets we're setting, and the development we've had, we actually are already moving in the right direction. Service deleveraging is coming down. The cost level is already down more than SEK 2 billion in the last couple of years, and servicing EBIT margin is up by 9 percentage points last couple of years. And if you look at those 2 targets, actually the trajectory at forward has a slower pace of improvement than the improvements we've seen in the last couple of years. So we think this is clearly realistic and something that we can achieve. And obviously, it's going to be a guiding star for the company. So let's talk about the debt we have and our view on how to deal with that. So we have about SEK 45 billion of nominal debt outstanding, the first maturities are in 2027. We had -- the announcement of the portfolio sale in January, the proceeds from that sale, combined with the organic cash flow we believe we will generate will be sufficient to completely redeem or pay back the second lien maturities in 2027, which is about EUR 370 million. When it comes to the other maturities in 2027, given the market input we have and the secondary market trading of those instruments, we believe we can refinance those at better terms than currently outstanding, and we plan to do so first half of 2026. When it comes to future maturities, we have made a plan of our P&L development and looked at the organic cash flow generation in that plan. And we believe that there will be a certain part of each year's maturities that we will be able to repay or redeem. And in combination throughout these years, we believe that we can reduce the debt by somewhere between SEK 10 billion and SEK 15 billion. Obviously, almost SEK 4 billion out of that is coming from the 2027 maturities already probably this year. And the SEK 10 billion to SEK 15 billion is really dependent on, obviously, the success of executing on the organic path, but also to what extent we can extract the value from the balance sheet by selling nonstrategic portfolios or assets that we have. And obviously, we're working on those different projects. Then at the bottom of the slide, you can see this is not a guidance or -- it's a forecast or guiding for us when we come up with the deleveraging plan that we have. Maybe just pointing out a couple of things here. On the servicing income, we expect it to be largely flat this year, and that's mainly due to the fact that already going into the year, we have fairly significant FX headwinds with the Swedish krona strengthening by about 5% versus the euro. So we need to see clearly good organic growth to offset that. Then on interest expense, we assume that will come down over the coming years as our debt burden comes down as we continue to see improvements in our operating performance. And portfolio investments, slightly lower in '26 than '25, and then we expect to be able to ramp that up slowly, and then at some point in time, invest more than what we are amortizing and this being a contribution to the general income growth of the company. Repeating what we started with, near-term focus, deleveraging and derisking, this is something we need to have to have flexibility in our strategy. We have the priorities, servicing performance, growth acceleration and being a good investing partner. We believe that we could be on the verge of coming into this positive momentum of deleveraging, lowering funding costs, being able to accelerate growth, which will continue to delever and so forth. And we have the guiding stars in our financial targets we will be working on. That's the end of the presentation, and we will open up for Q&A. Johan Akerblom: Yes. Before we start on the Q&A, I just want to say that the strategy here, what it actually accomplishes is not only creates shareholder value, but by transforming the company in this direction and working on these levers, we will actually create a much more stable business model. And that's the whole idea to create something that could sustain for a long, long time and that can carry a certain level of debt, but also give the flexibility to manage that up and down depending on the opportunities that are out there. So part of the strategy is actually creating something that fundamentally removes a lot of risk in what we've had as a previous franchise model. Masih Yazdi: Q&A? Johan Akerblom: Yes. Let's start the Q&A. Johan Akerblom: So as we kick off the Q&A, we will actually start with some of the questions coming from the teleconference. Operator: [Operator Instructions] The next question comes from Jacob Hesslevik from SEB. Jacob Hesslevik: Maybe we could begin on your financial target regarding the servicing EBIT margin. Could you provide some details on the drivers behind the margin expansion? Is it mainly from lower cost or rather growing top line to better scale the cost base? Masih Yazdi: Jacob, yes, I mean, it will be initially a lower cost. That's been the main driver between -- behind the improvements of the margin, and that will be the case at least in 2026. Then obviously, we're hoping and planning to see some revenue growth, which this year will be more difficult, because of FX headwinds, but organic growth is something we're planning for. And as we expand into new industries, you'll see that as well. When it comes to some of the other industries, so outside financial services, margins are typically lower than what we have today. So that expansion doesn't improve margins that much. So margin improvements really comes from lower costs. And we are planning as we lower the cost level to be able to translate some of that or pass that on to customers, because we think that's a good lever for us to grow the business more. So the real combination between sort of revenues or income and cost over this whole period is difficult to say. But I would say at the early parts of the period, it's going to be mainly a cost reduction. Johan Akerblom: Yes. And an important part is also to create the scalability. So when we start adding on more volumes on the income side, it actually implicitly increases the margin. So you add on basically more variable cost or more -- sorry, you add on more income with the limited variable cost on a scalable platform. So that will also help eventually the margin improvements. But as Masih said, initially, when entering all these new segments, they would probably come with slightly lower margin than we have today. Jacob Hesslevik: Great. And then a follow-up on the cost message there. Could you pinpoint it to which division do you see the largest potential to streamline? Is it within servicing? Or is it rather investing, which you are shrinking somewhat given the divestment you announced in January? Masih Yazdi: You mean in terms of cost? Jacob Hesslevik: Yes. Masih Yazdi: I mean the big bulk of cost sits in servicing. Investing, they are using servicing as a supplier, but the bulk of cost is in our collection process. Then obviously, when the investment book goes down, we have to adjust the servicing provided to the investing business, but the cost out and the process optimization is happening within our servicing business. Jacob Hesslevik: Great. And final question from my side is just on how large share of today's collection are automated? And how does that compare to the industry average? Masih Yazdi: We have less than 10% automated. So it's a small piece. And the problem is when you start talking about the industry, I think on average, the industry is probably slightly worse than we are, but then there's a couple of players, but they mainly operate outside the financial service industry. They have a higher level of automation. Okay. Moving on to the next. Operator: The next question comes from Ermin Keric from DNB Carnegie. Ermin Keric: Maybe first, do you expect any kind of implementation or execution costs for getting to a lower cost? And also, given that you're going to automate more, will you capitalize any IT investments and kind of how much will that CapEx be included in your leverage in any way? Masih Yazdi: Yes. Yes, there will be some implementation costs when it comes to future technology. I would say in the first couple of years, '26, '27, we basically have the tools we need. We just need to apply them to a larger base of the collection process, just like Norway has done. But when it comes to implementation costs in general, we will be fitting those into the cost targets that we have. So the cost target you see and what you will see over the course of the next few years underneath that target, we will have the implementation cost being fitted. So there won't be additional costs than the targets that we've had. On CapEx, I think we already have had CapEx on the balance sheet, and I don't think that's going to be higher in the future than it's been historically, to be honest. I don't see that as a big headwind going forward. And then I think also, I mean, in terms of -- I mean, we're obviously a people's business today. We have a lot of employees working across our processes. But so far, I mean, there's been a couple of bigger programs announced externally. I think going forward and what we've basically done during the last year is that a lot of this comes through natural attrition. We have a fairly high attrition rate in some of the -- especially in the sort of the more of the collection part of our business, and we intend to kind of continue working with that rather than announcing any big programs. I think it will be a very natural evolution as we sort of implement new services and new solutions. Ermin Keric: Then about your leverage targets. How are you doing with central costs? Where are they allocated in the leverage target? And also, do you include the full contribution from your kind of consolidated JVs in the servicing, because I suppose you need to pay some of that minorities later on? Masih Yazdi: Yes. I mean today, basically, all the central expenses have been allocated. So it's very, very little left centralized. On the JVs, we will be updating our reporting. So these targets are now set. So we had the old target of '25, and we'll be updating our reporting to reflect the new targets from Q1 2026. So exactly how we're going to do that, you'll see that in the coming quarters. But I would say, in general, the target we're setting now means a lower leverage than the old target we had as a company. Ermin Keric: Then the last one would be on the better usage of data. Do you mainly expect that to lower your cost to collect? Or how much more do you expect that you can increase your collections, for instance, on your own NPL book? Masih Yazdi: I think the data is probably more a driver of collection performance rather than cost to collect. Cost to collect is a way to -- I mean, you can automate a lot of things, and you can get your cost to collect very low, right? But if your recovery rate suffers, the equation might not hold. So I think data is for me to basically decide on what is the next best action. So that's one used case, that's going to be very helpful. The other part on the data is to use it to be better in advising our clients on the best way to structure their thinking around collections and maximize the money they get back on every late payment. So those are two areas. Then, of course, you can use data for many other things. But -- and then sorry, the third sort of used case is obviously to further enhance our underwriting capacities. Ermin Keric: Can I just put in one last question? It would just be on -- you showed the example with Norway, which I think is helpful, and its impressive improvements you've done there. But how replicable is it to Southern Europe? Because aren't the claims quite different that you're managing in Southern Europe and digitalization generally in those countries compared to Norway? Masih Yazdi: I mean, absolutely. I mean the way we think about our markets is that you have your 13 traditional servicing and investment markets where you would have Norway as a cluster in the Nordics, you have Germany, Austria, Switzerland, you have Ben there, so Belgium, Netherlands, you would have France and then you would have Portugal. Spain, Italy and Greece are different. And we will also manage them differently, and we will have different tactics in terms of implementing the strategy. So we think about the 30 markets, that's where we can apply a lot of common levers. And then for Italy, Spain and Greece and also the U.K., which is more of a BPO market, at least for us right now, we would have to be a little bit more specialized in how we implement the strategy. So one solution doesn't fit all. So let's go to the next question. Operator: The next question comes from Patrik Brattelius from ABG. Patrik Brattelius: So my first question would be regarding the income trajectory in the investing side, the coming years. As we saw on the last slide, you will invest less in portfolios the coming year in the short term. And we have seen investing falling for the last few quarters. Should we expect further decline? And when do you foresee in your financial planning that this will level out and more flat line? Masih Yazdi: Yes, I can start. The only thing we're guiding on today is that in '26, we're likely to invest less than we did in '25, because the priority we have is to reduce our leverage. When it comes to the evolution of investing beyond '26, it really depends on the evolution of our funding costs. We will make sure that we get a sufficient uplift in the returns we have on investing versus our funding cost. So the faster our funding costs come down, the more we can invest earlier. So we can't really dictate that. What we're trying to say is priority 1 is to delever, and then we will be disciplined on price, and we won't have volume targets. We do expect, we believe, and we want investing to contribute to income growth for this company at some point in time during this period, whether that's going to be '26, '27 -- or it's not probably not '26, '27, '28 or later, it's difficult for us to say. We have a plan of deleveraging. And to what extent and when the market translates that plan into a better rating and lower funding cost, it's very difficult to say without actually seeing it. And obviously, we need to execute quarter-by-quarter, so that -- I mean, presenting the strategy is one thing, executing on it is a different thing, and we need to execute on it to get the trust and see the funding costs come down, and that will lead to higher investment volumes eventually. Johan Akerblom: But I think also, I mean, on the slide where Masih shows sort of some estimates on how we think things will evolve, you clearly see when we see trends shifting. And I think that's probably your best input on how we see the future. Patrik Brattelius: My next and final question is regarding the JVs. We saw a divestment here announced at the beginning of the year. So could you talk a little bit how you see the divestment environment currently? And also when we look at the presentation, you have almost just below SEK 5 billion in JVs out of your ERC. Can you talk a little bit more and elaborate how much that is for sale and a little bit on that topic, please? Johan Akerblom: I mean I'll start, and then I think Masih can continue. We are always looking to optimize our portfolio. So if that means that we can recycle and we can sell something where we think the value is X and someone else ready to pay more, that makes -- I mean, that creates value for us. There's also the balance between cash now and cash later in terms of how the collection curve looks like, especially with our focus on deleveraging. But specifically on the JVs, I think we're going to have an opportunistic approach. And as we said, we already have a couple of things that we have identified that we continue to work on. Masih Yazdi: Yes. I mean there are differences between the JVs. And we have a JV, [ kind of LOP ], you can see it in our IR presentation. We are expecting cash flows from that JV of about SEK 1.5 billion between '27 and '29. It's not paying anything now. And the question there is that should we keep it and get those cash flows? Or is there a way to do something else? So it's this balance, as Johan mentioned, do we need the cash flows today? Or do we have the time and patience to wait for it? And we do that assessment for all the JVs we have. I mean accelerating cash is for us a good thing if we can clearly show that it adds value. At the same time, we also need to find someone on the other side who's ready to make that transaction happen. Johan Akerblom: Okay. So we have one more question on the phone. Operator: The next question comes from Johan Ekblom from UBS. Johan Ekblom: Just a couple of quick ones, please. So first, on the deleveraging target. Am I understanding correct that we should look at the cash EBITDA from servicing without any adjustments for Central or JVs or anything like that to be on a like-for-like basis? That's the first question. Masih Yazdi: You should look at the EBITDA, not the cash EBITDA. We will not be using the cash EBITDA. Johan Ekblom: But it's servicing only. There is no adjustments. And I guess we'll get the new structure at some point before Q1? Masih Yazdi: Yes, correct. Johan Ekblom: Perfect. And then on the margin assumptions, I think, Johan, when we met back in September and debated kind of what AI could do to servicing margins, et cetera. I think your view was that there's a kind of upper bound what the industry will accept before you kind of get intensified competition. And my sense was that at the time, you thought that was lower than the 30% to 35%. So just interesting to see if there's been any change in your thinking or if there are interim specific things that think you can be a huge outlier versus your peers? Masih Yazdi: I think we do think that there's more to capture. I mean here, you always need to be humble in terms of how much margin you can take and when it becomes unsustainable. But moving from '25 -- I mean, we already see today that we do deals that has a 30% margin. So if we can operate today with a 30% margin in an environment which we think is more inefficient than it will be in the future, I don't think it's very aggressive to assume that the margins in the future can actually be between 30% and 35%. So I think that's the simple logic. I think when we have done the analysis, we have come to realize that we can probably continue to expand our margins a little bit. Johan Akerblom: Yes. I mean just to add, I mean, we are reporting 25% on average. When you're in 17 markets, it means that you have markets that are clearly above that level and the markets that are clearly below. We can see in the data that where we are clearly below that, we actually have more structural issues, and we are markets -- we have markets operating at 35% today, without really seeing increased competition. We've just done more things. I mean, Norway is a good example, which is higher than the 25% we have as a group. So based on that data, we think that this is possible. And obviously, to some extent, we are trying and will be a first mover and adapt things faster than others. And that's a way, obviously, to improve your margin. I think another point which we never discussed, I think, it's also when you move into value-adding services, your margins should be higher, but they will still contribute to our servicing margin. And that's something that we can clearly see when we look at some of the markets where we have expanded into the value chain. Johan Ekblom: Yes. Perfect. And then I guess in an interview in the press today, you were -- or you made a comment that it would be nice to get a new core shareholder or a larger shareholder. And I don't know to what extent the journalist is putting words in your mouth. But is there anything you can tell us? I mean, is there any strategic action being taken to try and source that or anything you can share? Or was it kind of an offhand? Johan Akerblom: I mean -- I think what I said was we are always meeting investors. We are always welcoming long-term investors that shares our view on what can be achieved in the future. And I mean, it's a very generic statement, and I think that's where we will leave it. But I mean, the fact is that we have one major shareholder that has gone from plus 30% to maybe 10% or 11% -- and then we don't really have much institutional ownership. So of course, we would welcome a long-term investor or a couple of long-term investors that shares our view on what we can create in the future. Johan Ekblom: Perfect. That's how I thought I should understand it. And then just finally, I mean, you say you're going to be opportunistic about things like JVs, et cetera. I mean when we think about it, when you say, okay, this one has cash flow 2 or 3 years out, your funding cost, I guess, on the margin, at least today is high single digits. I mean, should we interpret that as you would be maybe not very willing, but at least willing to consider selling things at a book loss, because it would allow you to deleverage faster. I mean you haven't sold at any meaningful loss in the past. So I just wondered if there's a change in how you view these things now? Johan Akerblom: I mean -- I think we are going to be very sensitive to selling anything below book value. I think the recent transaction just shows what kind of appetite we have. So I mean, I think there's a strong hurdle before we actually go ahead and do something opportunistic. And that is we can clearly show there's a value for Intrum and its shareholders, and it helps us on the deleveraging. And I think that's where we're going to leave it. But there are -- there's a lot of people out there who looks into the space and what might be less value to us might be much more value to them. And I think that's the kind of the type of combinations we're trying to find. Masih Yazdi: I'm going to transform myself from a CFO to a moderator, because we have a few questions coming in, in writing format as well. I'll ask you one. So the first one is, what are your major considerations when assessing the advantages and disadvantages between owning 100% and minority stake in an SDR? Johan Akerblom: I mean that's a very interesting question, because owning a majority of an SDR comes with a lot of benefits. I mean, first of all, we would control the investment decisions. We would control the definitions of how much CapEx should be spent, how much dividend should be paid out. Of course, we would be regulated, but in line with all the regulatory requirements, we would still be the driver of that agenda. The downside of owning an SDR is that it creates regulatory complexity. It puts another pressure on how we run the group. And there's also a question around consolidation. So if we flip that into minority, being a minority, we need to have a very high comfort that whoever we own this with and whatever shareholder agreement we have, we have a lot of input when it comes to CapEx and dividend distribution. And also, we are probably then maybe an outsource provider of some underwriting advice. So I think those are the things. And then also having a minority stake, I think our partner needs to be someone where we feel that there's a natural flow. Either there's a natural flow of business that can go into the SDR or it's an investor that needs our support to basically build their book in this area. I don't know if you want to add something. Masih Yazdi: No. That's very good. I'll ask myself a question. So we have a question here on what the leverage ratio would have been had FX not moved in the quarter. And there's same person has asked a question about what targets we have in terms of servicing revenue. On the leverage ratio, generally, if the krona weakens, we benefit, because income is greater than cost. So you have a long period of weakening krona, we make more money and that has a positive impact on leverage. In a single quarter, that could differ. It depends on what the FX ended that quarter at versus the average during that quarter. In Q4, I would say the effect was very marginal from FX on the actual outcome of the leverage ratio. On the revenue target on servicing, it is by design. We have 3 financial targets and none of them are related to revenues. I mean, obviously, margins in combination with cost, that is to some extent, related to revenues, but we don't have an actual income target, because it's something we can't fully dictate. We've presented the data we have, which is that the market should grow by 3%. We presented data on pockets we think we can penetrate, which is up and above the 3%. So obviously, the goal for us is to grow faster than the market by improving our servicing performance and penetrating portions of the potential we've seen -- we see in financial services, nonfinancial services and SMEs. That's the ambition, but we don't set a target, because it's very difficult to know exactly at what pace, how quickly we can execute on the things we see in the market. So one more question to you then. Can future partnerships be different -- different type of investors than private equity like Cerberus and with different or better fee structures? Johan Akerblom: I think the future partnerships, if I understand the question, can it be different than Cerberus? Masih Yazdi: Than private equity? Johan Akerblom: Than private equity. Yes. Okay, the like. So basically, yes, definitely. I mean, I think that future partnerships, as I think I said earlier, could also be more of a passive investor that actually wants to have the experience and the capacity and also the servicing aspect of working with someone who's been in the industry for a long time. That could be one type of partner. It could also be an industrial partner. I mean, today, we see the dynamics in the industry changing. And a lot of the players are moving into either a pure servicing direction or a pure investing direction. We have both channels. We're obviously focusing more on the servicing, because we're changing the franchise model. But to work with someone who's in a pure play on the investing side, I don't necessarily think that that's ruled out either. So I think there's many opportunities. We just need to be treading carefully to always keep our credibility and our professionalism in every time we work with someone who's sometimes in conflict in business with us, sometimes in conflict of business with other partners we have. Masih Yazdi: Good answer. There's one more question. I'll take that myself. We have mentioned Norway as a leading example. Could you provide some color on how the EBIT margin in Norway compares to other geographies? The margin in Norway is higher than the average we show for the group of 25%. And this is despite the fact that in Norway, you've had a regulation in place since 2018, where you haven't been allowed to adjust servicing fees. So basically, with the exact same servicing fee for 8, 9 years, we've been able to improve the margin quite significantly only by reducing costs through operational efficiency. So that shows you the force in being able to do that across all the traditional markets that we have. The debtor fees has been locked. But now we actually are -- they are getting unlocked in '26, and there will be an adjustment to partly compensate for the historical non-adjustments. And that hopefully will make the Norwegian market even more interesting going forward. Johan Akerblom: Okay. We have one more question from the telephone. So let's go to that. Operator: The next question comes from Jacob Hesslevik from SEB. Jacob Hesslevik: Just one more question on Slide 31. You state that you plan to redeem SEK 10 billion to SEK 15 billion until 2030. Does that mean your net debt is expected to be SEK 29 billion to SEK 34 billion, where you aim to have a 3x leverage? Was that too simple to look at it? I'm just trying to see if I can backtrack the EBITDA target for servicing going forward. Masih Yazdi: Yes. No, that's the right way we're looking at it. What you also need to make an assumption for is how large our investment book is at that point in time, because that will consume some of the remaining debt we will have at that point. So -- and we're not guiding on that, but you can make your own assumptions based on the guidance we have, which is more limited investments in the short term, ramping up later on, and hopefully contributing to income growth later in this period '26 to 2030. But sure, I mean, you can start with the current net debt, reduce that with that amount and you get an understanding of where the debt will be and then assume something on the investment book and what is required from EBITDA and servicing to get to the 3x. Jacob Hesslevik: Great. And is it possible to state anything what your replacement CapEx level is currently on your portfolio investments? Masih Yazdi: It's slightly below SEK 3 billion, around SEK 3 billion. SEK 2.5 billion to SEK 3 billion. Johan Akerblom: So I think with that, we are concluding today's session. I think we have basically shown you where Intrum is heading. In 2030, the company will be a completely different franchise. We have taken a more ambitious approach when it comes to our targets. We have also said that it will take slightly longer. But in the end, we want to focus on the leverage. We want to deleverage. We want to create a much more stable franchise. We are continuing to take out the cost and be more efficient and basically make ourselves ready to compete outside the space where we're operating today. And thirdly, by doing so and capturing more business, both within where we work today, but also with outside in new verticals and new value-adding services, we will increase our margin. And with that, we basically create a much more stable business model. I would like to thank you all for listening. Thank you for many good questions. It's always great that Jacob is the first, and now he was also the last question. And yes, I guess we will have some bilaterals with some of you going forward. Thank you very much, and have a nice afternoon.
Operator: Hello, everyone, and welcome to Hexcel Fourth Quarter and Full Year 2025 Earnings Call. Please note that this call is being recorded. [Operator Instructions] I'd now like to hand the call over to Kurt Goddard, Vice President of Investor Relations. Please go ahead. Kurt Goddard: Thanks, Ellie. Hello, everyone. Welcome to Hexcel Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call. Before beginning, let me cover the formalities. I would like to remind everyone about the safe harbor provisions related to any forward-looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today. Such factors are detailed in the company's SEC filings and earnings release. A replay of this call will be available on the Investor Relations page of our website. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our expressed permission. Your participation on this call constitutes your consent to that request. With me today are Tom Gentile, our Chairman, CEO and President; and Mike Lenz, Interim Chief Financial Officer. The purpose of the call is to review our fourth quarter and full year 2025 results detailed in our news release issued yesterday. Now let me turn the call over to Tom. Tom? Thomas Gentile: Thanks, Kurt. Hello, everyone, and thank you for joining us today for Hexcel's Fourth Quarter and Full Year 2025 Earnings Call. With positive signs emerging for a sustained ramp-up in commercial aircraft production rates, we are confident in Hexcel's ability to meet this increasing demand. Longer term, it is a promising outlook for the entire industry. IATA recently released data highlighting the current backlog for commercial aircraft has exceeded 17,000. Same report also noted that to date, there has been a delivery shortfall of at least 5,300 aircraft, underscoring the current imbalance between supply and demand for commercial aircraft. The fact that even with this historically high backlog, airlines are still ordering new aircraft underscores how much demand there is for these new aircraft that incorporate more lightweight material are more fuel efficient and require less maintenance than the older aircraft they will replace. This situation is positive for manufacturers like Hexcel as production rates are likely to remain at elevated levels for an extended period. As a vertically integrated manufacturer of advanced lightweight carbon fiber composite with a broad product portfolio, we are well positioned to support the needs of our commercial and defense customers. Also, we continue to focus on developing advanced material solutions for next-generation aircraft as lightweight composite materials increasingly replace metals and aircraft structures to make them lighter, stronger and more fuel efficient. Combined with our commitment to operational excellence, we see Hexcel is well positioned to benefit as commercial aircraft production rates continue to recover and funding for defense platforms increase globally. 2025 was a challenging year for us as destocking by the OEMs, schedule delays and lingering supply chain constraints to the OEMs impacted our plan. Despite these challenges, Hexcel closed the year on a positive note as we continue to see an upturn in commercial orders that we first highlighted in our previous earnings call. This positive trend is setting us up for a stronger 2026. Across all our major programs, the A350, the 320, 787 and the 737, we see positive catalysts that a sustained recovery and ramp-up in commercial aircraft build rates is beginning to take hold. On the A350, the closing of the Spirit AeroSystems transaction moves major A350 production in-house for Airbus, eliminating a previous bottleneck. On the A320, engines have been a problem. Safran is expanding LEAP engine production capacity with the new final assembly line in Morocco. LEAP production continues to increase with record unit shipments in the fourth quarter 2025 and full year 2025 unit shipments exceeded the pre-pandemic 2019 prior peak. The GTF from Pratt & Whitney engine shipments have also been increasing and are forecast to increase further in 2026. And Airbus added 2 new A320 final assembly lines, one in the U.S. and in China. On the 787, Boeing broke ground to expand its Charleston, South Carolina site to double 787 output. And Boeing reported that they are transitioning production to 8 aircraft per month. They also said in their earnings call on Tuesday that the 787 inventory is more normalized with the supply chain now. And on the 737, Boeing reported that they are producing at a rate of 42 aircraft per month after the FAA lifted the production cap. Along with reduced supply chain disruption, these catalysts give us growing confidence that the long-rated recovery in commercial aircraft production is coming into focus as impediments to the OEM reaching their peak build rates are receding and the destocking we experienced in 2025 appears to be largely behind us. Aircraft production peaked in 2018 at 1,734 aircraft. In 2025, production was still just 1,503 aircraft or about 87% of the pre-pandemic level. In 2026, we should finally fully recover to pre-pandemic production levels as an industry, although wide-body production will probably not recover fully for a couple more years. With the historic backlog held by Airbus and Boeing and our sole-source positions and long-term contracts on our commercial programs, Hexcel is in a strong position to benefit from the increase in commercial aircraft production. As we have previously highlighted, when Airbus and Boeing achieve publicly disclosed peak build rates, we expect to generate $500 million in incremental sales annually from those sole-source contracts. Additionally, growth from Defense and space as well as business and regional jets will add over $200 million in additional sales. As our sales volumes increase, it drives greater operating leverage and margin expansion for our business. It was based on our confidence in this production ramp and our ability to execute on it that we initiated the $350 million accelerated share repurchase program last October. Shifting to opportunities in Defense and Space. We expect strong long-term demand in this market as defense budgets in the U.S. and allied nations globally continue to increase due to an uncertain geopolitical environment and the development of new platforms. We continue to engage the U.S. defense primes directly as well as government stakeholders, highlighting Hexcel's unique value proposition. We are well positioned to serve defense customers with Hexcel's innovative lightweight advanced materials that provide defense and space customers with greater payload, greater range and low observability that those platforms require. Additionally, our vertically integrated operations in the U.S. and across Europe provide those governments with secure and sovereign access to advanced carbon fiber that is critical for defense platforms. Our strong positions in both commercial and defense markets underscore Hexcel's ability to capture growth going forward. With this foundation in place, let me now turn to our financial performance for the fourth quarter and full year 2025, which reflects the actions we have taken to navigate near-term challenges and position for long-term success. Our 2025 full year results were impacted by Airbus revising the A350 production schedule combined with channel destocking on the A350 and other programs. In 2025, Hexcel achieved full year sales of $1.894 billion, adjusted EPS of $1.76 and free cash flow of $157 million. In the fourth quarter, Hexcel generated $492 million in sales, up 3.7% from 2024, highlighting the positive trend in commercial orders as we enter 2026. Commercial aerospace sales in the fourth quarter were $299.5 million, an increase of 7.6% compared to 2024. This increase was due to strong growth in the A320, along with increases in 787 and 737 volumes as well as increased regional jet sales. The overall sales volume increase in the commercial segment was partially offset by lower sales volume in the A350 due to lingering destocking in the quarter. In our defense, space and other segment, sales were $191.8 million in the fourth quarter, down 1.9% compared to the same period in 2024. Taking a closer look at this market, we experienced increased sales for defense and space due to strength in military rotorcraft programs and launches, but sales overall were lower due to the divestment of our Austrian-based industrial business that we announced at the end of the third quarter in 2025. Overall, our full year 2025 results were impacted by Airbus initiated schedule changes on the A350 program, destocking by the OEMs and charges related to the disposition of non-core businesses in Austria and Connecticut. In addition, we closed the facility in Belgium as we rationalized our footprint to streamline operations. Commercial order activity continued to trend higher throughout the quarter, which we expected and first highlighted in our third quarter earnings call. Also, we believe the majority of destocking by the OEMs is now generally behind us. However, this remains a watch item for all of us, and we will continue to monitor it throughout 2026. While our results reflected the headwinds we faced in 2025, they also underscore the importance of the operational discipline we maintained throughout the year. Let me share with you a few of the actions we took to strengthen our operational excellence foundation for the future. As we dealt with the impact from schedule changes and destocking throughout 2025, we kept a strong focus on cost control and operational discipline. This included the business rationalization I mentioned earlier as we exited industrial markets like wind energy and winter recreation market, and we continue to streamline operations in 2026. We just announced a proposal to refocus our Leicester U.K. site to perform work solely related to commercial aerospace development. Along with our cost control initiatives, we continue to invest in productivity enhancements in our factories through automation, AI-driven workflows and digitization, while maintaining high levels of safety and quality. Also, we remain focused on managing headcount closely. We finished 2025 about 330 positions fewer compared to our year-end headcount for 2024 and well below our original plan for 2025. This delta reflects an intentional use of attrition to lower headcount during 2025, which was slow, along with the headcount reductions that resulted from our site rationalization activity. Going into 2026, we are starting to evaluate some selective hiring earlier in the year to support increased A350 production, followed by some general hiring that will likely begin around midyear. In the third quarter of 2025, we launched the $350 million accelerated share repurchase program, which underscores our confidence in Hexcel's long-term growth. This decision reflects our strategy to invest in Hexcel as we see tremendous opportunity to benefit from increasing commercial aircraft build rates and growth organically in defense and space over the coming years. Also, as we noted in the third quarter earnings call, I want to be very clear that we remain committed to disciplined financial management and our targeted leverage range of 1.5 to 2x net debt-to-EBITDA. We intend to repay the $350 million we borrowed from our revolver for the ASR as soon as possible in 2026 to return Hexcel to that target leverage range. We also announced a 6% increase in the quarterly dividend to $0.18 per share, reflecting our positive outlook in Hexcel's long-term growth and strong cash generation profile. Since the beginning of 2024, we have returned over $800 million to stockholders through dividends and share repurchases. Along with strengthening our financial foundation in 2025, we also focused on leadership across the organization. We welcomed several new members to the Hexcel leadership team, bringing fresh perspectives and deep industry expertise to help drive our strategic priorities. This includes Mike Lenz, who joined us as our interim CFO while we conduct a search for the next permanent CFO. You'll hear from Mike shortly. We have made great progress on the CFO search, and we are focused on identifying the right person for Hexcel. Also, we added new functional and business program leaders across defense, safety, R&D, quality and operations, all areas that are critical to delivering on customer commitments and maintaining the highest standards of excellence. Before I turn it over to Mike, let me briefly highlight our outlook for 2026. Want to emphasize that 2025 was a year of disciplined execution as we manage through the schedule changes and the impact from destocking. We closed the year with encouraging trends, including an uptick in commercial orders and the margin rate for the fourth quarter, carrying over a trend that began the previous quarter. We believe the commercial recovery is gaining traction as OEMs take steps toward higher production rates across all our key programs. At the same time, defense and space markets remain robust with budgets increasing and the demand for advanced composite solutions across rotorcraft, fixed wing and space applications. As OEMs hit their publicly disclosed peak commercial build rates before the end of the decade, this will, as I said, generate $500 million in incremental sales from existing contracts with Airbus and Boeing, and we expect to generate in excess of $1 billion in free cash flow cumulatively over the next 4 years from 2026 to 2029. In 2026, we expect sales in the range of $2.0 billion to $2.1 billion, adjusted EPS between $2.10 and $2.30 and free cash flow greater than $195 million. Increased operating leverage from higher sales volume, along with the disciplined execution and focus on controlling costs will be the primary driver of these results. We believe that our guidance reflects prudent assumptions regarding commercial aircraft rate ramps. Now Mike will provide additional details of our financial results. Mike? Michael Lenz: Thank you, Tom. We closed the year with a strong fourth quarter and a return to year-over-year growth. The higher sales supported adjusted operating margin expansion, illustrating the operating leverage opportunity ahead. The commercial aerospace OE recovery continues to become more apparent, both in our business and in the broader supply chain. Total fourth quarter 2025 sales of $491 million increased 1.6% in constant currency. Growth in the commercial aerospace market was partially offset by lower defense, space and other sales following the divestment of the Austrian industrial business on September 30, 2025. By market, commercial aerospace fourth quarter 2025 sales were $300 million, representing approximately 61% of total fourth quarter sales. Fourth quarter commercial aerospace sales increased 5.8% compared to the fourth quarter of 2024. Sales increased for the A320, 787 and 737, whereas sales decreased for the A350 as a result of some lingering destocking. Sales for other commercial aerospace in the fourth quarter increased 16.1% year-over-year, led by regional jets. Defense, space and other represented approximately 39% of fourth quarter sales and totaled $192 million, decreasing 4.3% on a constant currency basis from the same period in 2024. Sales were basically unchanged year-over-year on an organic basis. Demand was strong for a European fighter program and European helicopter programs as well as launchers and satellites, offset by lower automotive sales and the absence of the divested Austrian industrial business. Gross margin of 24.6% in the fourth quarter decreased from 25% in the fourth quarter of '24, principally due to sales mix. As a percentage of sales, operating expenses, including selling, general and administrative expenses and R&D expenses were 11.4% in the fourth quarter of 2025 compared to 13% in the comparable prior year period. We continue to focus on cost control, and there is leverage within our operating cost structure so that expenses should grow slower than the rate of sales growth. Adjusted operating income in the fourth quarter was $65 million or 13.3% of sales compared to $57 million or 12.1% of sales in the comparable prior year period. In terms of foreign exchange, Hexcel benefits when the dollar is strong. We generally sell in dollars for commercial aerospace, yet we have a significant European presence and European cost base. We hedge our operating profit over a 10-quarter time horizon, so foreign exchange gains and losses are layered into the financial results over time. Foreign exchange has become a headwind as the impact of the weaker dollar is now being felt. Fourth quarter 2025 operating margin was negatively impacted by approximately 110 basis points from foreign exchange. In contrast, fourth quarter 2024 had a favorable impact of approximately 60 basis points. Now turning to our 2 segments. The Composite Materials segment represented 80% of total fourth quarter sales and generated an adjusted operating margin of 20.5%. This compares to an adjusted operating margin of 15.3% in the prior year period. The Engineered Products segment, which is comprised of our structured and engineered core businesses, represented 20% of total sales and generated an adjusted operating margin of 11.1%, which compares to an adjusted operating margin of 10.7% in the prior year period. For the full year 2025, we met our updated sales and adjusted EPS guidance. The lower tax rate was supportive, contributing roughly $0.02 to adjusted EPS. The lower effective tax rate in 2025 primarily reflects the tax benefits associated with restructuring charges for the closure of the Belgium facility, which contributed roughly a 4% rate reduction. To share some further perspective on our commercial aerospace business for the full year, latest generation wide-body sales comprised about 1/3 of total commercial aerospace sales in 2025. Narrow-body sales were also about 1/3 of sales and legacy commercial aircraft were about 10%. Other commercial aerospace, including business jets and regional aircraft accounted for the remainder at somewhat less than 25%. Shifting to full year 2025 defense, space and other sales, approximately 1/3 of defense and space 2025 sales were outside of the U.S. Our international defense and space sales are predominantly from customers located in NATO-aligned countries and also include customers in India, Brazil and South Korea. Net cash provided by operating activities in 2025 was $231 million compared to net cash provided of $290 million in 2024. Working capital was a use of cash of $1.5 million in 2025 compared to a cash use of nearly $1 million in 2024. Capital expenditures on an accrual basis were $77 million in 2025 compared to $81 million in the comparable prior year period. Free cash flow in 2025 was $157 million, which compares to $203 million in 2024. There are always a number of moving parts with working capital at year-end and free cash flow came in below our guidance. Strong sales in December led to an end of the quarter increase in accounts receivable greater than we forecasted, combined with lower-than-projected payables at year-end, along with some retirement plan flows. Adjusted EBITDA totaled $346 million in 2025 compared to $382 million in 2024. Following our revolver borrowing to finance the ASR, our leverage is temporarily elevated. Leverage, defined as net debt to last 12 months adjusted EBITDA was just under 2.7x at year-end 2025. And as Tom said, we remain firmly committed to a disciplined financial policy to returning leverage to the targeted range of 1.5 to 2.0x as soon as possible during 2026. The Board of Directors declared an $0.18 quarterly dividend yesterday, and this reflects a $0.01 or 6% increase compared to the prior dividend. The dividend is payable to stockholders of record as of February 9 with a payment date of February 17. I will conclude by sharing some additional details regarding our 2026 guidance. In terms of comparing 2026 sales guidance to our actual 2025 sales, recall that the divested industrial facility in Austria generated just under $30 million of sales in 2025. So those sales are not recurring in 2026. Further, the Leicester U.K. facility that Tom referenced earlier, generated around $15 million sales in 2025. So if the facility is closed in the first half of 2026, that will only be a partial year of sales this year. Foreign exchange will be a headwind in 2026 compared to 2025 due to the weaker dollar. We are not guiding to an expected FX impact due to the uncertainty of future rates. But as a reference, our average euro-dollar rate in 2025 was 1.13. FX had an approximately 10 basis point unfavorable year-over-year operating impact to operating margin in 2025. In 2024, the average euro-dollar rate was 1.08 and FX was a benefit of approximately 40 basis points year-over-year. Cash conversion should exceed 100% for a period of time as capital expenditures remain subdued. Inventory days on hand should continue to trend lower during 2026 as we grow into our inventory levels. And while even though inventory may grow modestly on a dollar basis, sales are expected to grow faster, leading to a reduction in days on hand. And then 3 comments regarding seasonality. Operating expenses are typically elevated in the first quarter on stock-based compensation. Third quarter sales are seasonally soft due to summer holidays, particularly impacting European sales, and the business typically uses cash in the first quarter of the year with the strongest cash generation typically in the second half of the year. Repayment of the revolver will be a priority during the year and consistent with Tom's comment regarding our focus on deleveraging in 2026. As a result, interest expense should decrease as the year progresses as cash is generated and used to pay the revolver. Depending on the timing of cash receipts and market rates, interest expense for 2026 is expected to be in the range of $50 million to $55 million. And lastly, we are projecting an effective tax rate of 20% for our EPS range. And with that, let me turn the call back to Tom. Thomas Gentile: Thanks, Mike. Before we move to Q&A, I want to take a moment to express our deep appreciation for Jeff Campbell's leadership on Hexcel's Board of Directors. Jeff recently announced that after almost 23 years of service on the Hexcel Board, the last 7 as our Lead Director, he will not stand for reelection at our next annual meeting. Jeff has been an invaluable contributor to our governance and strategy for more than 2 decades. We are grateful for his commitment and the impact he has made on Hexcel. Looking ahead, Hexcel enters 2026 with strong momentum. Positive order trends we saw late in 2025, combined with the catalyst enabling increased commercial aircraft production and the opportunities we have in defense and space position us well for the future. We are excited about the path ahead and confident in Hexcel's ability to deliver value for our customers and shareholders. With that, Ellie, we are ready to take questions. Operator: [Operator Instructions] I'd now like to call Ken Herbert for our first question from RBC Capital Markets. Kenneth Herbert: Maybe, Tom, just to start with sort of the midpoint of the up 8% on revenues in the '26 guide, can you provide any more detail on how we should think about commercial aerospace within that growth? And specifically, what the underlying assumptions are associated with the A350? Thomas Gentile: Right. And so the 8% is a mix of, of course, our commercial and then the defense, space and other. Defense, space and other is going to be diluted because as Mike explained, we aren't going to have the $30 million from the Austrian business and also probably about $8 million or so from that Leicester U.K. business that I mentioned. So that gets us to the 8%. For commercial aerospace by itself, I would describe the growth rate as low to mid-double digits for next year. So we are seeing an increase. And the assumptions underlying that because we right now are very aligned to the original equipment, commercial aerospace build rates for the OEMs, Boeing and Airbus, in particular. And primarily, the A350 is our biggest program where we have a shipset of $4.5 million to $5 million. That's a big driver. As I said in the past, we're assuming about 80 units delivered and produced that we're going to deliver to Airbus in 2026. That's up from the 57 that they delivered in 2025. So it's a big leap. But what we see is we build -- we do a bottom-up demand forecast where we contact all 35 of the locations that receive material. And the 80 is a pretty good representation of what we think from the bottoms-up as well as the top-down analysis. Now I also want to remind you that we're a material provider. So we're typically 4 to 6 months ahead of the OEM in terms of what our assumptions are because we're looking that far ahead in terms of the material. So it's really -- our forecast is kind of a mix between the forecast for '26 and '27 combined. But for the A350, the underlying assumption in our plan is about 80. Now just to carry on, for the A320, as we've said before, our [ shipset ] values between $200,000 and $500,000. On the A320, it's more towards the upper end of that range. We're assuming low to mid-700s. And again, remember that we're 6 months ahead of Airbus. So our number is going to be a little bit higher than what they're communicating or estimating. On the MAX, we're targeting mid-400s, which we are going to monitor closely. We saw a lot of destocking in 2025. They're getting through that, but there's probably still some lingering destocking on the 37 program. So we'll watch that. But we're expecting mid-400s. And on the 787, consistent with Boeing, what they said on their call, 90 to 100 is what we're assuming in our plan. So for the 4 major programs, those are our assumptions. As I said, we're a little bit ahead of the OEMs because we're a material provider. But we've also tried to be conservative in making those assumptions as we build the plant because we know it's been tough with the supply chain. But as I mentioned in my prepared remarks, there are 4 catalysts across each of those major programs that give us confidence that these build rates can now start to ramp up and that they will hit their peak production rates in the next few years. Kenneth Herbert: That's great. I appreciate all the detail, Tom. Just one quick follow-up on the A350. You called out in prior quarters that you were seeing purchase order activity and customer activity that supported these rates and your expectations in '26. Can you just comment, did that continue through the end of the fourth quarter? And what have you seen so far this year, specifically on that program in terms of just customer purchasing activity or pull? Thomas Gentile: Right. The purchase orders are very strong this year in contrast to last year. And so we see -- we've got good visibility on the purchase orders -- firm purchase orders all the way out through May, so 5 months. And so that's good. But it was this bottoms-up demand management profile that I mentioned, where we, with Airbus, go out to all 35 internal Airbus plants as well as external third-party plants, and we basically pull them on what their orders are going to be. And so that bottoms-up analysis is also giving us confidence in that 80 number that we gave. In fact, we're confident enough that we've had a number of carbon fiber lines mothballed over the past few years because production has been lower. We actually brought one online earlier than expected just so that we're prepared for the increase and even if it goes above that. So just to give you a little bit of color on how we built that plan and the confidence we have in the assumption. Operator: Your next question comes from the line of Gautam Khanna of TD Cowen. Gautam Khanna: I apologize if I missed this, but I was wondering in the fourth quarter composite segment, if you could quantify the out-of-period benefits or the one-timers. And then just one of the things we noticed last year is you had pretty high decremental margins, but the implied incrementals look to be kind of like 30 -- mid-30s. Wondering what would be the case for upside? And why shouldn't we think that there could be just given you get the leverage coming back? Thomas Gentile: Okay. Let me take the incremental margin first, and then I'll turn it over to Mike. You're right on the incremental margins, it's mid-30s is what we're seeing based on the current plan. And the upside is really -- it gets down to commercial build rates. If we see higher production rates on the A350, the A320, the 37, the 787, then we'll see upside to those incremental margins. The key point about Hexcel is we are all about operating leverage. As the production rates go up, we're going to get operating leverage. As I mentioned in my remarks, production is only 80% recovered, 87% recovered overall and less on wide-body. As the production gets back to pre-pandemic levels, that generates a lot of operating leverage for us, which will improve margins and our incremental margins as we go forward. Now I'll let Mike answer the question about that. Michael Lenz: Yes. So the adjusted operating margin in the fourth quarter for composite materials, that was 20.5% was the margin. We can follow up. We can be more specifics about what numbers plugged there to get to that margin. But that is the adjusted one. The table, as you know, that's a GAAP number. Operator: The next question comes from the line of Gavin Parsons of UBS. Gavin Parsons: I'd love to just go back to the incremental conversation. Could we have a little bit more color around maybe fixed versus variable costs, just kind of aligning your hiring expenses, your utilization to your revenue? Just how do we think about some of the pieces underlying incrementals? Thomas Gentile: Right. Well, we're managing costs overall in the corporate area. You saw G&A was lower than last year. So we held the line, a lot of belt tightening on things like professional fees and headcount and T&L and things like that. The other thing that we've done is, as we said, in terms of cost, fixed costs in the factories is we -- now this -- in some of the labor, the direct labor is variable cost, but we've had a hiring freeze on. We also let attrition because the volume wasn't there, we didn't need all the people. So we did let attrition go down. We had a couple of small staff reductions. And so we ended the year with 330 headcount below where we ended 2024, and it was way below our original plan for 2025 and we're keeping that low level of headcount going into '26. We're only going to start to hire as we see evidence that those rates are coming up. We're starting to see it on the A350, which is why we started up that new carbon fiber line a little bit early. But other than that, we're going to wait until midyear before we start any increased hiring. And that's how we're going to manage some of the fixed and variable costs as we go into 2026. Gavin Parsons: And then on A350, will you go up at the same rate as Airbus? Will you be leading them on that typical 4- to 6-month time frame? How do we think about the time frame? Thomas Gentile: We're, as I said, a little bit ahead of them, but we're more in lockstep. There was a lot of destocking last year. But as we get into fourth quarter and we got into December, in particular, we saw that kind of normalizing and shipping to them at close to their delivery rates. So we expect that to continue throughout 2026, and we'll go up with them. We'll be a little bit ahead, as I said. So our rates are generally a little bit ahead of them. But as I said, we're protecting more on the upside, and that's why we started up that extra carbon fiber line because the initial bottoms-up forecast is probably a little bit higher than our underlying assumptions, and we want to be ready. We just don't want to miss. As you know, there have been a lot of companies called out for being behind on production rates for Boeing and Airbus. We don't want to be one of those. We haven't been. We've always been a very good supplier in terms of on-time delivery and quality, and we intend to remain that way. Operator: Your next question comes from the line of John McNulty of BMO Capital Markets. John McNulty: Maybe just fleshing out a little bit more about how to think about incremental margins going forward. It looks like based on the revenue outlook that you've laid out, you're kind of calling for somewhere around a 30% incremental margin, which is definitely kind of lower than what we saw in 4Q. And I would imagine just given that you are really feeling some demand pull and you've got kind of the assets and the people in place, I would think it should be maybe a little bit north of that. So I guess how should we be thinking about what's embedded in the guide at this point? Thomas Gentile: Right. Well, I guess if you took the midpoint and you add it back, it would be in kind of the low 30s. We think it could be a little bit better. That's why I say mid-30s but -- and it's for the reasons that I mentioned, it's -- for us, it's about operating leverage. We've been so under capacity in the last 6 years, really since the pandemic began that we're not able to basically allocate all of the fixed costs and depreciation from the assets that we put in place to go up in rate. As we start being able to absorb all of that depreciation because the volume is going up, it's going to lead to operating leverage, which will drive margins faster than revenue growth, and that will create the positive incremental margins. So I think the mid-guide, I would say, are probably low 30s. But I said I'm comfortable with saying mid-30s on incremental margins for '26. John McNulty: Got it. Okay. Fair enough. And then just as a follow-up or a quick question, so you just got finished with a big ASR. So I understand you've already put a lot of capital behind the stock. I guess as we look to 2026, it sounds like debt reduction is kind of the first priority, just getting leverage back to where you want it to be, which seems like that should be pretty quick. Should we expect further cash going into buybacks as we look into 2026? How should we be thinking about that? Thomas Gentile: Well, I'd just go back to last year. When we did the ASR, we did a $600 million share purchase reauthorization. And so we had $134 million on a previous authorization. We added $600 million. We took out $350 million. So we still have $384 million left. We want to get back down to our target leverage ratio. But after that, we will certainly look at continued share repurchase. But the first goal is to get down, and we expect to be down to less than 2 by the end of the year. Operator: Your next question comes from the line of Scott Mikus of Melius Research. Scott Mikus: I just wanted to ask kind of on the incremental margins as well. Just does the guidance range kind of contemplate any higher cost to demothball additional carbon fiber lines if Boeing and Airbus actually exceed the A350 and 787 production rate targets that you have baked into the guide? And then some of the other puts and takes, I mean, can you quantify the year-over-year tailwind to operating income from closing the Austrian and Leicester facilities? And is there an additional tailwind from the ERP implementation that you did in 2025 that won't repeat in '26? Thomas Gentile: Okay. Let me talk about the mothball costs. We've built in all the costs into the plan required as we bring new capacity online. So we don't expect any incremental. And it's -- taking those lines out is not that big of a deal. It's really about just going and hiring the people. So those costs are all incorporated into our plan and our outlook. In terms of the -- your second question was on the operating income to close all of the different assets. Okay. That's all incorporated. On the ERP, let me just be clear. The ERP, there were some costs in '25. There's some additional costs in '26 as we implement. It's just incorporated into our numbers. We're probably about halfway through the overall implementation. We expect to get most of it done in '26, maybe a little bit in '27, but it's not material in terms of our overall numbers. So we're not highlighting it. It's just incorporated into our SG&A. Michael Lenz: It's roughly flattish if you think about it for the ERP, but we're rolling out a number -- a greater number in '26 than we did in '25. So as Tom said, we're pushing to get through that, but likely in the early '27. Thomas Gentile: Yes. But the overall focus is we are going to continue very strong disciplined management of all of our costs so that we can continue to drive margins, which will obviously contribute to the incremental. Scott Mikus: Okay. Just to clarify, were the Austrian and Leicester facilities, were they EBIT negative in 2025? Thomas Gentile: It was immaterial in terms of close to breakeven, maybe even a little negative. So -- but not material. And so -- but as we said, we closed those -- they were basically non-core operations, and this was all part of streamlining the portfolio so that we can be more focused and productive as we go forward. And so both of those plus closing the Belgium facility and selling our Hartford facility all contribute to that. It's about lowering costs and being more productive. We won't see the full impact of that. We'll see some of it this year. We'll see all of it on a full year basis next year. Operator: Your next question comes from the line of Michael Ciarmoli of Truist Securities. Michael Ciarmoli: Tom, I may have missed it. Did you guys give -- in terms of the revenue guidance, did you give a breakdown or a split by the end market in terms of what we should expect this year between commercial aero and space and defense? And then just any update on sort of the price cost equation? I know some of the main material inputs, notably acrylic nitrile, some of those prices could be coming down. I know you've got the hedging strategy, but any general update there as well and how that may impact margins as we're kind of talking about this incremental margin? Thomas Gentile: Right. Okay. So on revenue guidance, for 2026, what I said is commercial will be low to mid-double digits. Defense will be low to mid-single digits growth, defense on its own, defense and space on its own because the defense, space and other is going to be flat to slightly negative because of the $30 million from the Austrian facility plus the $8 million or $9 million or so from the Leicester facility. But defense by itself will be, say, low to mid-double digits and commercial will be low to mid double -- excuse me, defense is low to mid-single digits and commercial aerospace will be low to mid-double-digit growth for 2026. On the price cost equation, AN, acrylonitrile, is the basic raw material that we use to make the carbon fiber. It's essentially a petroleum byproduct, but we hedge propylene. And so that's we -- so it's a fairly volatile price over the years. It is down right now, but we hedge it, so we smooth it out over the years. So we don't expect variation on that because we have a very strong hedging program on that. The other thing I will mention is that we talk about margins a lot. As production rates go up and as we get to the target peak production rates across all the programs for Boeing and Airbus, that's going to generate, as I said, $500 million of incremental revenue per year. Then on top of that, we have a couple of hundred million dollars of increase in defense and regional jets and business jets. The combination of all of that gives us a path back to 18% margins before the end of the decade. So we are always working on pricing as contracts come up. And so we'll continue to do that. But along with the operating leverage and the productivity initiatives, we do have a path back to the 18% margins for the end of the decade as the OEMs achieve their peak production rates across all the different programs. Operator: Your next question comes from the line of Myles Walton of Wolfe Research. Myles Walton: Mike, I just wanted to follow up on the margins in composite materials. I understand that the press release was 20.5%, but that number is enormously greater than what you've ever done in the last several years and even back pre-COVID, you'd have to have 10% higher volumes. So was there anything in there that was non-normal? I understand it might not be non-GAAP one-timer, but anything non-normal in that margin? Michael Lenz: No, there was nothing specifically unique for the -- in terms of any one-timers there. Again, we had a pretty very solid cost control here at the end of the quarter. And so that certainly contributed to that. Thomas Gentile: Well, I think another thing that contributed was compensation. In other words, our incentive compensation didn't pay out at target because 2025 was a fairly light year for all the reasons that we mentioned. But unfortunately, that resulted -- unfortunately, for the management team, that resulted in lower payout on compensation, and that contributed to the margin and particularly in the fourth quarter because that's when those costs. Michael Lenz: Yes. The biggest true-up is in the fourth quarter because you true it up for the full year in Q4. Myles Walton: Got it. So it's a reversal of accruals through the course of the year. What was the size of that reversal? Thomas Gentile: I don't think it's -- we haven't revealed it. So I'd rather not just go into that right now. But it was obviously fairly sizable because the year, we just didn't hit the target. The other thing in this year's numbers that wasn't in last year, recall last year, I succeeded [ Nick ]. We had duplicate expenses at the CEO level for the back half of last year. Obviously, that didn't repeat this year. So that was also a contributor. And then as Mike said, just a lot of cost control on SG&A, travel, professional fees, headcount, all the normal levers, we continue to focus on it. Myles Walton: Okay. And then the longer-term question, Airbus, one of their head of commercial, then Head of Commercial, talked about the new plane likely not having a composite fuselage, but obviously having a composite wing. Can you just landscape us if you mapped an A320 to a new plane without a composite fuselage, the composite wing, what the shipset scaling would look like? Thomas Gentile: Right. Well, first of all, I still think the jury is out on the fuselage because you get lighter weight, better fuel performance and you also get less maintenance. So that's something I think that the OEMs will continue to take into account. But right now, the A320 and the MAX are about 15% carbon fiber composite. So we said that our shipset value on that is $200,000 to $500,000. And the A320 is close to the upper end of that range, so call it $500,000. If you put a wing on the next narrow-body, that will take the 15% to 30%. So double the $500,000 to $1 million per shipset at $750 per month, a lot of carbon fiber. The other thing is the fuselages would probably take the 30% up to 50%. And so that's also a possibility. And so that -- at that point, you would take the 30% to 50%, the 1 million per ship that probably goes to 1.5 million to 2 million per shipset at 75 aircraft per month. So that just gives you a thought process on it. Now the wing for sure, 100% will be carbon fiber because of the characteristics of the wing, improved lift drag ratio, increased range, reduced fuel consumption. So that's not a consideration anymore. There is still a lot of discussion on the fuselage. Of course, we're advocating for it. I think there's a lot of strong arguments for it. It's all about reducing the cost, improving the time and reducing the capital required to produce it. And all of those things, I think, are in works. There's lots of pilots going on. We'll continue to make the case. But if it is a fuselage, that takes up to 50% and about $2 million per shipset on the narrow-body. Operator: Your next question comes from the line of Scott Deuschle of Deutsche Bank. Scott Deuschle: Just one question. Tom, this business, Seemann Composites was recently purchased by another public company. But it seems like something that would have been a good strategic fit for Hexcel given that they make advanced composites for aerospace and defense market. Thomas Gentile: I'm sorry, what's the... Scott Deuschle: I was just curious if -- yes, it's called Seemann Composites. Karman bought it, a space company. I was just curious if that was an opportunity that you had the -- or a business you had the opportunity to look at. And if so, why Hexcel was not a buyer? Thomas Gentile: Right. Unfortunately, I'm not familiar with Seemann. Do they make composite structures or do they make composite materials? Scott Deuschle: I believe it's composite materials for the marine market. But yes, it's all good. I'll pass it along. Thomas Gentile: I'm sorry, just not familiar with that. So it's not in one of our core markets. And so we did not look at it. And so unfortunately, I just can't answer. Operator: Your next question comes from the line of Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu: Tom, maybe just to start off, just looking at your revenue assumptions, at least some of the shipset content you've helped frame on the commercial aero side, it seems like you're a little higher on Airbus deliveries than folks expect and a little lower on Boeing. So maybe what's driving some of those assumptions... Thomas Gentile: Well, on Boeing, I'll start there. On the MAX, we did see a lot of destocking last year. I know they're getting up to 42 aircraft per month, but our numbers really show them what they're pulling from us still a little bit lower than that. So yes, we are being probably a little bit more conservative on Boeing and on the 37. On the 87, I think we're right on top of them, 90 to 100. So it's really the 37, and it's more worried about the destocking, but we'll see. On Airbus, we're a little higher than consensus, but we're probably a little bit lower than the Airbus estimates. And again, we're a little bit lower than our bottoms-up demand management tool would indicate. So we have a lot of visibility and clarity on Airbus. And so that's why we are putting the ped where we are. We still think that the 80 is conservative on the Airbus A350 based on all of our bottoms-up work and all the top-down work and what the master schedule that Airbus has. So we're comfortable with it. We'll watch it throughout the year and monitor it to make sure that we're seeing evidence of it. But that's what our -- all of our bottoms-up analysis is telling us. Sheila Kahyaoglu: That makes sense. And then if I could ask one on margins. How do you think about just risks to profitability going forward and how we should be thinking about the FX headwind? Thomas Gentile: Well, FX is going to be a headwind. The dollar is lower. And Mike, maybe you can comment a little bit on this. Michael Lenz: Yes. No, sure, Sheila. Thanks. As we talked about previously, the weakening of the dollar to the euro early last year shifted the effect of foreign exchange on earnings from a tailwind for the first half of the year to a headwind in Q3 and into Q4. And we certainly projected a higher headwind in Q4 versus Q3. But the 110 basis points that I called out in Q4, that included the settlement of certain short-term non-USD balances that influenced the year-over-year FX comparison to a greater degree than historically. So we don't anticipate that to be an ongoing trend. So I would not project the Q4 impact as the run rate into 2026. So I hope that helps. Thomas Gentile: But we did build in headwind into '26 into the plan that's already baked in for a headwind on foreign exchange. So that's already baked in. And it will be there -- we have a hedging program, so it will be a little bit more muted than it might have otherwise been, but there is some headwind into '26, and we incorporated that already into the outlook. Operator: Your next question comes from the line of Ron Epstein of Bank of America. Ronald Epstein: Tom, maybe just revisiting some of the stuff that we've already spoken about. But when we think about maybe a next-generation aircraft, you alluded to potentially lower fabrication costs, that kind of thing. Are you guys doing work on out of autoclave? I mean can you just give us a sense on maybe some of the new tech that you all are looking at? Thomas Gentile: Right. So we are working with the OEMs, both of them, on production techniques to improve all of those characteristics that I talked about. Let me give you an example. Yes, we are working on out of autoclave, but it starts with layup. There's automated fiber placement has replaced hand layup. But the question is how many kilograms an hour can you layup? If it's 20 kilograms an hour, we think we have techniques that could take it up to 80 kilograms an hour, maybe even double that to 160 kilograms an hour and making the tape wider and thicker and faster. We're looking at not only prepreg layup, but also dry layup. We're also looking at how can we improve the cure time on carbon fiber. Today, it could be 12 hours. We think we have ways to take that down to 3 hours or even less than 2 hours. We're also looking at ways to improve nondestructive inspection. and make that better. And also looking at improved ways to do resin infusion at the point of manufacturing. And then on top of that is looking at ways to improve joining techniques. So all these things improve the time it takes to build the part. It reduces the cost and it also reduces the amount of capital. Capital being autoclaves or it could be NDI type equipment, trim and drill, all of those things by all of the techniques that I just mentioned. So those are some of the levers. And yes, we are working very actively with the OEMs on those techniques. That's a big part. The production system is absolutely critical to the next-generation aircraft, not just about the cost of the material, it's also about the whole production. Ronald Epstein: That makes a ton of sense. And if I may, just a second question real quick. Missile production going up a lot. I mean you kind of -- there's been a lot of announcements about that and some big agreements with the big contractors. And a lot of the unmanned systems, these smaller systems are carbon fiber composite systems. When you look at the changing defense environment with the volume of everything kind of going up, particularly a lot of things that are made out of carbon fiber, how do you think about the potential opportunity there for you? Thomas Gentile: Big opportunity. Lightweight is so critical because range is important and durability is also important. Now some of these drones are -- they don't carry people and they don't come back. They're one way. So it changes some of the requirements. But in general, range and strength are key and our material addresses both of those issues. So this new defense that you were describing is a big opportunity for us. And one of the things I mentioned in my prepared remarks is we have started to strengthen our defense team so that we can address these markets. These are new markets. They don't exist today. They're growing very fast. We think we can play a big part in it, and that's why we're strengthening the team so that we can do that. Operator: Our last question for today comes from the line of Kristine Liwag of Morgan Stanley. Kristine Liwag: Tom, looking at the production rates from Boeing and Airbus, it's clear that it seems like we're beyond the trough and you've got stability and visibility in your business. Now that we're in this better place, I was wondering, can you discuss how you're thinking about the portfolio today? Over time, when you look at your exposure to OE, do you want to expand more into aftermarket? Do you want to expand more into defense or potentially go to more vertically integrated component structure? It'd be helpful to think about where the direction you want to -- you see the business going in the next few years? Thomas Gentile: Right. So certainly, we want to continue to grow, Kristine, and those things are all important. But the #1 priority for us right now, in the immediate future is to focus exclusively on making sure we can ramp up on these production rates. That's going to generate so much operating leverage. And so that's what our focus is. That's a little bit why we did the ASR is because we have great confidence that this is going to go up. We thought we were undervalued at the time, and this is an opportunity for us. And we want to make sure that we're laser-focused on executing it. On the other growth initiative that we are going to push very hard is defense. It's already about 35% of our current business, but we think it can be more. We think it's growing, not only in the U.S. but also in Europe and also in some other markets like Turkey or India, Brazil, some other markets. And so we think we can play a big part there. And so that's the focus for us and growth in the immediate future is in defense. And then as I said, just to reinforce, the big priority for us over the next couple of years, absolutely laser focused on executing on the rate ramps for all of our customers to make sure that we can deliver the quality and maintain a safe work. Operator: Thank you. This concludes our question-and-answer session for today, and this concludes the session. Thank you so much for attending. Have a wonderful day. Goodbye.
Operator: Good day, and welcome to the 1-800-FLOWERS.COM Fiscal 2026 Second Quarter Earnings Conference Call. All participants will be in listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Andy Milevoj, Senior Vice President of Investor Relations. Please go ahead. Good morning. Andy Milevoj: And welcome to our fiscal 2026 second quarter earnings call. Joining us on today's call are Adolfo Villagomez, Chief Executive Officer, and James Langrock, Chief Financial Officer. Before we begin, I'd like to remind you that some of the statements we make on today's call are covered by the Safe Harbor disclaimer contained in our press release and public documents. During this call, we will make forward-looking statements with predictions, projections, and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission. The company disclaims any obligation to update any of the forward-looking statements that may be made or discussed during this call. Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release. And now, I'll turn the call over to Adolfo. Adolfo Villagomez: Thanks, Andy. And good morning, everyone. The holiday season was operationally strong, and most importantly, our operations ran smoothly throughout the period. We addressed the order management system issues that we experienced last year, and the stability of our systems this holiday season represents a clear and substantial improvement. Revenue came in slightly below our expectations, reflecting our continued focus on improving marketing contribution margin and changes in search engine results page, including increased paid placements and AI-driven content, which negatively impacted organic visibility and direct traffic. While direct traffic declined more than we anticipated during the holiday period, this was partially offset by stronger performance in our B2B and wholesale businesses. At the same time, we continue to execute on our marketing strategy, which is focused on improving profitability and efficiency as well as the quality and effectiveness of our paid and earned traffic over time. We believe this approach is important to building a more sustainable and disciplined demand generation model. During the second quarter, we continued to make steady progress on the key initiatives we outlined earlier this year to stabilize the business and support future growth. One of the most important changes this quarter was simplifying our organization and moving to a function-based operating structure. Previously, we were organized by individual brands, which created duplication, limited collaboration, and slow decision-making. The new structure is already driving greater efficiency, clearer ownership, and improved collaboration across the business. As part of this transformation, we'll reduce costs and streamline the organization through workforce reductions and leadership realignments. While these were difficult decisions, they were necessary to improve accountability and better align resources with our strategic priorities. Additionally, we're also reducing layers, applying best practices more consistently, and enabling faster, more effective decision-making across functions. With this structure and recent leadership additions in place, the team is now fully focused on execution. To support this next phase, I am pleased to share that Alex Selikowski joined us as our Chief Information Officer. Alex brings more than 25 years of technology leadership experience and will lead our enterprise-wide technology strategy, including IT applications, data architecture, cybersecurity, and business intelligence, as we modernize our platforms and support our AI and optimization initiatives. We also continue to make progress in improving the efficiency of our marketing investments. During the quarter, we saw improvement in our ad spend to sales ratio as we reduced marketing spend on a dollar basis. Marketing contribution margin in Q2 was impacted by the scale of the holiday quarter and the decline in direct traffic. While this approach can create some pressure on the top line in the near term, we believe it is an important step toward building a more sustainable and profitable demand generation model. As part of this more disciplined approach, we also evaluated our physical retail performance during the holiday season. Our pop-up stores were intentionally designed as short-term pilots during the holiday season and provided valuable insight into customer behavior, product preferences, and how customers engage with our brands in a physical retail environment. Based on the results of these tests, we concluded that the return on invested capital for the temporary pop-up stores was not attractive. As a result, we do not plan to pursue additional pop-up locations. Instead, as part of our testing culture, we are redesigning our retail approach to evaluate a full-year store concept that is better suited for a permanent year-round location. This will allow us to apply what we learned from the holiday tests while taking a more disciplined approach to capital deployment as we look to optimize and selectively grow our multichannel strategy over time. As we move into the Valentine's Day period, our teams are focused on applying this more disciplined marketing approach to a key gifting occasion, with an emphasis on execution, merchandising, and improving the customer experience. Looking ahead, we expect several key initiatives to drive improved performance. Our updated marketing approach is driving a better ad to sales ratio. Enhancements to product discoverability are improving conversion across our online experiences. The elimination of unprofitable initiatives is sharpening our focus on core businesses. And the continued expansion of our third-party marketplace offerings, including Uber, DoorDash, Amazon, and Walmart.com, is growing rapidly and expanding our reach to customers across the channels where they are shopping today. Together, these efforts are helping us build a more stable foundation for future growth over time. With our leadership team now fully in place, we are confident we have the right team executing against a clear and focused strategy. We will continue to improve performance. While there's still meaningful work ahead, the progress we are making gives us confidence that we are moving in the right direction. And now, I will turn the call over to James for the financial review. James Langrock: Thanks, Adolfo, and good morning, everyone. During the second quarter, revenue came in below our prior view, driven by our continued focus on improving marketing contribution margin and changes in search engine results pages that negatively impacted direct traffic. As a result, our e-commerce revenue declined, which was partially mitigated by growth in our wholesale business. Our gross margin declined due to lower fixed cost absorption, higher commodity costs, and the impact of tariffs. At the same time, our ongoing cost reduction initiatives help mitigate the impact on overall profitability. As Adolfo discussed, we continue to meaningfully improve the efficiency of our operating model. Our cost actions, including organizational simplification, workforce reductions, and tighter expense management, are beginning to benefit the business. While we are executing on our cost reduction actions and realizing savings on a run rate basis, the full benefit of those actions is not yet reflected in our P&L. In the near term, the savings are being partially offset by consulting fees incurred as part of the work to identify, implement, and operationalize these initiatives. These consultant costs are temporary and largely front-loaded. As implementation progresses, we expect a greater portion of the run rate savings to be retained in the business and increasingly reflected in our P&L over time. To date, we have already achieved approximately $15 million in annualized run rate cost savings for fiscal 2026. As previously discussed, we continue to expect to achieve approximately $50 million of total cost savings on a run rate basis across fiscal 2026 and fiscal 2027. Now let's review our performance. Consolidated revenue for the second quarter decreased by 9.5%. This included a 22.7% decline in the Consumer Floral and Gift segment, a 3.8% decline in the BloomNet segment. These results were primarily driven by a strategic shift towards more efficient marketing spending as well as a greater than expected decline in direct traffic. Turning to gross margin, our second quarter gross margin decreased 120 basis points to 42.1% compared with 43.3% in the prior year period. This was primarily due to deleveraging on the sales decline combined with the impact of higher tariff, commodity, and shipping costs. Operating expenses for the second quarter decreased $23.4 million to $221.1 million as compared with the prior year period, primarily due to lower marketing and labor costs. Excluding items affecting period-to-period compatibility and the impact of the company's nonqualified deferred compensation plan in both periods, operating expenses declined $25.9 million as compared with the prior year to $213.2 million. As a result of these factors, our second quarter adjusted EBITDA was $98.1 million compared with adjusted EBITDA of $116.3 million in the prior year period. Now turning to our balance sheet. At quarter end, our net cash position was $42.3 million. Cash balance was $193.3 million, and inventory was $148.9 million. Borrowings under the revolver were fully repaid during the fiscal second quarter. Looking ahead to the second half of the year, we do not expect progress to be linear. However, we remain focused on executing our strategic initiatives and continue to advance our cost reduction efforts. We believe this disciplined approach will allow us to further stabilize the business and position the company for improved performance over time. In addition, it is worth noting that Valentine's Day falls on a Saturday this year, which historically has been a more challenging day placement compared to midweek holidays. As we move forward, our focus remains on strengthening the foundation of the business. This includes improving efficiency, maintaining cost discipline, and ensuring we are positioned to capitalize on future growth opportunities as the turnaround progresses. For 2026, we expect revenue to decline in the low double-digit range, reflecting a continued focus on improving marketing contribution margin, the impact of changes to search engine result pages on direct traffic, and tougher comparisons following higher levels of less efficient marketing spend in the prior year. For 2026, we expect adjusted EBITDA to decline slightly compared to the prior year. On a normalized basis, for 2026, adjusted EBITDA is expected to increase slightly year over year, excluding approximately $12 million of anticipated incentive compensation and consultant costs in the period. Ongoing cost optimization initiatives and organizational streamlining efforts are expected to offset top-line pressure. And now we'll open the call for Q&A. Operator, please provide instructions for those interested in asking a question. Operator: We will now begin the question and answer session. The first question comes from Anthony Lebiedzinski with Sidoti and Company. Please go ahead. Anthony Lebiedzinski: Good morning and thank you for taking the questions. So first on the Consumer Floral and Gifts segment, it was down more than we expected. Was that mostly driven by PMOL? Or can you provide any additional color on that? James Langrock: Yeah. So Anthony, PMOL was down more than Flowers during the quarter. A lot of it was driven, as we said in our prepared remarks, on the inefficient marketing spend. We were spending heavily on PMOL and pulled down quite a bit of the marketing spend this quarter and improved their ad spend ratio as well as their overall contribution margin percentage. So a lot of that was known, Anthony, but they were impacted the most by the marketing spend, the inefficient marketing spend last year versus this year. So that was a main driver. But yes, PMOL was a big component of the decline than floral than the flowers business. Anthony Lebiedzinski: That's very helpful. Color, James. So just wondering also if you're seeing any different behaviors from your Passport members, whether you've seen still outperformance versus nonmembers. Can you comment on that and whether or not there's been any movement in terms of your Passport membership? Adolfo Villagomez: Hi, Anthony. It's Adolfo. Hey. A high level, good morning. Anthony Lebiedzinski: Good morning. Adolfo Villagomez: Our passport members performed a lot better than non-passport members. That has been the case. Having said that, we're getting feedback from our customers that the value proposition on our loyalty program needs to improve. And even though the current loyalty program is doing okay, we believe we can do it a lot better. So, the team has already made investments, and we're getting ready to significantly improve our loyalty program over the next few months. But those customers are still our most loyal customers. Anthony Lebiedzinski: Thanks, Adolfo. Okay. And then as we think about the revenue guidance for the back half of the year, which segments do you think will perform better than others? Or do you think it will be kind of consistent more or less across the brands and different segments? Adolfo Villagomez: So let me take that and then I'll pass it to James. The way to think about our business, it's so James just shared that the performance of PMOL was slightly behind Flowers. And as you also see, Food was way ahead of the other two businesses. To start with, the main driver was the exposure to incremental spend in fiscal year 2025, which is one of the reasons we wanted to move away from the Brand President role. They were not sharing best practices. So, that order, PMOL, Flowers, and Food, that's how much more marketing spend they used in 2025 to drive growth. So as you know, we implemented marketing contribution margin, and that is actually working quite well. This is why we are able to lower marketing spend while improving marketing contribution margin dollars. Now, over the second half, primarily what you are seeing is just a mix shift. During the first half, Harry and David, our food business, is significantly more important. Second half, the Flowers business is the one that is the most important and represents the majority of our revenues. So the performance is consistent, if not slightly improving versus the first half. It's just a mix shift. Anthony Lebiedzinski: That's very helpful. James Langrock: And Anthony, as we mentioned, another thing is to take into consideration is Valentine's Day falls on a Saturday this year. So that obviously has an impact on a year-over-year comparison as well. Adolfo Villagomez: Got you. Okay. Going to be an impact, but we are preparing for it. Anthony Lebiedzinski: Got it. Okay. So just to follow-up quickly on the Valentine's Day, day placement, obviously, on a Saturday, which is the least favorable time frame. Are you doing are you planning to do anything significantly different from a marketing perspective given the day placement? Just wondering if you could comment on that. Adolfo Villagomez: Yes. The merchandising and marketing strategy adjusted for that. And again, we are preparing for it. We are not just assuming it's going to happen. So, we are trying to reverse that trend. So, we are absolutely prepared for that. Anthony Lebiedzinski: Got you. Okay. And last question for me. Just more or less kind of housekeeping. Can you just comment on order volumes and AOV for the quarter? James Langrock: Yes. So Anthony, for the quarter, our AOV was up 5.2%. And order volume was down about 16%. Anthony Lebiedzinski: Got it. All right. Well, thank you very much. Best of luck. James Langrock: Thank you. Operator: The next question comes from Michael Kupinski with Noble Capital Markets. Please go ahead. Michael Kupinski: I just kind of wanted to circle back to the floral segment for a second. Given your shift in marketing initiatives, I was just wondering outside of PMOL, can you talk a little bit about the decline you've seen in floral? Do you feel that maybe you're are you still seeing gains in share in consumer floral? And then I was wondering, how do your initiatives change your competitive positioning, not just for floral, but maybe for your other channels as well? Adolfo Villagomez: So, at this point, Michael, the focus is on the bottom line. We believe that we have a better marketing approach and honestly, a better merchandising strategy. As we said, this year is a transition year, so we are going to be better positioned for the future. As you know, our Flowers business has two segments. One that depends on the florist and the other that is direct. We are proactively managing the business to minimize the impact on our florist network. So again, it's a transition year. I believe it's going to make us stronger in the future. But we are thinking this transition to be focused on driving profitable traffic versus just driving traffic to drive revenue growth. You're seeing the impact in the short term on the top line. Michael Kupinski: Got you. And I was hopeful that, I guess, we would start to see a little bit of improvement on the commodity prices, and you indicated that you're still seeing pressure there. I was just wondering if you can talk a little bit about commodity price trends, particularly I know that we are still seeing pressure on chocolate and so forth. But can you just kind of give us your overall feel about commodity trends going forward? James Langrock: Yes, Michael. As mentioned, cocoa is still on a year-over-year basis is up quite significantly. We're seeing the other commodities, eggs, butter, and sugar starting to come down and stabilize. And at this point, we're seeing that those should no longer be a headwind in the back half of the year, assuming they hold. But we are seeing improvement in the other commodities, but cocoa is still elevated. Michael Kupinski: And then I guess what are the biggest swing factors that could positively or negatively impact the full-year performance at this point? James Langrock: One of them is obviously we're working on the cost savings initiatives. We implemented $15 million of cost savings in Q2. We are continuing to implement cost savings initiatives. So to the extent that we could accelerate some of those cost savings, that will help the bottom line. And then, you know, obviously, if we get some, you know, upside on the top line, that always helps as well, Michael. But right now, the thing is what we're controlling what we can control. And the one, you know, the one lever would be, you know, on the cost savings if, you know, we can accelerate some of those savings. So that was kind of the big one that we can control right now. Adolfo Villagomez: The other thing building on that, the new functional structure that we have live since November. The whole intention of doing that is to bring best-in-class functional practices. I think the best example right now or the hope that is going to give us a lot of top-line growth is merchandising. We have a new merchandising leader, Nelson Tejada, who has commercial experience. And we completely changed the leadership of the Flowers business to bring more pricing and assortment planning discipline to that business. As we start gathering facts and start gathering data, being more disciplined on our retail practices, comparing our pricing versus competitors, we are finding that we have lots of opportunities for improvement. Little by little, we are going to improve the business over time. So, we believe that what you are going to see is, as these functional leaders start taking action. I mentioned in the prepared remarks also product discoverability. We have tests going right now that significantly improve conversion as we improve our online experience. So those are going to be tailwinds to the business. And so, as we said, I mean, we're very optimistic that bringing best-in-class practices to the functional areas, merchandising, online. And even now, the growth in our external marketplaces, it's I mean, it's from a small base, but it's growing significantly. We believe that all of those will be positive factors on the performance of the business going forward. Michael Kupinski: Got you. Just a couple of quick ones here. Interestingly, GDP numbers were pretty strong in the third quarter. Interest rates are coming down, albeit modestly. Consumer confidence is super weak. And traditionally, your business followed consumer confidence, and I was just wondering what are you seeing in terms of the consumer at this point? And kind of give us your thoughts on what you're seeing out there? James Langrock: So on the consumer front, we are still seeing the bifurcation. We still feel that the higher-end household income is holding up better, Michael. And we're still seeing some softness on the lower-end, you know, household income spectrum. So we're kind of still seeing that trend. Michael Kupinski: Gotcha. I can't think of a period where you've gone through such a big corporate reorganization. In the past, during periods like this, you've kind of looked in or been able to pick up some pretty interesting companies and made some acquisitions. And how are you thinking about capital allocation priorities right now in terms of just reinvestment, shareholder returns, and things like that? James Langrock: I mean, as Adolfo mentioned and we've been mentioning, Michael, we're looking at fiscal 2026 as like a foundational year for us. So the priority right now is really on stabilizing the performance and building the capabilities, as Adolfo mentioned, within the organization for sustainable profitable growth. So clearly, we're taking a disciplined approach towards and we'll allocate capital toward, you know, operational efficiencies, customer experience improvements, and adding technology capabilities. But clearly, if there's something out there that makes sense, we would look at it. But right now, we're really focused on the turnaround in the foundation setting from a capital allocation standpoint. Michael Kupinski: Would there be anything that you would sell? Adolfo Villagomez: I mean, at this point, the more we strengthen the core, the better we are going to be. So, everything is on the table. Michael Kupinski: Got you. All right. That's all I have. Thank you. Operator: The next question comes from Doug Lane with Water Tower Research. Please go ahead. Doug Lane: Yes. Hi. Good morning, everybody. James, remind me, do not take consultant costs out of your adjusted profit numbers, right? They're included in there at this point. Is that right? James Langrock: Correct. Yes, they're in there. Doug Lane: So at some point, they'll roll off. So I don't know if you talked about how long you expect the consultants to be working for you. Is this gonna be a couple of quarters, a couple of years? Just any kind of, you know, characterization there? James Langrock: Yes. So we know, Doug, what we said is the consultant costs are front-loaded. So we believe right now that the costs will kind of last through this fiscal year through June. And then they'll stop going into fiscal 2027. That doesn't mean if we see an opportunity where we think we may need some help with some initiative that we're working on that they may not come back. But right now, consultant costs will go through the end of the year. And that's going to total roughly about $11 million of consultant costs this year that will be in our but we're not adding back to the adjusted EBITDA. Doug Lane: Got it. And just switching gears here. You talked about Valentine's Day being on a Saturday. Isn't Easter a little earlier this year? Is that going to impact timing between the third quarter and the fourth quarter? James Langrock: Yes. It's Easter falls, I think, April 4. So that actually a lot of the orders will come in, in March, so that will be a shift in the quarter. And actually, with Easter falling a little further away from Mother's Day, it does help us as well. So that day placement is helpful. So there will be a shift into Q3, but also typically that day placement's a little better. The closer Easter is to Mother's Day, that's not as strong for us. So the day placement we like in early April. Doug Lane: Got it. That makes sense. Also looking at the sales number here, you know, the total number was literally within a million dollars of our forecast, but floral missed by $30 million and food beat by $30 million. So there's a big divergence between floral and food here. And you've touched on it, but what do you think is the real source of the deterioration in the floral and gifts business and the better than expected performance in the food and gift baskets business? Adolfo Villagomez: So, I mean, again, I mentioned the impact in 2025 of incremental marketing spend. I think it was significant in Flowers. The Food business was a lot more disciplined, although they also overspend a little. The second factor that is important is food is a lot more exposed to B2B, and that business has been very solid for us. So those are the factors. And there's some other competitive things, but those two are primarily the difference between one and the other. Doug Lane: Is this also where we see that bifurcated consumer since PMOL's in the floral side and, you know, Harry and David's on the food side and they're clearly opposite ends of the economic spectrum? Adolfo Villagomez: Probably, yes. Doug Lane: Okay. Fair enough. Lastly, you talk a little bit about what your learnings were in the quarter from your pop-up stores? Adolfo Villagomez: So, I mean, again, I said in the prepared remarks, we have a strategic belief that we eventually should become an omnichannel player. Today, we have physical retail stores that are EBITDA positive and have a very attractive return on invested capital. There was a belief on the pop-up stores that, hey, we're going to open them, they will not only drive sales, but they will also drive brand awareness in locations where they are, and probably the sales would increase online. There was a little of that. But if one of the things we're trying to implement, James and I, going forward is capital discipline. If the return on invested capital is not attractive, we are simply not going to do it. And I think it's twice that we tested the pop-ups and twice that were below expectations. So, enough is enough. Having said that, as I said, we're still looking for that physical retail model. You will see us testing things. But again, these tests are with the idea of finding a way to significantly grow the physical retail segment of our business. But definitely, it's not going to be through pop-up stores. Doug Lane: That makes sense. Okay. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Adolfo Villagomez for any closing remarks. Adolfo Villagomez: Thank you once again for joining us today and for your continued support. Fiscal 2026 continues to be a year of stabilization for the company. During the second quarter, we continued to make progress on the initiatives that matter most, including simplifying the organization, improving cost efficiency, strengthening our leadership team, and broadening our customer reach. While we recognize that progress will not be linear, we remain focused on executing our strategy with discipline and consistency. The actions we are taking today are intended to stabilize the business and build a strong and durable foundation to support future growth over time. We appreciate your continued interest in and support of the company. And we look forward to keeping you updated on our progress. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Sylvia: Thank you for standing by. My name is Sylvia, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Internet Bancorp Earnings Conference Call for the Fourth Quarter and Full Year 2025. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Please note that this event is being recorded. It is now my pleasure to turn the call over to Julia Ferrara from ICR. You may begin your conference. Julia Ferrara: Thank you, operator. Hello, everyone, and thank you for joining us to discuss First Internet Bancorp's Fourth Quarter and Full Year 2025 Financial Results. The company issued its earnings press release earlier this afternoon and it is available on the Citi website at www.firstinternetbancorp.com. In addition, the company has included a slide presentation that you can refer to during the call. You can also access these slides on the website. Joining us from the management team today are chairman and CEO, David Becker, president and COO, Nicole Lorch, and executive vice president and CFO, Ken Lovik. David and Nicole will provide an overview, and Ken will discuss financial results. And then we'll open up the call for your questions. Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of First Internet Bancorp that involves risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement and not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures. At this time, I'd like to turn the call over to David. David Becker: Thank you, Julia. Good afternoon, and thank you for joining us on the call today. We are pleased to close 2025 with strong fourth quarter results that demonstrate the power of our differentiated digital banking model. Our core business fundamentals remain robust with quarterly revenue up 21% over the prior year period. Our digital-first approach and disciplined expense management enabled us to navigate challenging credit issues related to two of our loan portfolios, while capitalizing on opportunities across our diverse business lines. Before I provide an update on credit, which I know is top of mind for the investment community, I would like to briefly touch on 2025 key accomplishments. We delivered strong results for the year, including 30% net interest income growth year over year, consistent expansion of net interest margin throughout 2025, and actively managed expenses to drive improved operational efficiency. We successfully completed the strategic sale of approximately $850 million in single tenant lease financing loans to Blackstone, strengthened our capital position, enhanced our rate risk profile, and accelerated our progress towards achieving a 1% return on average asset. This transaction reduced our exposure to lower-yielding fixed rate and provided significant balance sheet flexibility. Our banking as a service initiatives achieved remarkable growth, generating over $1.3 billion in new deposits for 2025, more than tripling the amount from the prior year. We also processed over $165 billion in payments volume, an increase of over 225% from 2024. Maintained strong deposit relationships that enhanced our funding flexibility. These partnerships have evolved to become true strategic revenue drivers through recurring transaction fees, program management fees, and interest income. In our SBA business, despite industry challenges, including a government shutdown, we maintain our position as a top 10 SBA 7(a) lender with nearly $580 million in funded originations during 2025. Our enhanced underwriting standards and improved servicing capabilities strengthened our competitive position while we navigated temporary process improvements required by evolving SBA guidelines. Additionally, we expanded and strengthened our SBA leadership team to drive long-term business growth. We promoted David Beige to senior vice president government guaranteed lending to oversee all aspects of our SBA operations. Also added talent and depth to our credit underwriting and portfolio management teams. We maintain solid capital discipline while returning $7 million to shareholders through dividends and share repurchases, demonstrating our commitment to balanced capital allocation. During the quarter, we executed our share buyback program by purchasing 27,998 shares at an average price of $18.64 per share, capitalizing on temporary market dislocation. Turning to credit, I want to address the credit challenges and the proactive measures we have taken to remedy the two problem loan areas, primarily our small business lending and franchise finance portfolio. As such, I want to emphasize several critical points. First, I want to reiterate our credit issues are isolated to two specific portfolios, SBA and franchise finance. The remainder of our lending verticals maintain solid credit quality with our overall level in nonperforming loans in line with peer institutions. Second, our enhanced risk management processes and prudent underwriting standards are yielding positive results. In addition, we've implemented advanced analytics that provide deep portfolio intelligence, enabling proactive borrower engagement. Third, after further evaluation of the problem loans, we are guiding to a higher provision for 2026 than we initially estimated. This is designed to clean up our remaining problem portfolios and position us for improved performance going forward. We expect credit to improve gradually in the second half of the year as the problem loans come to resolutions and are replaced with higher quality loans. Fourth, we have solid capital and liquidity positions to weather any credit-related challenges. Our regulatory capital ratios remain well above minimum requirements, with a total capital ratio of 12.44% and a common equity tier one ratio of 8.93% as well as substantial liquidity coverage. Most importantly, we believe credit will stabilize as we progress through 2026 as problem loans are resolved and enhanced underwriting standards take effect with new Despite the isolated credit issues related to two portfolios, our core revenue engine remains robust with multiple growth drivers. We have strong loan and deposit pipelines across our commercial lending verticals and vast partner partnerships. Net interest margin continues as we benefit from higher loan yields and declining deposit costs. Our technology investments, including AI-powered origination, underwriting support, and customer support having greater efficiency while maintaining conservative credit management practices. Looking ahead, our digital-first model positions us advantageously for continued growth. Our interest rate neutral balance sheet structure, disciplined loan pricing, and diversified revenue streams provide multiple growth vectors over the long term. We expect continued net interest margin expansion, robust fintech partnership growth, credit stabilization, and the benefits of our strategic balance sheet to drive improved profitability. We remain confident in our ability to deliver strong financial performance while building long-term shareholder value through disciplined execution of our strategic priority. I'll now turn it over to Nicole for operational highlights, including SBA, BAT, and credit. Nicole Lorch: Thank you, David. Despite the longest federal government shutdown in history, we've successfully netted $8.6 million in secondary market sales for SBA loans through November and December, demonstrating the resilience of our operations and market position. Looking ahead to 2026, we are strategically realigning our SBA production with our enhanced and more stringent underwriting guidelines. This deliberate shift prioritizes credit quality over volume, positioning us for sustainable long-term performance. As a result, we anticipate production of approximately $500 million for the year, a more measured approach that reflects our commitment to prudent risk management. Given our focus on attracting higher credit quality borrowers, we expect to offer more competitive rates, which will naturally lead us to retain a larger portion of our production on balance sheet in 2026. As a result, we estimate gain on sale revenue in the range of $19 million to $20 million compared to $29.4 million in 2025. While this represents a decrease in fee income, it will generate a positive impact on net interest income and prove accretive to our net interest margin. Our BaaS platform continues to demonstrate growth and diversification. As a sponsor bank, we support deposit program, payment processing, including card, ACH, and real-time payments, and lending programs across our fintech partner network. Importantly, none of our partners depend on card interchange as their sole or primary revenue source, which provides stability and allows us to scale our partnership model as our balance sheet grows. Demand for our sponsorship and program oversight capabilities remains robust. We are fielding interest from potential partners with use cases for real-time payments, which we support through both the RTP network and FedNow, where we served as a pilot institution. First Internet Bank is committed to standing at the forefront of payment innovation, but we also excel at good old ACH. I'm pleased to note that First Internet Bank was a co-winner of the award for payments innovation of the year from American Banker for our work with INCREASE to deliver high fidelity ACH, a tech solution that brings greater reliability to ACH transactions. Our payment processing volumes continue to reach impressive scale. We facilitated $65 billion in payments for our fintech partners in the fourth quarter, which was up over 40% from volumes processed in the third quarter. As of 12/31/2025, we maintained almost $2 billion in deposits with a significant portion strategically positioned off balance sheet where we earn attractive spreads reported as noninterest income. Turning to credit performance, as David mentioned, our overall loan book remains strong and continues to perform in line with industry trends. Regarding our franchise and SBA portfolios, we took decisive action throughout 2025 to address credit issues, including tightening and refining underwriting standards, implementing streamlined processes for earlier problem loan detection, and improving collection processes. Our franchise finance portfolio continues to show noticeable progress due to several strategic factors. We ceased purchasing loans in this space, allowing the portfolio to naturally decrease in size, and the remaining borrowers tend to be stronger, multiunit operators with greater operational experience and financial resources. Our collection efforts are further supported by Pie Capital serving as an intermediary and providing valuable brand support. For our SBA loan, credit remains challenging, but with an encouraging outlook in 2026. Our SBA lending has been primarily in the area of business acquisition, which has elevated levels of transition risk as new owners take over. Our internal analysis, which is supported by external data and analytics as well, suggests there may be more pain to come as we work through loans originated in late 2024 and early 2025 under previous guidelines. I would like to give a special mention to our special asset team that worked diligently on the franchise finance and SBA portfolios throughout 2025. They have done an outstanding job staying on top of our workouts, offering alternatives when possible, and they have had some pleasant surprises for us on a handful of loans where recoveries in the fourth quarter and into January came in higher than expected. We have significantly strengthened our organizational capabilities throughout 2025 to enhance our operational depth and customer reach. Beyond personnel, we have refined our credit guidelines to better identify transaction risk, and we've strengthened our processes to improve both credit quality and the borrower experience. Most notably, we are implementing an AI-driven solution to standardize our document collection process, reduce origination times, and create a more seamless experience for our clients. Our investments in portfolio predictive analytics represent a transformational advancement in our risk management capabilities. This technology enables us to identify potential issues earlier in the credit life cycle and take proactive measures to protect our portfolio quality. This comprehensive approach to credit management, operational excellence, and strategic partnership development positions us exceptionally well for continued success and sustainable long-term growth. I will now turn it over to Ken for additional insight into our fourth quarter performance and 2026 outlook. Ken Lovik: Thanks, Nicole. We delivered solid fourth quarter results with net income of $5.3 million or $0.60 per diluted share. Our results for the quarter included a pretax loss of $400,000 on the sale of an additional $14.3 million of single tenant lease financing loans to fulfill our commitment related to the large sale in the third quarter. Excluding the impact of the loan sale, adjusted net income was $5.6 million and adjusted earnings per share was $0.64. Adjusted total revenue for the quarter was $42.1 million, a 21% increase over 2024, and when combined with well-managed expenses, adjusted pre-provision net revenue totaled $17.9 million, up 66% year over year. These results reflect strong operational execution and sustained business momentum across our core segments. Net interest income for the fourth quarter was $30.3 million or $31.5 million on a fully taxable equivalent basis, up about 29% year over year, respectively. Net interest margin improved to 2.22% or 2.3% on a fully taxable equivalent basis, both up 18 basis points from the prior quarter and 55 basis points year over year. The yield on average interest-earning assets for the quarter rose to 5.71% from 5.52% in the prior year period, driven primarily by a 46 basis point increase in loan yields as higher rates on new originations more than offset the impact of three Federal Reserve rate cuts during 2025. We also saw a meaningful decline in funding costs during the same period, with the cost of interest-bearing deposits falling to 3.68% from 4.3% in the prior year period. The rising yields on interest-earning assets in conjunction with declining cost of interest-bearing deposits demonstrate delivery on our years-long effort to reposition the balance sheet and optimize our mix of earning assets. Adjusted noninterest income for the quarter totaled $11.8 million, down from the prior quarter due to the large volume of SBA loan sales in the third quarter and up from $11.2 million in the prior year period. As Nicole mentioned in her comments, gain on sale revenue from SBA loan sales remained solid during the quarter and was supplemented by higher net loan servicing revenue as we began servicing the portfolio we sold to Blackstone. Additionally, fee revenue from our fintech partnerships increased during the quarter, continuing a trend of quarterly growth throughout the year. Noninterest expense for the quarter totaled $24.2 million compared to $24 million in the prior year period. The slight increase over the prior year period was due primarily to continued investment in tech and AI to enhance both front and back office operations and costs related to working out problem loans, offset by lower incentive compensation. Turning to credit, in the fourth quarter, we recognized a provision for credit losses of $12 million, which consisted primarily of $16 million of net charge-offs partially offset by a net decrease in specific reserves as $3.5 million of loans charged off during the quarter had existing reserves. Nonperforming loans increased to $58.5 million in the fourth quarter, and the ratio of nonperforming loans to total loans was 1.56%, compared to 1.48% in the linked quarter. However, the increase in nonperformers consisted almost entirely of SBA guaranteed balances and fully collateralized SBA unguaranteed balances. Excluding guaranteed balances, the ratio of nonperforming loans to total loans was 1.2%. At quarter end, the allowance for credit losses was 1.49% of total loans. Excluding the public finance portfolio, the ACL to total loans increased to 1.67%. Additionally, the small business lending ACL to unguaranteed balances was 7.34%. Total loans as of 12/31/2025 were $3.7 billion, an increase of $143 million or 4% compared to the linked quarter and a decrease of $424 million or 10% compared to 12/31/2024. The increase over the linked quarter reflects strong origination and funding activity in single tenant lease financing, construction, and small business, partially offset by lower public finance and franchise finance balances. The decline from the prior year period was driven by the large single tenant lease financing loan sale offset by strong growth in construction, commercial and industrial, and small business lending. Total deposits as of 12/31/2025 were $4.8 billion, representing decreases of $76 million or 2% and $93 million or 2% compared to 09/30/2025 and 12/31/2024, respectively. As David mentioned earlier, we experienced tremendous growth in fintech deposits throughout 2025, allowing higher cost CDs and broker deposits to mature. Furthermore, the ability to move fintech deposits off balance sheet enhanced our ability to manage the size of the balance sheet following the large loan sale in 2025. Now turning to our full year 2026 outlook, we expect continued loan growth in the range of 15% to 17% driven by strong pipelines across our commercial lending verticals as well as a lower base coming off the balance sheet repositioning trade in the third quarter. Net interest margin expansion should continue, reaching 2.75% to 2.8% by 2026 as we benefit from ongoing deposit repricing and optimized asset mix. We anticipate fully taxable equivalent net interest income of $155 million to $160 million for the full year. Noninterest income is projected at $33 million to $35 million, reflecting lower SBA originations as well as lower gain on sale revenue as we retain a greater amount of guaranteed balances but partially offset by continued BaaS growth and increased loan servicing revenue. Operating expenses are projected at $111 million to $112 million, representing controlled growth that includes continued investment in tech and AI to support our revenue risk management initiatives while maintaining operational efficiency. With regard to the provision for credit losses, as David mentioned earlier, we are guiding to a higher provision to capture net charge-offs and additional reserves related to problem loans, and estimate $50 million to $53 million for the full year, which should moderate as we progress through 2026 and problem loans are resolved. We expect provision for the first half of the year to remain elevated with first quarter provision expected in the range of $17 million to $19 million and second quarter provision in the range of $14 million to $16 million. We expect the provision to improve in the second half of the year. This guidance translates to earnings per share of $2.35 to $2.45 with a midpoint of approximately $2.40 per share. 2025 was a year of disciplined execution and strategic investments in people, process, and technology setting us up for much stronger financial performance in 2026, particularly in the second half of the year. As shareholders ourselves, we remain laser-focused on building long-term shareholder value. With that, I'll turn it back to the operator for questions. Sylvia: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a pop that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Brett Rabatin from Healthy Group. Please go ahead. Brett Rabatin: And I might need a little bit of help walking through some of the variables. The two key ones might be just on SBA. You know, how much of that will you have on the balance sheet do you think maybe an average or, you know, how you see that progressing throughout the year and at what yield that would positively impact that 6.39 loan yield in the fourth quarter? And then secondly, on the funding side, I know you've got about $2.4 billion of CDs that cost $4.19. In the fourth quarter. Know we've talked in the past about what's repricing. I might need an update on repricing opportunities on the first half of year, particularly on the CD side. Thanks. Ken Lovik: Sorry, Brett. We didn't catch the very first part of your comments. Brett Rabatin: Okay. Sounds like you're about NII and net interest margin. Ken Lovik: Yes. Correct. Sorry. It's might have a bad connection here. But, yeah, I'm just trying to Ken, trying to get a better understanding of the NII guidance. And just wanted to understand on the SBA side, how much of that goes on the balance sheet and at what yield throughout the year. And then just trying to make sure I understand the repricing opportunities on the funding side of the equation. Ken Lovik: Yes. Well, I'll start with the funding side of the equation first because a lot of that is, to be honest with you, somewhat mechanical. We do expect to see continued decrease in deposit costs throughout the year. Now we'll probably see a larger on a quarterly basis, a larger impact in the first quarter. Because we will reap the benefits of, you know, two rate cuts in the fourth quarter. That will kind of play their way through, and we'll have full run rate on Fed funds types, Fed funds index deposits, other money markets that go down with a, you know, a decent beta on rates. And obviously, we bring down our CD rates as well. And just as a reminder, we're not forecasting any rate cuts in our forecast for next year. But we do expect to see deposit costs go down. Again, like I said, more in the biggest quarterly basis will be in the first quarter. Just kind of as an indication of that, and I'll give you some ideas on some CD repricing. But, you know, our fintech deposits far as, like, repricing so for example, on December 31, the spot rate on our on balance sheet fintech deposits was 3.52%. Today, the spot rate is 3.35%. So there's nice, you know, nice, a nice drop there. In terms of just looking at CD maturities, we got about $850 million of CDs maturing over the six months. With a weighted average cost of 4.15%. The current weighted average cost of CDs coming in the door today is 3.65%, you know? So that's, you know, that's a pickup of 50 basis points there. And even if we push that out to deposit CDs that mature over the next twelve months, that's almost $1.4 billion, and the weighted average cost on that is 4.11%. So, again, almost a 50 basis point pickup on those. So just by virtue of CDs rolling off the balance sheet and either being replaced by fintech or, you know, being renewed or new CD production, there's a nice pickup there on CD costs. On the lending side, you know, it's kinda continuing to do what we have been doing here for the past year. I mean, new loan production, you know, new loan rates that new new new origination rates in the fourth quarter were about 6.85%, getting close to seven. We're just which is above the portfolio yield as a whole. So when we think about what we where we expect to see growth over the next coming year, we're you know, we do expect to see our kind of our combination of construction and investor commercial real estate continue to grow. We expect growth in C and I lending as well. We've had success in some of these some of these kind of we'll call them, emerging verticals that we've started to get into with wealth advisory lending, equipment finance is doing well, and these are all yields kind of in the high sixes to low sevens on that. And then, again, with SBA, with our intention to retain a greater percentage of our guaranteed originations we expect, you know, that we'll be holding an additional almost $94 million of those on the day on the on the balance sheet, kind of priced it, you know, call it prime plus one and a half. So, yeah, all of the the the lending verticals that were rigid, you know, all the new yields coming on the balance sheet are just obviously higher than what the current yield is in the portfolio today. So it's really just kind of a continuation of what we've been doing over the last, you know, twelve to eighteen months. Brett Rabatin: Okay. I wanted to you know, there's a there's a lot of questions embedded in the credit stuff, but wanted to see if you had an updated number for criticized loans. I think believe, there were a $139 million. Last quarter. Just wanted to see what those did, particularly in the SBA bucket. And the franchise finance bucket. And then it sounds like the issue is you're kind of expecting some more business acquisition oriented SBA credits to maybe migrate and just wanted to see if there was any commonality you know, time in business or anything else that, you know, you seem to be hitting on that is impacting that piece of the portfolio? Ken Lovik: Yeah. The total criticized loans probably increased about call it, $16 million or so. So that was up, call it, 10, 11%. Yeah. I would say it's probably, you know, the it's probably a a a mix predominantly, SBA in there, there's probably some in franchise. And obviously, keep in mind that these are loans that these aren't necessarily substandard loans. These are loans just may have been downgraded from a six to a seven. That are still performing. We continue you know, we're we're actively monitoring loans in that bucket and working with borrowers on that. Kind of on we did see some in the franchise excuse me, well, in both, in franchise and in SBA roll off as we charged off some loans as well. But, yeah, we saw a a little bit of an uptick. Most of it, though, was in special mention category, not substandard. Yeah, that's a question. If we are seeing some commonality into issues about the only thing we've got, Brett, is on the SBA portfolio in that twelve to eighteen month window. Is kinda where if they're gonna run into a problem, they run into it. It's kinda getting through that first year of business. You're in closeout and stuff that so we got very aggressive during the fourth quarter calling people think we reached out. Nicole can probably hundred borrowers. We've talked over 400 borrowers that are currently okay. And just did a touch base to see, hey. You know, how's the year end shaping up for you any we can do. Trying to get a little bit ahead of the game. But as as we've said time and time again, there is no given vertical, no given business type that's getting into trouble, but if there's any commonality to them, they seem to hit in that twelve to eighteen month window is when they kinda hit the wall or start to go south. So we're trying to get ahead of that and stay on a proactive with them before they get to that window. So in some cases, it's just a matter of a shortfall of some cash. They get pretty frustrated, and they wanna get out. So we can know, help them make a payroll or something to keep things afloat. We're very much on a positive play with them at the current time. Brett Rabatin: Okay. I appreciate the color. Thanks, guys. Ken Lovik: Thank you. Sylvia: Your second question comes from Nathan Race from Piper Sandler. Please go ahead. Nathan Race: Yes. Hi, everyone. Good afternoon. Thanks for taking the questions. Ken Lovik: Hi, Nate. I was curious. Nathan Race: Curious if there are any interest reversals that impacted the margin in the fourth quarter? And just given the credit cost outlook for this year, which is really helpful. So you for that. Just curious if that contemplates any additional interest reversals just as you continue to work through VSBA credit quality factors. Ken Lovik: Yeah. We we do we do model in, you know, interest reversals into our assumptions. On net interest income as part of our forecast. With some of the, you know, the the migrate you know, some of the the net charge offs, we probably had don't know, maybe three to 400,000 of probably interest reversals there. Which is, you know, I call that three to five basis points or so, probably consistent with what we've seen in prior quarters. Nathan Race: Okay. So that kind of explains the NII margin shortfall relative to the guidance from last quarter. Ken Lovik: Yeah. That's that's a little bit of it. And and some of it too, if if you know, we probably following the, you know, following the the the large single tenant transaction, we're able to move deposits off the balance sheet. But sometimes, the fintech deposits can be a little bit volatile. So we probably carried higher cash balances. Average cash balances throughout the quarter. That certainly probably impacted the margin a few basis points as well. Nathan Race: Understood. That's helpful. And then Ken or Nicole or Dick I'm trying to understand kinda what's the embedded net charge off expectations relative to the provision guide for this year of 53 to I'm sorry. 50 to 53 million. I I Sorry. We have to Ken Lovik: Yeah. I mean, I I understand the provision guidance and but I'm also trying to how much more you need to provide you know, relative to charge offs just given that you're expecting GROW loans 15 to 17% this year? Ken Lovik: Yeah. No. There's yeah. There there's I would say, of that, you know, probably you know, half or so are are going to be assumptions on charge offs and specific reserves, probably half charge offs half charge offs and and some additional specific reserves above that. I mean, we kinda do, you know, as we you know, Nikola talked about in her comments. Right? And, David, we have a number of different methodologies we use to kind of try to target what we think. Potential losses may be from a forecasting perspective. And I think we you know, our our bias on on this quarter and and looking forward into '26 was to, you know, let's let's go with the highest you know, the the higher estimate of the different methodologies we look at. But, yeah, I think that's to the point that we talk about in terms of the provision. Like, we expect to hit the bulk of that will be reflected in the first and the second quarter. And our expectations are, as sit here today is that as we get into the third and the fourth quarter, the provisions will move more in line kinda with what the perhaps even a little bit lower near the end of the year, but in in line with kinda, like, where the estimates are today. Nathan Race: Okay. To add a little color to what Ken was talking about with that, Nate, The different models that we've run, I mean, we have data from Lumos on our SBA portfolio as well as Redwood data. That gives us some predictive analytics around what our portfolio might do. We've also done a lot of vintage analysis internally. Because we continue to refine our credit guidelines as we have been growing our portfolios, we made significant changes to our guidelines in the second half of this year. So I would imagine that we're through the 2021, 2022, and even the 2023 vintages, I think, in terms of feeling the most pain. We are currently working through 2024 loans, and likely, we will even have elevated levels of charge offs compared to what we might like to see on the 2025 vintage that were underwritten under the previous guidelines. But then going forward, and that's the twelve to eighteen months that David referenced, we think we're going to be in a much better place once we get through the the earlier vintages, and we're able to work with credits that are underwritten to current guidelines. Nathan Race: Okay. Understood. That that's really helpful. And I apologize for trying to oversimplify it, but just in terms of net charge off expectations for this year and where you see the reserve ending up relative to the loan growth, target? Just any thoughts in terms of a range there? Ken Lovik: Well, in terms of, like I mean, we we expect you know, obviously, in we expect the allowance to continue to grow throughout the year. Again, some of it's gonna be driven by specific reserves. Some of it's gonna be driven by loan growth. But, you know, we got you know, right now, we could you know, you know, the the provision or excuse me. The ACL could be up by, you know, by the fourth quarter, you know, be up anywhere from, say, I don't know, call it, somewhere between 20 and $30 million. And I know that's a wide range, but sometimes it's you don't you don't know exactly whether something's gonna be a charge off or you're gonna take a a specific reserve on on on a credit. But that would be kind of the range of growth I'd I'd forecast us to to experience in you know, by year end in the ACL balance. Nathan Race: Okay. Understood. Apologies for the analyst question there, but I appreciate that. And then maybe just lastly on the tax rate within your expectations for two thirty five to two forty five in EPS this year. Ken Lovik: Yeah. I think because of the way that we've talked about the provision and if you work through it, and probably one thing that we didn't talk about in the second quarter as we kind of shift to holding more SBA loans in in the second quarter. That really will kinda go into effect in in earnest in the second quarter where we'll probably see a decline in gain on sale revenue there. I mean, the first two quarters of the year is is where earnings are really depressed. So if you think about those two quarters, we have into our models now a tax rate of somewhere, call it, seven to eight and a half percent in the first and second quarter. And then as earnings improve throughout the year, we have that kind of ramping up to like kind of a 10% to 12% in the third and fourth quarter. Nathan Race: Okay. That's really helpful. I'll step back. Thank you for all the color. Ken Lovik: Alright. Thank you. Sylvia: Your next question comes from George Sutton. From Craig Hallum. Please go ahead. George Sutton: Just wanna walk back to last quarter and we had talked about really pulling some of the challenges forward in terms of loan issues. You did the pro audit. You had implemented the Lumos technology. And I'm not really clear what so I would have anticipated a much cleaner look coming out of this quarter. What changed in this quarter? What were the dynamics that you saw that might have been different than you expected? Nicole Lorch: I can I can take a quantitative look at or a qualitative look at that, for you? George. In terms of SBA, I think we've been looking at kind of what was right in front of us and the problems that we knew of at the time. And as we have been spending more time with the Lumos data and spending more time with our vintage analysis, analysis, we've gotten a clearer picture not just of what's right in front of us, but also what's what's out on the horizon. I kind of think of it like a bathtub and we knew how much water was in the tub, and and there's a drain. But we also had water flowing in because we continue to originate loans. And so we've had a better capability to measure both the the drain as well as the inflows. So that gives us a better picture. Of of what we're dealing with. And I think we wanna create a really realistic view of things for you. So I think we're we're doing a better job of looking at at what is to come rather than just what's right in front of us. George Sutton: Understand. On the, the BaaS side, so you saw a pretty material increase in payments quarter over quarter. Where where are we seeing that in the income statement dynamics? Ken Lovik: That's gonna be in in other noninterest income. George Sutton: Okay. And other non interest income fell quarter over quarter. So I I just wasn't clear. Ken Lovik: Yeah. Well, that's what that's if if you if you have our new slide deck. So we revised did not. It grew thirty percent. Sorry. Okay. Quarter over quarter. So that's where we're seeing that impact. And then the Fintech other income is the dollars bringing in for deposits that you've pushed off to third parties. Is that correct? Ken Lovik: Yeah. Some of that's in there. I think if you in in our in our revised slide deck, we tried to, you know, kinda break out the fintech, a little bit more clearly because fintech hits a couple of different line items. There's program, there's transaction fees, those are going to be another non interest in the other line item on the GAAP finance on income statement. There is the gain on sale we have on the embedded finance loans we originate for JARIS. So that's that's in the gain on sale line item. And then there is kind of a a little about, but it's growing the fee income we make on the on the deposits we push off the balance sheet. So if you look at page 16 of our new slide deck, which has kind of we've kind of simplified or kind of sliced the the noninterest income a different way. You'll see a bar in there for fintech. So you'll see almost $9.9 million. Okay. You got that. So we're we're gonna provide this to give give the analysts more color on on where the fee income what the fee income is coming from our fintech efforts. George Sutton: Great. Last question for David on just M and A in general as we're starting to see more bank M and A. You know, you're an interesting duck out there and that you're a online platform trading at a pretty significant discount to tangible book. What is your thought process if approached? David Becker: Well, being honest, I can say we have been approached three or four times here over the last half of last year. We entertain all inquiries. We speak and talk. We've had a couple international organizations are wanting to put hold here in The United States that are interested in us. We found some folks that have some fintech issues in their world and BSA AML that need to get cleaned up and operational and they love what we're doing. So we're chatting with a lot of people, George. It's probably the most activity. We've seen more activity in the last months than we have the last five years put together. So we'll entertain and talk to anybody. We've not got anything remotely close at this point, but we're talking on on both sides, looking at opportunities from our side and some specialty lending programs and services as well as institutions looking at us. George Sutton: Alright. I appreciate the clarity of the response. Thanks, guys. David Becker: Thank you. George Sutton: George. Sylvia: Your next question comes from Emily Lee from KBW. Please go ahead. Hi, everyone. This is Emily stepping in for Tim Switzer. For taking my question. Emily Lee: Hi. So going back to just the fintech and BaaS pipeline, I was wondering what the impact earnings been so far and how much of deposit growth is driven by the current customers versus, new onboarding on the fintech platform. Ken Lovik: On on the deposit side, the vast majority is driven by fintechs that we've we've been working with now for a few years. Right? RAM, that's the biggest piece. That's that's the biggest source of deposits for us. We have two programs for them of business savings. And a bill pay product, which is really more of a payments engine. And then we have deposits with our our platform partner, Increase, with their program. And we've been, you know, we we've been doing these deposit providing, you know, deposit services for for both of these for, you know, a couple years now. Right? The but we have seen during 2025, we did see what I would call explosive growth in them. Right? When they rolled out, they rolled out as pilots and there was there was, you know, some modest growth there. But but we've seen a we we've seen quite a bit of growth over the past twelve months predominantly in the ramp program and, to a lesser extent, an increase. And then really, with all of our fintech you know, partners, we do have varying degree you know, varying amounts of deposits, some ranging from you know, $8,090,000,000 down to 2 or $3,000,000. But the the the bulk of it are are from the the from from ramp and from increase. Nicole Lorch: We have been, Emily, we've been deliberately in bringing aboard new programs over the last couple of years, and we've had terrific growth from our existing programs. So we've been able to grow the the program and even add new programs with existing partners, which has been a great way to extend existing relationships. So it hasn't necessarily been necessary for us to grow out and attract new relationships. That said, we're getting calls all the time, and we have a great pipeline of new opportunities. But we are looking for programs that we think offer something special. We're really excited to bring pool money live in the next couple of days. They've been growing their wait list. It offers a chance to offer a group deposit account, and so we're excited to work with pool. We think that they will be a good program for us to work alongside. So we will continue to add new opportunities, but it hasn't been something that we've necessarily had to be adding dozens of new programs because our existing partners have been so successful. Ken Lovik: Yeah. And to come back to the I'm sorry. I was I was gonna just answer your revenue question. So we have if you look at the the chart on the that we have in the deck on fintech revenue, you'll see that on a quarterly basis throughout the year, it's gone up quite a bit. But when you add in interest income that we make from lending efforts with our partnership with Jaris, we had about $6.7 million of gross revenue from that that was up you know, that was up more than double over last year. So the fintech effort is is is producing results in terms of increased revenue, you know, year over year, both between the between non income and and the interest income line items. Emily Lee: Great. It's Altam here. Thanks for taking my question. Ken Lovik: Of course. Thank you. Sylvia: We have a follow-up question from Nathan Race from Piper Sandler. Please go ahead. Nathan Race: Yeah. Thanks for taking the follow-up. Just going back to the balance sheet growth expectations, particularly appreciate the 5% to 17% loan growth guidance. Is the expectation that, you know, deposit growth is largely gonna follow and fund that? Or just trying to think about some of the dynamics to fund that pretty strong loan growth outlook. Ken Lovik: Yeah. Well, some a combination. Right? So we're we're we're modeling, you know, right now, we'll call it somewhere between 810%. Loan, excuse me, deposit growth there. Obviously, we're, you know, we're I wouldn't say we ended the year with a huge amount of excess cash, but there were cash balances that we were know, higher than we'd like to be carrying. So some of it is just deploying cash on the balance sheet. And then some of it is just you I'll call it, like, securities cash flows. Funding that as well. So between the between the three of those, it's just kinda going from different parts of the of the asset side into into into the loan side. David Becker: Part of the plane? Nate. Our our loan to deposit ratio is probably at an all time low for us. In in our history. So it's Ken said we've got a lot of flexibility to move some stuff around there. And what's off balance sheet is primarily the BaaS fintech deposits at a cost to us of about 150 basis points. If we putting it back out the door, particularly, we pick up some of the SBA loans, about 20% of our new originations that are prime plus one and a half, we're gonna fund that at max with those vast deposits. If we run out of cash on the balance sheet, we just pull that back in. So we've got a great spread in there, probably one of the best we've had in the history of the bank. So from a deposit cost as well as loan origination opportunities, we're kinda at all time low on the deposits and all time high on loan origination. So we got an awful, awful lot of flexibility built in over the next twelve months. Nicole Lorch: And I would be remiss if I didn't remind everyone that we have an award-winning small business checking account. We won the best in biz award this last quarter. And we're improving our win rate as we're going out and talking to SBA borrowers about the opportunity to grow the full relationship with First Internet Bank. So I want to thank our team for the effort that they've put in there to work collaboratively, and we continue to add features to that product, including Zelle for business so they can make business payment kind of business to business or even business to consumer payments. So it's it's been exciting to watch that program grow. Nathan Race: Yep. I noticed that. Congratulations on that. Well deserved. And then, Ken, just any thoughts on the starting point for the margin in the first quarter? I appreciate the guide getting up to two seventy five to two eighty by the end of this year, but just any thoughts on the first quarter? Ken Lovik: Yeah. The way that I think about the margin throughout the year is it's probably call it, 10% to 15 basis points of expansion per quarter. With probably a little bit more in the first quarter pursuant to my comments about the, you know, kinda getting a full quarter's run rate of two Fed rate cuts in there? Nathan Race: Mhmm. Okay. Gotcha. And just as I'm going through that, it appears that you guys would be unprofitable based on the guidance in the first quarter. Is that accurate? Ken Lovik: No. No. Nathan Race: Okay. I'll have to follow-up offline. Ken Lovik: With you, Kenneth. That's alright. Thanks. Yeah. That's fine. No. I mean, in Nate, in the first quarter, we still we expect we still expect to have a a fair a a decent level of noninterest income because we do have you know, we we still have a pretty healthy balance of loans held for sale on the balance sheet. So we still have a lot of SBA loans to sell before we kind of start retaining more balances. That's probably gonna be more of, like, I think I said earlier, more of a second quarter impact. So I think the the the the noninterest income line item for the first quarter should be kind of in line where we've kind of been historically in the first quarter in the past. Nicole Lorch: Boring a government shutdown. Ken Lovik: That's gonna bring up. Yeah. That's right. I forgot about that. David Becker: Yep. Good point, Heather. Nathan Race: Yeah. I'll leave it there. Thank you. Ken Lovik: Thank you. Sylvia: There are no further questions at this time. Will now turn the call over to David Becker for closing remarks. David Becker: Thank you much, guys. We appreciate all your time this evening and the great questions. I hope you if you have any feedback, we obviously changed up the deck significantly, kinda did a refresh on that and and trying to give you a little more detail. And insight as to where we're going and what we're doing. Please reach out to Ken, Nicole, or myself or all of us we're happy to go through that with you. And we do appreciate the adjustment on the time frame that made it a much easier pull together for us with all the year end issues coming around, and we'll continue this going forward. Hopefully, we will see some of you next week at either bank directors conference and some of our investors at the Janney conference, which follows on. So thank you very much for your time, and we're kicking off, I think, a great 2026. We appreciate it. Thank you. Sylvia: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. My name is Jael, and I will be your conference operator today. At this time, I would like to welcome everyone to the Schneider National, Inc. Fourth Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to withdraw your question, simply press 1 again. I would now like to turn the conference over to Christyne McGarvey, Vice President of Investor Relations. You may begin. Christyne McGarvey: Thank you, operator, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer; Darrell Campbell, Executive Vice President and Chief Financial Officer; and Jim Filter, Executive Vice President and Group President of Transportation and Logistics. Earlier today, the company issued an earnings press release. This release and an investor presentation are available on the Investor section of our website at schneider.com. Our call will include remarks about future expectations, forecast plans, and prospects for Schneider National, Inc. These constitute forward-looking statements for the purpose of the safe harbor provisions under applicable federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. The company urges investors to review the risks and uncertainties discussed in our SEC filings, including, but not limited to, our most recent annual report on Form 10-Ks and those risks identified in today's earnings release. All forward-looking statements are made as of the date of this call, and Schneider National, Inc. disclaims any duty to update such statements except as required by law. In addition, pursuant to Regulation G, reconciliation of any non-GAAP financial measures referenced during today's call can be found in our earnings release and investor presentation, which includes reconciliations to the most directly comparable GAAP measures. Now I'd like to turn over the call to our CEO, Mark Rourke. Mark Rourke: Thank you, Christyne. Hello, everyone, and thank you for joining the Schneider National, Inc. call today. I want to begin by acknowledging that the fourth quarter results fell short of our expectations. When we provided our update last quarter, October results and market conditions were supportive of finishing 2025 at approximately $0.70 of earnings per share. However, November and much of December were materially more challenged than our guidance had contemplated, reflecting a very truncated peak season and poor weather conditions throughout the Midwest. We saw momentum as we exited the year, which we believe is a direct result of supply attrition in our industry in the last several months. We believe we are in the early innings of normalizing market conditions, in part due to the various regulatory actions being taken. Importantly, these actions are not only driving capacity to exit the market at an accelerated rate, but the ability to backfill new entrants is also increasingly diminished. We expect the full impact will likely be measured in quarters, not months. Still, the last several years have proved to be a challenging backdrop, and we are not satisfied with our results. During this downturn, we made strides in lowering our cost to serve in network, changes that are structural and will improve our operating leverage going forward. At the same time, we have grown our dedicated offerings to nearly 70% of our fleet, increasing the durability and resilience of our truckload segment. We've created true differentiation and value in the marketplace in our intermodal offering and scaled our flexible asset-light tech-enabled solutions. All of which have been supplemented with our accretive acquisitions. We recognize that improving market conditions is needed for the full benefit of these investments to be evident, but we believe we will exit this down cycle more ready than ever to meet a market correction. We are not simply waiting for improved cycle dynamics. We enter 2026 with more conviction in the importance of continuing to execute our strategic initiatives to drive structural improvement in our business. We are carrying momentum from our cost savings program, including ramping synergies in our acquired companies, leading intermodal growth, including the recent launch of our intermodal fast track service, heavy dedicated start-up activity, and network earnings improvement into this year. I will provide more commentary on our outlook and expectations for 2026, but first, I want to hand the call over to Darrell, who will provide a more comprehensive overview of fourth-quarter results. Darrell? Darrell Campbell: Thank you, Mark, and good afternoon, everyone. I'll review our enterprise and segment financial results for the fourth quarter, along with our year-to-date cash flow trends and provide a capital allocation update. Summaries of our financial results and guidance can be found on pages 21 to 26 of our investor presentation available on our Investor Relations website. In the fourth quarter, revenues excluding fuel surcharge were $1.3 billion, up 4% year over year. Our fourth-quarter adjusted income from operations was $38 million, a decline of 15% compared to a year ago. Adjusted diluted earnings per share for the fourth quarter was $0.13, down from $0.20 a year ago. As Mark referenced, fourth-quarter results reflect more challenging market conditions than we had previously anticipated in our guidance. October saw steady demand with elements of seasonality, though more subdued than is typical. Our guidance had assumed that trend would persist through the balance of the year, but demand turned sluggish in November, affecting minimal peak activity as shippers worked down inventory, which created a significant volume shortfall versus our expectations. This was exacerbated by the poor weather in the Midwest that brought volume and caused headwinds. However, the sharp reaction of spot rates to the weather disruption demonstrates how the excess of capacity in recent months has brought the market closer into balance. Volumes remained fairly muted until December when shippers began to feel an inventory drawdown and more actively sought out additional capacity as routing guides became stressed. This enabled us to realize some premium project business, still, the strength exiting the year was compressed and not enough to offset the temporary demand that characterized much of the quarter. These more challenged market conditions were also compounded by extended and unplanned auto production shutdowns with certain customers, spiking third-party capacity costs in logistics, and heightened healthcare costs. Market dynamics in the quarter have masked our continued progress on our strategic efforts, including those related to improving asset efficiency and lowering our cost to serve. We achieved our targeted $400 million of cost savings, including synergies from the common systems acquisition. Our momentum will continue in 2026, with an additional $40 million of cost savings, which Mark will detail in his remarks. From a segment perspective, truckload revenue, excluding fuel surcharge, was $610 million in the fourth quarter, up 9% year over year. Truckload operating income was $23 million, a 16% increase year over year. Operating ratio was 96.2%, an improvement of 30 basis points compared to last year. The impact of the market was most evident in the network, which remained unprofitable. Restoring profitability in the network remains a key focus, and the fourth quarter did see modest year-over-year improvement as our ongoing cost and productivity actions at least partially offset softer conditions and elevated healthcare costs. These actions include efforts to improve equipment ratios, rationalize non-driver headcounts, and increase bill miles per tractor. As market conditions improved, we did see momentum in December in both productivity and realized price. Dedicated operating income grew year over year, benefiting from an additional two months of Cowen, versus 2024. While volumes were not immune to market conditions, we also saw adverse impact from unplanned auto production shutdowns with select customers. After two quarters of elevated churn, this moderated in the fourth quarter as expected. Startups also picked up as new business wins remain elevated versus the first half of the year, and we finished 2025 with approximately 950 trucks sold. Our fleet count was roughly flat quarter over quarter, as productivity enabled us to utilize our existing equipment for implementations. Armor startup activity drove greater than expected headwinds to track the productivity and costs, particularly in driver recruiting. Intermodal revenues excluding fuel surcharge were $268 million for the fourth quarter, a 3% decline year over year. This reflected volume growth of 3%, which was more than offset by mix-related declines in revenue per order. Despite last year's tariff-related pull forward creating a more difficult comp, volumes grew for the seventh quarter in a row. We also continue to outperform the broader market strength led by Mexico, which grew over 50% year over year. However, demand slowed in December, reflecting an earlier end to peak season, after some additional pull forward in the third quarter. Intermodal operating income was $18 million, a 5% increase compared to the same period last year, driven by solid conversion of our volume growth and the benefit of our cost initiatives, which drove operating ratio to 93.3% or a 50 basis points improvement versus last year. Logistics revenue, excluding fuel surcharge, totaled $329 million in the fourth quarter, up 2% from the same period a year ago, driven by the Cowen acquisition and an increase in gross revenue per order offsetting ongoing volume pressure. Logistics income from operations was $3 million, down from $9 million last year, while operating ratio was 99.2%, an increase of 180 basis points. While gross revenue benefited from the spike in spot rates in December, we also saw a disproportionate spike in our purchased transportation, especially in certain geographies such as California, which we believe was exacerbated by regulatory pressure on capacity. This resulted in significant compression in the net revenue per order on our contract-rated business, including power only. Even as we were able to leverage our spot exposure to accept and serve the highest spot-rated business. Some project-related business materialized late in the quarter, but this only partially offset the net revenue margin compression. Turning to our balance sheet and capital allocation. As of December 31, 2025, we had $403 million in debt and lease obligations and $202 million of cash and cash equivalents. Our net debt leverage was 0.3 times at the end of the quarter, an improvement from 0.5 times at the end of the third quarter because of the pay down of $120 million in debt. This also marks continued deleveraging from 0.7 times at the end of 2024, enabled by strong cash flow generation even in a difficult backdrop as we prioritize capital discipline. The strength of our balance sheet gives us ample dry powder to complete additional accretive acquisitions if the right target becomes available while still maintaining an investment-grade profile. In the fourth quarter, we paid $17 million in dividends and $67 million for the year. During the quarter, we opportunistically repurchased approximately 284,000 shares. On January 26, 2026, the board of directors authorized a new stock repurchase program under which $150 million of the company's outstanding common stock may be acquired over the next three years. Under the previous program, we repurchased 4.4 million shares for $110 million. Net CapEx in 2025 was $289 million compared to our guidance of approximately $300 million, primarily due to the timing of certain payments. Free cash flow improved 14% year over year. We expect net CapEx for 2026 to be in the range of $400 million to $450 million. This primarily encompasses the replacement CapEx needed to protect our Asia fleet. We head into 2026 with a continued focus on growing earnings by prioritizing asset efficiency gains over outright equipment growth. Our adjusted earnings per share guidance for the full year 2026 is $0.70 to $1, which assumes an effective tax rate of approximately 24%. We expect to see supply-driven market improvement and the benefits of our incremental $40 million in cost savings built through 2026. As a result, we anticipate a stronger second half of the year. However, we remain in an environment that's characterized by both inflationary cost pressure and demand uncertainty. The midpoint of our guidance assumes demand is consistent with what we saw for 2025, with elements of seasonality but no acceleration. Moving from the low end to the high end of our guide assumes varying degrees of demand, with the low end assuming modest softening, especially in the consumer sector, and the high end reflecting a slight overall pickup in economic activity. I will now turn the call back to Mark to share more perspective on 2026 expectations and outlook. Mark Rourke: Thank you, Darrell. I want to start with my perspective on the freight market as we move into 2026. As outlined earlier, results were marked by conditions that were softer than expected for much of the quarter, though we did experience material tightening in December. The volume follow-through from our customers came primarily toward the very tail end of the quarter. The capacity crunch at year-end caused some of our most transactional customers to push freight into the early days of January. As the month progressed, conditions reverted to more normal seasonal patterns with spot rates moderating from recent highs. The end of the month also saw severe weather conditions across much of the country, which caused disruption to our operations. However, customers are also feeling the impact and have large backlogs. We are beginning to see premium opportunities to help them work through the disruption. As we look forward, the industry is already feeling the impact of supply rationalization related to regulatory actions in areas such as non-domiciled CDLs, English language proficiency, and driver school certifications. These actions are both removing capacity outright and, importantly, restricting the funnel of new entrants. As a result, we expect capacity attrition to continue to ramp, and we continue to believe the impact is likely to be greater than what we saw from the electronic logging mandate in 2017. From here, demand is the largest swing factor in how the cycle evolves. The trajectory of consumer spending, impacts from the big beautiful bill, and interest rate policy all have the potential to significantly influence the timing and magnitude of improvement in market conditions. We closed 2025 with contract price renewals on our expected ranges. We are far from finished, and more progress needs to be made on rate restoration across our service offerings. We are very early in the freight allocation season, but it is clear that customers are increasingly cognizant of the growing supply side risk. While the network is a smaller portion of our business today than our history, our spot rate exposure is also at historical highs, which will enable us to quickly capitalize when conditions improve. Our spot exposure will stay elevated in the near term and potentially even beyond 2026 if we feel rates have continued upside amid a significant shift in capacity. Beyond network, we also expect improved cycle dynamics to drive outperformance in rate and volume in our traditional brokerage, along with backhaul gains and dedicated, stronger over-the-road conversion in the model. We look forward to transitioning to a more supportive market. We also enter 2026 equally as eager to build on the progress we have made in our efforts to drive structural improvement in the business. We will continue to drive growth through differentiation and maintain a disciplined focus on doing more with less. Beginning with our strategic growth initiatives in truckload, the network remains a key part of our service offering, but we have made significant progress over the last several years to pivot the portfolio to more of a dedicated configuration. While we are not targeting a specific mix, we will continue to lean into dedicated earnings growth, particularly with specialty equipment solutions, which is now a majority of our pipeline. We are seeing strength in food and beverage, home improvement, and automotive verticals. Our specialty configurations typically have unique equipment or value-added actions by the driver, or often both, that are not easily replicated, creating durability in the business. We are seeing strong momentum in building the early stages of our pipeline, creating a wide funnel to support continued growth even as new implementations ramped up. In intermodal, while we will not be immune to market conditions, we believe we can continue to drive share gains by leaning into our most differentiated lanes. A direct reflection of our ability to drive win-wins for our customers and for Schneider National, Inc. We expect Mexico to continue its growth leadership. The launch of our Fast Track offering, where our service reliability is exceptional, will drive incremental growth, and we are already seeing customer interest and conversion. Despite the strong growth in 2025, we see a long runway for over-the-road conversion amid more greenfield market opportunities. This includes opportunities from the changing rail landscape where we remain engaged with both Eastern railroads. Finally, we will continue to leverage our multimodal offering to meet our customer needs however they manifest. In 2026, we will optimize volumes between our network and logistics offering based upon market conditions. In the near term, more volumes will flow toward the network. As conditions strengthen, logistics will enable us to meet increased demand and scale revenue while maximizing network profitability. As we continue to execute our growth plans, we will remain disciplined in our approach, focusing on growing earnings through operational efficiency regardless of market backdrop. As Darrell mentioned, we achieved our 2025 cost savings program. This was comprised of Cowen synergies, which continued to ramp in the fourth quarter, and broader productivity-led cost reductions. We expect these to be structural even as we enter a more robust market. We have reduced our non-driver headcount by 7%, which was primarily achieved in the second half of the year, bringing momentum into 2026. In 2026, we expect to deliver another $40 million in cost savings as we continue to execute our ongoing initiatives, including incremental benefits from reductions in headcount, further tightening of equipment ratios, and additional insourcing of third-party spend, including maintenance and drayage expenses. We also continue to roll out AgenTik AI throughout all our service offerings in a variety of support functions. We are already seeing enthusiastic adoption across the enterprise and early payoffs in improving service levels and in lowering our cost to serve. This discipline will also be reflected in our capital spending, as we prioritize growing earnings through asset productivity. In Intermodal, even with our market-leading growth in 2025, we believe we can grow up to 20% to 25% without having to add containers. We may add some dray capacity over time, but this will enable us to insource even more of our drayage capacity, improving productivity, and reducing third-party spend. Within dedicated, we believe we can accommodate much of our growth plans to increase productivity and by reallocating resources away from lower-performing accounts. We have identified our lowest returning assets, and the actions needed to improve them. In many instances, we will work with our customers to drive a win-win, but it is where we are not. The strength of our new business wins enables us to put our assets to better and higher use. These actions are already underway, and we expect to have the majority implemented by the second quarter of the year. Taken together, as we noted earlier, we believe the full course of supply rationalization is likely to occur over several quarters and through more than one bid cycle. We believe 2026 will mark only the beginning of normalization and cyclical recovery but not in its full breadth. Realizing that full impact, as well as the continued execution of our strategy and a more sustained demand inflection, marks a clear path to stronger mid-cycle returns beyond 2026. Finally, as you likely saw yesterday, we announced leadership changes. Beginning July 1, I will assume the role of Executive Chairman of the Board of Directors. And I am pleased Jim Filter will be appointed Schneider National, Inc.'s next President and Chief Executive Officer. I am confident in Jim's ability to position the company for its next phase of growth as he brings nearly three decades of Schneider National, Inc. experience and deep operational expertise. He's been integral in executing our commercial and operational strategies. And now I'd like to turn the call over to Jim for his remarks. Jim? Jim Filter: Thank you, Mark, and thank you to the entire board of directors for their trust and support. I am honored to take the helm at Schneider National, Inc. Despite a challenging market in 2025, our actions throughout the year strengthened our foundation and positioned us to benefit as conditions continue to improve. We are already seeing early signs of improving market conditions as supply rationalization is underway. We remain disciplined, focused, and well-aligned to capture the upside of a recovering cycle. With a strong balance sheet, a resilient portfolio, and momentum in our strategic initiatives, we are optimistic about the opportunities ahead and confident in our ability to drive earnings and returns higher. As I look forward to stepping into this role, I'm focused on leading Schneider National, Inc. through this next chapter and driving long-term value for our shareholders. Thank you, Jim. And with that, we will open it up for your questions. Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press 1 again. If you're called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And we do request for today's session that you please limit yourself to one question and one follow-up. Your first question comes from the line of Ravi Shanker of Morgan Stanley. Your line is open. Ravi Shanker: Great. Thanks, everyone. A CEO transition at Schneider National, Inc. is not something that happens very often. So I just want to recognize the moment. Mark and Jim, congratulations on the next phases of your career. Maybe, over the questions. I think, Mark, you gave us a sense of what you thought of 2026 so far. Just in your guide, kind of what bid season is kind of priced in the midpoint and high end? I think you said expected ranges of pricing. What does that look like? And also, I think, Darrell, you walked through some of the demand side moving parts in the guide. What are the supply side assumptions that underpin your guide? Mark Rourke: Thank you, Ravi. This is Mark. So maybe we'll just tackle the guide a little bit relative to, I think, your first part of that was price. As we came out of 2025, and really, if you break across the portfolio in our network business, even in a less constructive, in my view, environment, we were able to get mid to low single-digit contract renewals. Even if that meant placing some additional capacity into the spot market for the short term. And so we would expect that we're going to continue to lean into price because price recovery is part of what needs to occur to get back to our mid-cycle earnings targets. We also would expect that increasingly, we need to see some of that in the truckload space as we normally do before we start to see that transpire in intermodal. And what I'm really proud about the intermodal group is that we're growing volumes even with different mixes relative to the revenue per order, a little higher backhaul, a little shorter length of haul, and we're still able to translate that additional volume into incremental margins into the business. And so I think we have a solid path to continue to lead intermodal growth. Focusing on our key differentiation markets, and remain very bullish there. But maybe again, a little bit more time before we see price catch up to what we expect in truckload. Darrell Campbell: And then, Ravi, as it relates to the supply side, so, you know, pretty wide range, which, you know, reflects the uncertainty in the market, but in all, you know, points in our guidance, we're expecting supply to continue to exit. There's a lot of momentum as it relates to regulatory enforcement that's driving supply out. We've seen that in 2025 or the next expect that to, you know, continue into 2026. So one of our baseline assumptions is that, you know, capacity will continue to exit. Now the degree at which and the pace at which that supply exits, you know, will determine how we move along, you know, from the low end to the high end of the range. From a demand standpoint, the low end of the range at $0.70, just as a reminder, we finished the year at $0.63 of EPS. You know, there's an admission that there is some conservatism that's embedded in $0.70. We're assuming that demand conditions at $0.70 are, you know, comparable to what we saw towards the end of 2025, the second half. So softer market conditions, but as we kind of move up the range, we expect, you know, a more constructive demand picture. As it relates to the midpoint of the range, we're focused on a lot of things that are within our control. So all the initiatives that Mark outlined in terms of cost, you know, we completed $40 million of cost savings in 2025. We expect to continue and, you know, sign up for another $40 million in 2026. So that's embedded within the midpoint of our range. We're also focused on going where we have differentiation intermodal, specialty dedicated. So the midpoint assumes that. We also face some headwinds towards the end of the year. You know, the unplanned auto shutdowns, the heightened healthcare costs, we don't expect any of those to recur. So that's all built into our midpoint assumptions. Operator: Very good. Thank you. Next question comes from the line of Jonathan Chappell of Evercore ISI. Your line is open. Jonathan Chappell: Thank you. Good afternoon. Mark, I wanted to talk about the dedicated revenue per truck per week for a second. If we look at the sequential move from 3Q to 4Q, it looks like it's the lightest it had been in at least ten years, and minus almost 4% year over year. So it just seemed kind of counter-seasonal, and I know our models certainly don't line up with yours all the time, but it looks like the biggest area of the shortfall in 4Q EPS. So, I know there are start-up costs that hit OR, but maybe help explain the dedicated revenue per truck per week and why that may have lagged so much in 4Q. Mark Rourke: Sure, Jonathan. Thank you for the question. One of the things that are embedded in there is the automotive shutdowns that occurred because of componentry issues, namely around chips, which really affected Dedicated specifically, but also some of our intermodal business coming in and out of Mexico. And so that was unplanned. That was not forecasted well, and our OEMs had to adapt and adjust to that. And that predominantly hit in the month of November, but it hit most of the month. So, unfortunately, that was most prominent in our metrics within dedicated. And, also, as we have three large start-ups, which we anticipated in our guidance relative to the fourth quarter. We have some additional cost issues there relative to capacity and some of the difficulty getting all of that sourced, which also had some impact. So those were the items. Again, we don't think those are long-term in nature. You know, we always have levels of start-up activity, particularly when you sell 950 units throughout a year. But we have three larger start-ups in the fourth quarter. Darrell Campbell: And this is Darrell. One other thing I'd add is the healthcare costs that we saw that were heightened in the fourth quarter, most of that was in truckload, and the majority of the truckload was in dedicated revenue of the truck. Jonathan Chappell: Thank you. Just as a follow-up, going back to that $40 million of costs, they're targeting again this year, how much of that is volume/revenue dependent? Because if we just add $40 million kind of the adjusted net income from '25, you get pretty close to the midpoint of the '26 guide. So is that, like, $40 million if the fundamentals of the business kind of track as you're expecting and maybe something less than that if we're closer to the low end of the range from a volume or a pricing perspective? Darrell Campbell: Yeah. So I think as I mentioned, this is Darrell. Sorry. As I mentioned in the prepared remarks, the $40 million of cost savings, a lot of it is productivity-based. So as volume increases, you know, some of those will be more evident, especially because they're structural. So as volume returns, the costs aren't going to return at the same pace. There is an acknowledgment at least that we're still in an inflationary environment, so while we do expect that the cost savings will, you know, offset much of that, it won't offset all of the inflationary pressures. That's another factor to consider. So I'm not sure if that answers the question. Jonathan Chappell: Yep. No. That's helpful. Thanks, Darrell. Thank you, Mark. Darrell Campbell: Thank you, Jonathan. Operator: Your next question comes from the line of Brian Ossenbeck of JPMorgan. Your line is open. Brian Ossenbeck: Hey, good afternoon. Thanks for taking the questions. Now that the merger application's been filed and, I guess, will be refiled, I wanted to see if you could give some comments, see if you had some time to digest what maybe some of the domestic intermodal commentary within there might mean for Schneider National, Inc. and how you're kind of viewing that. Also, one of your peers filed for Chapter 11. So maybe just some broader comments about the lay of the land and domestic intermodal with those two big factors out there. Jim Filter: Yeah, Brian. Thanks. This is Jim. So, obviously, all the way through this process, we've been engaged in collaborating with each one of the rails and especially the two Eastern providers. We're very happy with our current provider in the East, but, you know, we're continuing to understand the information as it emerges. There really wasn't any significant new information to submission, but everything that has come out just reinforces our confidence in that intermodal, our intermodal team, their ability to assess new services, help us navigate through any opportunities that emerge. And in terms of the overall competitive dynamic in intermodal, you know, we feel very good about our position. We've had seven quarters in a row where we've been able to grow, and we're growing into areas of differentiation. And there's a lot of those. So, you know, you think about in Mexico, we're delivering service that's one to three days faster, 99.98% claims free. It's really that's a big advantage, not just to other intermodal carriers, but over the road as well. And now we're leveraging some of our differentiation with Fast Track with shippers that have really high service expectations. So, you know, we feel really good relative to all of our competitors. And so, you know, we're not immune to market conditions, but I feel like we continue to outperform in our intermodal business. Brian Ossenbeck: Alright. Thanks, Jim. Darrell, maybe a quick follow-up on CapEx. It looks like it's going up a reasonably decent amount next year. I'm sure they're subject to market conditions perhaps, but you can give a little bit more color in terms of what's in there. It sounded like maybe some of that was equipment. Is that for purely replacement, or is there some growth in there? Darrell Campbell: Yeah. Sure. Good question. So, yeah, as it relates to CapEx, the past several quarters, we've been talking about just focusing on growing earnings as opposed to truck count, and we've seen that across, you know, dedicated network intermodal across the board. We're focused on doing more with less and dedicated, for example, where reallocating equipment to, you know, higher-yielding business. So our CapEx plan for 2026 is mostly replacement-based, just given our focus on keeping our fleet count flat. So we're protecting our Asia fleet. And primarily all of the CapEx is replacement. Mark Rourke: Brian, we also had a little less CapEx this year as we were looking for tariff clarity. That has emerged and clear, and we also had a little bit of timing in the fourth quarter to the first quarter just based upon availability of one facility and some equipment. So that's really the step up, and it's all, to Darrell's point, firstly, in the replacement cycle. Brian Ossenbeck: Okay. Thank you. And congrats, Mark and Jim. Mark Rourke: Thank you. Thanks, Brian. Operator: Your next question comes from the line of Ken Hoexter of Bank of America. Your line is open. Ken Hoexter: Hey, great. I'll start off with the same. Mark and Jim, congrats as you each move on to the next phase. Well deserved. The auto plant shutdowns, I mean, seem like such a major differentiation for your business alone. Given that scale, and I guess the last conference you did was in November, was there any thoughts to doing a pre-release? Or since it's such a change of magnitude to your thoughts on your outcome, and then, I guess, as you look forward to the operating ratio, right? So typically, you deteriorate about twenty basis points into the first quarter at Truckload. And I know you don't do quarterly rollout, but maybe just given the a couple of things you threw out there, Darrell, on the timing of cost savings or, you know, as the $40 million rolls in. Anything you want to kind of talk about differentiation from normal given where we're leaving off and the different dynamics here? Mark Rourke: Yeah. Ken, let me take the first one as it related to the automotive. And certainly one of the items that we've leaned into and diversification of our revenue base is looking for new growth opportunities. Manufacturing was one of those that we had targeted. And production part automotive is playing a bigger role in our portfolio, which in many conditions is a very good thing. And there was a lot of uncertainty. The OEMs didn't know exactly all was going to happen there when that problem occurred, and so we didn't have full understanding clarity as our customers were working through that. But one of our acquisitions and certainly our organic dedicated growth has had success in the production automotive parts. So in 2026, that's a development that's a bit more of our story, which we think in the long term is a very good thing, particularly as we continue to leverage our strengths in and out of Mexico. And the importance of the automotive industry relative to the Mexico base. So we would have liked to have clear visibility to that in a whole host of ways. But that was an emerging issue that a number of our OEMs had to work through, and they worked through that to varying degrees of success to keep production up. So that's really what occurred there, and from a transparency standpoint. And then follow-up on his other question. Darrell Campbell: Yeah. So a lot of the cost savings again are, you know, structural, but also relate to productivity. The expectation is that the second half of the year shows more improvement. And that follows through also with cost similar to what we saw in 2025 where there was a ramp throughout the year. Some of the initiatives are going to be consistent throughout the year. Such as the, you know, the non-driver FTE, you know, reductions but anything productivity-based would be more back half-weighted. Mark Rourke: And then I was really the first quarter, we're off to a very interesting start, obviously, with the weather conditions and the disruption that we're feeling, but also what our customers are feeling. And so we believe there is a backlog of significance across the supply chain just because the entire breadth of the weather looks like we may have another storm coming at us this weekend. So I think that comes with opportunity. It comes with the depth of our portfolio that we're going to be able to respond, and I think we'll be able to leverage how we help customers deal with that. And be paid reference to the value that we're going to create. And so we're seeing some of that emerge already, Ken, but I think it'll come down to what is the how's that whole quarter play out from the cost, the recovery, and the demand catch-up. So the company and we are poised to take advantage and be there for our customers, and it's just but it's a really, really disruptive time just based upon the extent of the storm and the impact. Ken Hoexter: Yep. If I could just get one clarification. Right? So it seemed like the Cowen fleet total stayed fairly consistent through the year. It didn't look like the fleet dropped off. But intermodal, your loads really dropped off. You know, I had big load wins in the second and third quarter, upper single digits that tail off in the fourth quarter. Is that the same thing in the auto business on intermodal that you're talking about on the truck rates to John just before? Mark Rourke: It feels like a sneaky third question, but we're going to go ahead and let that one go. Go ahead. Jim Filter: Okay. Thanks, Mark. You know, really, if you look back at the comps for last year and the fourth quarter of last year is when we really started seeing across the industry a pickup in demand. I remember there was the threat of tariffs, and then, that really carried into 2025. The pull ahead. And so you know, we continue to grow year over year, which actually is much better than the overall industry. So from our lens, we really didn't see a drop-off. It was really just a matter of a tougher comp year over year. Ken Hoexter: Wonderful. For the time, guys. Appreciate the thoughts. Darrell Campbell: Okay. Operator: Your next question comes from the line of Jordan Alliger of Goldman Sachs. Your line is open. Jordan Alliger: Yeah. Hi. Just wanted to come back to demand a little bit. Obviously, you alluded to it a few times, but there's been a lot of puts and takes this past '25 with tariffs pull forward, etcetera. There were some indications that we had seen perhaps that inventory at wholesale and retail had drawn down quite a bit and maybe this dovetails a little bit with your comments on the pickup in demand in December. So you have any contacts from customers or what have you, how they're feeling about inventory levels as we move into this year? And is there some sense of optimism perhaps that, you know, maybe with various stimulatory effects, we could see a restock type of event for freight? Thanks. Jim Filter: Yeah, Jordan, this is Jim. I'll take that one. And so you're absolutely right. As going through November, December, we believe end-market consumer demand remains stable. But we were seeing customers starting to work down inventory, and that really changed the last two weeks of December. And so there was some restocking activity that was attempting to take place in the last couple of weeks of December. So there were some shippers that were scrambling for capacity, and some of that pushed into January. And we're working through some of that backlog with some shippers that had some freight carryover. And I'd say that was really the most transactional shippers that had that carryover, as Mark was talking about. Also generating some premiums and also some additional cost to shift drivers around. We are still working through that when, you know, winter storm Fern came through. And, initially, that created some cost for us as we're, you know, getting equipment back up. We've been operating through that. We're not completely clear, and now we have another storm coming through. And so I think some of this carryover is going to continue for a few more weeks as we look out there. And so we have some of those activities taking place. I say that impact is going to be disproportionately negative for the most transactional customers. And, historically, when we look at these things, the spot rates it's not just a quick event. It goes up higher over multiple weeks, and it starts, you know, in the area that's immediately impacted but then expands beyond that as capacity is dislocated, and then if we look further out on the horizon, there's a lot of positive catalysts that we see out there, whether it's from capital investments as a result of the One Big Beautiful Bill Act, some strong tax refunds, interest rate cuts that surface for home investment again. So, you know, the positives out there. But that being said, you know, we've seen some head fakes before. While we are absolutely seeing supply come out of the market already, still waiting a little bit for those demand catalysts to convert before we completely underwrite it. Mark Rourke: Maybe just to put a bow on that, Jordan, as you look at the logistics manager index, you really did see a precipitous drop in inventories at the latter part of the year, particularly in December. Which feels consistent with what our experience was in the month of November, which we saw drop off really in most demand categories, and then it really started to bounce back as Jim said, late in the year when capacity was tight, and it's really carried that concept through here for the first several weeks of January. So, absolutely, I think that could lead to a more intense replacement or replenishment cycle. We'll have to see. But we think that's lining up for more probability in that direction. Jordan Alliger: Thank you. Operator: Your next question comes from the line of Tom Wadewitz of UBS. Your line is open. Tom Wadewitz: Yes. Good afternoon and Mark and Jim also want to add my congratulations to both of you. Mark, certainly a pleasure working with you over the years. And wish you the best. And, likewise, Jim, I'm sure you'll do a great job in the new leading position. Let's see. So wanted to get your thoughts on, you know, if we don't see improvement in demand, how much rate you think you can get from just the supply side. Right? Like, you seem pretty optimistic on supply with good reasons by reduction. Can you get kind of mid-single-digit trade on that with, say, truckload contract rates if you don't get help from demand? Or you think that's going to be is that maybe too high of too high a bar? Jim Filter: Yeah. Tom, thanks. This is Jim. So let me just maybe clarify a little bit on capacity and our position on that, and then I'll step into rates. So, you know, generally, we subscribe to the fact that this is an efficient market, and when it's working properly, you see an upcycle that lasts about eighteen months, followed by a down cycle that lasts about eighteen months. And here we are four years into a down cycle, so something is different. Not normal. We've been talking about shadow capacity for quite a while. And that's coming from non-documented workers that are able to get CDLs, CDL mills, graduating students without the investment to become safe drivers. Drivers that don't meet the English language proficiency, b one committing cabotage, and ELDs that are self-certified improperly. So the step up in enforcement that we're starting to see that's not only removing capacity, but that's starting to constrict the top of the funnel with new drivers entering. And in particular, the most irrational capacity is what's exiting, and that's what's we believe, creating a condition that will enable the market to adjust. And, you know, we're starting to see that when you have a little bit of tightness out there. We also see it in our own business. We see that in our driver recruiting volume moderating. We've had some buyers of our tractors canceling purchases because of their driver pool shrinking. And we've seen a sharp contraction in our brokerage carrier account. Particularly in regions where non-domicile exposure was outsized in places like California. But it's not an event-based situation. There is no cliff. It's going to take time to play out. So we expect that capacity is going to continue to decline even well after the market reaches equilibrium. And so, you know, it's going to take quarters for us to get there, but this cycle might last longer. And so as we're talking to shippers, I think they're starting to understand that as well. Because what I've been hearing from shippers more recently is they're focused on the supply risk. They're looking for rate assurance. And, you know, they saw this in December. They're seeing it through these storms. So we have more shippers asking us for multiyear deals. We're seeing that, and they're, you know, they're coming with more mini bids, which tells us there's some disruption. So I talked to the most strategic shippers. They understand our costs and the nature of this industry. So they look at the same Atri data that we do that says our costs are up about 25% since before the pandemic. Meanwhile, rates haven't moved very much. In 2019, was a pretty low base. And so, you know, this is something that's going to take some time and perhaps going to take several bid cycles to play out. But that could also mean that there's some potential for several years of upside. Tom Wadewitz: Okay. Thank you. Thank you for that. How I guess, given your framework of how you think it plays out, where would you where are you most optimistic on improvement? I guess from a margin perspective in 2026, like do you think brokerage could really kind of move beyond the squeeze and do really well? Do you think intermodal, like shippers, start to really, you know, kind of give you more volume or is it all about rate and truck? Just how do you think about where you might see a stronger opportunity for improvement in '26? Jim Filter: Yeah. Thanks, Tom. So the first place that I would expect that we're going to see that improvement is going to be in our network business. That's where we have an outsized exposure to the spot market today. Higher than what we normally have. So I think there's opportunities to see that move very quickly. I mentioned intermodal. I do believe that we're well-positioned to capture some additional upside when that truckload market improves and inventory levels are, you know, starting to be replenished, we'll be able to take opportunities there. And then our logistics business is very nimble, and so I think there when there's disruptions out there in the marketplace and customers are looking for a broad portfolio to solve problems, they really become that glue that jumps in and can provide great service to the customer, but also returns back to the enterprise. Mark Rourke: And, Tom, I'd also add on dedicated. I think one of the underappreciated facts about dedicated is the value that you can provide as a multimodal platform that we have relative to backhaul efficiencies. With the 8,500 trucks operating in various configurations, there are opportunities to drive value back to the shipper, but also to ourselves relative to margin enhancement. This was one of the really great places of using AgenTeq AI to talk to other agent AI to garner efficient volumes on our backhauls that can, you know, it's a very high incremental margin play for us, and so we're really leaning into that. The scale that we have in dedicated allows us to really take advantage of that. And it's also one of the values of having a logistics offering and a network business is because we can leverage those various channels to achieve that. So I'm very bullish as well that with what we have available to us and dedicated that we can still drive self-help margin improvement on a whole series of approaches and backhaul being one of them. Tom Wadewitz: Do you think you'll see good responsiveness and dedicated too as I guess, as freight picks up? Jim Filter: Yeah. Yeah. I do. You know, because you look at, you know, a couple of things. We had a terrific year of selling 950 units of new business. We didn't see all that obviously translate into the count of the fleet. That's because we have the opportunity now to drive efficiency because some of that churn we experienced last year wasn't true loss. Business. It was current customers not having as much demand. And that brought a correction in the number of units that we placed against those contracts. So if there's demand improvement, there's automatic improvement in our account structures because of what kind of went backward a bit in 2025 when they didn't have the demand. And plus the margin-enhancing opportunities I'm talking about here with backhaul. Tom Wadewitz: Right. Okay. Great. For the time. Jim Filter: Thank you. Operator: Your next question comes from the line of Bruce Chan of Stifel. Your line is open. Andrew Cox: Hey, good afternoon team. This is Andrew on for Bruce. I just wanted to discuss consolidation in Dedicated and how you guys think that's going to affect the competitive dynamic. And what's your expectations for, you know, the trend of more consolidation in the industry, and maybe what's you guys' appetite for dedicated M&A at this juncture versus other capital allocation priorities? Thanks. Mark Rourke: Yes. From a capital allocation standpoint, obviously, organic growth is our number one objective there. But we've been a player in the dedicated consolidation with three primary dedicated acquisitions over the last three years. Our balance sheet and our deleveraging even further has allowed us ample opportunity to even consider something larger than what we've done to date. So, yeah, we have not lost appetite. Each of those acquisitions has done very, very well for us. We've really gained our stride relative to getting after synergies, how to assess those things. And so we're not going to take a stretch and a reach for something just to put something on the board. But we have the ability to leverage what we have in our strengths and so very much. We're constantly reviewing. We're leaning in. And really more than just dedicated, but dedicated has been the place that we saw a really target-rich environment. To continue to advance what we believe is a long-term value for our enterprise and long-term value for our shareholders. Andrew Cox: Agreed. Thank you. If I can follow up maybe with one on the intermodal side. Were you wanted to know how you guys are thinking about the FMC probe? You know, would you guys think that an adverse ruling here would negatively affect fluidity service and potentially the road to rail conversion thesis? Mark Rourke: I'm not sure we caught that front end of that question. Can you do that again, please? Andrew Cox: Sure. Yeah. We were it's about the FMC probe. We're just wondering if an adverse effect if an adverse ruling there would affect fluidity and service. Jim Filter: Yeah. I think primarily what that impact would be on the ocean side rather than for domestic carriers. Andrew Cox: Domestic intermodal? Jim Filter: Yeah. For domestic intermodal. Andrew Cox: Okay. Thanks. I'll pass it back to you. Operator: Your next question comes from the line of Chris Wetherbee of Wells Fargo. Your line is open. Chris Wetherbee: Hey, thanks. Good afternoon, guys, and congrats Mark. Congrats, Jim. Best of luck to you guys. I guess, I wanted to ask about network profitability. So, I guess, what do you think the steps are or maybe what do you need to see from a market perspective, whether it be pricing demand, some combination of that? To get the network back to profitability? And I guess, maybe in the range, $0.70 to $1 kind of how do you sort of book on that at the low end? Is sort of network gotten back to profitability? At the high end, it is? I guess, I'm trying to get a sense of how to think about that within the range as well. Mark Rourke: Yes, Chris. Thank you. And certainly, the network has been most impacted by the cycle here and the overcapacity of the market. And there's really two things that we think are paramount for us is what we're working relative to how do we put additional productivity across our assets. In fact, one of the benefits of having just a little bit of recovery in the month of December, we had a multiyear high relative to our build miles per truck and actually had it didn't really make up for the whole quarter of the tepid demand, but just that whole tightening of capacity really led and the demand picture led us to a very solid result there in addition to some price capture, which is really the second thing. We have not adequately recovered in that market, particularly the cost inflation that has occurred that Jim referenced just a couple of minutes ago. So it's a combination of those two levers predominantly. We like the size of the business where it's at. We're not after a particular mix. And the other thing that we're looking to do to help it recover here is leverage our logistics capability alongside our network business to optimize across power-only brokerage and our assets, and we believe in an increasing demand market we'll be able to take care of the assets first and then lever some of these other opportunities that we have to scale our business and take additional volume without putting additional capital but really focusing on the margin recovery of the network. But it's going to take both productivity and some price recovery. Jim Filter: And this is Jim. You know, just to add on to that, what encourages me is that when we saw spot prices increase here multiple times over the last six weeks. We've increased our exposure to spot. To take advantage of those opportunities. And to me, that's the start of driving change into that business. Chris Wetherbee: Okay. And any thoughts around the range how to think about network profitability for '26? Darrell Campbell: Yeah. This is Darrell. What I would say is that even just to add on to Jim's point, even in a softer backdrop in 2025 and, you know, even in the fourth quarter, you know, the year, we did see improvement in earnings in the network without the benefit of price. Right, or significant benefit of price. So as we get more productive and as volume comes through, as Mark said, we do believe that there's an outsized leverage that we'll see first of all in the network. As it relates to specific guidance, we don't give guidance by sector. But there's an expectation of, you know, meaningful improvement given initiatives that we're after. Chris Wetherbee: Okay. And then just a quick follow-up on the intermodal side. The pricing in the fourth quarter. Any I guess, maybe yield in the fourth quarter or maybe any comment about how you're thinking about bid season might start to be developing as you think about 2026? Jim Filter: Yeah. Thanks. This is Jim. So as we look at last year, our contract renewals remained flat. But by leaning into our areas of differentiation through the allocation season, able to continue to grow and grow off of a base where we're already growing. Including in a market that has some pretty difficult comps. So in terms of, you know, pricing, there is a little bit of pressure was driven by, you know, doing more backhaul. It's a little bit more mix-related. Also, were fewer instances of premium opportunities in the fourth quarter, given the shorter and earlier peak season that we talked about in the third quarter, so we didn't have that benefit. As we're looking going forward, expect that, you know, we're going to continue to lean into those areas of differentiation and be able to grow through the allocation season. Mark Rourke: Yes. So, the improvement in intermodal did not come with an improving market of premiums or a project quote work in this fourth quarter. Jim Filter: Yeah. For, you know, just to tack on to that, for the year, we delivered nearly 20% operating income growth for Intermodal with a little help from the market. And that's really because of growing in areas of differentiation. Chris Wetherbee: Got it. So much for the time. Appreciate it. Darrell Campbell: Thank you. Operator: Next question comes from the line of Ariel Rosa of Citigroup. Your line is open. Ariel Rosa: Hi, good afternoon. So I wanted to ask get your thoughts on how you think about normalized mid-cycle earnings potential. There's a lot of moving pieces, obviously, with the cost-cutting initiatives and the acquisitions that you've done that you referenced. You know, especially as it was Mark who mentioned it might take a couple of bid cycles to get back there. Just how are you thinking about what mid-cycle earnings could look like for the business? And if it takes a couple of bid seasons or bid cycles, does that mean we're talking about something beyond '27? Is it really kind of '28 or '29 before we start to see that type of performance from the business? Thanks. Mark Rourke: Great. Thank you for the question, Ariel. Yeah. We think, certainly, we're not guiding out to '28 and '29, but we think we can certainly get track a meaningful traction towards our long-term targets across our various sectors. We don't think we'll probably get all the way there, obviously, through one cycle in the 2026 season, but I certainly don't I wouldn't want to leave the impression that it's going to take the twenty-eighth to twenty-ninth. We'll provide more updates as we get through the year on how we're progressing in the business. But we think this market and I always like to look at what's different now than what maybe you came into last year's condition? There's just a, in our view, more favorability certainly on the supply side. There appear to be more catalysts on the demand side, and we're experiencing just in these most recent events, the really fragile nature of what happens when you get demand and capacity a little bit closer. And so again, how well those things and the speed from which that demand and the capacity hits, I think, will dictate the speed from which we get back to the mid-cycle returns. We have a lot of self-help items that we have that we can get there and make material improvement without it being just what's going on in the broader market. Operator: Thank you. We've run out of time. That concludes our Q&A session. This also concludes today's conference call. You may now disconnect.
Operator: Thank you for standing by, and welcome to NewtekOne, Inc. Fourth Quarter 2025 Earnings Conference Call. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again. I would now like to hand the call over to Barry Sloane, President and CEO. Please go ahead. Barry R. Sloane: Thank you very much, operator, and welcome, everyone, to the Fourth Quarter 2025 Financial Results Conference Call. Joining me today on the call is Frank DeMaria, Executive Vice President and Chief Financial Officer of NewtekOne. For those of you that would like to follow the presentation online, go to newtekone.com and navigate to the investor relations section. The PowerPoint presentation for today's event is available there. Now, I would like to ask everybody to go to slide number two of that presentation and note the forward-looking statements. To begin our presentation today, we are happy to report the results of Q4 2025 and the annual achievements for 2025, including celebrating the three-year anniversary of NewtekOne owning and operating an OCC chartered bank. We are extremely pleased about the acquisition that was done in January 2023. It's a very interesting slide on '24, which actually names several competitors in the space, SoFi, Livov, Triumph, Northeast Bank, and Axos. If you take a look at those charts, you'll see how their stock price action moved over the first several years of their operation and then started to change direction. We will talk about that later in the presentation. We are also celebrating today opening up 9,000 new depository accounts and 34,000 active depository accounts. We are celebrating the technology that we have built, particularly our digital account opening and our lending operating systems, as well as the Newtek advantage. All of these off-balance sheet technological innovations are really important to serving our clients and being able to offer a true technology-enabled financial institution for independent business owners all across the United States to work with. We are celebrating our leading status as a lender to independent businesses. We refer to our lending programs as an adult loan. Loans that have repayment of principal over ten to twenty-five years, not the six-month to twenty-four-month paybacks with 30% to 80% interest charges or effective yields to the customer. Lower monthly payments and patient capital make these loans exceptionally affordable to our clients. We are celebrating many new hires that were added to the senior management team: Greg Devaney, Chief Credit Officer of the bank; Chris Lucas, Chief Compliance Officer of the bank; Frank DeMaria, Chief Financial Officer of the bank; Andrew Kaplan, Chief Strategy Officer of NewtekOne, our holding company. We are also celebrating record earnings and revenue growth. I would like to report that as a financial holding company, net income before taxes for 2025 is approximately $80 million, up 16.4%, and our total revenue, defined as the sum of net interest income and noninterest income, is $284 million, up 10.6% over the 2024 number of $257 million. We are very pleased with how we did. With all that, I guess we can go right to the Q&A. Just kidding. Let's go to Slide number three. On slide number three, we particularly and historically have talked about the company's focus, which has been on the independent business owner, on SMBs. It's extremely important that the marketplace understands that this is our demographic. It is an underserved demographic, and it's been Newtek's primary focus from its inception as a private company in 1998 and a publicly traded company in September 2000. We believe we have better loans with long amortizations and more flexibility. We believe we have a better banking product with absolutely zero fees, no asterisks, no ifs, ands, or buts, better payroll solutions that are integrated into our bank account, with a dedicated concierge person that you can get on camera. Our insurance agency offers a frictionless opportunity for our clients to access all forms of insurance, both personal and business. Going to slide number four, we talk about our financial structure and product solutions. Obviously, in our history, from 2000 to 2014, we were a 1933 Act company. In November, we converted to a BDC. And in 2023, when we acquired National Bank of New York City, a $180 million total asset bank that today is approximately $1.415 billion. With the HoldCo consolidated assets at $2.425 billion, we have grown significantly. But it's important to note that we have changed our financial structure, and with that, you've had turnover of equity shareholders as well. The HoldCo is regulated by the Federal Reserve. The bank is regulated by the OCC. We utilize proprietary and patented advanced technological solutions to acquire customers cost-effectively and to manage our business. We have a full menu of best-in-class on-demand business and financial solutions for independent business owners. Our trademark: no branches, no traditional bankers, no brokers, no BDOs. A very cost-effective way to service our customers on demand. Let's go to slide number five. We talk about our target market. At the end of the day, the SBA defines this as 36 million businesses in the United States, 43% of non-farm GDP, and we believe this market is typically unfarmed, untapped, and we offer our best-of-breed solutions to this customer base, and we're very excited about what we've been able to do in the first three years of operating the OCC Charter Bank. And we're very excited about our future. On slide number six, we'll talk about the annual and quarterly highlights. The EPS for the quarter is 65¢, either basic or diluted, which aggregated up to a 2025 number of basic $2.21. Diluted $2.18, up 1211% over the 2024 results. We're pleased to offer our 2026 guidance with a midrange of $2.35. Quite interesting at a $14 stock price handle what our multiple is compared to some of those other competitors in the marketplace. Then I would also call technology-enabled banks with a disruptive business plan and new entrants into the market but began many years before we did. The bullet point number three on slide number six is important. Tangible book value. We've been able to materially grow our tangible book value, which ended the year 2025 at $12.19. When we began, I think it was approximately $6.92. In addition, we've also paid a dividend during that period of time, which we'll talk about on a future slide. 2026 got off to a great start. On January 21, we closed our largest securitization, what we refer to as our alternative loan program. Also known as C&I loans held for sale. Or C&I LA, meaning longer amortization. These are basically business loans with long AMPs. And this is what we have experienced well over two decades in making these types of loans, whether it was in a 7(a) program or in the ALP program. We started originating these loans in 2018 and 2019. The deal that we kicked off in 2026 was 10 times oversubscribed, 38 institutions subscribing, 32 institutions purchasing notes, after we repriced after the IPT, and really pleased that 10 of the 32 purchasing institutions were new to our securitizations. We have a lot of AOP momentum growing, and the credit quality matrix overall on the entire portfolio on a consolidated basis, including the bank, including the old NSPF portfolio with the holding company and all loans, as we have indicated in prior press releases, seems to have stabilized. NPLs have declined for two consecutive quarters, the 7.3 to 7.1 and the 6.9% for 2025. Slide number seven. We talked about this a little while earlier, and that's deposit growth. I remember one of the things in acquiring the bank, people said, how are you gonna grow deposits? Well, with our alliance partners and relationships, 9,000 deposit accounts in the fourth quarter, surpassing our previous record. Business deposits increased, and these are the important ones because they're at a lower cost, like $34 million in a quarter and $164 million for the year. So very, very nice growth. Obviously, consumer deposits are growing materially as well. $167 million in the quarter. $293 million for the year. We have a nice big deposit base going into the first quarter to be able to deploy in business loans. Since the acquisition of Newtek Bank, roughly 50% of Newtek's bank business lending clients have opened up a business deposit account. In addition, we started initiating the offering of life insurance, Keyman Life, to Newtek Bank business lending clients, and 25% of borrowers have now purchased life insurance through the Newtek agency. We continue to capture operating leverage. The efficiency ratio at the HoldCo declined from 63.2 to 58.3 with assets up 33%. So we're very, very pleased about our efficiency ratio. At the bank, I believe the efficiency ratio is in the forties, like approximately 47%. Our return on average assets for the calendar year is 2.78% at the holding company. Also important to note, the earnings headwinds, which we'll talk about this a little deeper in a further slide, from our NSBF lending subsidiary, continue to decline. We had a $28.7 million loss in 2024. And it should be approximately $20 million in 2025. We expect the NSBF loss will continue to materially decline throughout 2026. On slide number eight, we talk about our tangible book value growth. I think it's really important to analyze. Obviously, we pay $2.24 of dividends during our period of time as a bank holding company. Although we don't look like a bank holding company, and we don't look like a lot of the other community banks that we're compared to. And a $4.76 share of tangible book value since conversion. So we're very, very pleased at how we've been able to deliver value to shareholders through growth, intangible book value, and dividends. Slide number nine. We talked about the alternative loan program. We'll drill down a little deeper here. I think it's important to note, and I have been asked by several investors, the credit quality for ALP loans is much stronger than the 7(a) loans. We'll show that on the next slide. And the AOP loans are originated with the intention to sell them into a joint venture or securitizations. They have great margins on them. They have prepaid penalties, so they last for a longer period of time. So the spread that we get on them is enjoyed by the benefit of our shareholders and our earnings. I think it's important to note that similar to 7(a) loans, there is a structural similarity to the AOP loans. Ten to twenty-five-year AMPs, no balloons, they're typically fixed for five years, with a spread over the five-year treasury curve of approximately 950 basis points at origination, and then they adjust their floor at that initial rate, and they could adjust up based upon changes of rates. So we give the borrower flexibility in amortizing the principal over a longer period of time. So we're basically giving them equity. We give them flexibility on distributions. We give them flexibility on borrowing. We give them flexibility in doing acquisitions. But that trade-off is for joint and several personal guarantees for every 20% equity owner or greater. And liens on business, and in many cases, personal assets, and much stronger guarantors. We're very pleased that in the January month, we brought our fourth ALP securitization to the market. And as I mentioned, it was extremely successful. On slide number 10, you can get a feel for the matrix or what the underlying loans look like in these securitizations. So the total amount of nonperforming ALP loans is $27.6 million, on a current origination balance of $694 million. But total originations, I believe, is $820 to $830 million. So we've actually had low levels of nonperformers and very low levels of charge-offs. I believe total charge-offs are about $6 million to date. Weighted average LTV at origination, 48%. Debt service coverage, 3.3. Very high coupon, very high spread. Now the spread is important because the spread is protected with the call protection of 5% prepays through thirty-six months and 3% in month thirty-six through '48. You could see we're big believers in the diversification of geography and industry. On slide number 11, the economics of this securitization is discussed further. On slide number 11, you could see that the gross spread before the 1% servicing fee on the last two deals was about $6.65 to $6.70. Net about $5.65 to $5.70. Barry R. Sloane: Now these are match funded in a securitization. I should say match funded by the durations. Important to note that although the liability arguably is more expensive than in a deposit gathering sense, it is match funded for term and there's no cost from a depository perspective. Obviously, take deposits in a bank. You've got a lot of different costs to service the loan, to help the customer, etcetera, etcetera. But here, you've got a 565 basis point spread. Set it and forget it. Clip the coupon, and you could see that on slide number 12, these securitizations pay down very quickly. And they pay down quickly because the excess servicing goes to pay down the senior bonds. And the overcollateralization that you see on slide 12 on 2026-1, 2025-1, 2024-1 happens rather quickly. And as that's happening, what's occurring is the book value where the loans in the special purpose vehicle versus the amount of debt keeps growing. Matter of fact, on average, the book value should equal the fair value of these in approximately three to three and a half years. Extremely important when it comes to being comfortable with our valuations. Slide number 13, our nonbank lending subsidiaries, the payments business, which we've owned since 2002, growing materially contributed about $16.8 million of adjusted EBITDA in 2025, and forecasted to do $17.9 million in 2026. Our insurance agency is growing nicely, but particularly as it's been positioned with the bank and uses automatic processes to make insurance available to people that are borrowing money. And we've contributed $740,000 of pretax income in 2025. And we think it'll be about $1.06 million in 2026. Payroll contributing $450,000 of pretax net income. We expect to generate $6.30 million. We have high hopes and expectations for both of these businesses as they are particularly payroll and payments, connected to the bank account. All of NewtekOne's business lines have and should continue to contribute growth to business deposits. We've talked about the new triple play offering, which includes merchant, payroll, line of credit, and a bank account. We're continuing to polish up this offering. Enhance the client experience, one application, three approvals. Slide number 14. Newtek Small Business Finance is the legacy nonbank SBA lender that's got the uninsured loan participations that are sitting in securitizations. And are paying down. The remaining loans are from the tougher vintages of 2021, 2022, and '23 and had tremendous stress as rates went up three to five points during that period of time. So in addition to having their debt service almost double, we all know that during that prior administration's period, we had a lot of inflation. Labor costs going higher. Insurance costs going higher, rent going higher. So this is a fairly stressed portfolio. However, we have reported that we see stabilization in credits both at the HoldCo and in the bank. Nonaccruals at fair value, you can see on slide 14 leveling off. Net increase in nonaccruals ticked up a little bit, but still a fairly low number. Notes issued in securitizations, only $127 million left. Those notes are capturing the cash flow until they get paid off. So we look forward to eliminating those notes as the loans pay off. The loans that are in the NSBF portfolio not too long ago represented 32% of the total balance sheet. It's now down to 13%. So as we said earlier, the loss declined in NSPF to approximately $20 million from $28.7 million the year prior. The accrued portfolio is down $88 million over the course of the last year. 100% of NSBF loans are now aged three months or more, so they're through the tough part of the default curve. Also on slide number 15, we talk about some of the creditworthy aspects at the bank. You could see our delinquency or currency ratio. The delinquency ratio is down precipitously. Chart provision for credit losses are covering charge-offs, NPLs to total loans, stabilizing and declining, all good metrics. For NewtekOne and its shareholders. With that, I would like to pass the baton to Frank DeMaria, our CFO, who'll go over some financial performance metrics for the company. Frank DeMaria: Thanks, Barry. The next seven slides will guide into the details of the highlights that Barry touched on. Turning to slide 17, we have our financial highlights for 2025. We are particularly proud that we're able to concurrently generate balance sheet growth, earnings growth, efficiency, and strong profitability while maintaining healthy capital ratios. All while our nonbank lender NSPF continues to run off. Slide 18 runs through Newtek Bank's highlights, which paint a similar picture of balance sheet growth, earnings growth, efficiency, and profitability. Important to note, the overall downward trend in our cost of deposits as we continue to see a shift in the deposit mix. With the growth in business deposits throughout the year. And while our ACL to loans held for investment coverage ratio remains healthy, we are starting to see a leveling as we've built the ACL over the last three years. And start to see the bank's portfolio begin to season. On the next slide, Newtek's deposit story continues to be a good one. We're growing both business and consumer deposits. And offering what we believe to be tremendous value to both consumer and business depositors. As I briefly mentioned, the cost of deposits at Newtek Bank declined roughly 16 basis points sequentially coinciding with lower market rates. As Barry mentioned earlier and as noted on this slide, we're finding success in lending clients opening bank accounts with roughly half of the borrowers opening at least one bank account since we acquired the bank in early 2023. We expect that penetration rate to grow over time. We also believe we're creating sticky deposit relationships given our competitive market rates on deposits, our integrated business portal, and our insured deposit rate, which currently sits at 74%. Shifting to Newtek Bank's held for investment portfolio on slide 20. The held for investment portfolio increased roughly 44% in 2025, with the portfolio mix largely unchanged throughout the year. Unguaranteed portions of SBA 7(a) loans comprise roughly 60% of the held for investment book. While the allowance for credit losses related to the unguaranteed 7(a) portfolio makes up the bulk of the bank's ACL. Which resulted in the previously mentioned coverage ratio of just over 5% at the end of the year. On the next slide, we show the operating leverage continues to be a meaningful contributor to our financial performance. We have consistently stated that our technological and operational was designed to support a much larger balance sheet and organization. And we continue to deliver on those statements. Annual operating expenses were up just 2% in 2025, against 33% growth in assets, which supported that year-over-year decline in the efficiency ratio. From 63% to 58%. We included the next slide in our Investor Day presentation a few weeks ago. We have maintained fairly stout regulatory capital ratios, and we've grown the balance sheet, strategically layering in capital along the way. I'll conclude my portion of today's discussion with Newtek's financial projections for 2026 on slide 23. Relative to diluted EPS of $2.18 for 2025, we have established an EPS guidance range of $2.15 to $2.55 for 2026. A midpoint of $2.35. Estimates incorporate $1 billion of SBA 7(a) originations, $500 million of ALP or long amortizing C&I loan originations, $175 million of SBA 504 originations, and $150 million of net growth in the combined C&I and CRE portfolios. Projected originations and net growth reflect step-ups from 2025 levels. We've included a quarterly EPS view for 2026, which reflects the recently closed NALP 2026-1 transaction in the first quarter and a projection for a second securitization this year in the fourth quarter. And with that, I'll turn it back to Barry for the last few slides ahead of Q&A. Barry R. Sloane: Thank you, Frank. Slide number 24, which we talked about at the beginning of the presentation, this kind of represents a lot of what NewtekOne and Newtek Bank National Association are trying to do. We don't look like a community bank. We don't act like a community bank. We basically have built a financial institution to service our customers. Utilizing technology, we're able to provide a frictionless environment to exchange information, have customer service and business service specialists be on a camera, and be available on demand. We give our business clients the ability to send and receive money at the lowest cost with the greatest amount of data and the greatest amount of analytics to run their business. We actually give them loans that are valuable. Not I'll fund you in twenty-four to forty-eight hours. And forget what the rate is, but you gotta pay me back the principal in six to twenty-four months. From a branding perspective, we disagree that being able to charge those high rates for quick money really provides great brand value. We do provide great brand value. Yes. We have larger provisions. Yes. We have greater allowance for credit losses, cover the amount of losses that we'll achieve. We have accurately forecasted what our charge-offs are, what our losses are, and we have that reserve. And on top of that, we have ROAAs at the HoldCo of 2.7%, and ROTCEs at the HoldCo approximately 20%. So we're able to earn greater returns with greater margins on a net basis. We're an organization that manages credit risk, not avoids it. And when you look at the other organizations in the market that were also disruptors, some of them for consumer, some of them for online deposits, Axos. Almost five years on slide number four before the stock started to move higher. Now trades 11 times consensus. 207% of book value. Why about bank? Five years before the stock started to move. Trades at 13 times 2026 consensus, 164% of book, TFIN, six years before the stock started to move. Hope this doesn't take six years. It's trading at forty percent 2026 EPS. SoFi, two and a half to three-year period, sideways to low before the stock making a move. It just takes a while before investors get comfortable, get a feel for how the business works, test the model. You see it in Northeast Bank. You see it in LendingClub. These are all good markers for us. They're all technology-enabled banks that have been able to service their client base in similar ways to what we are. But we obviously got this positioning and expertise with SMBs, SMEs, and we refer to as independent business owners, a very viable and valuable demographic in the marketplace that we've developed this level of expertise over the course of two decades. And with that, we appreciate the opportunity to present our Q4 and annual results. And operator, we'd like to go to the Q&A. Operator: Question. You will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again. My first question comes from the line of Tim Switzer of KBW. Question, please, Tim. Timothy Switzer: Hey. Good afternoon, guys. Thanks for taking my question. Barry R. Sloane: Thank you, Tim. You too. Timothy Switzer: Yeah. Barry, you fooled me for a minute. Beginning, I thought I thought we're getting this question and answer session within a few in the first five minutes. Barry R. Sloane: I was ready to go. Timothy Switzer: That would have made everybody happy, but it was a half an hour. We're getting better, Tim. We're practicing. Barry R. Sloane: Good work. So my first question is something in the press release. You mentioned that you increased deposit account openings by about 50% this quarter. And I know there's something you talked a little bit about on the Investor Day. But it just seems like a pretty sizable increase in one quarter. Could you maybe talk about what was driving that? And you know, what your expectations are going forward? Because it seems like there's some pretty good trends. Barry R. Sloane: Thank you, Tim. Look. First of all, you know, we believe that the ability to access us digitally from your home in a frictionless manner for business deposits as well as consumer is important. And I think there's plenty of people that do it well for consumer. Little harder to do for business. Harder to acquire, harder to manage. And we've been blessed. We've gotten through three years of audits, and it's worked out well. I think that we've got very good margins in our business. I believe the NIM at the bank it's got a five handle on it. I gotta go dig it out here. I think it's Frank, what is it? Like, 5.3, 5.4? Frank DeMaria: Yeah. Five and four. Barry R. Sloane: Right. So we're able to offer a generous rate and no fees, no asterisk, no way. So the rates are generous. Now some people say, oh my god. Those are really risky deposits. I think 78% of them are insured. The important part is they're at a market rate. Those people aren't going anywhere. So our portfolio can afford to pay that deposit base. I think that's a point of than one that is at zero. So we're paying a healthy rate. We don't see the attrition. Clients are sticking with us. They're not leaving. And we're getting more and more deposits. It's an interesting interest rate environment whether you think the Fed's gonna drop rates, The recent Fed meeting says they're gonna stick. So I think that's the fact that it's frictionless. The fact that our alliance partners are appreciating what we're doing, We're bringing on more alliance partners. And we're gonna continue to be able to grow deposits to fuel good loan growth. Timothy Switzer: Awesome. Okay. That yeah. That's good to hear. And if I'm looking at the noninterest income detail, here, gain on sale was maybe just a little bit light relative to what we had expected. It was flat quarter over quarter, but could you maybe talk about some of the trends there and what we should expect to next year given your guidance for about you know, a billion dollars of SBA originations? Barry R. Sloane: Well, we do expect seven, eight business to pick up again. It was a bit of a shift. There's been a lot of changes in the SBA world. Some of these, I didn't expect to be as dramatic such as the citizenship issue, was dramatic. The inability to refinance MCA product is dramatic. Recently, I think this is gonna be somewhat helpful. The SBA is going away from the SBSS score. They know, we're waiting for some further guidance on this, but they're asking us to use our own scoring methodology. That SBS score will stick until the thirty-first. So I think that our volumes will do better. I think you've seen entities like BaitFirst get out of the business, a few others that I won't mention that seem to be having financial struggles that were of the fintech variety. One of the other changes, I think is important, is the SBA is clearly requiring forecasting of debt service coverage over time. And most of the competitors in the fintech space, these are technology companies that are not credit. Lay them off to other participants. They've gotta change their whole front-end intake. We don't. So I think we're better positioned competitively. We've always been a five c's of credit lender. We take liens. We spread financials. And our technology and our AI covers this. I think some of our competitors have gotta put that in place, scramble, do it rather quickly, and it's also untested. Timothy Switzer: Okay. Got it. That's really helpful. I have a few cleanup questions. If you can entertain me real quick. The first one is what were the net charge-offs for the bank subsidiary? I might have missed it, but I couldn't find it in the earning materials. Barry R. Sloane: Right. Frank DeMaria: Frank, total charge-offs on all loans held for sale and investment at $12.31 was about 2.2%. Timothy Switzer: That's right. And at the bank, Tim, to answer your question was $8.2 million for the quarter and $23 million for the year. Timothy Switzer: Okay. Alright. That's helpful. And then are you able to provide the breakdown you guys have in the 10-Q for the gain on loans accounted for under the fair value? Are you able to give us kind of what portion of that was from the ALP loan? Versus the SBA loans. Barry R. Sloane: So it'd say about go ahead, Baris. Yeah. You're talking about the unrealized gain between ALP and the 7(a)? Timothy Switzer: Yeah. What you guys report. It was 20 the combined number was $25.6 million this quarter. Barry R. Sloane: Have that breakout, Frank? Frank DeMaria: Yeah. It was about 35% on the ALP with the remainder on the 7(a) that we're holding. Timothy Switzer: Okay. With a slight loss in the NSBF. Right? Barry R. Sloane: Correct. Timothy Switzer: Okay. So I'm calculating NSBF with the $20 million loss for the full year. That's close to, like, a $67 million loss this quarter. So it stepped up a little bit. Barry R. Sloane: That's right. That's correct. Timothy Switzer: Okay. Alright. That's all for me. Thank you, guys. Barry R. Sloane: Thank you. Operator: Our next question comes from the line of Steve Moss of Raymond James. Please go ahead, Steve. Stephen Moss: Good afternoon, guys. Barry R. Sloane: Steve. Stephen Moss: Just circling back to the SBA originations. You know, I hear you in terms of the changes in the rules being a big disruptor. I know you'd indicated and kind of touched on it, Dare. This call in terms of, like, the challenges a lot of businesses faced. Kind of what are you seeing for business confidence and business activity these days versus maybe six or twelve months ago? Barry R. Sloane: Yeah. I think it's a good question, Steve. I think that the rate cuts of about one and a half percent from the high have been helpful. But it is absolutely 100% k-shaped economy, haves and have-nots. And businesses servicing the lower end of the market are as a customer. They're struggling. And businesses that are serving the middle market or the upper end are doing well. So you really you know, you kinda need to pick your spots here. I think we're all hoping that in 2026, productivity kicks in. And, therefore, the inflation numbers push things down. Not sure we're seeing that, to be honest with you, Steve. We're seeing commodity prices going high. I think oil picked up today. The Fed's probably not gonna do anything until you get a chairman change. But overall, the confidence of businesses is good. Spending money. The stock market is making people feel good, people that have portfolios, which is a lot bigger number today than it was forty years ago. So I think business confidence is pretty good. Businesses are willing to invest. Particularly in technology to make their business more efficient and reduce their expenses. Stephen Moss: Okay. Great. And then maybe just on the AOP originations, just kinda curious you had another good quarter here. Do you expect that kind of continued cadence throughout the year or a step up from these levels? Or do we maybe think about some weakness here in the first quarter? Barry R. Sloane: The first quarter is always a tough quarter for lending, and I can't explain why the first quarter is always great in the fourth quarter. First quarter is weak in the fourth quarter is great. I mean, I could tell you the industry reason is people blow out their loans at the end of the year, and people borrow at the end of the year, then they're exhausted. And go into the first quarter. I mean, it happens every year. It's our weakest quarter. Respect to ALP loans, I think it's important to note business owners don't come to us for a 7(a) or an ALP. They come to us for a loan, which is why these daily debit MCA players make a lot of loans because people go to them for the money. Whether it's costing them a 30 or 50 or a 70, they make the money and make it readily available, and they grab it. What we do is we try to actually give them a good product. We lower the payment. It's massively different than for loans that are in that that we're competing against because of the long amp. We take longer. We're more thorough, but it's a better product for them. And by adding the ALP or the hell what I refer to, health for sale C&I, or C&I long m. We're developing a reputation. And if you're a business owner, and you want a loan that's not MCA or daily debit, which dominates this industry, and you want a low payment because you have an interest rate in the high single digits or low double digits, we're the place to come to. To get that long-term patient capital. So very bullish on ALP or what we're gonna call C&I held for sale because it's gonna go into a securitization. And when people come to us, I mean, you can't I say there's always guard because you never know what sneaks in there. I don't think you could find SBA on our website. And we don't wanna be known as the SBA lender. It was obviously with our history, it's one of the few things that we did. But we make all kinds of loans to businesses. Including shorter-end loans with a full covenant package, balloons, and short repayments, which are more traditional, for borrowers that insist on having a lower rate. Right. Stephen Moss: Okay. That's helpful. And then in terms of, you know, the expense side here of the equation, just kind of curious, you guys did do a good job on expenses there. I hear you in terms of, you know, continuing to upgrade systems and make things more polished. Just kinda curious, you know, how you're thinking about investments and maybe that cadence of expenses here. Barry R. Sloane: It's an interesting question, Steve, because I've had a lot of conversation with expenses and expense control. There's always a push and pull on the expense line. I think that we're continuing to grow the business. Putting expenses particularly into business deposit functionality and gathering. On a good note, I feel very good about the C suite. With the ads. The team is very much new tech culture, new tech eyes. So I think that's pretty rock solid and pretty steady. I would like to add some executives in the biz dev area to help grow the business. And to help Andrew Kaplan, our chief strategy officer, who's done a fabulous job for us. But I don't think you'll see explosive expenses. Expense growth. I think we're in good step. Obviously, if you look at our revenue growth versus the expense line, I think we had a good year last year. We have a lot reserved for, you know, for next year in the expense line. So it should be very comfortable for us. Stephen Moss: Got you. I appreciate all that color there, and I'll step back here in the queue. Thank you very much. Barry R. Sloane: Thank you, Steve. Operator: Thank you. Our next question comes from the line of Christopher Nolan of Ladenburg Thalmann and Company. Your question, please. Christopher. Christopher Nolan: Hey, guys. Thank you for taking my questions. Looking at the forward guidance, it looks like the efficiency ratio is projected to, you know, total revenues percent expenses percentage of revenues. To the state, pretty flat with current level, 55% to 56%. Assuming that's true, what do you see as the leverage for EPS growth in 2026? Barry R. Sloane: Well, Chris, I hope I beat that expense line. But, you know, we've got that out there. I see the big leverage in continuing to grow business deposits from payroll from merchant services, to lower that cost of funds so that, you know, the dollars that we're spending to build out more inexpensive deposits will give us a lower reoccurring liability cost going forward. In addition, the ALP loans or the C&I loans held for sale, they're bigger and they're larger. I won't say they're easier to do, but we're seeing more flow there. So it's gonna be easier to get volume from my mouth to God's ears in that particular space and grow it. Versus the SBA business where the average loan size is, call it, $400,000. The average loan size in ALP is, you know, $4.5 to $5 million. So that's, I think, where we see the leverage. Now the other thing that's important is there's leverage and expense ratio with the bank and at the HoldCo. Look. We need to continue to watch the expense line. I am hopeful that we beat the expense line. This year versus what's projected, but I appreciate you pointing that out. Christopher Nolan: Okay. Great. That's it looks like margin expansion hopefully, will be the leverage there if I heard you correctly. Barry R. Sloane: Should be on a Christopher Nolan: And I guess as a follow-up and congratulations on the deposit growth because I know that's something that you guys were aiming for for a long time. Have you guys put in some sort of new mechanism where you know, you deposit the loan into a new tech deposit account for that client or something which, you know, is sort of, you know, helping goosing along the deposit growth? Barry R. Sloane: Yeah. So when you applied for a loan, the data used to apply for the loan automatically populates the application for a bank deposit, which goes through KYC AML BSA Group, so that the deposit account is approved without a separate application. But using the data that we get from a loan. So that's made that a lot more automatic, and we are going forward. And it's been this way, I think, for about six or seven months. We are requiring the borrowers to make the loan payments out of that Newtek account. Christopher Nolan: Oh, okay. Great. And that generally is a low interest-bearing account. It's a core deposit account. So correct? The 1%. Yeah. So you're just basic that's gonna be a driver for lower deposit cost. Okay. Yeah. And we got that that that increase the utilization. So if my staff is listening, and hopefully they are, they've got to diligently talk to customers and explain that this is, we think, one of the best accounts out there with zero fee for ACH, zero fee for wire. Higher cost, move your money back and forth between savings and checking. How's that sound, Chris? Christopher Nolan: Sounds great. Okay. Thanks, Barry. Future for me. Thank you. Appreciate it. Bye. Operator: Thank you. Again, to ask a question, please press 11 on your telephone. Again, that's 11 on your telephone to ask a question. Our next question comes from the line of Dylan Hines of B. Riley Securities. Your line is open, Dylan. Dylan Hines: Hey. Thanks for taking the question. I was wondering could you share your perspective on how Newtek's SBA loans are performing versus the many others in the SBA sector that don't have your underwriting and other business services offerings that create better long-term customer relationships. Barry R. Sloane: I appreciate it. I think if you go to sba.gov, what you'll basically see is that, you know, our five-year and ten-year charge-off rates are about industry average. And that's kinda where we'd like to be. Right in that particular right in that particular bucket. I mean, number one, it fulfills our mission of making loans to business owners all over the United States, whether they're big loans or small loans and whatever whether it's a woman or a man or a people with green or yellow, whatever they are. So we put the product out there. We're very quick to prequalify the customer. And then take in all that other information. So I would say we're average. I think now if you look at our margins, they typically dwarf some of our big competitors in the space. So I would strongly suggest that you look at our margins versus some of our competitors with respect to ROAA, ROTCE, and gain on sale. Once again, we believe that being able to put the loan out, treat the customer well, you can get a full margin loan. You don't have to be prime plus one or prime plus one and a half. Dylan Hines: Got it. Thanks for the color. Thank you. Operator: I would now like to turn the conference back to Barry Sloane for closing remarks. Sir? Barry R. Sloane: Well, we appreciate that, and we appreciate the questions. And we're appreciative of the hard work the team has done to make this better and more concise. We look forward to being able to continue to drive results in 2026 with the growth rates that we had in 2025. We've got some challenges, but good momentum at our back, and we wanna follow in the footsteps of other disruptors in this industry. But within our category of serving, SMEs, SMBs, and independent business owners because it's pretty untapped, and we've got a two-decade head start on most of the players in the space. So we thank everybody for attending and look forward to reporting in 2026. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings. Welcome to the FinWise Bancorp Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Press 0 on your telephone keypad. Please note that this conference is being recorded. It's now my pleasure to turn the conference over to Juan Arias. Thank you. You may begin. Juan Arias: Good afternoon, and thank you for joining us today for FinWise Bancorp's Fourth Quarter 2025 Earnings Conference Call. Earlier today, we filed our earnings release and investor deck and posted them to our investor website at investors.finwisebancorp.com. Today's conference call is being recorded and webcast on the company's investor website as previously mentioned. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Forward-looking statements represent management's current estimates, expectations, and beliefs, and FinWise Bancorp assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements, including factors that may negatively impact them, contained in the company's earnings press release and filings with the Securities and Exchange Commission. Hosting the call today are Kent Landvatter, Chairman and CEO, James Noone, Bank CEO, and Robert Wahlman, CFO. Kent, please go ahead. Kent Landvatter: Good afternoon, everyone. FinWise delivered a strong 2025, growing net income 26% and posting a steady fourth quarter that demonstrates how our multiyear investments are gradually translating into tangible, sustainable results. The meaningful progress we've made in expanding and diversifying our revenue streams underscores both the durability of our business model and the momentum behind our long-term strategy. Specifically, during the fourth quarter, we delivered healthy revenue growth driven by balanced contributions from both fee and spread income. Additionally, our disciplined approach to expense management further strengthened profitability and supported continued growth in tangible book value per share, reinforcing the long-term value we are delivering to shareholders. Loan originations totaled a solid $1.6 billion in the fourth quarter, exceeding our initial guidance of $1.4 billion. This brings full-year 2025 originations to $6.1 billion, representing a healthy 22% year-over-year growth. Key drivers during the fourth quarter included strong originations from established partners and continued ramp in the maturation of programs launched in recent years. Partly offsetting this was the expected seasonal deceleration from our largest student lending partner. While quarterly loan originations will fluctuate with typical seasonality in certain quarters, we believe we have reached a higher and more sustainable level of quarterly production supported by robust contributions from long-standing partners and newer relationships that continue to scale. We also experienced strong uptake of our credit-enhanced product, ending the quarter with balances of $118 million, exceeding both the $115 million outlook provided on our third-quarter earnings call and our initial guidance of $50 million to $100 million. This product is a core component of our lower-risk asset growth strategy, supported by a structure that requires fintech partners to maintain a deposit account at FinWise against which charge-offs are recovered. Turning to our BIN and payments business, although ramp-up has been more measured than we initially anticipated, we remain confident in the long-term value proposition. Integrating these capabilities under one roof enhances our ability to win new partners, expand cross-sell opportunities, and deepen strategic relationships over time. While strategic partnerships with a lending focus remain our most profitable relationships, we are generating increased interest by also offering BIN and payment solutions. For example, some clients use our award-winning payments optimizer, MoneyRails, to process salary deduction repayments on FinWise-originated loans, while others are leveraging MoneyRails to fund transactions through RTP and FedNow, demonstrating the expanding utility and appeal of the platform. Ultimately, these ancillary services enable our partners to innovate faster, operate more efficiently, and compete more effectively, reinforcing FinWise as a true strategic partner, not just a regulatory gateway. We are also pleased to share that DreamFi, a strategic program agreement we announced last quarter, has officially launched. DreamFi is a startup financial technology company that will provide financial products and services to underbanked communities. Overall, our pipeline remains healthy, and we remain in active discussions with several additional prospects. As we've mentioned before, the pace of new agreements can appear lumpy, and timing may fluctuate, particularly with larger strategic opportunities. That said, each strategic partnership we secure has the potential to create outsized value. Under this one-to-many framework, a single can drive substantial growth in portfolio balances and revenue, underscoring the inherent scalability and strength of our platform. On the AI front, given the high cost and rapid pace of change associated with early-stage AI development, a disciplined adoption approach remains the most effective strategy for FinWise. While we have already been using AI in areas such as coding, quality assurance, and BSA AML, the advances in generative AI are opening new opportunities for efficiency and automation. We are actively exploring opportunities to broaden the deployment of these capabilities across the company to drive efficiency and long-term value with a disciplined focus on safeguarding sensitive data through secure and controlled implementation. Lastly, while we will be disciplined in managing near-term performance, our priority remains building durable long-term growth by pursuing opportunities that significantly enhance the company's future. We are confident in the outlook ahead and in our ability to deliver lasting value for our customers and shareholders. With that, let me turn the call over to James Noone, our bank CEO. James Noone: Thank you, Kent. I'll shift now to provide an update on our credit quality and our SBA business. Overall, credit trends remain stable, with performance aligning with our expectations, and we remain disciplined and proactive in managing the portfolio. On the SBA side, production pipelines remain healthy, secondary market premiums continue to be attractive, and we're executing operationally to support continued growth. Specifically, during the quarter, we further refined our servicing and standards, which resulted in accelerated classification of certain loans to nonperforming status and earlier recognition of related charge-offs. As part of this refinement, we increased borrower thresholds required to qualify for a one-time short-term deferment. Management views these adjustments as a prudent forward-looking enhancement to our risk management framework. Our portfolio continues to be strong and exhibits good performance. Quarterly net charge-offs were $6.7 million in Q4, compared to $3.1 million in the prior quarter. $1.5 million of the total NCOs were attributable to our credit-enhanced balance sheet program. However, these losses are guaranteed, and FinWise is reimbursed for any losses from the cash reserve each partner is required to maintain at FinWise. Of the remaining $5.2 million in NCOs, $1.2 million was due to the updated servicing standards that we implemented in the quarter. Provision for loan losses was $17.7 million for the fourth quarter, compared to $12.8 million for the prior quarter. The increase was driven primarily by growth in the credit-enhanced loan portfolio as well as higher net charge-offs resulting from our updated servicing standards, which led to the accelerated classification of nonperforming loans and charge-offs. As a reminder, the provision for credit losses associated with the credit-enhanced loan portfolio is different from the core portfolio provision because it's fully offset by the recognition of future recoveries pursuant to the partner guarantee described as credit enhancement income in our noninterest income. This quarter, we included a new table in the earnings press release that breaks out the total provision between the core portfolio and the credit-enhanced portfolio. Positively, during Q4, the net increase to our NPL balance was less than a million dollars, bringing our total NPL balance to $43.7 million at the end of the quarter. This modest increase was mostly due to SBA seven Watchlist and special mention loans migrating to classified status and compares to our guidance on our prior call that $10 million to $12 million in balances could migrate to NPL during Q4. The lower-than-potential migration reflects the team's proactive efforts in disposing of collateral securing NPLs. Of the $43.7 million in total NPL balances, $24.2 million or 55% is guaranteed by the federal government, and $19.5 million is unguaranteed. Quarterly SBA seven a loan originations decreased quarter over quarter, primarily due to extended SBA processing delays resulting from staffing cuts at the SBA, with additional impact from the government shutdown. During the quarter, we took advantage of attractive secondary market premiums to increase sales of the guaranteed portion of our SBA loans, particularly after the government's reopening in November, which contributed to elevated gain on sale income. We will continue to follow our strategy of selling guaranteed portions of our SBA loans as long as market conditions remain favorable. Following the government's reopening in late November, the environment for SBA loan originations has normalized, with turnaround times returning to more typical levels. Notably, our SBA guaranteed balances and strategic program loans held for sale, both of which carry lower credit risk, collectively accounted for 34% of the total portfolio at the end of Q4, underscoring the lower-risk composition of our loan book. I will now turn the call over to our CFO, Robert Wahlman, to provide more detail on our financial results. Robert Wahlman: Thanks, Jim, and good afternoon, everyone. FinWise reported net income of $3.9 million for the fourth quarter and diluted earnings per share of $0.27. Key drivers during the fourth quarter included a notable increase in loan originations and a significant rise in credit-enhanced balances, both greater than our expectations. Fourth-quarter results were also impacted by an increase in net charge-offs, in part stemming from the previously mentioned refinement of our servicing and administration standards. The higher net charge-offs resulted in a higher provision for credit losses on our traditional banking portfolio, which negatively impacted our Q4 net income by $1.1 million after taxes. Net interest income grew to $24.6 million from the prior quarter's $18.6 million, primarily due to the increase in the bank's credit-enhanced balances in the held-for-investment portfolio of $76.5 million. The credit-enhanced loans carry a higher contractual interest rate. The higher interest income is partly offset by higher average balances in the certificates of deposits used to fund the loan portfolio growth. Net interest margin increased to 11.42% compared to 9.01% in the prior quarter. The increase is largely attributable to the credit-enhanced portfolio growth of $76.5 million. As a reminder, suggest thinking about our net interest margin in two distinct ways: including and excluding excess credit-enhanced income. When including excess credit-enhanced income, we anticipate the margin to increase, supported by the continued expansion of the credit-enhanced loan portfolio and strategic efforts to lower our cost of funding. Conversely, excluding excess credit-enhanced income, we anticipate a gradual decline in margin consistent with our ongoing risk reduction strategy. The effect of the credit-enhanced income on net interest margin is included in our GAAP to non-GAAP disclosures at the end of the earnings release. We also posted solid non-interest income of $22.3 million compared to the prior quarter's $18 million. The growth was primarily due to increases in credit enhancement income driven by our higher credit-enhanced loan balances outstanding at year-end 2025. Partly offsetting the rise in noninterest income was a decrease in strategic program fees due to lower origination volume. As a reminder, credit enhancement income offsets the provision for credit losses on credit-enhanced loans dollar for dollar. As a result, when the provision expense and the credit enhancement income are considered together, they offset and result in no effect on our profitability. Noninterest expense was $23.7 million compared to $17.4 million in the prior quarter, primarily due to increases in credit enhancement guarantee and servicing expenses resulting from the growth in the credit-enhanced loan portfolio. As a reminder, credit enhancement guarantee and servicing expenses are amounts FinWise owes to the strategic partners with credit-enhanced programs for their servicing and guarantee activities. Reported efficiency ratio for the quarter was 50.5% versus 47.6% in the prior quarter. Importantly, we continue to generate solid balance sheet growth with total end-of-period assets reaching $977 million. The increase is primarily due to continued growth in the company's cash balances deposited at Fed, loans held for investment, and an increase in the credit enhancement asset. Average interest-bearing deposits were $567.4 million compared to $523.9 million in the prior quarter. The increase was primarily in certificates of deposit, which were added to fund loan growth, and an increase in noninterest-bearing demand deposits, primarily related to collateral deposits by certain strategic programs that anticipated increased volumes due to typical seasonality student loan fundings in January 2026, increased our balance sheet liquidity. Let me provide forward outlook on some key metrics as we've done in prior quarters. Loan originations for Q1 2026. Originations through the first four weeks of January are tracking at a quarterly run rate of approximately $1.4 billion. Loan originations for full year 2026. We remain comfortable using $1.4 billion in quarterly originations as our baseline, as it normalizes for student lending seasonality. Annualizing this level and applying a 5% growth rate provides a reasonable outlook for originations for full year 2026. Credit-enhanced balances for full year 2026. We remain comfortable with organic growth in credit-enhanced balances of $8 million to $10 million on average per month for 2026, but could see some variability between months. SBA loan sales. While we don't provide a specific outlook, we will continue to follow our strategy of selling guaranteed portions of our SBA loans as long as market conditions remain favorable. Quarterly net charge-offs. We anticipate that approximately $3.5 million in net charge-offs for our non-credit-enhanced loans is a good quarterly number to use in your models. Nonperforming loan balances for Q1 2026. We think there is potentially as much as $10 million in watch list loans that could migrate to NPL in Q1 2026. We continue to expect a gradual moderation in NPL migration as loans underwritten in lower interest rate environments continue to season, though the migration may be lumpy. Net interest margin. We remain comfortable with our prior outlook that when including credit-enhanced balances, the margin is projected to increase, supported by the continued expansion of our credit-enhanced loan portfolio and strategic efforts to lower our cost of funding. This upward trend is expected to persist until growth in these balances begins to moderate. Conversely, excluding excess credit-enhanced income, we anticipate a gradual decline in margin consistent with our ongoing risk reduction strategy. Efficiency ratio. We remain focused on driving sustainable positive operating leverage with a long-term goal of steadily lowering our core efficiency ratio. That said, there may be periods in which the efficiency ratio may rise. Tax rate. While multiple factors may influence the actual tax rate, we suggest using 26% in your modeling. With that, we would like to open the call for Q&A. Operator? Operator: Thank you. And with that, we will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 to remove yourself from the queue. For any participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. And our first question comes from the line of Brett Rabatin with Hovde. Please proceed with your question. Anya (on behalf of Brett Rabatin): Hey, guys. This is Anya speaking on behalf of Brett. You know, I was just wondering if you guys feel there's any opportunities to lower CD funding costs in the next few quarters. Robert Wahlman: In regards to CD funding cost, as we've noted, we are dependent upon wholesale funding. That wholesale funding cost tends to move with the Fed and the Fed's movement of the interest rate. So as the Fed reduces interest rates, we would expect to see a like-type decrease. That'll be blended in over time because we tend to run with CD maturities between three months and one year. So we would expect to benefit from those decreases, but at a gradual rate. And we should be blending in some benefit from past rates over the next couple of quarters yet too. Anya (on behalf of Brett Rabatin): Thank you. And, you know, do you guys have any thoughts on the progression of MoneyRails and the BIN sponsorship potential later this year? Kent Landvatter: Yes. As far as let me speak first to the deposits since Bob kind of teed that off. We're still very confident in our strategy on BIN payments, though the timing may be pushed out beyond our initial expectations. But just as a reminder, we never want to rely or over-rely on just one partner as a source of funding, so regardless of who they are, our policy limits concentration on funding from one party, which means there were chunks of the broker deposits that we were replacing, but only to a certain concentration limit. So we don't think it's gonna be hugely impactful this year. We think more of that will come through next year. Anya (on behalf of Brett Rabatin): Thank you. And last one for me, but any thoughts on the SBA business this year and whether management might be more or less aggressive with origination given the environment? James Noone: Yeah. Hey, Anya. This is Jim. You know, SBA demand continues to be really solid. In the pipeline. And versus last year, originations for us were down a little bit in the quarter. But that was really just a timing delay from the shutdown rather than a demand issue. And we had a nice pickup in closings already in January. So, overall, I'd say we have good demand. From everything we see, small business confidence is stable to rising. So we feel good about the SBA business right now. Anya (on behalf of Brett Rabatin): Thank you. Appreciate it. That's all for me. Operator: Thank you. And our next question comes from the line of Joseph Yanchunis with Raymond James. Please proceed with your question. Joseph Yanchunis: Good afternoon. Robert Wahlman: Hi. Joseph Yanchunis: There you go. So I was hoping to kinda circle back with deposits here. So it looks like period-end, guidance-bearing deposits increased pretty nicely this quarter. Well, average balances declined a bit. Was the surge in deposits related to credit enhancement loans kinda coming on at the end of the period? Robert Wahlman: The surge in deposits resulted from certain of our strategic partners that are making student loans in anticipation of increasing on the student loans and the requirement to maintain collateral equal to the hold that we have on those loans. But they deposited significant funds at the end of the quarter. So those funds will be held during the period of time that they have the higher origination volume. And then as that origination volume goes down, we expect that they will take those funds back away from us. Joseph Yanchunis: Okay. That's helpful. And then did I hear you correctly on your strategic or, I'm sorry, your origination guidance? It was, you know, annualized $1.4 billion, which is kind of the quarter-to-date run rate and kind of grow it by 5%. Because if so, that kind of points to a decline year over year. I was just wondering what you would kind of attribute that to. James Noone: Yeah. That's the baseline, Joe, that we put out as far as modeling guidance was once you strip away the seasonality associated with student lending, $1.4 billion is a good baseline and then apply a 5% growth factor on that. That's what we put out there because it takes away the seasonality of student lending. Joseph Yanchunis: Is there any reason to think that seasonality in student lending wouldn't return in 2020 where you would get that big three q uptick? James Noone: There is no reason to think that the seasonality would not return. So very likely would continue in the same seasonal fashion. Joseph Yanchunis: Okay. I appreciate that. Switching over to kinda recontracting. I was hoping you could discuss that a little bit. How was the recontracting process gone with existing partners? And is there any, like, slug of notable contracts up for renegotiation this year? James Noone: Yeah. Recontracting, just historically, gone really well at FinWise. You know, we've got 15 lending partners. Think you know, since we started this business in 2016 and have been operating without interruption, any type of regulatory issues, you know, since that time. I think we've had three partners in total that for one reason or another, kinda matriculated out of their partnership. Two of them were during COVID. They were commercial lenders that kinda went into COVID, you know, I would say, challenged and closed. So it wasn't anything in the partnership. It was really a business model and a business model issue for them. The third was one of our original partners back in, like, 2017 that we just never saw eye to eye on what the sponsorship relationship looked like. So we've been very fortunate in the partners that we've selected and I think have generally had really good relationships with them. You know, those contracts are generally three to four-year initial terms with two-year renewal terms on each of them. And so they're staggered. Every year, there's a handful that come up for renewal. But there's nothing I would point you to as far as concerns. Joseph Yanchunis: Okay. And then last one for me here. There's been increasing discussions around fintech sitting around bank charters. And you know, what's your take on this trend and how it could impact both FinWise and the sponsored bank industry as a whole? Kent Landvatter: Yeah. I'll take that one. We watch that pretty closely actually. There's a lot of fintech charters out there as you know. There's also some here in Utah, some applications as well. But as we've said in the past, a banking charter is not really the best option for all fintechs. You know, of course, larger, well-established fintechs would be more interested than smaller fintechs, but any fintech looking at considering a charter would have to go through seriously how that would impact their vision on call culture, innovation cycles, and so forth. But for FinWise specifically, we've always thought of our partners in terms of a bell curve. Some of the most successful partners continually are those kind of in the middle of the bell curve, where they put up results and really good results year after year, but probably aren't interested in growing to a size where they would need a bank charter. Of some of those partners that are in the right side of the bell curve that are outperformers as far as volume goes, yeah, I would imagine some of those are some of them are looking at those. But one thing that we've tried to impress on everyone in the past is we've built a scalable platform that allowed us to continually pursue new partnerships. And so, you know, we just plan for partners going away and partners coming on. And as Jim said, right now, we've got 15, and we feel good about two to three years. Joseph Yanchunis: Okay. And then, you know, one more for me here. So I understand that you'll continue to add two to three new partners a year. But can you talk a little bit about the success or, you know, planned initiatives to try to cross-sell products with existing partners? And then just to kinda piggyback off that and I may have missed this in the materials, how much volume is currently running through MoneyRails? Kent Landvatter: Okay. We don't disclose that. It's the last question. We don't disclose that. But it's becoming more meaningful. Usually, the way a partner launches is we get the launch going and then it scales over the next three quarters or so, let's say. And so we're seeing decent volumes, but from a couple partners, but, you know, we anticipate those will grow. But what we're finding in this space right now and especially as regards BIN and payments is for this to make sense as a standalone product, unique partners that can generate significant volumes. And the sales cycles for these guys just take more time. But what we've really found that's a nice surprise is how providing these capabilities to existing partners doesn't require the same levels of scale since the add-on products have incremental income, and they already fit within our oversight regime here. And one of the things we're really excited about is we're attracting newer or different partners that have a greater need for all these products. For example, Tali, we signed last year, and they've been a big contributor, but we signed them as a card sponsor partner, but we're also adding the credit-enhanced balance sheet flexibility for them, which really gives us upside and allows them to operate better regarding their funding. And so does that help? Joseph Yanchunis: Yeah. That was very helpful. Well, thank you for taking my questions. Operator: Yep. Thank you. And our next question comes from the line of Andrew Terrell with Stephens Inc. Please proceed with your question. Andrew Terrell: Hey. Good afternoon. James Noone: Hey, Andrew. Andrew Terrell: If I could start just on the you guys referenced $10 million of watch list loans that you were contemplating could maybe migrate to non-performer here in the first quarter or so. I guess the question is, would this require an incremental provision expense? Or do you feel like those were already kind of taken care of as part of the, you know, SBA kinda cleanup that occurred this quarter? James Noone: Yeah. So let me hey, Andrew. This is Jim. Let me just, like, break them up into two things. So you've got the so credit trends generally are stable. We continue to see really good performance kind of across all segments of the portfolio. Bob mentioned in the prepared remarks that we did have a change to the servicing at the '4. Historic let me just give you some color on what that was. So, historically, you know, we followed SBA guidelines, and our procedures allowed a single three or six-month deferment to stressed borrowers. In October, after having completed a review of the performance of those borrowers, we updated the servicing requirements to require full re-underwriting at the time of the deferment request in order to qualify for that. So as a result, the level of NCOs in the quarter accelerated. It was appropriate to implement that proactively after we got the results of the back test and to kind of proactively manage any of those stressed accounts. But we do not expect that level of NCOs from the core portfolio again in the near term and continue to believe that $3.5 million is the right number for modeling. I would just point back that, you know, it is lumpy. When you asked about the $10 million potential migration in Q1, we've kinda guided, you know, over the last probably eighteen months or so, kind of that $10 to $12 million number, and you've had quarters come in well below that, and you've had a couple quarters that were closer to the actual number. It's lumpy. And so the number that we're guiding to right now is up to $10 million. But like you saw in this most recent quarter, you know, just shy of a million dollars migrated even though we guided to 12. Andrew Terrell: Got it. Okay. No. I appreciate all the extra color there. Just on overall kind of net balance sheet growth, I know you guys guide the Credit Enhance $8 million to $10 million a month, maybe a little bit of lumpiness in there. I guess, like, I was surprised that the SBA was down so much this quarter and kinda offsets some of what was, you know, really strong growth in credit enhanced. I'm just trying to get a sense of, like, when we think about overall balance sheet growth, is this a floor in the SBA book? Will you look to build it from here alongside the credit enhanced? Or should we think about that as, you know, stable, to decline, just help us get a sense of, like, where the net net balance sheet goes. Robert Wahlman: So hey, Andrew. This is Bob. So I think the net balance sheet will continue to grow. The fourth quarter was a bit of an aberration. For different reasons and because of the market conditions, we accelerated and stepped up the SBA loan sales. I think that looking towards the future, that we expect the SBA loan sales to more or less be approximate equal to the origination volume. So the overall SBA level should stay flat on the guaranteed side. As it relates to the rest of the portfolio, we will continue to see growth in leasing and our other products. But we'll see most of the growth coming from we expect to see most of growth coming from the credit-enhanced portfolio along the lines that Jim had talked about earlier, the $8 to $10 million per month organic growth. Andrew Terrell: Yep. Okay. And okay. So more of a stable SBA portfolio. Yeah. And maybe this is too technical of a question, but the I'm just comparing the net interest income, you know, up six or so sequentially. The credit-enhanced guarantee and servicing expenses were up, you know, a kinda commensurate amount. I'm assuming that the kinda mismatch here is just the onetime maybe aberration or SBA loan stepping down and not reflective of just a significantly lower level of in the credit-enhanced business. Is that fair? Robert Wahlman: I'm not fully sure I understand the follow-up question. I would note that the credit-enhanced portfolio did grow significantly during the period to over $70 million. And that the level of profitability that we generated from this remained constant. You know, the real event for the income for this year is the it will for this quarter, was the 1 and a half million dollar charge to the provision account related to the, what we call, the core four that would include the SBA portfolio that included the that considered the higher charge-offs as well as the and the factors as it related to the servicing and administration of that portfolio that Jim had talked about at length. That was the real drag in the period. Andrew Terrell: Okay. Fair enough. And then on the expense side, you know, it sounds like you guys are looking at or maybe have some opportunities on the technology kinda implementation front. And, you know, with that or even outside of that, I'm just curious how you're thinking about, you know, pace of expense growth holding aside the guarantee expense and kinda servicing expense, just kinda the core core expense lines? Robert Wahlman: So as it relates to expense lines, we think that the $16 million would be a good starting point from a quarterly run rate for the noncredit enhanced operating expenses. So as we go into 2026, and then we would as we expand the business, as you would see the assets grow, you know, it may be that we need to hire some additional people but we do think that, our revenues will increase, you know, two times two roughly two times faster than our expenses. So I have a positive operating leverage ratio. That's kind of how we're seeing those factors. Andrew Terrell: Okay. Well, thank you guys for taking the questions. Operator: Thank you. I will now turn it over to Juan Arias as there seems to be few questions that came in via email. Juan Arias: Thank you, operator. Yeah. We did get two questions via email. The first one can you clarify if the impact from what you are describing as refinement of servicing and administrative standards is a onetime item and this cost you approximately 8¢ in earnings per share in Q4? Robert Wahlman: Certainly. The after-tax net income the way that we're looking the way that we calculate it, but the after-tax income from that increase revision related to these changes that Jim had gone through was down $1.1 million. On that provision for loan losses on that core portfolio or 8¢ a share. The $1.1 million after-tax provision resulted primarily from, as I said before, the higher charge-offs. And then, again, as Jim explained in his comments, the driver for the four q's increased provision was that acceleration of the charge-offs because of the changes in the servicing and administration standards that were applied to that core portfolio, particularly the SBA portfolio, in Q4 and should be viewed as a onetime event. Juan Arias: Okay. And the second question was can you please provide additional examples of how you're using AI? Kent Landvatter: Yeah. I'll take that one too. We're actually pretty excited about the possibilities of AI right now. Especially now that the cost entry point is so much lower than it has been in the past few years. But as mentioned on the calls, we've been using AI for coding, quality assurance, BSA, AML, and so forth. But with the recent advances in generative AI, with lowering the cost entry point, we think there's some additional lifts that we can find in compliance, operations, and areas where automation can drive efficiency. So we're focusing really intently on that area, you know, specifically things such as policy alignment and regulatory compliance. Is something that would really be helped through AI as well as cybersecurity fraud detection. But I think most importantly right now, analyzing and automating workflows. At the bank. Juan Arias: Alright. Operator, that was the last that came in via email. Operator: Okay. Great. Well, thank you, and thank you, ladies and gentlemen. This does now conclude today's teleconference. We thank you for your participation. And you may disconnect your lines at this time. And have a wonderful day. Kent Landvatter: Thank you.
Operator: Good day, and welcome to the Sandisk Corporation Second Quarter Fiscal 2026 Earnings Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Ivan Donaldson, Head of Investor Relations. Please go ahead. Ivan Donaldson: Before we begin, please note that today's discussion will contain forward-looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties. These forward-looking statements include expectations for our technology and product portfolio, our business plans and performance, market trends and opportunities, and our future financial results. We assume no obligation to update these statements. Please refer to our annual report on form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in written materials posted in the Investor Relations section of our website. With that, I'll turn the call over to David. David V. Goeckeler: Thanks, Ivan. Afternoon, and thank you for joining Sandisk Corporation's fiscal second quarter earnings call. In the quarter, revenue was $3 billion, up 31% sequentially, with non-GAAP earnings per share of $6.20. Artificial intelligence continues to drive a step change in demand, with data center and edge workloads expanding system complexity and storage content requirements. This shift, along with disciplined commercial actions and strategic capacity allocation, has strengthened our business results. Let me frame the NAND industry's evolution before discussing our end markets. NAND is now recognized as indispensable to the world's storage needs, driving a foundational shift in how commercial relationships between suppliers and customers are structured. Supply certainty, longer planning horizons, and multiyear commitments are increasingly essential to support structural demand that extends beyond the traditional cyclical model of our market. As a result, we are engaged in discussions with customers to evolve from quarterly negotiations towards multiyear agreements with firmer commitments on supply and pricing, enabling better planning practices and more attractive returns. These changes would better align our planning cycles with customers' demand profiles to our mutual benefit. Accordingly, our supply plans will continue to be designed around predictable, long-term demand at current and forecasted market prices. These dynamics reveal the true value of our NAND technology and reinforce the need for continued innovation and disciplined execution. Our products are enabled by decades of sustained investment in R&D and innovation across NAND and system solutions supported by substantial capital investments in world-class front-end and back-end manufacturing. As a result, we believe NAND is becoming a more durable, structurally attractive industry with higher average returns. David V. Goeckeler: Turning to our end market highlights. During the quarter, we continued to execute against our roadmap, advancing next-generation product innovations and qualifications across the business with key customer programs progressing on schedule. In data center, we are at the center of a broad expansion in AI infrastructure. Enterprise SSD demand is accelerating across the ecosystem as AI workloads scale, with inference in particular driving a meaningful increase in NAND content per deployment. This momentum reflects deepening engagement with a wider range of customers building and deploying AI at scale and reshaping our data center business, which we expect to grow meaningfully in both the near and long term. We are seeing strong adoption across all types of AI infrastructure builders, including cloud hyperscalers, edge and enterprise data centers, OEMs, and system integrators deploying AI at scale. Our technology has become a critical enabler of these deployments, delivering the performance characteristics required for optimized AI infrastructure. The breadth of customer adoption across the AI ecosystem underscores the strength of our technology and the depth of our product portfolio. Within hyperscalers, we have completed qualification of our PCIe Gen Five high-performance TLC drives at a second hyperscaler and are on track to complete qualification at additional hyperscalers over the coming quarters, with Bix Eight TLC solutions soon thereafter. This product is driving significant revenue growth across our data center portfolio, which was up 64% sequentially. Our BICS Eight QLC storage class product, code-named Stargate, continues advancing with two major hyperscalers and is expected to begin shipping for revenue within the next several quarters, providing an additional tailwind for data center growth. In edge, demand meaningfully exceeded supply, as replacement cycles in AI adoption across PCs and mobile devices drove richer configurations and higher storage content per device. In this allocation environment, we are partnering with key edge customers to prioritize their mission-critical needs and optimize product mix within our available supply ensuring the best long-term returns across our portfolio. In consumer, mix shifted toward premium products and higher-value configurations, supporting storage content growth and profitability. We introduced a breakthrough in the USB form factor with the launch of our Sandisk Extreme Fit, our smallest high-capacity USB-C flash drive. This breakthrough stay-put product gives our customers a seamless and affordable way to significantly expand storage on their PCs and smartphones. We expanded key licensing initiatives with global household names like Crayola and FIFA, bringing full circle the commitments underscored last February with the debut of colorful Sandisk Crayola USB-C flash drives and officially licensed FIFA World Cup 2026 product. This strong momentum continued through the holidays with demand driven by targeted gaming-led initiatives, including our "Don't Delete Your Games" campaign. At CES 2026, we introduced the Sandisk Optimus lineup, rebranding WD Black and WD Blue NVMe SSDs to sharpen brand architecture and reinforce performance leadership. Together, these actions reflect our continued focus on driving demand through brand innovation and disciplined go-to-market execution, reinforcing Sandisk's leadership across gaming, creator, and everyday consumer segments. These wins across our end markets reflect the agility of our operations and the resilience of our broad portfolio. Looking ahead, we continue to see customer demand well above supply beyond calendar year 2026, which requires careful allocation planning and alignment with our customers. We remain focused on disciplined execution through the Bix Eight transition, supporting average long-term bit growth in the mid to high teens while maintaining our capital expenditure plan. We are working diligently to support customer demand while ensuring profitability supports the substantial R&D and capital investment required to deliver some of the world's most advanced semiconductor technologies. With that, I'll turn the call over to Luis to dive deeper into our financial performance and guidance. Luis Visoso: Thank you, David. Before diving into the financials, I would provide a brief market overview. We believe that the NAND market is going through structural evolution catalyzed by AI. The evolution is more pronounced in data centers, where data growth is accelerating as the temperature of data is rising, token intensity is accelerating, and storage is a critical enabler for inference. As a result, NAND is an increasingly critical component of the AI infrastructure. Higher demand for NAND in data center impacts other markets, which are also growing as NAND flows to the most attractive markets. It is our view that this structural evolution is sustainable and should reduce the cyclicality of our NAND business, creating higher average long-term margins and returns. In December, we experienced a clear and significant improvement in conditions across end markets, which led to higher pricing. During the quarter, we made strategic allocation decisions as demand for our products continues to exceed supply. The framework we use to allocate bits is to maximize value creation. We prioritize supply for our strategic customers, those who recognize the value we can create together. These are the customers with whom we intend to build valuable partnerships, thus establishing sustainable multiyear business practices with high predictability of demand, returns, and capital deployment. Given the strength of the market, we were unable to fulfill the demand for our customers this quarter. We're evolving how we define strategic engagement, prioritizing customers with multiyear supply frameworks and shared planning commitments over transactional short-term demand signals. We continue to be prudent and are not changing our capital spending plans, which support mid to high teens bit growth through the Bix Eight transition. Our investment posture remains focused on serving attractive sustained demand and healthy profitability levels. Any material increase in capital deployment would require high confidence that demand at attractive pricing levels is durable over a several-year horizon with financial commitments. In the current environment, we're committed to supplying our three end markets as we believe that diversification maximizes value creation. We plan to continue to build strategic relationships with our diversified customer mix within these markets, allowing us to have a deeper understanding of their long-term needs. In the quarter, we continue to make progress with customers in establishing shared commitments that improve the predictability of the business. Customer commitments and agreed commercial terms are the most effective mechanisms to deliver supply certainty and return on invested capital predictability, allowing us to more prudently manage our capital-intensive business across geographies. With that context, I will dive deeper into the quarter results. Revenue for the second quarter was $3.025 billion, up 31% quarter over quarter and 61% year over year. This compares favorably to our guidance of $2.55 billion to $2.65 billion. The revenue over-delivery came from higher prices across segments, which strengthened during the quarter. Bids were up 22% year over year and low up low single digits quarter over quarter. In the second quarter, we saw strong sequential demand across all end markets. Edge revenue came in at $1.678 billion, up 21% sequentially. Consumer came in at $907 million, up 39% quarter over quarter. And data centers came in at $440 million, up 64% sequentially. Our non-GAAP gross margin for the second quarter was 51.1%, up from 29.9% in the prior quarter. This compares favorably to our guidance of 41 to 43%. The gross margin over-delivery came from higher pricing. Unit cost reductions came in as expected, reinforcing margin improvements. In the second quarter, we incurred $24 million in startup costs. Excluding this cost, non-GAAP gross margin would have been 51.9%. Non-GAAP operating expenses for the second quarter were $413 million and represented 13.7% of revenue. This compares favorably to our guidance range of $450 million to $475 million, reflecting a non-recurring benefit from changing how we manage new product introductions. As a result, non-GAAP operating margins at 37.5% are up from 10.6% in the prior quarter. Non-GAAP EPS for the second quarter was $6.20, up from $1.22 in the prior quarter. This compares favorably to our guidance range of $3 to $3.40. The non-GAAP EPS beat reflects higher than expected revenue and lower costs. Key GAAP to non-GAAP reconciliation items include $52 million in stock-based compensation, net of taxes, which represents 1.7% of revenue. $93 million related to certain legal matters. Moving on to the balance sheet. We closed the quarter with $1.539 billion in cash and cash equivalents and $603 million in debt. During the quarter, we paid an additional $750 million of debt and closed the quarter with a net cash position of $936 million. Moving on to free cash flow. During the quarter, we generated $843 million in adjusted free cash flow, which represents a 27.9% free cash flow margin. This includes $1.019 billion from operations, partially offset by $176 million from net cash capital spending. Our gross capital spending totaled $5.255 billion and represented 8.4% of revenue. Earlier today, we announced that we have reached an agreement with Kyoccia to extend the Yokaiichi joint venture through 12/31/2034. With this extension, the Yokaiichi and Kitakami JVs will have the same expiration date. Building on more than twenty-five years of partnership, we believe that the JV reflects the scale of our operations and the significant mutual value created over time. The JV enables both companies to design and manufacture the highest performing, lowest cost nanotechnology that powers the world's infrastructure. As part of this extension, Sandisk Corporation agreed to pay for the manufacturing services that Kyoccia will provide, enabling continued availability of product supply a total of $1.165 billion. This amount will be paid between calendar years 2026 and 2029. The cost will flow through the cost of goods sold over the next nine years. Moving on to guidance. For the third quarter, we expect revenue between $4.4 billion and $4.8 billion. We anticipate the market to be more undersupplied than it was in the second quarter. We expect bids to be down mid-single digits due to a lower than historical seasonality as we benefit from accelerating strength in data centers. Our forecast for non-GAAP gross margin for the third quarter is between 65-67%. For the third quarter, we expect non-GAAP operating expenses between $450 million and $470 million. We expect non-GAAP interest and other expenses between $25 million and $30 million and non-GAAP tax expenses between $325 million and $375 million. We forecast non-GAAP EPS for the third quarter between $12 and $14, assuming a 157 million fully diluted shares. With that, let me turn the call back to David. David V. Goeckeler: Thank you, Luis. In summary, we continue to successfully navigate these early stages of a far-reaching evolution in our business. In addition to its central role in technology we use every day—PCs, smartphones, tablets, the cloud, cars, gaming devices, robotics, and on and on—NAND is a critical technology enabling the development and proliferation of artificial intelligence. For the first time, data centers are expected to become the largest market for NAND in 2026. Driven by some of the world's largest and well-capitalized technology companies, fueled by the performance our technology delivers, customers across all our end markets are increasingly seeking business practices built around shared commitments and agreed financially attractive terms aligned with our preexisting supply plans. Our supply plans will remain aligned to such attractive, real, and sustainable long-term demand. With this backdrop, margins are expected to reset at a structurally higher level, delivering fair returns on the substantial innovation and investment required. Our technology and product portfolios intersect these changing market dynamics at the perfect moment, positioning us to manage a balanced portfolio and deliver industry-leading financial performance. With that, let's open up for questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. The first question will come from Mark Newman with Bernstein. Please go ahead. Mark Newman: Hi. Thanks so much, and congratulations on fantastic numbers today. Really, really great numbers, especially the third quarter guidance. So clearly, what's happening is that prices are rebounding. Extremely at unprecedented rates. I guess my question is going to Dave's comments at the beginning. How, you know, how are you thinking about long-term agreements? Obviously, there's pros and cons in long-term agreements, because long-term agreements lock in the prices. When prices are going up so fast, you actually don't want so many long-term agreements, I guess. But I guess I'd just like to understand how you are thinking about that, how we should think about that in terms of your portion of agreements that are going longer-term, and how that may impact going forward. That'd be great. And if you could also just touch on the supply-demand balance longer-term. If, you know, in this very, very huge what seems to be quite a sharp undersupply situation at the moment, if there's any plans to be adding supply or how you're thinking about that would be also great. Thanks very much. David V. Goeckeler: Thanks, Mark. Appreciate the comments. So let me say a few words about what's happening in the business, and then we'll move on to the LTA. So there's a number of things happening in the dynamics of our business that are contributing to the results you're seeing. So first of all, it starts with the portfolio and innovation. Our Bix Eight node, which we've started ramping now and continue to ramp, is just a fantastic node. The performance, the QLC performance, the two-terabit die. There's a lot of things that just position us very, very well. Customers are responding very strongly to that fundamental NAND technology we're producing. By the way, I'll just note that, you know, we extended the JV, which we're very happy about, with that's gonna continue for now another decade. That's enabling very strong enterprise SSD portfolio. You know, this is something we've been driving for a while. I talked last quarter, we're gonna see growth of that throughout the fiscal year. We saw, I think, 29% sequential growth in the first fiscal quarter. Now we just saw 64% sequential growth in the second fiscal quarter, and I think you'll see that accelerate from here in the second half of the fiscal year. So that the third leg of kind of major business innovation is happening in the consumer business, quite frankly. A lot of new product introduction. This extreme fit product that we announced this year is really a breakthrough product. It's allows our customers to very seamlessly and affordably increase capacity storage capacity of their devices. You know, it's kind of an innovation in the USB space. You wouldn't think that would happen anymore, but it's not a removable product. It's designed just to plug in and stay. You see our the agreements we're doing with you know, people like FIFA, which could be the biggest event of this entire year. We have great Crayola branded products there. We look at our consumer business, we saw 50% year over year growth in the consumer business. So really strong performance there. This improving portfolio innovation-driven excellence in the product is allowing us to just have a better portfolio mix. And if we look back over the last several quarters, we're literally able to trade out the lowest margin business for now the highest margin business, and that provides significant tailwind to the business as well. Then, on top of all of that, you've got the supply demand dynamic, which is pushing the entire market forward. So it's really a combination of all of these that's driving the business forward. It's not simply just pricing. Although, you know, obviously, it's it's great to be in a a strong pricing environment. Moving on to LTAs, I'll talk a little bit about this and then I know Luis will have some great comments about this as well. So as we reach points where, you know, we believe we're getting a more fair return for our technology, and customers, quite frankly, are looking for more supply assurance. I mean, I think one thing to note on the market right now, this is a completely demand-driven, you know, phenomenon, what's going on in the market. We've been very transparent for well over a year what our supply plans are. We're we're investing heavily in this market. We're investing hundreds of millions of dollars of R&D to push the roadmap forward. We're investing billions of dollars of CapEx and we've been very clear we're going to drive mid-teens to high-teens bit growth on a sustained basis, which we think is a great market. And what's happening is we're just not getting enough visibility into what the demand side really is. I mean, if we look at data centers we've had three forecast cycles now. Last quarter, we went from mid-20s to mid-40s growth in that market. Now we're looking at high 60% exabyte growth in that market for 2026. I think our customers realize this, especially in the data center market. Their numbers are big, what they're gonna need in 2026, 2027, 2028. We're even talking to some of them about 2029 and 2030. You know, they're doing their own planning. The amount of exabytes they're gonna need are substantial. And so the long-term agreements are about coming up with a model where we can get confidence in supplying that level of demand on a sustained basis. For us, it's not about what demand is next quarter or the quarter after that. There's not much we can do about that given the dynamics of our business. We want to get the long-term growth rate aligned behind where the long-term sustained demand is to your point at attractive financials. Let me turn it over to Luis with that. Luis Visoso: Yeah. I mean, David covered most of it. What I would say, Mark, is we're seeing customers across end markets reach out to us across geographies. So this is not just a few. We're really seeing a broad base, which is it's very interesting for us. And we're making significant progress. We're making significant progress with several of our customers who really want us to prioritize or assure supply to David's point, that they see that as a critical enabler for their business, and that's what they're looking for. Now to your point, we're being very thoughtful. On how do we define a few metrics. One is the length of the agreement, the price at which we will transact, the quantities, how much of our business we want to put in there, and any prepayment component of that. So we're being super thoughtful and this should be a value accretive and not the opposite. Mark Newman: Great. Thanks very much. And any quick comments on how you're thinking about supply-demand longer term and any flexibility to add supply? David V. Goeckeler: No. I mean, Mark, we've got our supply plans. We've been again, we've been very clear on what our CapEx plans are, what our bit growth plans are. That's what they are. It's about meeting our customers at that supply level and understanding how we allocate that. And then, as we said, it's about you know, all of us picking up our head and looking a little further out on the horizon. As to what demand is really gonna be in this market, and what sustained demand is going to be. And, you know, we just really need to get out of this idea that this is a transactional market where we only get a strong signal a quarter at a time. I mean, we we get demand signals from our customers in all fairness on a yearly basis, but we really only transact that. We negotiate price every quarter, that just makes it very, very difficult to increase any kind of spending because we just don't have visibility to the economics of it. And again, especially as the market transitions to data centers, I think the data center customers are more willing Luis said, it's across all of them. I think the data center customers, given their demand profiles and how how big they're growing, quite frankly, are kind of a little more proactive in engaging in that conversation. And really wanting to understand supply assurance several years out and how do we come up with what are the business practices we can put around that? And, you know, that that's a as I said in the prepared remarks, that when I say we're early in this transition, that's where the early part is. I think the business practices are gonna change and I think that's all for the good. We've got to get through those conversations over the next couple of quarters. Mark Newman: Thanks very much. Congrats again, guys. David V. Goeckeler: Thanks, Mark. We appreciate it. Operator: The next question will come from Joe Moore with Morgan Stanley. Please go ahead. Joseph Moore: At the Consumer Electronics Show, Jensen talked about this key value cache and, you know, gave some numbers in terms of, I think, terabytes per GPU. Seems like a pretty big market. Are you getting indications around that? Do you think there's should take that as kind of straight math? Does everybody have different implementations? And just the ramifications for what happens to data center NAND? David V. Goeckeler: Yeah, Joe. We're working through that right now. You know, we're working through it with NVIDIA and kind of how they're thinking about it. And, of course, then we'll work through it with our customers about how they're gonna configure it in deployments. So it's still a bit early. I'll say a couple things about it. First of all, none of that demand is in the numbers we're talking about. Demand numbers at this point. I think it's a perfect example about how we all need to collaborate a little bit more on what future demand is going to be. Secondly, our initial looks at it when we look at let's say, 2027 demand, we think, you know, that's you know, roughly maybe 75 to 100 additional exabytes. And then a year after, that you can you can double that. So it is a significant amount of demand, and I think it is again, just another example of you know, NAND is just front and center in the AI architecture that's very, very clear. At this point, if it wasn't before. The AI architecture is changing. Right? And that's not a surprise. Any any kind of technology that's this profound and is being deployed at this much scale, we're gonna continue to see innovation and evolution of the architecture. We're gonna stay very close to that. You know, NAND is just gonna be a big part of that architecture. It's the most scalable storage tech semiconductor storage technology, or maybe the most scalable semiconductor technology at all. And, you know, so we're looking at those configurations. It's very real demand. We're just trying to get our arms around it. And then we'll put it in the numbers, probably for the back half of this year going into 2027 and 2028. Joseph Moore: Great. Thank you. And then as a follow-up, the enterprise SSD opportunity, how does that break down between TLC and QLC at this point, and how is that changing going forward? David V. Goeckeler: You know, I think we're roughly tracking the market right now. It's predominantly TLC. I would say it's tilted towards TLC, especially for us. And then, you know, we haven't launched our Stargate product yet for the storage-based QLC. It's in qualification. We'll start shipping that for revenue in the next couple of quarters, which we're excited about, providing another tailwind to growth to our data center portfolio. And that will that will up the mix of QLC. But at this point, I think the overall market in our portfolio is tilted towards TLC. Joseph Moore: Great. Thank you. Great numbers. David V. Goeckeler: Thanks, Joe. Appreciate it. Operator: The next question will come from C. J. Muse with Cantor Fitzgerald. Please go ahead. C.J. Muse: Yeah. Good afternoon. Thanks for taking the question. I guess first question, is there a way to quantify incremental demand for NAND related to AI infrastructure build-out? I'm not including KV Cache, but, you know, we were mid to high teens before, and and I'm curious now based on your conversations with customers, and the demand trends that you're seeing, where do you think the new demand growth CAGR is, you know, looking out 2026, 2027, 2028? David V. Goeckeler: I think the best proxy we have for that right now, CJ, is just what we're seeing in exabyte demand in the data center. As I said earlier, I mean, two two cycles ago, were looking at you know, call it mid twenties exabyte growth in 2026 for data center. Last quarter, we were talking about we upped that to mid-40s given the CapEx cycle that went on. We're now looking at high 60% exabyte growth in data centers are our forecast. And that doesn't include any CapEx raises on this earnings cycle. So you know, significant increase just quarter over quarter in demand. And we think most all that is driven by AI obviously. C.J. Muse: Perfect. Thanks. And then I guess, you paid down a considerable amount of debt in the quarter. You only have $600 million outstanding. Probably can pay that down this quarter. So curious, you know, when you're in a completely, you know, cash position. You know, how should we think about, you know, capital return, particularly around share repurchases over the coming quarters? Luis Visoso: Yeah. We feel very proud of the progress we've made reducing our debt. Remember, we started with $2 billion and it's coming down very, very quickly, $600 million this quarter, and we'll continue to take that down. CJ, our priority is to continue to invest in the business as we have been doing and to build a prudent cash resource. You know, this is a business where having cash on hand is helpful. We're not gonna waste your cash. Don't worry. But we're gonna build prudent cash reserves, and we'll continue to reduce our debt at the right time, we'll continue to expand and give you an update. But so far, those are our priorities. C.J. Muse: Thank you. David V. Goeckeler: Thanks, CJ. Operator: The next question will come from Jim Schneider with Goldman Sachs. James Schneider: Good evening. Thanks for taking my question. First of all, on the supply side, I was wondering if you could give us a snapshot of the factory network across Yokaiichi and Kitakami and kind of where things stand now? I'm assuming utilizations are basically flat out, but as you think more tactically sort of beyond this year about the high teens, bit growth outlook, how do you expect to sort of ramp your JV factory network over, say, the next eighteen months or so? And then maybe give us any kind of view on your view on the sort of industry greenfield capacity expansions that you see possible given some of the announcements of some of your competitors recently? David V. Goeckeler: So, first of all, you know, we have as you said, we have two major sites, Yokaiichi and Kitakame. I think a big step forward this quarter is what we announced in extending the JV agreements around Yokaiichi to coincide with the agreements in Kitakami so they now all run through 2034. So that gives us really good supply assurance for the next nine years. And we'll keep talking about what happens after that. But this has just been an unbelievable relationship with Kyoccia for decades now, and it's gonna go on, you know, quite some time into the future. So we feel like we're in a really good position there. Look. We haven't had any under-utilization in the fab for a couple quarters now. Yeah. You know, we got past that a couple quarters ago. There may be a little bit of some of the costs flowing through. I guess those were all last quarter. We're done. So they're running at, you know, full capacity. Kitakami is where we're expanding. You know, we just opened the K2 fab. And so we have additional space there. I think we've just JV you know, led by Kyoccia on this part of it has just done really good capacity planning and has good plans about how we're able to now expand into the Kitakami site as needed over the next many years. So we feel really good about how we're positioned there. Know, as far as the rest of the industry, You know, it's as you know, it's a long lead time. You know, we see some announcements recently. I would consider those kind of normal course. We're all constantly building clean room space. You know, as we as I talked earlier, this is a market on the supply side where we've been very consistent. We're gonna grow bits. You know, in the mid to high teens rate. We're gonna do that through innovation. We're gonna do that through you know, that innovation is gonna take additional clean room space. That's all in the plan. I would expect to see continued spending to meet that number, but we don't see anything that that's out of the ordinary. And, you know, I think as all of us know, if you wanna start building a new fab, you're talking years before you have that up and running and have production coming out of it. So just a little bit of how we see the market. And final comment, all of this is factored into our numbers when we talk about supply and demand. James Schneider: Thank you. And then maybe as a follow-up, could you maybe address clearly you mentioned the qualification with another enterprise SSD hyperscale customer. Exiting this calendar year, for example, how large do you expect your enterprise SSD exposure to be as a percentage of the total revenue? Thank you. David V. Goeckeler: Yeah. We're not gonna put an exact number around that just yet, but I would say just stay tuned. I think we said this our business is gonna continue to grow in this market. You know, we we've seen 29% sequential growth, followed by 64% sequential growth without getting into too much detail. I think you're gonna see a substantial step-up next quarter as well. So feel really good about where the portfolio is. Like I said, the reception from customers and not just hyperscalers across the entire ecosystem of people that are building out AI infrastructure, the compute-focused TLC product we have in the market is really driving that growth right now. We're going to see our BICS A QLC product start shipping for revenue here in the next couple of quarters, which is gonna be another tailwind for growth. And as we've talked about, the PIX A QLC performance has been extremely well received. So we continue to see very high interest in those products and work through the qualifications. And, you know, we'll look forward to continued growth and it'll be part of the balanced portfolio we always talk about of how we're gonna allocate our supply into that part of the market. But we're excited about where we're at and where we're headed. James Schneider: Thank you. David V. Goeckeler: Thanks, Jim. Operator: The next question will come from Mehdi Hosseini with SIG. Please go ahead. Mehdi Hosseini: Yes. Thanks for taking my question. Two follow-ups for me. And this is for the team. When I look at your guide for the March fiscal year, assuming low single-digit bit growth, there's a big jump in ASP and blended. What I wanted to ask you is how should we think about the mix that impacts the ASP? Obviously, as you scale your SSD, there is a higher premium. There is more than bits, and a premium that you capture or economic value that you capture. Is there any way you can help me understand? Because just thinking about the ASP absolute may give us a wrong impression. So any help you can provide will be great, and I'll have a follow-up. Luis Visoso: Yeah. So the mix impacts that we have are less related to changes in our end market and more related to the customers. Right, and how we serve the market. So I talked a little bit about this in my prepared remarks, and what you've seen is we're driving a better mix. We're partnering with those customers that value our relationship, that value our products. And therefore, we're getting, you know, much better gross margin as a result of that. So there is a mix component in that to your point, Mehdi, and there is some pricing as well. Now, we believe that the market will go ahead. Sorry. Mehdi Hosseini: Oh, I was just gonna say just a quick follow-up. Is there any mix breakout you can offer us so that we're not so fixated with the raw NAND ASP trends? Luis Visoso: Yeah. We will provide that to you when we report next quarter. I don't have anything to share with you at this point on the guide, Mehdi. Mehdi Hosseini: Okay. Great. And and one question for David. Look. We're sitting here, and there is an increased shortage. It's intensifying. You and your peers are involved in discussions for a multiyear contract. And as you highlighted, these projects take several years. Building a fab and putting equipment is a very long process. Why isn't there more urgency? Why aren't your customers your customer's customer aren't willing to commit more? They're committing investment throughout the AI supply chain, but when it comes to memory or NAND, I don't get a sense of urgency. And it is it's gonna wait till the second half of this year, that means the shortage is gonna intensify unless the SSD exabyte growth of 60% maybe just a short list. How can I reconcile it to? David V. Goeckeler: I have lots of thoughts on that, Mehdi. I mean, first of all, I mean, I would argue that there actually is a fair amount of urgency and things are changing rather dramatically rather quickly. Alright? I mean, you're talking about a market that's operated the way it's operated for arguably decades. And the way that market has operated is there's essentially been a quarterly auction for NAND that goes on that sets the price, and then we all talk about what the price was every quarter. And then on the supply side, we've tried to get it right on how much we supply and often get it wrong. And when you get it wrong, the economics just completely crater. So we're trying to navigate out of that world. There's a lot of reasons why we're navigating out of that world. There's a lot of technology reasons and all kinds of stuff we talked about in the past. We could talk a lot about. But like, the change behavior on something you've been doing for a decade and just wake up and within a quarter decide to completely change the business practices of an industry is almost like really hard to do. So but I do think it's happening. I do think that customers are starting to look, like I said, they're starting to look further down the horizon especially on the data center. I don't think this can be underestimated, this idea that now data center is the largest market in NAND. I mean, is a market that's been dominated by or not dominated, but where the primary customers are then smartphones, PCs. I kind of view that as what traditionally been the commodity NAND market. I hate that term, but that's what people think about it. The data center is not that market. Like, the data center is not a commodity NAND market. The data center is NAND is a highly strategic product part of a very sophisticated AI architecture And I need extraordinarily high performance and I need innovation and I need, you know, a specific enterprise SSD that fits my configuration, it's kinda way on the other side of you know, I just need the same product and I can plug in any one from, you know, five different suppliers. That's not you know? So that market now becoming the primary market and especially the primary growth engine is really, I think, starting to challenge the business practices of the way the market has traditionally worked. Again, I'm actually quite optimistic that this is happening pretty quickly. And we'll see how quickly. I mean, do we actually get to the point where we're announcing contracts? We're not quite there yet. We've got you know, some that are coming along. But, you know, from my perspective, on a relative basis, it's going pretty quick. For a market this big, talking $150 billion maybe this year. A market this big, this many players, this much business transacted every quarter. To see it change as fast as it's changing is pretty remarkable. Actually. Mehdi Hosseini: Got it. Thank you for the details. David V. Goeckeler: Sure thing. Thanks, Mehdi. Operator: Again, if you have a question, please press star then 1. Please limit yourself to one question. The next question will come from Wamsi Mohan with Bank of America. Please go ahead. Ruplu Bhattacharya: Hi. It's Ruplu filling in for Wamsi. Can I ask Luis a question? This quarter OpEx came in lower. You said you had a benefit from how you're managing NPI. Can you just elaborate on that what that benefit was? And can you talk about capital allocation plans? How much are you expecting to spend on HBF and data center expansion? And as well as any capital return plans or M&A plans? Thank you. Luis Visoso: Yeah. So let me try to unpack the the OpEx question because I thought somebody was gonna ask. So we made a recurring change to how we sell our products. Right? And basically, we're now moving into charging for our qualification units. So in the past, we used to record cost as they were incurred. Right? They were period cost. And this is the non-recurring element, which is a gain of one a one-time gain as we move from period cost into inventories as we're now selling this qualification unit. Does that make sense? Ruplu Bhattacharya: Yes. That's clear. Luis Visoso: Good. So we're gonna get an ongoing saving as we charge our customers for this qualification unit, and there is a one-time benefit as we do the transition and we go through inventory. On the capital allocation question, now as I said earlier, you know, our capital allocation strategy is unchanged. We will continue to invest in the business. We will build prudent cash reserves, which are very helpful for this business. Particularly given still where we are. We believe we need to continue to build our cash reserves, and we'll continue to reduce our debt. So we've gone from $2 billion to $650 million, so we're making great progress, and we'll continue to make progress there. We're fully funding the business. You know, we're funding the business from a Bix Eight transition. We're funding our OpEx. We feel that we're properly funding the business itself. Ruplu Bhattacharya: Are there any underutilization charges in the guide? Luis Visoso: No. Not on the guide and not on actuals either. Ruplu Bhattacharya: Alright. Thank you so much. Operator: The next question will come from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Hi, David and Luis. Awesome quarter here. Just phenomenal numbers. Just wondering on the 2026, '27, what you're looking at in terms of bit growth and obviously, ASP pricing has been on a tear, but just wondering how the price trends have been across the different segments, you know, from the data center to retail to consumer SSDs. If you can give us some color. Thanks. Luis Visoso: Yeah. So the bit growth that we're seeing across 2026, 2027, and 2028 is consistent with what we talked, you know, at the very February. We're still talking about mid to high teens bit growth every single year. And unless we we we we see that demand is the area sustainable and profitable, we're not gonna change our assumptions. So still, our planning is our plan of record is that kind of high-high teens number for bit growth year over year. On pricing across what we call end markets, it's very interesting. Right? What you see is prices are moving not identically, but pretty much at the same pace. Now we're seeing what happens is that NAND can flow to any market at the end of the day. So NAND will naturally flow to the markets that are most attractive. So when prices go up in data centers, they do have an impact in other markets, to give you an example. Right? So that's what we're seeing across markets. Prices go up. Pretty much across the board. Operator: The next question will come from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Hi. Thank you for taking my question, and congratulations on the very good quarter. I'm going back to the roadmap. I think now your data center mix has reached 15%. And Nanoflash is now increasingly being attached to AI compute. So I think it's creating new requirements for performance. So can you update us with your production roadmap to meet these new requirements? Like, I think they are high IOPS SSDs and you have engagements with on the HEF. So how do those new products look like? David V. Goeckeler: Yeah. So I think this is a very good example of the amount of innovation that's going on and being driven out of data centers, kind of what I was referring to before. So you're right. You know, what we call the compute focus, the TLC high-performance drive is what's driving the portfolio at this point. As I said, we just saw 64% sequential growth, so we continue to see, you know, really strong pull for those high-performance products. As I said, we feel like we're extremely well-positioned as we start to migrate those to Bix Eight. But there's a whole bunch of new innovation going on, as you said. There's, you know, I think the the innovation engine is alive and well across the whole industry, which is how are we gonna satisfy the demands for the storage of AI. Models get bigger, more tokens get generated, caches get bigger. You know, this is naturally a thing where you start to think about NAND, and its tremendous scaling properties. And you're right. There's a lot of innovation there. There's the high IOPS enterprise SSD, which of course, something you could imagine we're working on. You know, we we had our own ideas about this. Two years ago, and we talked about it at our Investor Day that we believe that there was a chance to rearchitect NAND to bring it into AI. We trademarked that high bandwidth flash. I think over the last year, that's become a more recognized path forward. And you know, there's now lots of folks working on that and we continue to work on it, by the way. We're very happy with the progress. We're deep in conversations with customers on use cases. We're designing the NAND die. We're building the controller, so that continues to go forward. Obviously, we'll have more to say about it as we go forward and plans firm up. But you know, I think this is just an example of there is tremendous opportunity for innovation as the AI architecture continues to scale. And you know, it's just incredibly exciting that we're just in the very early innings of driving this technology and scaling it around the globe. And we have, you know, the industry, you know, the technology industry at large is incredibly well-positioned to do that. There's some of the most, largest most capable technology companies in history. They're obviously putting an enormous amount of resources into how they drive this technology and scale it around the world at a very rapid pace. And and I think that is incredibly exciting. I think this is gonna go on. I think we're super early in this, and I think this is going to go on for a very long time. Operator: The next question will come from Aaron Rakers with Wells Fargo. Aaron Rakers: Hi, guys. Thank you. This is Michael Sadloff on behalf of Aaron. I wanted to go back to the LTA discussion. Have you guys finalized any of these agreements yet? And if so, have partial or full prepayments been been a part of any finalized agreements, or is that something that we should expect moving forward? I know you kind of alluded to it. Luis Visoso: Yeah. We've signed and closed one agreement so far. We're not disclosing the terms. There was a prepayment component of it, which we think is important in this type of agreement. But that's what I would say, Michael. So we have one and several in the queue. Operator: The next question will come from Asiya Merchant with Citigroup. Please go ahead. Asiya Merchant: Great. Thanks for taking my question, and great results here. David, last quarter, I think you shared some thoughts on how you thought about the edge market, PCs, smartphones, maybe even the consumer market. Just given the fact that, you know, memory's on allocation, talks about PC and smartphone units being down. Just how you're thinking about and what signals your customers, your OEM customers are providing to you regarding those markets and how that changes kind of your demand outlook through probably the 2026 and into 2027. And if I can squeeze one in for Luis as well, you know, structurally, NAND is going through this dynamic where, you know, obviously, it's a highly strategic product. How are you thinking about your true cycle margins, gross margins seems like that was quite a long time ago when you were hitting those levels. But how are you thinking about gross margins here structurally? Thank you. David V. Goeckeler: Okay. Thanks, Asiya. So look, couple of thoughts on this. So, first of all, on the consumer market, I'm like, I think we're very happy with where the consumer portfolio is. As I said, we just turned in over 50% year over year growth. I think the work we're doing there on how we're thinking about the branding, the innovation, the portfolio, you know, that's been a long-term market for us. It will be a long-term market for us. We think we're able to drive value there with the value of the Sandisk brand. So, you know, we think that's a great business. And we'll continue to be and we'll continue to invest in it. You know, in some of the other markets, like, I think this is one of the thing. Yeah. I look at, I was looking at the numbers. Obviously, as we were preparing, you look just look at 2026, we've got PCs at 285 million units. I don't think anybody would have picked that number at the beginning of the year. So just continued very strong results. In these markets, in unit growth, content growth across those markets. So look. As we go into 2026, or we're in 2026 now, we're gonna see some base effect of that, of some declines in units. You know, I think we're still getting very strong signals from our customers in those markets and wanting supply. I mean, very strong signals on a continuous basis. We're working with them as closely as we can. I think in this period of the market, it's extremely important to stay close to our customers and we're doing that. But you're gonna get some base effects there on units. Mean, there's been a lot of discussion on mix in the market. I just think that's normally how this market works. Of course, configurations are gonna change as components change. And we quite frankly saw it in 2023 You know, all of a sudden, the component mix went way up because prices went way down. And all of a sudden, a one-terabyte drive became quite and all of a sudden started showing up everywhere. And as the market goes a little bit in the other direction, you're gonna see that change. I think that's a natural way this market works. I don't think it's something to be overly concerned about. Those are still strong markets. Customer relationships are very good. I expect us to still be heavily engaged in those markets. We've had a strong edge presence for a long time, and we'll we'll continue that. And, you know, just big picture, this is one of the reasons why I think this business is so valuable is because we just play across every single device every single piece of technology touches we touch we touch it or sell NAND into it. And now with you know, just the AI deployments in the cloud and that market becoming the largest market in NAND is just changing the dynamics of the way this whole industry works. And as we said in the prepared remarks, we've been we've invested an enormous amount of R&D over the last twenty-five years. To get to where we are and we've invested an enormous amount of capital to get to where we are so that we can manufacture all this front-end and back-end. And I think we're finally starting to get to the point where the value of that intellectual property, the value of that intensity is being recognized in our own results. Luis Visoso: Yeah. And I think the way I would answer your question about, you know, through cycle margins is similar to what where David left it, which is in a high CapEx, high R&D industry or company, frankly, 35 is is not is not where we would like to be. Right? So we're not gonna give you a new number today. But, clearly, that's not where we want to be. What I'll tell you is this is the first quarter, right, that we are above 35% with 51. We're guiding, call it, midpoint of 66. So we're making progress and and we're getting to a place where we believe we can justify the CapEx. We can justify justify the investments in R&D that the business requires. Operator: The next question will come from Tom O'Malley with Barclays. Please go ahead. Matthew Pan: Hi. This is Matthew Pan on for Tom O'Malley. Just a quick one for me. Apologies if you mentioned, just hopping around on the call. Wondering if you said the ESSD percentage of total bits in the quarter? David V. Goeckeler: I don't think we said that. But it's in that high teens range. Yeah. Operator: The next question will come from Blayne Curtis with Jefferies. Blayne Curtis: Hey, guys. Congrats on the and thanks for squeezing me in. I just wanna talk about the model. Obviously, I mean, doubling sales over two quarters, I wanna just make sure I understand how you're gonna handle OpEx. You know, I think the percentage of revenue is now in half. Right? So, are you gonna accelerate the way you look at investing in R&D? And then, you know, tax rate as well, which is just dramatically higher profitability. Is there anything to think about in terms of the tax rate? I think you were talking about it maybe going to 20 at some point. Is that sooner than later? Luis Visoso: Yeah. So in terms of OpEx, the first thing you should know is about 75% of our OpEx is R&D. Right? So that's where we're putting our money. And why do we do that? Because this is a technology company where life innovation is our lifeblood. That's what we believe, and that's where we're putting our dollars. So you should not look at this quarter's OpEx as an indication of where we should be because that, as I mentioned earlier, it has a nonrecurring benefit. If you wanna quantify that number, that number is around $35 million. So you can you can you can use that number for your modeling. We think OpEx should not go significantly higher from where we are today. We believe that the run rate is healthy. We will always be looking at where we need to invest and make sure that we fund innovation. But we're also on the other side looking at efficiency all the time and how do we make sure that there's no waste in the system. A long way of saying, you know, the level of spending we had last quarter, what we're guiding this quarter, those are kind of more sustainable levels, for now. The tax rate is kind of interesting. Right? Because we had a lot of prior-year losses, accumulated in Malaysia, which we consume very quickly. You know, that's what happens when you start generating profits. So I think you should see our tax rate to hover around a little bit above where it is today, maybe in the fourteen, fifteen kind of percent on an ongoing basis. That's what I would, I would model for now. Operator: This concludes our question and answer session. I would like to turn the conference back over to David for any closing remarks. David V. Goeckeler: All right. Thanks, everybody, for joining us. We'll talk to you throughout the quarter. Have a great day. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, and thank you for standing by. Welcome to AppFolio, Inc.'s Fourth Quarter and Full Year 2025 Financial Results Conference Call. Please be advised today's conference is being recorded, and a replay will be available on AppFolio's Investor Relations website. I would now like to hand the conference over to Lori Barker, Investor Relations. Thank you. Lori Barker: Good afternoon, everyone. I am Lori Barker, Investor Relations for AppFolio. I would like to thank you for joining us today as we report AppFolio's fourth quarter and full year 2025 financial results. With me on the call today are Shane Trigg, AppFolio's President and CEO, and Timothy Eaton, AppFolio's CFO. This call is simultaneously being webcast on the Investor Relations section of our website at appfolioinc.com. Before we get started, I would like to remind everyone of AppFolio's safe harbor policy. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections, future market conditions, business performance, or future product enhancements or development, is a forward-looking statement. AppFolio's actual future results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in our SEC filings. AppFolio assumes no obligation to update any such forward-looking statements except as required by law. For greater detail about risks and uncertainties, please see our SEC filings, including our Form 10-K for the fiscal year ended December 31, 2024, which was filed with the SEC on February 6, 2025. In addition, this call includes non-GAAP financial measures. Reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our fourth quarter earnings release posted on the Investor Relations section of our website. With that, I will turn the call over to Shane Trigg. Shane, please go ahead. Shane Trigg: Thanks, Lori, and welcome to everyone joining us today. Our fourth quarter caps off a year of AI-powered innovation and accelerating unit growth at AppFolio. Fourth quarter revenue reached $248 million, a 22% year-over-year increase, while non-GAAP operating margin was 24.9%. For the full year, revenue was $951 million, representing 20% year-over-year growth, and non-GAAP operating margin was 24.7%. Our focus on new business grew our units on the platform to 9.4 million. Our strong financial performance earned us recognition on Forbes' America's Most Successful Mid-Cap Companies and Time Magazine's America's Growth Leaders. These accolades are never the primary goal, but they validate our strategy and the momentum we have as a business. As we look ahead, our new property management benchmark report suggests professionals are entering 2026 with confidence. While 81% of managers feel positive and 77% expect to increase unit counts, up from 65% a year ago, this optimism is tempered by a persistent performance gap. Rising operating costs and pressure on occupancy rates continue to challenge the bottom line. Operators are turning to technology, but half of AI users in the industry report they cannot rely on the AI features embedded in their core property management system. By contrast, 98% of AppFolio's customers are already actively using one or more AI capabilities included in our performance platform. A drive to unlock better performance is shaping how operators approach technology. 45% of survey respondents say they plan to consolidate their software solutions, underscoring the value of a unified platform that reduces fragmentation and delivers a cohesive experience. AppFolio is uniquely positioned to lead this transition. Our AI-native performance platform reimagines the traditional PMS by unifying the systems of record, action, and growth. By embedding agentic AI directly into daily operations, we enable our customers to evolve from property managers to performance managers. To maximize this opportunity, we organize our efforts around three strategic durable pillars, starting with "Differentiate to Win." This pillar defines how we leverage our unique value to secure our advantage and, more importantly, the advantage of our customers. Last quarter at Future, our flagship industry event, we introduced our first three RealmX performers. With performers, we have moved beyond traditional automation to agentic, goal-driven AI that transforms the performance of our customer's business. Demand for our agentic AI capabilities has translated into rapid adoption across the platform. With the transition from smart maintenance to RealmX Maintenance Performer, large and complete, and leasing performers seeing accelerated adoption that outpaces our previous generation of leasing tools. Because these tools are built directly into the workflows they rely on, customers can rapidly realize performance gains. We continue to introduce new workflows through RealmX Flows, that allow customers to codify and automate more aspects of their business, such as rent recovery. As we expand the capabilities of the AppFolio stack, we are bringing partners directly into the user experience, allowing RealmX Flows to trigger actions within integrations, such as our new rent recovery partner, Genesys. Supporting these integrations, our system of action becomes a single pane of glass partner integrations in one place where customers can manage complex operations and ensuring they never have to leave AppFolio to get the experience and value they expect. An example of this orchestration in practice is AppFolio customer Advanced Management Company, which is reshaping their workflows and achieving exceptional outcomes across 12,000 multifamily units throughout Southern California. Since switching to AppFolio in 2023, they have adopted many of our AI-native features, from RealmX Messages and Flows to FolioGuard Smart Ensure and FolioScreen Trusted Renter, and are currently in the process of implementing our Leasing Performer across their entire portfolio. According to Danielle Holloway McCarthy, President, "Before, we were relying on nine separate systems to manage our properties, which made it impossible to deliver a truly seamless resident experience. AppFolio's AI-native platform changed all of that. By consolidating our data and automating our core workflows, we freed up our teams to focus instead on creating meaningful connections with our residents. With a unified system, we are not just improving productivity; we are building an environment where everyone can thrive." This focus on thriving through technology leads directly into our second strategic pillar, "Deliver Performance Efficiently." We continue to win in the market, expanding the value we deliver to our existing customers while effectively capturing new market share. In fact, in 2025 alone, we added over 500,000 units onto our platform. Adoption of our premium tiers Plus and Max has exceeded 25%, which speaks to our growing success with both SMB and upmarket customers. At the same time, we are extending the power of AppFolio through our system of growth, helping property managers grow and protect their business while giving their residents and investors access to services within one unified experience. With Resident Onboarding Lift, co-created with Second Nature, we have delivered a seamless move-in experience that activates resident services and drives new revenue opportunities. Our newest service within Resident Onboarding Lift is group rate internet, allowing property managers to offer their residents fully managed high-speed internet at an attractive rate. Resident Onboarding Lift and our other products and services connect back to one goal: delivering measurable performance to our customers. We recently asked new customers who switched to AppFolio about their experience. 96% said switching to AppFolio has improved their overall business performance. 94% said AppFolio has improved their resident satisfaction. Outcomes like these directly contribute to strengthening our position as the preferred platform in real estate. AppFolio has been named the overall leader on the G2 Grid, recognition based on the feedback of our customers and their firsthand experiences with our platform. We make sure customers can grow their businesses alongside AppFolio because we win when our customers win. Our third strategic pillar is "Great People and Culture." Our vision is to power the future of real estate, and our people are the catalyst that makes this possible. Earlier this month, we presented AppFolio's strategic priorities to our employees at AppFolio Kickoff 2026 and acknowledged the start of our twentieth year in business. During the event, we had a chance to hear from AppFolio customers about the impact our technology has on their businesses and lives. One of those customers, Joe Remsen, President of Charlotte-based TR Lawing Realty, managing nearly 3,000 units on Plus, had this to say, "We could not do what we do without AppFolio. The reliable platform, with its support, innovativeness, and ability to make our lives easier, truly allows us to do our jobs, be more professional, productive, and transparent, and provide the five-star customer service our owners and residents expect." Joe's experience is a powerful reminder of why we do what we do. At the end of the day, the innovation we deliver is in service of customers like him. And it is the dedication of our great people and culture that brings our deep customer partnerships to life. 2026 marks another defining moment for AppFolio. When I joined in 2020, we set a goal to reach $1 billion in revenue. This year, we are poised to hit that milestone. It is a testament to what is possible when we stay focused on our customers, deliver industry-leading innovation, and maintain operational discipline. With the right vision, strategy, and team in place, we will continue to inspire customers to choose and grow with us. I will now turn the call over to Timothy Eaton for more detail on AppFolio's financial results. Timothy Eaton: Thank you, Shane. We ended 2025 on a high note, rounding out a successful year marked by strong revenue and unit growth. We are well-positioned to continue delivering customer performance through our investments in areas such as AI and the resident experience. I am pleased to report in the fourth quarter, we delivered revenue of $248 million, growing 22% year over year. Full year revenue was $951 million, 20% growth year over year. Core revenue, which we are renaming to subscription services revenue going forward, was $56 million in the fourth quarter, a 17% year-over-year increase, driven by winning new customers, growth in total units under management, and more customers choosing our Plus and Max premium tiers. At the end of the quarter, we managed approximately 9.4 million units from 22,096 customers, compared to 8.7 million units from 20,784 customers a year ago. This represents an 8% increase in units and a 6% increase in customers. For the full year, subscription services revenue was $211 million, representing 17% growth year over year. Fourth quarter revenue from value-added services grew 20% year over year to $185 million. This increase reflects greater use and adoption of our FolioGuard risk mitigation services, FolioScreen offerings, and online payments, as well as growth in units under management. Resident Onboarding Lift through our Second Nature partnership and LiveEasy are also beginning to contribute to value-added services. Full year value-added services revenue was $722 million, representing 19% growth year over year. In the fourth quarter, non-GAAP operating margin was 24.9% compared to 20.2% last year. Full year non-GAAP operating margin was 24.7% compared to 25.2% last year. This full-year decline was primarily due to the performance levels we attained under our 2025 corporate incentive plan, which resulted in an additional expense of $15 million or 1.6% of revenue. Excluding the impact of this over-attainment, full-year non-GAAP operating margin was 26.3% of revenue. Cost of revenue, exclusive of depreciation and amortization, in the fourth quarter was 36% of revenue compared to 37% last year. For the full year, cost of revenue increased from 35% to 36%, driven primarily by payments mix, additional data center spend to support our customers' growing usage of our AI product capabilities, and the additional expense from the 2025 bonus plan over-attainment. As a percent of revenue in the fourth quarter, combined sales and marketing, R&D, and G&A expense was 38% compared to 41% last year. For the full year, scale and operational efficiencies offset the impact of the bonus plan over-attainment, and operating expenses as a percent of revenue were 38%, comparable to 2024. We exited the quarter with 1,702 employees, an increase of 4% from 2024. This reflects growth in most functional areas as we continue to invest in innovation and sales capacity. Now turning to our 2026 financial outlook. Our 2026 guidance for annual revenue is $1.1 to $1.12 billion, for a full-year midpoint growth rate of 17%, fueled by adoption of our premium tier offerings, growth in new business units, and increasing adoption of our products and services. Timothy Eaton: Including AI-native performers and new resident services. We anticipate 2026 revenue seasonality to be mostly consistent with 2025. We expect to deliver non-GAAP operating margin between 25.5% and 27.5%. Cost of revenue, exclusive of depreciation and amortization, is expected to be relatively flat as a percentage of revenue compared to 2025. Diluted weighted average shares outstanding is anticipated to be between 36 million and 37 million for the full year. I am proud of our 2025 results, made possible by the relentless focus on innovation and execution by our team. We are acquiring, growing, and retaining customers, and our investments in AI and the resident experience are translating into meaningful performance outcomes for our customers. We are well-positioned for success in 2026 as we continue to deliver on our mission of building the platform real estate comes to do business. Thanks to all of you for your support and interest in AppFolio. Operator, this concludes today's call. Operator: And thank you for participating in today's conference. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the PLS December quarter conference call. [Operator Instructions] Please be advised today's conference call is being recorded. I would now like to hand the conference over to your speaker today, PLS Managing Director and CEO, Dale Henderson. Please go ahead. Dale Henderson: Thank you, Maggie. Good morning, and good evening, and thank you all for joining us today. I'd like to begin by acknowledging the traditional owners of the lands on which PLS operates. The Whadjuk people of the Noongar nation here in Perth and the Nyamal and Kariyarra people in the Pilbara. We pay our respects to their elders, past and present. Joining me today is Flavio Garofalo, our Interim CFO; and Brett McFadgen, our Chief Operating Officer; and also members of our senior leadership team. This call will run for approximately an hour before opening the line for questions. Over the past 18 months, the lithium market has been in what many have described as a lithium winter, a period of oversupply pricing pressure and heightened volatility. Since the trough spodumene pricing has more than tripled, signaling a material shift in market conditions. For PLS, the December quarter marked an inflection and validated the resilience and operating leverage of the PLS platform as pricing improved. 3 numbers catch this shift: realized pricing increased 57% quarter-on-quarter, cash margin from operations increased from $8 million to $166 million and cash increased by $102 million to $954 million with a further $85 million in provisional pricing adjustments expected to come through in the March quarter. Importantly, we achieved this without changing our operating footprint or capital intensity, reinforcing that the business is structurally cash generative across a wide range of market conditions. That outcome reflects deliberate countercyclic decisions taken over the past 18 months, maintaining operating capability, controlling costs and preserving balance sheet strength while prices were challenged. As a result, today, we have approximately $1.6 billion of liquidity, giving us the flexibility to choose timing and sequencing rather than being forced to act by the cycle. The December quarter demonstrates that approach working with strong cash margins, continued cost discipline and the option to selectively reengage growth options while maintaining discipline. Turning to Slide 2. Our strategy has not changed. Our mission remains powering a sustainable energy future, and this is underpinned by our strategic pillars. What has changed is not our strategy, but the market context in which we are executing it. Improving market conditions are now allowing those pillars to work together with discipline remaining the gatekeeper for any capital deployment. Importantly, strategy execution remains anchored to balance sheet resilience and return generation rather than short-term price signals. Turning to Slide 3. This slide highlights why PLS is well positioned as conditions improve. We operate 100% owned assets anchored by the Pilgangoora operation, a long-life Tier 1 asset with a scalable and flexible processing platform that provides direct leverage to pricing movements. Beyond Pilgangoora, we have deliberately preserved optionality, including downstream exposure via our joint venture with POSCO in South Korea, providing access to ex China battery supply chains. We have geographic diversification through the Colina project in Brazil, offering longer-dated growth optionality. Finally, we have retained balance sheet strength, which allows us to choose timing and sequencing on how we respond to market conditions. Turning to Slide 4. This slide captures the core December quarter story. Pricing improved materially and that improvement translated directly into a higher revenue and cash generation. Key outcomes include sales of 232,000 tonnes, up 8% quarter-on-quarter, a 50% increase in realized pricing, revenue up 49% to $373 million, and cash margin from operations increased to $166 million, supporting a cash balance of $954 million, reflecting strong conversion of pricing into cash. Production was in line with plan and FY '26 guidance reaffirmed across all metrics. Taken together, the quarter marks a shift from a period focused on protection and resilience to one of margin expansion, which enables value-accretive options to be reassessed with capital discipline unchanged. Now with that, I'll now hand over to Brett for an update on the operations. Brett McFadgen: Thanks, Dale. Moving to Slide 5. Safety remains our first priority. During the quarter, we recorded 2 injuries with TRIFR increasing to 3.79% from 3.08%. That outcome is just simply not acceptable. In response, we have implemented targeted safety campaigns and strengthened frontline leadership engagement. Quality safety interactions increased to 3.8 per 1,000 hours worked well above our target of 1.6. Our focus is on embedding consistent behaviors and controls to sustainably reduce risk, not just responding to incidents. Every team member going home safe, healthy every day is nonnegotiable. Turning to Slide 6. Operations delivered a solid quarter in which we continue to increase the proportion of contact ore in our feed. Total material mined increased to 8.1 million tonnes, reflecting continued progress in the transition to an owner-operator mining model supported by our additional haul truck deliveries. Ore mined decreased to 1.5 million tonnes as planned as we deliberately prioritized waste stripping to position the operation for future production and improved sequencing. Processing produced 208,000 tonnes, which was in line with the plan. Lithium recovery of approximately 76% remained robust reflecting our strategy to increase contact ore and maximize our ore sorter performance. Despite the higher contact ore throughput, ore sorters continued to perform strongly. However, the increased throughput resulted in elevated wear rates in the front end of our crushing circuit impacting on our average run time. To mitigate this, additional crushing capacity was mobilized to provide operational contingency and maintain adequate crushed ore buffers, supporting the plant utilization through periods of elevated wear. Sales of 232,000 tonnes exceeded production, drawing down inventory to meet strong customer demand and supporting improved cash generation during the quarter. I'll now hand back to Dale. Dale Henderson: Thanks, Brett. Moving now to Slide 7. A brief update on Chemicals. This forms part of our long-term strategy to preserve growth optionality and strategic positioning across the lithium value chain. These initiatives are being progressed in a staged and disciplined way. As it relates to our midstream project, construction of the midstream demonstration plant was completed in December with an update on commissioning plans expected in the coming months. As it relates to joint venture with POSCO, the P-PLS joint venture, the P-PLS, the Korean battery supply chain has experienced significant disruption following recent U.S. policy changes, resulting in order cancellations and deferrals from multiple certified customers. In response, the JV strategically idled the facility to preserve capital, whilst PLS successfully reallocated spodumene volumes to alternate customers at prevailing market prices. This demonstrates the flexibility of our portfolio and sales strategy when one pathway is temporarily constrained, we can redirect volumes without sacrificing value. During the quarter, we contributed $38 million to maintain our 18% interest in the JV. No further equity contributions are expected in FY '26. And we retain call and put options providing flexibility to maintain our current interest and increase our interest to 30% or exit the investment over time if we so choose. Strategically, P-PLS continues to provide PLS with exposure to lithium chemicals market, and ex China battery supply chains, whilst allowing us to manage capital deployment in line with market conditions. The technical capability of the facility has been demonstrated, and our approach ensures us optionality and diversification is preserved without placing pressure on the balance sheet. Lastly on chemicals, the Ganfeng study for a potential downstream partnership. That study continues with the sunset date extended through September '27, allowing additional time for site evaluation and market outlook clarity. Moving now to Slide 8. As market conditions improve, our focus is on sequencing growth through the cycle rather than accelerating investment. The discipline we applied through the downturn, protecting operations, reducing costs and preserving balance sheet strength continues to guide how we reassess timing today. Ngungaju represents short-term cycle optionality. We are evaluating a potential restart of approximately 200,000 tonnes per annum with early works completed and customer engagement underway. The board expects to consider this during the March quarter, and no decision has been made yet. And as it relates to that customer engagement, we've been pleasingly surprised by the strength of those offers made from the market, which, of course, underscores confidence in the upward trajectory we're observing at this time. As it relates to P2000, this is a larger, more capital-intensive option, however, provides a strong rate of return. The feasibility study continues with study timing under review and an update on timing expected in the March quarter. Colina provides longer-dated geographic diversification. Drilling and study optimization continue with study timing also under review and an expected update in the March quarter also. Taken together, these options provide flexibility across multiple time horizons and our focus remains on sequencing growth in a way that enhances value while preserving balance sheet resilience. With that, I'll now hand over to Flavio to take us through the financials. Flavio Garofalo: Thank you, Dale, and good morning to those on the call. Moving to Slide 10. I'm pleased to share the group's key financial metrics for the December quarter 2025. Revenue rose 49% to $373 million, driven by an increase in pricing and sales volumes. On costs, FOB unit operating costs increased to $585 a tonne, primarily due to lower production volumes and spodumene inventory drawdown, with sales higher than production versus an inventory build in the September quarter. While unit costs move higher due to volume dynamics, our Cost Smart program continues to deliver, driving sustained cost discipline across the business. This combination of improved pricing and continued cost discipline resulted in cash margins increasing significantly from $8 million in the prior quarter to $166 million in the current quarter. This reinforces our strategy to protect the business through the downturn and allow operational leverage to work as markets recover. Moving now to Slide 11. Slide 11 shows a cash flow bridge for the December quarter 2025. Our cash balance increased $102 million to $954 million, supported by a strong cash margins of $166 million, disciplined cost management and the prior year income tax refund. An additional $85 million in positive pricing adjustments for the December quarter shipments is expected to be received in the March quarter of 2026. Capital expenditure was $45 million on a cash basis, and we also made a $38 million equity contribution to the P-PLS joint venture, maintaining PLS' 18% ownership. Financing activities and FX impacts resulted in cash outflows of $20 million. With a cash balance of $954 million and approximately $1.6 billion in total liquidity, we now enter improved market fundamentals from a strengthened position, providing capacity to selectively pursue growth options whilst maintaining cost discipline. Moving to Slide 12. Looking at the half year performance. H1 FY '26 delivered strong pricing and volume growth, with revenue of $624 million, 47% higher than H1 FY '25. Unit costs improved compared to the prior corresponding half with FOB unit operating costs decreasing 8% to $563 a tonne driven by ongoing operational efficiencies and higher sales volume. Cash margin from operations increased to $174 million from $41 million in the prior corresponding half. Moving now to Slide 13. Slide 13 shows the cash flow bridge for the half year ended 31 December 2025. While cash margin from operations increased to $174 million, closing cash for the half year decreased by $20 million, primarily due to working capital timing effects. This included $32 million in customer refunds from lower final pricing on FY '25 shipments which were settled in early H1 FY '26, while approximately $85 million in positive pricing adjustments on the December quarter shipments are expected to be received in the March quarter. When adjusted for these timing effects, underlying cash margin would be approximately $291 million, reinforcing the strength of the business as pricing improves. And with that, I'll hand it now back to Dale. Dale Henderson: Thank you, Flavio. Moving to Slide 15. The December quarter marked a clear improvement in lithium market conditions following an extended period of destocking. Inventory levels tightened materially with Chinese domestic carbonate inventories finishing December at around 2 to 3 weeks of consumption. That tightening alongside continued strength in EV sales and accelerating demand from energy storage drove a meaningful recovery in pricing during the quarter. To put that in context, spodumene spot pricing on an SC6 basis increased by approximately 80% through the quarter, recovering from unsustainably low levels earlier in the year. A combination of factors is supporting this recovery, including constructive policy settings in China, particularly around energy storage deployment and EV adoption as well as ongoing uncertainty on the supply side, including the timing and extent of potential restarts of higher-cost sources. Importantly, while we have long held the view that pricing needed to recover from the mid-25 lows, we're not calling an end to volatility. The market remains sentiment driven with pricing continuing to respond sharply to policy signals and supply expectations. What this reinforces for us is the importance of disciplined capital allocation. Any investment in new or restarted supply must be resilient across a full range of market conditions, not just support of short-term pricing. With that context, I'll now walk you through the structural demand drivers that underpin our long-term conviction. Moving to Slide 16. The 3 charts on this slide tell an important story. Since 2020, the industry has delivered sustained compounding growth with EV sales growing at 45% CAGR, battery energy storage installations at 96% CAGR and that translating to a 32% CAGR in total lithium demand. These are not projections. This is growth that has already occurred through a period that included significant volatility. Looking at calendar '25 specifically, global EV sales reached 21.1 million units, up 20% year-on-year, with penetration increasing to 24% of total vehicle sales. Importantly, demand growth is becoming more geographically diversified. While China remains the largest market at 12.9 million units, growth outside of China is accelerating with Europe up 33% and Asia ex China, up 52% and the Rest of the World up 39%. That diversification strengthens long-term demand resilience. The other standout driver of battery energy storage. Global BESS installations reached approximately 290 gigawatt hours, up 45% year-on-year and are increasingly material as the second pillar of lithium demand alongside EVs. With significant policy support and large-scale deployment already underway, energy storage is emerging as a durable multiyear demand driver in its own right. Moving to Slide 17. Turning to the long-term picture. The outlook for lithium demand remains structurally strong and increasingly diversified. EVs and BESS energy storage are expected to account for more than 90% of lithium battery demand by 2030, reinforcing the long-term nature of demand growth. EV adoption continues to gather pace globally with Benchmark Minerals intelligence, forecasting penetration to increase to around 35% by 2030 and approaching 70% by 2040. By that point, EVs alone are expected to represent about 3/4 of total lithium demand. Battery Energy Storage is the fastest-growing segment, having increased from a small share of lithium demand in 2020 to a material contributor today and is expected to continue growing strongly over the coming decades as grid scale storage is deployed globally. Taken together, these trends support sustained long-term growth in lithium demand. But importantly, that growth will not be linear and will continue to be accompanied by periods of volatility as we've seen today. For PLS, this outlook reinforces the value of scale, flexibility and balance sheet strength allowing us to sequence growth decisions thoughtfully, navigate near-term volatility and capture long-term value without compromising discipline. In closing, the December quarter demonstrated the cash-generating power of the PLS platform as pricing improved, validating the operating leverage we've built countercyclically through the down cycle and reinforcing that this is a structural cash generation from a more resilient operating base. While market conditions have improved, volatility remains a defining feature of the sector. Our focus, therefore, remains on disciplined capital allocation, balance sheet resilience and value creation through the cycle. With a strong balance sheet and a 100% owned asset base, we have the flexibility to reassess timing and sequencing from a position of control and any growth decisions will remain gated by confidence in market sustainability and returns. That combination, structural cash generation, balance sheet resilience and disciplined capital deployment underpins our approach to managing long-term shareholder value. Thank you very much for your time. And with that, I'll now pass back to Maggie for questions. Operator: [Operator Instructions] First question comes from Levi Spry from UBS. Levi Spry: Dale and team, I guess just a question on the growth as you sharpen the pencil on all these projects, specifically on P2000. So you did the PFS nearly 2 years ago, a new 5 million tonne per annum plant, $1.2 billion CapEx and then ramping up to 2 million tonnes for 2029. How should we think about time lines and scope as you sharpen the pencil? What potentially could have changed? Or can we simply inflate numbers and delayed for 2 years? Dale Henderson: Yes, it's a bit early to guide you on that one, Levi. The review, which we're working through at the moment, we'll be particularly focused around study time lines. And the production of that study will be the key point to inform the market on the broader trajectory. So unfortunately, I can't really shed much light at this point on that one. Operator: Next, we have Glyn Lawcock from Barrenjoey. Glyn Lawcock: Happy New Year, Dale. Just a couple of quick ones, if I could. Just with the restart of Ngungaju, are you looking for price floors or something like that? Or are you still happy to take the market? Just wondering sort of how the discussions go along the lines of what you'd want to restart Ngungaju from that perspective? And then just any comments you might make on shareholder returns now that pricing is back? Dale Henderson: Yes. Happy New Year, Glyn. As it relates to the restart, we've reached out to market, engaging with market for offers. And within that, yes, we are considering our price floors. But of course, there's always other terms often come with these offers. So we're carefully thinking through potential offtake and we'll see how we go. But as I mentioned in my commentary, we're feeling very buoyed by that market engagement. So looking forward to updating the market in due course. As it relates to shareholder returns, obviously, yes, our capital management framework that sets out contemplates dividends based on certain thresholds. So that sits there ready to go. If the market continues to perform strongly, well, of course, we'll be applying distribution proceeds in accordance with that framework. Does that answer your question, Glyn? Glyn Lawcock: Yes. I guess it's really a decision for the Board next month if pricing stays where it is. It's a potential to recommence dividends, but won't know until then. Dale Henderson: That's right. You got it. Operator: Next question comes from Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: Date, Flavio, Brett, very Happy New Year with both pricing but also your fleet productivity and operational performance. First one on contracting. You've outlined that you've executed two offtake agreements during the quarter. I think you've previously had the option to elect across 3 offtakes for 2026. So I heard you might not get into specifics of which of those you've gone with, but can you maybe give us a little bit more color in terms of the magnitude of volumes and the outline price premium in those offtakes? Dale Henderson: Yes, sure. Happy New Year, Hugo. And as it relates to those two new offtakes, they're not material in the sense of the volumes involved. From memory, it was sort of circa 50,000 tonnes in both cases. And within those offtakes, we have designed on a few options at PLS' discretion to extend and push per the tonnes in their direction if we so choose to. Of course, that speaks to the strength of the market and PLS as a preferred supplier. So really happy about that. Yes. And as I say, not material by volume since we didn't disclose. We didn't do a market disclosure around each of those offtake awards. Hugo Nicolaci: Yes. No, that's helpful. So fair to assume that the other 3 options that you had for 2026, you let expire? Dale Henderson: From memory, we still have options available to us, and we've just taken the decision to integrate more options. So those 2 new offtakes to include bringing a new customer, building out the POSCO customers stable even further. Hugo Nicolaci: Great. Got it. And then if I can just pick up a little bit from Levi's question. Obviously, refreshing the timing of growth options, potentially more with the Feb results on that one. But just looking at the language around for those projects and your comments around sequencing, is it fair to say then that P2000 is now comfortably the priority just given that you've got studies and a number of approvals already in hand there. And in that study was previously due to sort of the end of calendar '26. Is there actually that much scope to bring it forward in terms of timing? Dale Henderson: Look all will be revealed once we've completed the reviews. But just by sort of additional context in the case of the Colina project, well, of course, we got the keys in March last year. So we've been -- had the opportunity to do more work, do more drilling and consider how can we maximize value further. So that, of course, informs potentially a new outlook for that project. And then as it relates to P2000 as per the original study was always a compelling investment, albeit a larger ticket price in terms of CapEx, the returns are very strong. So it's not necessarily a case of acceleration. It's more a case of sequencing and just thinking through what's the right next step as we think about growing with the market. So we'll provide more color on that in due course as we flagged, we'll update in the March quarter. Operator: Next, we have Mitch Ryan from Jefferies. Mitch Ryan: The first one is just -- you talked about elevated crusher wear rates during the quarter and the utilization of contractors. Can you put some more color around that? What are you seeing in the operations? Will you have to expand some of the capacity going forward? Can you just help us understand what's happening there? Brett McFadgen: Yes, Mitch, it's Brett here. Yes, look, we did see -- it's really the front end of the crushing circuit where it does all the heavy lifting. We just started to see a little bit of higher accelerated wear rates as we increase some of our contact ore. And right towards the end of the quarter, we mobilized a small mobile crushing circuit just to give us a bit of flexibility there so that we could keep up some crushed ore stocks rather than trying to have any type of plant outage or slowdown. So it was really just a risk mitigation in that one. Mitch Ryan: So you're planning to sort of keep processing an increasing amount of contact ore, will you need to keep that crushing capacity on site? Brett McFadgen: That gives us the flexibility if we do start to push up the contact ore. We're probably -- we've got the flexibility now to actually flex that up and down. And -- but we'll just try to take those decisions to make sure that we can make sure that the business is robust and it's a good risk mitigation, we'll do that. But we are developing some additional work through that front end of the crusher as you deal with liner wear and some of those packages. So it's too early to tell at this stage, but not a big issue by any means. Mitch Ryan: Okay. And then my last question just relates to strip ratio stepped up in the quarter. I thought they've been guided to sort of step down over the course of the remainder of the financial year. Is that just a function of where you are in the mine plan? Can you just give us a bit of commentary about what's happening with the strip ratios going forward? Brett McFadgen: Yes, a bit of where we are in the mine plan and just an opportunity to undertake some of the next cutback as well, whilst we've got good ore stocks, and we're using some of the stockpile contact ore. We just take an opportunity with our efficiencies that we're getting through the mine owner mining transition as well, just to take a bit of an opportunistic look at getting ahead of ourselves in one other cutbacks. Operator: Next we have Rahul Anand from Morgan Stanley. Rahul Anand: Dale and team, look, a lot of the operational questions have been asked. I wanted to come back to the pricing. Obviously, a very strong quarter for you. Can you perhaps dissect that performance into the 3 parts that contribute to it? Obviously, spot sales being one provisional pricing and then also the shipment timing, if you had to kind of help us understand which one of the sort of key drivers for that very strong result, especially versus your peers? And that might help us kind of thinking about the future pricing, and I'll come back with a follow-up. Dale Henderson: Sure. Rahul, so I can obviously expect to this in general terms. But the -- in terms of the quarter, which was there was some spot sales by proportion, pretty small. And the pricing and the realized prices in GPC through offtake sales very much as the majority as to what is the makeup of that pricing. And again, I'll talk in general terms. It's broadly spodumene-indexed and the timing is broadly as calculated close to the time of shipment or shortly thereafter, depending on which offtake. So you might recall that as we're working through a sort of a price decline environment that was a disadvantage to us in certain quarters, we were 1 or 2 percentage points below some of our competitors, depending on how they're going. Well, at this part of the cycle where the trend is reversed. This structure works in our favor as pricing rises to have pricing essentially finalized in the future which works through advantage in a rising market. So that's principally, I think the main cause of the delta between us and the competition, of course, not knowing what our competition is up to, I'm presuming here. Rahul Anand: Got it. Okay. And just for the follow-up, just coming back to the original question around Ngungaju restart. So obviously, you're having conversations with your downstream partners about floor pricing, et cetera. But given where the price is currently for spodumene, it's moved up very rapidly and created a genuinely large margin for you there. Is it fair to think along the lines that there is opportunities here to restart, even if you don't get those commitments? Or is that absolutely going to be the deal breaker if you're thinking about that restart and you don't get that floor pricing agreement in place? Dale Henderson: Yes. Good question, Rahul. I don't think it's a deal breaker. The presence of floor prices in the industry is few and far between in terms of what we've been able to observe. And historically, we haven't placed reliance on full prices, but we'll see how we go. So the short answer is no. I don't think the restart decision will necessarily be contingent on that requirement. But ultimately, [indiscernible]. Operator: Next, we have Austin Yun from Macquarie. Austin Yun: Most of the questions have been asked. Just a quick one on your comments about the upstream growth portfolio given you're doing the revaluation, can please confirm, are you referring to the internal opportunities you're having already? Or this is more kind of outside of the Pilbara Minerals in an inorganic way to further boost and beef up your upstream portfolio? Dale Henderson: Austin, the comments around Australia about organic growth profile of Pilgangoora. Nothing, nothing about inorganic. Operator: Next, we have Matthew Frydman from MST Financials. Matthew Frydman: Sure. Date and team, can I please extend Rahul's question on the potential Ngungaju restart. We're just wondering your thoughts on whether the resilience of Ngungaju through the cycle has changed with the improvements you've made to the asset or could make to the asset. You mentioned the crusher upgrade and you've talked previously about other improvements you could make before turning it on. I guess, but also what you've done across the site in terms of owner operations or mineralogy understanding and adjusting the mine plan collectively, are all of those things enough to ensure that if you do turn Ngungaju back on, you can be confident that it's going to underpin a return and you don't need to turn it off again through the cycle even if you don't have a price floor in your offtake or is it always going to be a bit of a swing asset and the Board is really going to have to take a view on, I guess, the market and the timing of bringing that asset back into the current market? Dale Henderson: Yes, sure. Thanks, Matthew. To address that, I might sort of go big picture and then ladder down a little bit. So as we think about the overall Pilgangoora operation on a multiyear horizon, we've, of course, been working hard to drive down the cost structurally, and we're pleased to report this last -- the quarter results we released today sort of speak to that disciplined investment over time. So obviously, all the owner-operated mining or the efficiencies there, the ore sorting at Pilgan, progressive power installations, the trend to more owner operate across the board, et cetera, et cetera, all of that sort of impounded into the lower cost we're enjoying. But then as we step down to the processing plant level, as it relates to Ngungaju, that too has been on a journey of investment and driving costs down. But in the main, I think we're pretty much at the back of the optimization curve. You might recall that over the years, we did a full sort of build-out of a new float circuit, a bunch of refurbishment, adding in a whole bunch of other tech, but we're basically maxed out that asset and the main -- given the bones of it or where they were in terms of Altura built. So what that all means is the Ngungaju asset on a processing basis is higher cost than the Pilgangoora processing plant. So a bit of a long answer, but that's why we turned it off. So we went to the P850 model as there was a chance to preserve cash in a particularly low-priced environment. Now to your question of what's the probability that it's turned on and sustained on is, of course, a function of market pricing. Now when you look in the rearview mirror and as we've discussed historically, pricing can sometimes be irrational and disconnect from fundamentals for the lithium market. And that was certainly our view as we look back as recent 6 months, where we saw pricing down around the high 500, sort of 600, that was deep into the cost curve. And most of the industry was losing money. That didn't make sense. So as we look forward to that environment occur again, who knows would be the answer. If the lithium market remains volatile and hence, we continue to remind the market of that picture. But volatility is not always bad and it cuts both ways. And this is really where the flexibility of our operating platform comes to bear. And yes, we like the idea of potentially bring that on, making hay while the sun shines and then look at that sustained well, that will be fantastic for PLS and our shareholders. We'll see what happens. Matthew Frydman: Okay. Detailed answer to obviously, a pretty complex question. Can I maybe just quickly one for maybe for Flavio and happy to take it offline if it's easier. But if I just look at the revenue reported in the December quarter $373 million, and I take you sales volume, your reported realized price and the exchange rate for the quarter, I guess to more like $410 million. So can you explain the difference? I suspect it's to do with how you recognize revenue for some of those pay adjustments. But yes, there's a short answer. So that's appreciated. Flavio Garofalo: Yes. Matthew, it's spot on. It's also due to timing differences and movements within debtors. But we can take it offline. I can walk you through that in detail. Operator: Next, we have Kaan Peker from RBC. Kaan Peker: Just continuing on the Ngungaju restart, sort of understand how the assets evolved over the course of the last couple of years. But is there a question around pricing stability? Or is there a requirement around pricing stability or offtake commitments that need to be seen before a restart? Just potentially avoiding adding supply into a policy-driven market. And then secondly, I'll circle back with one on the assets. Dale Henderson: I think I got most of that. In terms of pricing stability, yes, that's sort of central to the various dimensions we need to weigh up around the restart decision. And that's, of course, what we're thinking through deeply at this time. And ultimately, we'll be recommending a path with the Board. So we're still very much working through that thinking. But central to that is what do we think the strength of the market is. Of course, with current pricing today, that asset, the Ngungaju asset will make a very, very strong margins. I think we're all very comfortable with that. The question is, yes, to what sort of strength of confidence do we see it persisting in the future. So we're weighing that up. But I have to say, in terms of all of the indicators I've got access to, we are very positively disposed to the short-term outlook. Everything is looking very, very strong on sort of a 6- to 9-month basis. Obviously, the further that you look out, it gets harder to take a view. But in terms of what I'm seeing to the computations I'm having across our customer set and including some of the major chemicals groups whom I met face-to-face with as recent as the weekend, the near-term outlook is looking very positive, but we'll see how we go. Kaan Peker: Just maybe also adding on to that some of the softer elements sort of hiring and when remobilizing, how is that being considered? Brett McFadgen: Yes, Kaan, Brett here. It's a great question. When we decided to put the Ngungaju asset into care and maintenance, we returned quite a number of our key staff so that we would -- we redeployed them into the P1000 operation into various roles over there. So we've got some key people that we can place back straight into that asset if we do get the go ahead to restart. So that's a great ability to have that experience there. And then we would refill the rest of the remaining roles with just industry and go out to recruitment. And yes, we have a good training program at site as well. So yes, I think the timing of that would be part of the -- as we've said in the 4 months ramp up. Dale Henderson: We're not anticipating, sorry, Kaan, just to add, we're not anticipating any issues in that regard in terms of total personnel to recruit. The volumes are not that high. And just if we can blow our own trumpet, the turnover rates are at our lowest level ever in history of the company. So we like to think that speaks to the company we've got and the culture we've got and we think we have -- it's a work in progress, but we think we've built a good reputation for ourselves, and we're not expecting any challenges as we go for a recruitment drive. Kaan Peker: Understood. And second one on Pilgan. Just understand that more contact was being fed. Do you have a better sense on sort of the upper bounds on using contact ore now before recoveries and costs start to degrade meaningfully. It sounds like possibly happening now given the added maintenance around wear and tear and contract crushing. Is that fair to assume? Brett McFadgen: Yes. A lot of the work that we've done through the optimization of our ore sorting has been around what are our limits. We understand the ore mineralogy really well. So now it's really just getting that balance right of making sure that our costs are in the mining and the processing are giving us the best outcome financially and also the recovery is one of the variables is contact ore, but I would say that the work that we've done with P1000 and our operating teams on site just gives us that robustness around that recovery improvement. And really understanding where we go with our contact ore volume percentage as well. And that's built on the years of test work that we've done to understand the mineralogy and the plant performance. So I think it really kind of reinforces that life of mine recovery assumptions as well. Operator: Next, we have David Feng from CICC. Tingshuai Feng: I have some follow-up questions on the restart Ngungaju. Just wish to have some color on the restart costs if possible? Like should we expect any kind of extra CapEx to be involved? Brett McFadgen: Yes. David, there is -- we've done our refurbishment work, which was fairly minor and included in our capital outlook. So there's not a large capital outlay to restart Ngungaju. It's mainly in the cost curve, as we talked to before, in recruitment and ramp-up and some maintenance getting ready out of care and maintenance. But yes, nothing much in the capital front. Tingshuai Feng: Before being put on care and maintenance, it should be around like 20% to 25% higher than Pilgan, so shall we expect this cost number to be subject to any potential changes? Like how would the recovery be affected? Dale Henderson: David, I might have a crack at that and Brett can weigh in. Yes, in terms of outputs from Ngungaju, the best guide would be to go back to prior to when we put in care of maintenance. So that issue has been such the recoveries, volumes and you take a view of unit costs at the aggregate level. And -- but we don't split it out, we don't report plant by plant, but I'd point you to that to get a guide. As we think about our confidence around being able to produce those outputs again, my view is very high. We've got complete confidence in Brett and the team. It sets you probably the new floor. Brett? Brett McFadgen: Yes. Yes, absolutely. And P1000 and the ore mineralogy work that we've been doing with is directly applicable over to Ngungaju as well. So I have confidence, as we have said before, we've got key players from that operation within our operation to go back in there, and we're advancing as we go. So I've got confidence that we'll -- if we get the go ahead and have all the indicators are there to give us the confidence then we'll bring that plant on and continue on from where we were. Operator: There's no further questions from the audio side. I will now pass to James Fuller. James Fuller: Thanks, Maggie. Just a few questions from the webcast. Dale, based on your leadership and the disciplined approach to capital allocation, where do you see PLS in 10 years' time? Dale Henderson: That's a great question. I think my hope for PLS and the vision that we have, the team is rallied behind us, our aim is to be a material player in this industry. We want to be a mainstay of the industry, and that is absolutely within our grasp care of the organic growth opportunities we have. By a reckoning, if P2000 was built today, we would be the largest lithium producer globally. But further, of course, we've got the Colina asset plus downstream initiatives. And on a 10-year horizon, you'd have to expect PLS to carry on and do more leveraging the unique skill sets, know how supply chain relationships were built. So we've got a very motivated energetic team. We're very focused on making the most of this incredible growth market. So I think 10 years from today, PLS will be an impressive company. We're set up to get there. James Fuller: Any comments about gaining share sales the other day. Dale Henderson: So I have spoken to Ganfeng. They explained to me it's cash management is what they've chosen to do there. I understand they sold 1% of their holding, which must make them about 4% or thereabouts by reckoning. So certainly, no concerns at all with that share sale. And as it relates to our relationship, the various partnering activities we're doing together, it's all on the relationship and fantastic standing. So certainly no concerns there. James Fuller: Thank you, Dale. Is PLS seeing operational productivity gains and cost savings from the use of AI? Dale Henderson: Brett, do you want to? Brett McFadgen: Yes. Yes, early days as we go into the AI, but the AI is giving us optionality to mine through a lot of the data and look for some of the trends. So we're certainly on that journey. And yes, some of the technology we put in with P1000 will give us some good insights once we can get the AI to look at that on a deeper level, but early days as it is with a number of operations. James Fuller: Do you see the growth in BESS connected to increasing energy demand of new technologies, including AI and quantum? Dale Henderson: Short answer is yes. I mean, the BESS growth rates have been very impressive. But the reasons behind that growth rate are many, and it does include data centers and, of course, data centers being built for AI and the necessity for energy stability. That's a key sub-growth segment of BESS. But separate to that, is it just makes sense to -- for grid stability and lower cost energy, in particular, when it's interconnected with solar and other renewables and solar growth rates continue to be phenomenal. globally. So adding depth to those systems is abundantly sensible. So this is all part of what's fueling BESS growth rates globally. James Fuller: Okay. How is the midstream demonstration plant being received within the sector? Is there any interest from other producers to use the technology? Dale Henderson: So as it relates to the demonstration fine concept in terms of a midstream product, yes, we get plenty of inbound interest around that concept. And we are engaging with market around potential buyers of the product from the downstream plant if and when we're going to the next phase of that project as it relates to the actual processing technology itself. The short answer is yes. There's other competitors who are very interested in the tech and that would be wise to be interested and we're open for that. Our JV with Calix contemplates the option of allowing others. Ultimately PLS in combination with Calix will be a benefit of the proliferation of that tech, if that's where it ends up and that could potentially be a future revenue stream. James Fuller: If you were to go ahead with P2000 and Colina, are you concerned about bringing on excess supply that will affect the process [indiscernible]? Dale Henderson: The short answer is no. As you consider the expected growth rates of demand for the industry, and project that forward, you need P2000, you need Colina and you need more assets to come online to serve that growth demand. So ultimately, we see both those assets being built in serving the market. As to the probability they both happen at the same time, I think that's pretty low. And the reason they have been more driven around what's the optimum development pathway for each of those assets, respectively, to maximize value. Potentially for Brazil, we might look to do some more drilling and grow the asset over time, but we'll see. We'll come back and provide more color on this later. James Fuller: One for Flavio. What does the $38 million in other investment activities include? Flavio Garofalo: Yes, that includes the equity contribution to the POSCO joint venture, as outlined in the call earlier. James Fuller: Okay. Another one, will there be a dividend declared in the foreseeable future? Flavio Garofalo: I can take that. So again, that was covered by Glyn's question. It's a matter obviously for the Board, and it's something that we'll review in the second half of the financial year. James Fuller: Okay. Final question from online. Tesla appeared to have eliminated a couple of processes towards batch manufacturing. Does Tesla development alter PLS' investment plans for value-add products? Dale Henderson: Not quite clear. Not clear on that. James Fuller: Okay. We're not clear on what that refers to. So we'll leave that one. That's it for online questions. Dale Henderson: Great. Thank you, James. Thank you, everyone, for dialing in for our December quarterly results call. We look forward to coming back to you with the half year in a couple of weeks. Thank you all for your time. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome to PennyMac Mortgage Investment Trust's Fourth Quarter 2025 Earnings Call. Additional materials, including the presentation slides that will be referred to in the call are available on PennyMac Mortgage Investment Trust's website at pmt.pennymac.com. Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified on Slide 2 of the earnings presentation that could cause the company's actual results to differ materially as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earnings materials. I'd like now to introduce David Spector, PennyMac Mortgage Investment Trust's Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Mortgage Investment Trust's Chief Financial Officer. Please go ahead. David Spector: Thank you, operator. Good afternoon, and thank you to everyone for participating in our fourth quarter and full year 2025 earnings call. Starting on Slide 3, PMT generated strong financial results in the fourth quarter with net income to common shareholders of $42 million or a 13% annualized return on common equity. Diluted earnings per share was $0.48 in excess of PMT's $0.40 per share quarterly dividend, increasing book value per share to $15.25 at year-end from $15.16 on September 30. Dan will talk about PMT's fourth quarter financial results in more detail later on in the presentation. Turning to Slide 4, I'd like to highlight the significant progress we made in 2025, accelerating our organic investment creation activities resulting from private label securitizations. As you can see, over the course of the year, we successfully completed 19 securitizations, totaling $6.7 billion in UPB, a substantial increase from just 2 securitizations in 2024. Retained investments from these securitizations grew to $528 million, up nearly tenfold from just $54 million in 2024. This consistent cadence of securitization, actively -- activity firmly established PMT as a top 3 issuer of prime non-Agency MBS in 2025. At the same time, we rotated capital to better optimize PMT's return profile. This included the purchase of $876 million of agency floating rate MBS, and the sale of $195 million of opportunistic GSE-issued CRT investments, where we had realized significant gains. We decided to sell these GSE-issued CRT investments as their forward-looking expected returns fell below our targeted return requirements, and to free up capital for PMT to invest in newly created assets with higher expected returns from our ongoing private label securitization activity. Turning to Slide 6, our synergistic relationship with PFSI remains a unique and proven competitive advantage. First, PMT leverages PFSI's best-in-class operating platform, including its deep and experienced management team, scaled servicing operations, and its large and agile multichannel origination business, which provides PMT with a consistent and high-quality pipeline of loans for investment. Second, PMT is able to efficiently deploy capital into long-term mortgage assets without the operational burdens associated with origination and servicing. And third, PFSI's deep access to the origination market, coupled with PMT's ability to execute private label securitizations provides PMT with the unique opportunity to invest in organically created investments with attractive risk-adjusted returns. And as PFSI further grows its overall share of loan production, PMT is expected to have even more opportunities to organically grow its portfolio. Turning to Slide 7, approximately 60% of PMT's shareholders' equity is deployed to seasoned investments in MSRs and our unique GSE credit risk transfer investments. Mortgage servicing rights account for 46% of shareholders' equity, providing stable cash flows as the loans underlying this investment at a weighted average coupon of 3.9%, far out of the money. Our GSE credit risk transfer investments represent 13% of shareholders' equity and consists of seasoned loans originated from 2015 to 2020. With a weighted average current LTV of 46%, we continue to expect realized lifetime losses on this portfolio to be limited. Slide 8 highlights our robust securitization activity in the fourth quarter and our ability to rapidly grow this business. We completed 8 securitizations totaling $2.8 billion in UPB and retain $184 million of new investments. Our fourth quarter activity included 3 nonowner-occupied deals, 3 jumbo deals, and 2 agency eligible owner-occupied deals. Our momentum has continued after quarter end, with 3 additional securitizations completed totaling $1.1 billion in UPB. Looking ahead and at this pace, we currently expect to complete approximately 30 securitizations in 2026, with targeted returns on equity for these retained investments in the low to mid-teens. The pie charts on Slide 9 highlights our active management of the portfolio to maximize risk-adjusted returns. As strong managers of capital, we expect to optimize returns by recycling capital into assets that maximize risk-adjusted returns, transitioning from lower-yielding assets and the high-quality investments with superior return profiles. We remain focused on optimizing our allocation towards investments with targeted ROEs in the 13% to 15% range. And as we strategically redeploy capital into these higher returning assets, we are successfully driving the long-term return potential of our overall portfolio higher. Turning to Slide 10, you can see the average quarterly run rate return potential expected from PMT's investment strategies over the next 4 quarters. PMT's current run rate reflects a quarterly average of $0.40 per share, down slightly from $0.42 per share in the prior quarter. As I noted earlier, we expect increased investments in accretive non-agency subordinate and senior bonds, primarily through organic securitization activity. Our expected returns from the interest rate-sensitive strategies remains unchanged from the prior quarter as lower return potential from MSRs due to higher prepayment expectations was offset by a decrease in projected hedge costs. In correspondent production, margins have declined, and our expectations for returns from the strategy are down from the prior quarter. Our legacy investments provide a stable foundation for continued strong performance, and we have succeeded in repositioning PMT as a leader in the private label securitization market, where we are organically creating new investments and driving our overall returns higher. As we look ahead, I am confident that this comprehensive and diversified investment platform will drive our ability to continue generating earnings that more than support our dividend and drive long-term value for our shareholders. Now I'll turn it over to Dan to review the fourth quarter financial performance. Daniel Perotti: Thank you, David. Net income to common shareholders was $42 million or $0.48 per diluted common share in the fourth quarter or a 13% annualized return on equity to common shareholders. Our credit-sensitive strategies contributed $24 million to pretax income, generating an annualized return on equity of 27%. Gains from organically created CRT investments were $12 million, which included $8 million of realized gains and carry, and $4 million of market-driven value gains from credit spread tightening. Investments in subordinate MBS from our private label securitizations generated gains of $11 million, including $9 million of market-driven value gains. The interest rate sensitive strategies contributed pretax income of $28 million, generating an annualized ROE of 10%. The returns in this segment were impacted by increased prepayment speeds during the quarter, driving higher runoff of our MSR assets. Income excluding market-driven value changes for this segment was $21 million, down from $36 million in the prior quarter. However, our hedging activities during the quarter yielded net favorable results as the increase of $26 million in MSR fair value was partially offset by $7 million of net declines in fair value of MBS and interest rate hedges, including the related tax benefit. Our MSR asset at year-end was valued at $3.6 billion, down slightly from the prior quarter as gains from changes in fair value inputs and new MSRs from production were offset by the higher levels of runoff. Overall mortgage delinquency rates for PMT's primarily conventional MSR portfolio remains steady. Servicing advances increased to $97 million from $63 million in the prior quarter due to seasonal property tax payments. No principal and interest advances are outstanding. The Correspondent Production segment reported a pretax loss of $1 million. The negative result was due primarily to spread widening on jumbo loans during the aggregation period, as well as lower overall channel margins as competition increased during the quarter. The UPB of loans acquired from PFSI's Correspondent Production through our fulfillment agreement totaled $3.7 billion. Of this, $2.9 billion in UPB was conventional conforming correspondent volume and $800 million in UPB was non-agency-eligible correspondent volume. PMT purchased 17% of total conventional conforming Correspondent Production and 100% of non-agency eligible Correspondent Production for PFSI in the fourth quarter. In the first quarter of 2026, PMT expects to purchase 15% to 25% of conventional conforming Correspondent Production and 100% of correspondent non-agency eligible loan volume, consistent with levels reported in recent periods. PMT also acquired $1.8 billion in UPB of loans from PFSI's production outside of their fulfillment agreement for inclusion in private label securitizations. The weighted average fulfillment fee rate was unchanged from the prior quarter at 18 basis points. In total, PMT reported $21 million of net income across its strategies, excluding market-driven value changes, down from the prior quarter, primarily due to a decreased contribution from the Correspondent segment and increased runoff from MSRs as discussed earlier. Turning to Slide 15, we highlight the flexible and sophisticated financing structures PMT has in place to support its diversified portfolio of investments. During the quarter, we raised $150 million of new unsecured financing through opportunistic reopenings of our exchangeable senior notes due in 2029. We currently expect to retire the $345 million in exchangeable senior notes due in 2026 using capacity from existing financing lines. Finally, on Slide 16, PMT's total debt-to-equity ratio increased to approximately 10:1 from 9:1 at September 30, as we continue to retain investments from securitizations. The increase in our total debt-to-equity reflects growth in nonrecourse debt associated with these transactions, where all securitized loans are required to be consolidated on our balance sheet for accounting purposes. As a reminder, the source of repayment for this debt is limited to the cash flows from the associated loans in each private label securitization, mitigating any additional exposure to PMT. We continue to believe that debt to equity, excluding nonrecourse debt is the best metric for measuring our core leverage, and that ratio remained within our expected range at 6:1. We expect the divergence between these 2 metrics to continue increasing as our securitization program grows. We'll now open it up for questions. Operator? Operator: I would like to remind everyone, we would like to only take questions related to PennyMac Mortgage Investment Trust, or PMT. [Operator Instructions] Your first question comes from Doug Harter from USB (sic) [ UBS ]. Douglas Harter: Just hoping you could talk about the return expectations for the interest rate strategy. I would expect that prepayments probably stay elevated, kind of how do you offset the decline in that profitability to kind of get back to the target range? Daniel Perotti: So overall, in terms of the MSRs, there's a limited portion of the MSRs that have that responsiveness to higher level interest rates. And so there's -- it's really a combination of both -- a combination of both additional recapture, which we expect to grow on those loans, which we expect to grow through the year from PMT's recapture provider, which is PFSI. As well as we expect the impact of those prepayments to dilute a bit through the year as well just based on the percentage of the portfolio that they represent and the fact that we are adding at a slower pace and that overall portion of the portfolio is generally not expanding at a rapid pace. But I would note that overall, in terms of the -- in some sense, those -- the MSRs need to be viewed in the context of the entire interest rate sensitive strategy, which if you look at our -- which if you look at our run rate on Page 10 of the earnings presentation, remained at that 12.5% annualized ROE overall. And so there is some complementarity between those MSRs and the offsetting interest rate exposure that they have versus the agency MBS, which, generally speaking, have had over the past few quarters, elevating returns on equity. Operator: Your next question is from Bose George with KBW. Bose George: Can you talk about competition in the non-agency space on the production side? David Spector: Yes. So I think it's -- it's what you'd expect. I think on the jumbo side, we're seeing very healthy activity from the likes of Rocket Mortgage on the retail side and EWM on the broker side. I think that we have been outperforming both as a percentage of our originations, which speaks to the dynamic nature to how we manage our secondary marketing efforts. But I do think that, for now, we don't see a lot of bank competition. We do see -- the third name I should mention is Redwood Trust. I mean, they are active in the jumbo market from time to time. But by and large, it's really those -- those are the shops that we're seeing as our competition. Bose George: Great. That's helpful. And then in terms of the equity allocation to the non-agency securitization, where do you see that trending, say, by year-end? Daniel Perotti: Overall -- I mean, overall, if you again look at the run rate, our weighted average allocation reflects the -- basically the average through the next 12 months. So we have it at 9% as an average through the next few months. As we get to the end of the year, it's a few percentage points higher than that. So pressing above to probably 11% or 12% by the end of the year. David Spector: Bose, what I think in doing non-agency securitizations, one of the things that we balance, of course, we like the returns on the investment, but there's an aggregation risk in terms of holding the loans until securitization. And so we're trying to manage that risk in keeping in mind, especially on jumbo securitization just kind of trying to dimension and monitoring what that risk is. So that's why we're -- we've grown our production and securitizations in a meaningful, meaningful way. But I do think that, that's something that we're going to look to find exciting and alternative solutions to do more while not taking on the incremental risk of growing an aggregation pipeline to $2 billion, $3 billion. Operator: Your next question is from Jason Weaver with Jones Research. Jason Weaver: As it pertains to the securitization opportunity, can you comment on financing costs you've seen for investor jumbo and [ HC ] eligible deals as of late. And also, is there any possible deals that -- legacy deals that you might look at to call and resecuritize near term? David Spector: I think that as it pertains the -- on the financing side, it's a robust competitive market for financing. And so 1 of the things that we've been very -- we've been the beneficiaries of this taking advantage of that. Having said that, in Q4, we implemented a facility that doesn't have a mark-to-market feature, and that's very important from a risk management standpoint. It's something, if you recall during COVID, we had similar type structure in place where we did have mark-to-market -- we didn't have the mark-to-market risk. And so this is it. It doesn't take away all of the mark-to-market risk that would take a very dramatic event and then the ability to work out of a major event is contemplated. And so there's a bit of a trade-off in terms of the cost versus the risk. But suffice it to say, and the IR team could get back to you on the absolute levels. But it's a pretty competitive market out there. There's a lot of capital flowing to finance these assets. Jason Weaver: All right. And then so under some of these affordability driven initiatives that the administration is floating, can you talk a bit about the origination capacity of the correspondent chattel, which is PFSI inclusive and it's bill to expand under what could be greater demand going forward? David Spector: Yes. Look, I think that there is a good amount of capacity in the system to deal with any program that the GSEs put out. Obviously, if you put out something that's along the lines of a streamlined refi program in the conventional space, that's going to introduce a level of demand for refinances. It's going to outstrip the capacity. But ultimately, that will take care of itself. And as I mentioned on the PFSI call, 1 of the issues that we're observing in the marketplace is there's actually excess -- more excess capacity in the sector than I thought there would be. And I think it's basically because there's been such -- there's been talk about rates coming down now for upwards over the last 12 months that has given people the opportunity to grow their capacity. Now as I said, if something meaningful gets deployed and all of a sudden, you go from 20% of the market being refinanced with the 50% of the market, that's going to change this dynamic. But I think that we as an industry and our correspondence, I know are in pretty good shape for, call it, $2.4 trillion, $2.5 trillion market. Much beyond that, we would require to bring up more capacity. Operator: [Operator Instructions] Our next question comes from Eric Hagen with BTIG. Eric Hagen: I think I just have one. I can't recall if PMT has ever sold any MSRs, but would you ever consider that as an option either opportunistically or for risk management purposes to delever the balance sheet? David Spector: We would consider it. I think that one of the things that I'm really pleased about in 2025, and this is the theme throughout the years, we've been much more agile and dynamic in terms of managing the portfolio. And so as we've been fortunate enough to raise capital to focus on being able to pay off the convert and do other things. As we find ourselves in a position where we can see higher returning assets versus MSRs, of course, we would look at it. And as evidenced by the MSR trade that we did out of PFSI, this management team knows how to sell and close and transfer servicing. And so that's something that we would clearly contemplate. Operator: Our next question comes from Trevor Cranston with Citizens JMP. Trevor Cranston: Can you guys talk about what you've seen in terms of spread behavior in the non-agency market in January, given the significant amount of tightening that's happened within the agency space? And if that's flowed through to any meaningful change in securitization execution? Daniel Perotti: Yes. Overall, I think in the non-agency space, spreads have been stable to a tightening in sympathy with the agency spreads. Overall, we've continued to see fairly robust demand for securitizations in January. And so overall, it's been supportive of our continued securitization activity. We noted our securitization activity in January, we completed 1 of each of the types of deals that we are -- that one deal under each collateral type that we've been issuing under thus far nonowner-occupied jumbo and agency eligible owner-occupied, as I said, saw robust demand for each of those. And so overall, we continue to see the market as being supportive of the securitization activity. Trevor Cranston: Got it. Okay. And then looking at the prospective return slide, the returns on the CRT position look like they're pretty competitive with what you guys are expecting on the new subordinate retention. Would you expect to find more opportunities to opportunistically sell within the CRT book? Or do you think that's kind of reached a point where it's likely to be kind of -- and more of a stable runoff mode at this point? Daniel Perotti: So the -- what we had sold from the CRT book was actually CRTs that were not specific to PMT collateral that we had acquired opportunistically when spreads were wider. Basically, spreads tightened in significantly and the returns on those had fallen below our threshold. And so we sold entirely out of that third-party CRT opportunistic position. We have retained all of our -- all of the credit risk transfer that was based -- that's based on our lender credit risk share that came directly from our production, from PMT's production. We would expect to continue to retain that. Some of that has been on our books for quite a long period at this point. We actually had 1 of our deals, which had a 10-year maturity, mature late last year. We have a few of the smaller deals maturing as we move forward. Given the return profile and the really high-quality nature of the underlying loans that have really significant home price appreciation, low mark-to-market LTVs, high FICOs, low expected future credit losses, we'd expect to maintain that position as we go forward. Operator: We have no further questions at this time. So I'll now turn it back to David Spector for closing remarks. David Spector: Thank you all for joining us. We are very proud of the transformation PMT has undergone this year and look forward to all the opportunities ahead in 2026. If you have any additional questions, please reach out to our Investor Relations team, and thank you very much for the time and thoughtful questions. Operator: The call has ended. You may now disconnect.
Operator: Good afternoon, and welcome to PennyMac Financial Services, Inc.'s Fourth Quarter and Full Year 2025 Earnings Call. Additional earnings materials, including presentation slides that will be referred to in this call are available on PennyMac Financial's website at pfsi.pennymac.com. Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified on Slide 2 of the earnings presentation that could cause the company's actual results to differ materially as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earnings materials. Now I'd like to introduce David Spector, PennyMac Financial's Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Financial's Chief Financial Officer. David Spector: Thank you, operator. Good afternoon, and thank you to everyone for participating in our fourth quarter and full year 2025 earnings call. As shown on Slide 3, PFSI finished the year with a solid fourth quarter, generating net income of $107 million or $1.97 per share. To refresh, in the third quarter, we capitalized on higher lock volumes driven by an initial decline in interest rates to generate an 18% annualized return on equity. While our previous guidance was for annualized operating ROEs in the high teens to low 20s, the sustained rally continued into the fourth quarter and drove market prepayment speeds significantly higher than what both we and the market expected. This activity resulted in a meaningful increase in realization of MSR cash flows and accelerated runoff of our servicing asset. While we generally expect production income to act as a natural hedge to this runoff, the benefit in the fourth quarter was impacted by competitive dynamics. Many industry participants have also added significant capacity in anticipation of lower rates, and this excess capacity has created a more competitive origination market, limiting expected production margin increases and revenues typically associated with an interest rate rally. As a result, the growth in our production segment income did not fully offset the higher level of runoff in our MSR portfolio, leading us to generate a 10% annualized return on equity in the fourth quarter. I will speak to the strategic actions we are taking to improve overall production income later in my presentation. Turning to Slide 4. You can see that for the full year 2025, our results were very strong. Pretax income was up 38% and net income was up 61% from their respective 2024 levels. We generated a 12% return on equity and grew book value per share by 11%. These results highlight our ability to consistently deliver stockholder value through disciplined execution, driven primarily by the strong operational performance of both segments, which you can see on the right side of the slide. In our Production segment, total volumes increased 25%, driving a 19% increase in pretax income. Similarly, in our Servicing segment, we grew the total unpaid principal balance of our portfolio by 10%, which, along with improved MSR hedging results helped drive a 58% increase in pretax income from the prior year. Turning to Slide 6. You can see the financial impacts of the dynamics I described earlier. While production segment income was approximately double the levels reported in the first two quarters of this year, the growth from the third quarter to the fourth quarter did not offset the runoff of the portfolio's prepayment speeds increase. However, we've taken strategic and targeted actions to drive improvements over the course of this year. By accelerating the deployment of new technologies such as Vesta, quickly ramping our capacity and continuing to enhance efficiencies, we are positioning ourselves to better capture the significant opportunities presented by lower mortgage rates and further increase production income in comparison to MSR runoff. In January, total volumes have been consistent with those reported in the fourth quarter, but with a mix shift towards the higher-margin direct lending channels. This is driving our expectations for production segment income in the first quarter to be higher. Channel margins remain at similar levels. On Slide 7, we highlight the significant opportunity for our consumer direct channel as mortgage rates decline. As of year-end, we serviced a combined $312 billion in UPB of loans with note rates above 5%, of which $209 billion in UPB of loans had a note rate above 6%. As rates decline, these borrowers tend to benefit financially by refinancing their loans. While our recapture rates have improved, we see significant upside potential from current levels. To that end, we are making targeted investments in AI and other technologies to drive these recapture rates higher and ensure we capture the value embedded in our portfolio. The cornerstone of our technological investment is shown on Slide 8. We previously discussed the early stages of our transition to Vesta, the modern and next-generation loan origination system we invested in to improve and grow our consumer direct lending operations. We are on track to have Vesta fully implemented across our consumer direct channel in the fourth quarter and completing this migration on time -- excuse me, in the first quarter. And completing this migration on time is a key driver of our 2026 outlook, ensuring that for the bulk of the year, we are operating on our most efficient AI-enabled platform in order to capture the production income improvements we expect. We are already seeing the power of this technology transform our workflow. By deploying AI-driven automation for tasks that were previously performed manually, we are experiencing an immediate impact, unlocking efficiency gains of approximately 50% for our loan officers. Walking a loan with a borrower on the phone, which took over an hour on our legacy system has been cut to just 30 minutes with Vesta. The impact also extends to our fulfillment operations, where intelligent workflows are streamlining the loan manufacturing process. We are seeing a reduction in the average end-to-end loan processing time by approximately 25%. When multiplying the sales and fulfillment time savings across the number of loans originated on our consumer direct channel in 2025, it represents approximately 240,000 hours of time saved. This operational velocity has a direct financial impact with a corresponding 25% decrease in our operational cost to originate, creating another lever in our pricing strategy and giving us the flexibility to be even more competitive in the market. It represents a transformative shift in our unit economics, increases our capacity without substantially increasing operational costs and unlocks new levels of scalability. This enhanced operational scale will be a huge benefit in an interest rate rally. If we see a continuation of the rate decline and volume increase, this AI forward infrastructure will allow us to rapidly scale in order to absorb an increase in recapture volume. Looking ahead, this modern architecture allows for rapid iteration and integration of new AI processes and technologies to deliver meaningful improvements in the customer experience while unlocking significantly more efficiency gains throughout 2026 and beyond. Finally, on Slide 9, you can see how Vesta fits into our broader customer retention strategy. Our customer relationships are our most important asset, and we are driving strategies to retain those customers for life. A faster and more efficient origination and processing workflow is just a part of our synchronized effort. We are beginning to utilize artificial intelligence to drive greater customer service and using deeper servicing integrations to anticipate borrower needs with real-time data. By combining this technology with our growing brand presence, we are transforming single transactions into lifetime partnerships. We believe these investments will allow us to achieve greater efficiencies and drive recapture to new heights. And we expect PFSI's operating return on equity to move into the mid- to high teens later in the year. As we look ahead, PennyMac is uniquely positioned to continue leading the mortgage industry. Our balanced business model and cutting-edge technology provide a powerful foundation for our continued growth, and we remain focused on the continued advancement of our strategies to drive sustained long-term value for our stockholders. I will now turn it over to Dan, who will review the drivers of PFSI's fourth quarter financial performance. Daniel Perotti: Thank you, David. PFSI reported net income of $107 million in the fourth quarter or $1.97 in earnings per share for an annualized ROE of 10%. These results included $1 million of fair value gains on MSRs net of hedges and costs, and the contribution from these items to diluted earnings per share was $0.01. PFSI's Board of Directors declared a fourth quarter common share dividend of $0.30 per share. On Slides 11 through 13, beginning with our production segment, pretax income was $127 million, up slightly from $123 million in the prior quarter. Total acquisition and origination volumes were $42 billion in unpaid principal balance, up 16% from the prior quarter. Of this, $38 billion was for PFSI's own account and $4 billion was fee-based fulfillment activity for PMT. Total lock volumes were $47 billion in UPB, up 8% from the prior quarter. PennyMac maintained its dominant position in correspondent lending with total acquisitions of over $30 billion in the fourth quarter, up 10% from the prior quarter. Correspondent channel margins were 25 basis points, down from 30 basis points in the third quarter due to increased levels of competition. Under its fulfillment agreement, PMT retains the right to purchase all nongovernment correspondent loan production from PFSI. In the fourth quarter, PMT purchased 17% of total conventional conforming correspondent production and 100% of non-agency eligible correspondent production, both percentages unchanged from the prior quarter. In the first quarter of 2026, we expect PMT to purchase 15% to 25% of total conventional conforming correspondent production and 100% of non-agency eligible correspondent production, consistent with levels in the recent quarters. In broker direct, we continue to see momentum as we position PennyMac as a strong alternative to channel leaders. Originations were up 16% from the prior quarter. However, locks were down 5% as we maintained our pricing discipline in highly competitive segments of the channel. The number of brokers approved to do business with us continues to grow, reaching nearly 5,300 at year-end, up 17% from year-end 2024, reflecting the growing number of brokers who are increasingly recognizing and leveraging our distinct value proposition. The revenue contribution from Broker Direct was essentially unchanged from the prior quarter as the impact from lower fallout adjusted lock volume was offset by higher margins. Consumer direct volumes were up with originations up 68% and locks up 25% from the prior quarter. However, the contribution from higher volumes in the channel was largely offset by lower margins from increased competition as well as a higher percentage of first lien versus closed-end second lien loans and a more focused effort on recapture of higher balance, lower-margin conventional loans. We also benefited from a strong secondary market execution relative to initial pricing, which contributed $34 million to PFSI's account revenues during the quarter. Production expenses net of loan origination expense increased 3% from the prior quarter due to higher volumes. Turning to Servicing on Slides 14 and 15. Our Servicing portfolio continued to grow, ending the quarter at $734 billion in unpaid principal balance. $470 billion was owned servicing, $227 billion was subserviced for PMT and $12 billion was subserviced for other non-affiliates. $24 billion was interim subservicing related to an MSR sale, which has since been transferred to a third party. The Servicing segment recorded pretax income of $37 million. Excluding valuation-related changes, pretax income was $48 million or 2.6 basis points of average servicing portfolio UPB, down from $162 million or 9.1 basis points in the prior quarter. Loan servicing fees were roughly flat to the prior quarter due to MSR sales, which offset owned portfolio growth from production. Earnings from custodial balances were unchanged from the prior quarter as lower earnings rates offset the benefit of higher average balances. Custodial funds managed for PFSI's own portfolio averaged $9.1 billion in the fourth quarter, up from $8.5 billion in the third quarter. Realization of MSR cash flows was up 32% from the prior quarter, consistent with the increase in prepayment speeds for our owned portfolio as lower mortgage rates drove higher prepayment activity. Operating expenses were $82 million for the quarter or 4.5 basis points of average servicing portfolio UPB, down from the prior quarter. EBO revenue decreased as the reintroduction of FHA's trial payment plans extended modification time lines and delayed redeliveries into future quarters. Similar to the prior quarter, we saw the operating and GAAP ROEs converge as gains from changes in fair value inputs on MSRs were offset by hedging declines in costs. The fair value of PFSI's MSR increased by $40 million. $35 million was due to changes in market interest rates and $5 million was due to other assumption and performance-related impacts. Excluding costs, hedge fair value losses were $38 million and hedge costs were $2 million. As previously stated, we expect hedge costs to remain contained and that we will more consistently realize results in line with our targeted hedge ratio going forward. Our hedge ratio is currently near 100%, up from 85% to 90% last quarter. Corporate and other items contributed a pretax loss of $30 million, down from $44 million in the prior quarter, primarily driven by reduced expenses related to technology initiatives and performance-based incentive compensation. PFSI recorded a provision for tax expense of $28 million, resulting in an effective tax rate of 20.5%. The provision for tax expense included a $4 million benefit -- tax benefit consisting of a repricing of deferred tax liabilities and an adjustment to the 2025 tax accrual. PFSI's tax provision rate in future periods is expected to be 25.1%, down slightly from 25.2% in recent quarters. As noted earlier, we sold approximately $24 billion in UPB of low note rate government MSRs to a third party on a servicing release basis. This sale represented an opportunistic rotation of capital. By monetizing these lower-yielding assets at a strong valuation, we are unlocking capital to strategically reinvest into the continued growth of our servicing portfolio with new originations at current market rates and significantly higher recapture potential while maintaining prudent levels of leverage on our balance sheet. Total debt to equity at year-end was 3.6x and nonfunding debt to equity at the end of the quarter was 1.5x, both within our targeted levels. Finally, we ended the quarter with $4.6 billion of total liquidity, which includes cash and amounts available to draw on facilities where we have collateral pledged, giving us significant liquidity resources to be able to deploy opportunistically or in adverse market circumstances. We'll now open it up for questions. Operator? Operator: I would like to remind everyone, we will only take questions related to PennyMac Financial Services, Inc. or PFSI. [Operator Instructions]. Your first question comes from the line of Terry Ma with Barclays. Terry Ma: So, I guess to start, so you guys have kind of talked about increasing capacity in consumer direct all year long. You guys have kind of talked about holding excess origination capacity, kind of stacked your servicing book with more current coupon. It seems like almost obviously to plan for kind of like a moment like this. So maybe kind of just talk about like what went wrong? And then on a go-forward basis, like maybe just talk about what you're doing to kind of address the issue and your level of confidence. David Spector: Yes. So, thanks for the question. So, coming out of Q3, we felt very good about our ability to attack the portfolio and be able to participate in the recapture opportunity afforded to us by the decrease in rates. But then as Q4 got underway and throughout the quarter, we saw increasing amounts of amortization that indicated to us that not only perhaps we thought we are adding capacity, but I think two things took place. First, that the rest of the market had to add capacity in place also. And so where you would typically in a declining rate environment, see increasing margins, those also did not come into play. And so the competitive environment for refinances was quite frankly, stronger than what I've seen historically in an interest rate decline. And so we pivoted throughout the quarter and rather quickly to do a few things. One, we're accelerating our move on to Vesta, which will give us additional capacity, as I point out. Two, we are adding even more capacity to not just -- there's a -- we were -- we had capacity in place and we were continuing to build capacity, but these rallies are these flash rallies are so robust that we have to have capacity in place to deal with a 50 to 75 basis point rally in less than a week. And so we're just continuing to add more capacity. We also changed some strategies to really help improve recapture, and we saw some of those strategies pay off nicely throughout the quarter and into January. And so I think that the -- I have a lot of confidence in the team that we're going to continue to accelerate our recapture and accelerate our growth in consumer direct. I think that this is one of the reasons why we expect to get to mid- to high mid-teen ROEs by the middle of the year. And I just think that you're going to continue to see us move into that direction. Terry Ma: Got it. That's helpful. Maybe just a little bit more on the ROE guide of low double digits to kind of mid- to high teens. Like any more color on kind of what's contemplated in that expansion? Like maybe just some more color on that, please. David Spector: Yes. So, look, I think we're -- remember, these forecasts that we give are based on a point in time. And so first of all, we expect an origination market to grow between $2.3 trillion and $2.4 trillion in the year. Rates -- obviously, if rates go up, that will change. We expect to grow production in consumer to grow production and recapture in consumer direct and grow share in volumes and TPO. Correspondent, we are maintaining at generally current flat levels, market share levels. A lot of that is coming out of increased competition we're seeing primarily on the conventional side through the cash windows of the two GSEs as they're looking to proceed on their path to buy more mortgages. We expect margins to remain at levels to those we saw in the fourth quarter. And so this is -- there could be some -- in the fourth quarter, we did see a little margin compression in brokers, the top two participants were very aggressive in a race to be the #1 loan producer. But I think we're going to stay disciplined. But I think what we're not factoring in this, which is what we -- as I said, we've historically seen is margin expansion. And should that margin expansion take place, obviously, there'll be upside from there. We expect the realization of cash flows to remain similar as a percentage of MSR values versus what we saw in the fourth quarter. And I expect that to pretty much be the story. There are some continued efficiency gains in servicing with pretax income grinding higher as a result. There will definitely be some scale benefits that we see coming out of the deployment of the Vesta technology as well as the growth in share in TPO. And there are some additional leverage outside of this that could drive it higher. But I generally believe that we've mapped out and I have the confidence that we can get back to the mid- to high operating ROEs. It's just -- it's not going to be at the pace that perhaps we all would love. Operator: Your next question comes from Mark DeVries of Deutsche Bank. Mark DeVries: David, I think you indicated that the prepayments you saw in your servicing book were even faster than you would have thought. Any insight as to kind of what happened there? Or is it just how rapidly the market responded to rate incentives you kind of alluded to in prior comments? David Spector: I'm sorry for interrupting. Did you want to continue? Mark DeVries: And then just a follow-up. Did I hear you right? Do you expect realization of cash flows, at least in the guidance you kind of provided or at least the high-level guidance to be consistent with what you saw in 4Q? David Spector: In the fourth quarter, yes. Mark DeVries: Yes. David Spector: So let me just point out that the market generally has been surprised by the increased prepayment speeds. They were forecasted, but not to the level that we've seen. And so I think that, that's something that we've heard it throughout the Street in speaking to them, and this is something that has been, I think, kind of -- you've seen it throughout the market. I think that in terms of where we're seeing it, I generally will tell you everywhere. There is probably a little bit more -- it's a little bit more competitive on the higher balance loans, obviously, because there's just -- that's generally where we see brokers focusing on as well as some of our correspondents. Prepayment speeds on lower balance loans, while fast are a little bit slower versus the comparable high balance. On the VAs, it's pretty competitive. But we're getting the expected market share there. The biggest issue from my perspective is you're not seeing margin expansion. And that's something that we're going to -- of course, you know us really well. In the 18 years we've been operating, we're always leaning to get more margin, and we're going to continue to test the waters on that. But it's a bit more competitive than we've historically seen when rates increase. Margins have come up a little bit, but not to the levels that we would have thought given the rally. Mark DeVries: Okay. Got it. And are you seeing some different margins across all the channels in purchase versus refi? Or was it refi that really was under pressure? And also, any thoughts on rates really kind of the decline we've seen kind of reducing some of the lock-in effect and starting to stimulate more purchase activity as well? David Spector: I think that given the fact that everyone is stretched on capacity. We're seeing -- typically, it's on both purchase and refi that we're just -- I'm not seeing one necessarily differentiation. But I think we're focused on -- in our consumer direct channel, we have a purchase team that we continue to focus on purchase activity. On the refi side, one of the strategies we put in place is we -- on the closed-end seconds, we took some of our focus in closed-end seconds and moved it over to conventional. And that's why you see the overall margin differential in consumer direct quarter-over-quarter. That's more of a mix issue than anything else. But I generally think that there there's a lot -- everyone is going after the loans. Operator: The next question is from Bose George with KBW. Bose George: I just wanted to follow up on the same themes here. Is this kind of a structural change in the industry where historically runoff happens, originations pick up and margins pick up because of capacity constraints. And now with technology and is it a scenario where people can run with excess capacity, so you don't see that offset to runoffs? David Spector: I'm not ready to declare it a structural change in the industry, okay? I think that the administration and others in the industry have been warning us for well over a year that they're going to be pulling levers to reduce rates. And so I think it gave people the that they needed to have capacity in place. I think that there is -- on the other side of it, it's going to get increasingly easier to refinance loans as you start to see technologies like we're using and others are using to reduce the amount of time to refinance a loan to get the borrower a lower payment. And so this is why I think that one of the things that we're focusing on more and more is issues like revenue per loan and net income per loan as opposed to margin. because margin as we have it is a gross number. And as we see these expenses come down, I would expect the revenue is the gross margin, but I would expect the net income per loan to go up ultimately. And so that's something that is something we're talking about internally. But I think -- look, I think the story of this quarter, we've seen it with some of those who've already reported, volumes have been up, margins have been down. And I generally think it's just the fact that people were ready for rates to decline in this initial decline. If rates were to decline 75, 100 basis points, you definitely would see margin expansion. There's just no doubt about it. Mark DeVries: Okay. Great. That's helpful. And then in terms of the competition in the different channels, in the correspondent channel, did you -- was it really driven by the GSE cash windows? Or how about sort of other participants? David Spector: Yes. Look, I think on the conventional side, it was generally the cash windows. And I think that's going to be the story for 2026. I think that with the announcement coming out of Washington, D.C., the GSEs are going to be very active. And so we have to -- we will -- I'm not expecting a share decline per se, but I'm not expecting us to be at 25% at the end of the year either. We're going to maintain our discipline, and we're just not going to be focused on volume and share. I think that -- on the government side, there, it's -- we had a really good December. I would say, in October, November, we saw some of the other market participants get very aggressive. And so our market discipline there has caused us to really just wait for the market to come our way. And in fact, as I said, in December, we had a really good December. Operator: Your next question comes from Doug Harter with UBS. Douglas Harter: As you were talking about the benefits from Vesta, do you envision that of actually taking costs out of the origination business or just continuing to build capacity and as volume comes back, lowering the cost per loan? David Spector: The answer is both, okay? I will tell you, first off is with the deployment that will be in place in Q1, we will get the benefits of just a more modern system that will lead to just greater efficiency gains on both the sales side and the fulfillment side. Throughout 2026, and this is what's very exciting for us. We're going to see more and more deployment of AI tools and AI agents that's really going to have a meaningful effect on our ability to originate a loan in as inexpensive as anyone else in the industry, as quickly as anyone in the industry and most importantly, to be able to close the loan when the borrower wants to close the loan. And so that's something that is very exciting to us. And I think that's something that I'm really looking forward to sharing with you all as it gets deployed. Operator: Your next question comes from Trevor Cranston with Citizens JMP. Trevor Cranston: A follow-up on some of the earlier questions. I guess as we think forward for this year, if we were to see an additional leg down in mortgage rates, whether it's driven by reduction in G fees or some of the other things that have been discussed a little bit. How should we think about the net impact on the company if that were to happen? Would you expect to see the production offset kick in pretty well if there is an additional rally? Or how should we think about kind of the net impact on the returns of the company? David Spector: Look, we are -- there's no one driving for more capacity in this company more so than me. And so I will tell you that we want to have enough capacity to be able to withstand a ferocious rally, and that's going to come in two forms. The obvious one is we're going to need to add some headcount to deal with some of the regulatory requirements for LOs to speak to customers. But at the same time, I expect to get more and more capacity benefits coming out of our technology. And I -- it is my stated goal to not get to be in this position where we're saying to you that we had amortization that exceeded the recapture necessary to balance it. And that's something that we are going to continue to perfect. And it's not like aspirational. It's something that's going to take place this year, and it's going to be achieved long before the end of the year. So, I think, that we're going to be in a position to be able to execute on a rally. Daniel Perotti: The other thing that I'd add is that we talked about it a little bit earlier, is that we continue to increase our hedge ratio as well. So as or if interest rates decline further from here, we have even greater protection from our financial hedges that we put into place and our hedging discipline. Trevor Cranston: Got it. Okay. And I guess as a second part to that question, can you maybe talk about how you're thinking about the likelihood of something coming through like a significant reduction in G fees or a change to loan level pricing or sort of other levers that could be pulled in an attempt to lower mortgage rates? David Spector: Of course, I read everything you're reading. I don't necessarily see a reduction of guarantee fees coming. While the administration is hyper focused on affordability and doing what they can to drive down rates, I think the usage of the portfolios to buy mortgages is the logical place for them to continue to lean on. And the $200 billion number is a big number, but that's not to say it couldn't get bigger. I think that as it pertains to loan level price adjustments between the capital rule and other rules that they have, changing those would take some time. And so I generally think that they're going to continue to focus on keeping mortgage spreads tight to treasuries, and they're going to continue to try to job loan rates down. But look, we manage the company to a range of outcomes. And so I generally believe, of course, if GPs comes down, that's better, and we'll have the capacity in place to take advantage of that. And likewise, at times we hear loan level price adjustments are going to be going up. And that speaks to the work we've done to distribute close to 15% of our agency collateral outside of the agencies to insurance companies and whole loan investors. And so managing to the range of outcomes and continuing to build and enhance the customer journey is something that we'll be able to react to. Operator: Your next question comes from the line of Crispin Love with Piper Sandler. Crispin Love: Can you talk a little bit about first quarter activity thus far, what that means for near-term ROEs just you have spreads tighten and mortgage rates got pretty close to 6%. Are you experiencing an episodic rate and pickup in refis? Just kind of curious how purchase is trending and then the momentum through January, the trajectory there? And then just kind of bigger picture, how you'd expect ROEs to trend throughout the year as you add capacity and invest? Is it a ramp higher? Just curious on how you're thinking about it. David Spector: Yes. So, Dan will go over the ramp in a second. January has been a good month. For a month that historically has been very slow coming out of the holidays, we've had a good production month. We're seeing nice increases in production. Offsetting that, we're seeing increases in demand statements that I would expect to see prepayments in February kind of go back to where they were in December. January, I think, will be a little bit slower. And so I think one of the things I'm looking at is our recapture and our recapture numbers are going up. Of course, I want more. Everyone wants more in the organization, and that kind of speaks to the ramp. But it's something that we're seeing. And margins are generally holding in. And so I think that that's something that I really am pleased to see. And I generally think in TPO, we saw a hypercompetitive market in Q4 that I believe is starting to -- we're getting a little bit of rational pricing coming into that. And so I'm generally the belief that our growth in TPO, while perhaps was slowed a bit in Q4 due to a price war, will continue to accelerate at higher margins. Daniel Perotti: And with respect to the trajectory through the year, I think consistent with the way that David described it in our implementation of these initiatives and continued build of capacity and so forth, we are expecting basically a ramp through the year, consistent with the guidance that we gave during the prepared remarks. So starting out in the lower double digits and then ramping up to the mid- to high double digits as we get later in the year. Crispin Love: Great. And then just a little bit deeper into that, kind of what's baked into the ROE guide for realization of MSR cash flows and recapture beyond the first quarter? It seems that 1Q should be similar to 4Q. I think the MSR prepay rate was about 16% in the fourth quarter. So, curious on how you think about that through the year. I completely understand it's just a point in time now, very rate dependent, but just curious on that and kind of where you are on recapture today and what kind of levels you might be targeting? Daniel Perotti: So, overall, in terms of the realization of cash flows, we are expecting on a dollar basis to be at a pretty similar level in the first quarter and also as we move through the year as you have the sort of dynamics given that we did see this initial responsiveness and there will be a little bit of a pullback in terms of borrower responsiveness at these levels as we move overall through the year, but expecting overall dollar realization of cash flows to remain in a fairly similar place to what we saw in Q4 and Q1 and both -- and similarly as we move through the year. With respect to recapture, also expect incremental gains consistent with the way that David had described it as we move through the year to facilitate the increase in production income as well as gains in our share in TPO or in broker that will further increase our production income as -- which will offset some of the declines that we've seen in the servicing segment. Operator: Your next question comes from Shanna Qiu with Barclays. Gengxuan Qiu: So just looking at the FHA delinquencies, it looks like it ticked up to 7.5% this quarter from 5.9% sequentially. I think it was roughly 6% last year. So, can you comment on what you're seeing in the FHA loans? I think previously, you guys had shown some slides that showed your FHA delinquencies substantially below the industry level and it feels like quite a jump there. Any context or color there? Daniel Perotti: Sorry, we weren't able to hear your question very clearly, but I know that it was on delinquencies and specifically FHA delinquencies. So we do see delinquencies increase seasonally in the fourth quarter. We look at our overall delinquency profile or our overall delinquencies for our book increased marginally year-over-year, had a similar sort of slope in terms of delinquencies through the year. Overall, with respect to FHA delinquencies, as we mentioned as in part of the prepared remarks, the FHA did change its policy around modifications during the latter half of the year, moving from allowing streamlined modifications that required no trial payments to requiring trial payments. And really, what that is going to result in is a bit of a lag in terms of loans that had been delinquent, getting those modifications implemented and coming back to current. And so that is generally what is driving some of those increases in delinquencies that you're seeing specifically in FHA. We do expect that, that's primarily a lag and not something that is going to dramatically change the performance overall of the FHA book. We also saw that impact our revenue from EBO redeliveries during the quarter, that went down by about 1/3 from last quarter. Again, we expect that to be just a lag. And our current expectation is that will come back up to levels that we had seen over the past few quarters to come back up by that 1/3 as we get into the first quarter, and we see those folks move through the trial and receive those modifications and come back to current. Gengxuan Qiu: Okay. And then I know you guys mentioned your hedge ratio is now over around 100% and you moved it up from last quarter. I think there's a bit of rate -- there has been a bit of rate volatility in 1Q and we had heard that some -- that could cause some basis hedging issues so far in 1Q. So just any color on the rate moves and if you've seen any impacts on your hedging strategy from that? Daniel Perotti: Overall, during the first quarter thus far, as you said, there has been specifically some basis movements really related to the announcement around the GSE buying. We did see some of that volatility did have a slight impact thus far on our hedging results. Obviously, we're still early in the quarter and a lot of things can change. Overall, I would say it had a slight impact, but not anything substantial. David Spector: The hedge performed really well in the fourth quarter. Daniel Perotti: And third quarter. David Spector: In the third quarter. And I will tell you that absent this one change when they announced that the GSEs are going to be buying mortgages and everything stayed flat with the exception of mortgages, which rallied, which really had a very small effect on us. The hedge continues to perform along the lines that we've seen in the third and fourth quarters. Operator: Your next question comes from Eric Hagen with BTIG. Eric Hagen: A lot of good discussion here. I think I just have one. Lots of debt raised over the last couple of years, unsecured debt. I think a good portion of that has been used to pay down the secured term notes that you guys have. I mean, how do you guys think about the asset liability match on the balance sheet right now if prepayment speeds are picking up, right? And if the macro backdrop is for faster speeds, is there a limit to how much unsecured debt that you keep on the balance sheet? Or do you think there's room to raise more? Daniel Perotti: I mean, so we generally look at our overall debt with respect to the balance sheet. The main lens that we look at that through is our nonfunding debt-to-equity ratio, which we've maintained around that 1.5x basically for the past couple of years, I think, at this point. And so as we continue to build equity in the business and retain equity and continue to build our MSR portfolio, notwithstanding runoff or sales, we do expect to continue to grow our overall MSR asset and our overall equity. And given both of those, we do think that there is potential for additional debt, including unsecured debt as we move forward. With respect to would we -- with respect to our balance sheet, our preference is generally to deploy into unsecured debt. We think that's a stronger deployment, gives us greater liquidity flexibility with respect to our ability to draw down on facilities if we so need that are secured by our MSR as we -- as mentioned in the prepared remarks. And so we do think that there is potential for us to issue additional unsecured debt as we move through 2026 and beyond, but will be related to what the build is like as I mentioned, in terms of our equity and our MSR asset and maintaining our leverage ratios at prudent levels. Operator: Your next question is from Ryan Shelley with Bank of America. Ryan Shelley: Most of might have been answered. I just want to touch back on recapture. It sounds like it's going to be a theme here. So you've talked about investments you're making in AI, other technologies to improve. And then you also, in the deck here, talk about implementation of specific solutions. Can you just run through what those solutions might be? And then I might as well try for it. Anything you could do to quantify that potential upside that you see remaining? David Spector: Yes. Well, thanks, Ryan. Look, the -- I would tell you that the solutions obviously start with bringing on more capacity, bringing on additional headcount as well as getting the technology fully deployed across the organization. In the meantime, we're -- as I mentioned to you earlier, there are some strategies that we deployed in Q4, including taking some of the focus that we typically have had on closed-end seconds and moving that focus to the conventional recap efforts and the recap efforts in general. On the fulfillment side, there, we're just continuing to add capacity. And as I said, we're getting some good inroads from the technology move that we made. And I think that generally, it's something that combined with continuing to test the waters to try to drive up margins. Those are the strategies to increase recapture in a profitable -- in the most profitable fashion, which is what I think is really, really important that we want the profitability, and we wanted to do it in the most, I would say, productive way when combined with the actual production. Operator: Your next question comes from Bose George with KBW. Bose George: In terms of the areas where you saw the increased prepayments where the offset on the margin wasn't as expected. Was that more on the Ginnie Mae side versus the conventional? Or is that -- was that kind of across the board? David Spector: So, look, I think it's generally across the board. I will tell you, and you your question indicates you understand this, there are loans with the varying servicing strips in Ginnie servicing. And obviously, when you have 69 basis points of servicing, your basis in the loan is much greater than when you have 19. And so with the proliferation of 69 basis point strips in the market over the last three years, that's something that obviously is just provides a bit of a headwind when you're running a balanced business model. But having said that, this is one of the reasons why we brought the hedge ratios up, and this is something that we continue to focus on getting the recapture on those loans. But obviously, I think on the Ginnie side, the fact that there's more 69 basis point strips in the portfolio just lends itself to this issue. On the conventional side, there, I think it's really, as I mentioned, on the higher balance product. And there, we're just seeing a lot of activity, a lot of competition from those who are buying trigger leads, which, by the way, that goes away at the end of Q1. But that's something that the last her for that activity. And so I think that had a little bit of play. When we looked at our runoff that we didn't recapture at the top of the list with broker originators. And I generally think that they're going to be hard-pressed to duplicate that once this trigger law comes into play. Operator: Your final question comes from Eric Hagen with BTIG. Eric Hagen: The stock has done so well, but can you refresh us on how much room you have on your buyback authorization right now? David Spector: We have a little over $200 million of buyback available. And that's -- I think it's something that, as you know, historically, we've had no problems using, and it's something that I think it's something that in our culture of capital allocation and cost of capital and how we think about capital deployment, that's one of the tools that we have, and it's something that we utilized ever so briefly in Q3, and it's something that we look at on a regular basis. Operator: We have no further questions at this time. I'll now turn it back to David Spector for closing remarks. David Spector: I just want to thank everyone for joining us on this call today. Great questions, good robust discussion. And if anyone has any follow-up questions, I'm available, Dan is available. Isaac and Kevin are available. Please don't hesitate to reach out. Thank you all for the time, and have a good day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.