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Operator: Thank you for joining Packaging Corporation of America's Fourth Quarter and Full Year 2025 Earnings Results Conference Call. Your host today will be Mark Kowlzan, Chairman and Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a Q&A session. I will now turn the call over to Mr. Kowlzan. Please proceed when you are ready. Mark Kowlzan: Thanks for the introduction, Jamie. Good morning, everyone, and thank you all for joining us today and participating in Packaging Corporation of America's Fourth Quarter 2025 Earnings Release Conference Call. Again, I'm Mark Kowlzan, Chairman and CEO of PCA. And with me on the call today is Tom Hassfurther, our President; and Kent Pflederer, our Chief Financial Officer. I'll begin the call with an overview of our fourth quarter results, and then I'll be turning the call over to Tom and Kent, who will be providing more details. After that, I'll wrap things up, and then we'll be glad to take questions. Yesterday, we reported fourth quarter net income of $102 million or $1.13 per share. Excluding the special items, fourth quarter 2025 net income was $209 million or $2.32 per share compared to the fourth quarter of 2024's net income of $222 million or $2.47 per share. Fourth quarter net sales were $2.4 billion in 2025 and $2.1 billion in 2024. Total company EBITDA for the fourth quarter, excluding special items, was $486 million in 2025 and $439 million in 2024. Excluding special items, we also reported full year 2025 earnings of $888 million or $9.84 per share compared to 2024's earnings of $815 million or $9.04 per share. Net sales were $9 billion in 2025 and $8.4 billion in 2024. Excluding special items, total company EBITDA in 2025 was $1.86 billion and $1.64 billion in 2024. Fourth quarter net income included special items expense of $1.19 per share, primarily for the Wallula Mill restructuring charges as well as costs relating to the acquisition and integration of the Greif containerboard business and costs related to the closure of corrugated products facilities. Details of these special items for both the fourth quarter and full year of 2025 and 2024 were included in the schedules that accompanied the earnings press release. Excluding the special items, our earnings decreased by $0.15 per share compared to the fourth quarter of 2024. The decrease was driven primarily by lower production and sales volume in the legacy PCA business for $0.23; higher operating costs, $0.23; higher maintenance outage expense, $0.14; higher depreciation expense in the legacy PCA packaging business for $0.07; higher freight expense, $0.06; higher interest expense, excluding the Greif acquisition debt for $0.01; and lower production and sales volume in the Paper segment for $0.01. These items were partially offset by higher prices and mix in the Packaging segment for $0.50; lower fiber costs, $0.10; lower fixed and other expenses, $0.04; and higher prices and mix in the Paper segment, $0.01. The acquired Greif operations, including interest on the acquisition indebtedness generated a loss of $0.05 during the fourth quarter, primarily as a result of extended outages at the Massillon Mill in October and December to perform reliability maintenance activities and manage our inventory at the acquired operations. Looking at our Packaging business, EBITDA, excluding special items in the fourth quarter 2025 of $476 million with sales of $2.2 billion resulted in a margin of 21.7% versus last year's EBITDA of $426 million, sales of $2 billion or a 21.5% margin. For the full year 2025, Packaging segment EBITDA, excluding special items, was $1.83 billion with sales of $8.3 billion or a 22.1% margin compared to the full year 2024 EBITDA of $1.6 billion with sales of $7.7 billion or a 20.8% margin. We ran to demand during the quarter and with the planned DeRidder maintenance outage and a full quarter of ownership of the acquired Greif operations, we produced 1,407,000 tons of containerboard. The legacy mills produced 1,235,000 tons of containerboard 20,000 tons less than the third quarter and 75,000 tons less than the fourth quarter of 2024. System-wide, our inventories were at the same level as at the end of the third quarter and with the acquired Greif operations, 84,000 tons up from the beginning of the year. Operational performance during the quarter was again strong across the entire mill system and corrugated system, and we managed costs extremely well throughout the company. We made good progress on the integration and improvement of the acquired Greif assets with better reliability and performance at both mills and completion of key systems integration activities. We do not expect to take any additional outages at the mills until their annual maintenance outages later in the year and we will operate the business at capacity. We're on track to complete the Wallula restructuring activities by mid-February, and we begin -- and we will begin to benefit from the improved cost structure beginning in March. I'd like to give an update on the gas turbine energy projects that we're currently working on in the engineering phase. The plan includes the installation of gas turbines at the Jackson, Alabama mill and the Riverville, Virginia mills over the next 30 months. These locations have relatively high purchased power costs and good reliable gas supply as well as demand for the additional power that we can internally generate. We expect that these projects would involve roughly $250 million of total capital, some to be spent in 2026, but most of it coming in 2027 and 2028. The expected returns are in the mid- to high teens and most importantly, it would make us energy electricity independent at these facilities and protect us from future rising electric rates. We're finalizing the scope, and we'll seek Board approval during the first quarter. We're also working on plans for a third installation at one of our mills, and we'll provide more details at the appropriate time. We have a lot of good options, and we're considering all of these. I'm now going to turn it over to Tom, who will provide more details on containerboard sales and the corrugated business. Tom? Thomas Hassfurther: Thanks, Mark. Domestic containerboard and corrugated products prices and mix were $0.50 per share above the fourth quarter of 2024 and down $0.32 per share compared to the third quarter of 2025. This is mix related as our fourth quarter is seasonally less rich, incorporating more holiday-driven e-comm. Export containerboard prices were flat with last year's fourth quarter and down $0.01 from the third quarter of 2025. Export sales volume of containerboard was up 12,000 tons from the third quarter of 2025 and down 15,000 tons from the fourth quarter of 2024. In the legacy business, corrugated shipments per day and in total were down 1.7% versus last year's record fourth quarter when per day shipments were up more than 9% over 2023. That said, 2025 fourth quarter legacy box plant shipments were the second highest ever. For the year, our corrugated shipments were essentially flat with 2024. Our order book strengthened in November and December, and though we were ultimately disappointed with December shipment volume, we've seen this strength reflected in January shipments so far. While our corrugated volume and mix ended up below our fourth quarter forecast, the underlying volume trends were positive heading into 2026. To provide a little more color, December got off to a strong start, leading us to believe that we would grow our volume over last year. Later in the month, customers appeared to manage their already low inventories further down for year-end. The exception was e-commerce, which continued to remain strong well into the first week of January. In addition to the volume implications, this unfavorably impacted our December mix. The good news is, is that January is up significantly in terms of bookings and billings from a strong comp in 2025, where we were up 5% over 2024. January bookings in our legacy corrugated and sheet plants are up over 11% and billings are up 8% on a per day basis through last Thursday. We are seeing improvement across our customer base, which is a good sign for healthier underlying demand. Based on what we've seen so far, we are forecasting solid year-over-year growth for the first quarter and seasonal improvement in our mix. Our containerboard system is tightening up, and we will need to run at full capacity to support our demand. Including the acquisition, shipments were up 17% over last year for the fourth quarter and 6% for the year. The acquired plants had a very good quarter, outperforming our expectations and are also off to a strong start to the year. We made good progress on integration and are working toward operating as a single corrugated system as soon as we can with systems integration work ongoing. We still have work to do to optimize the inventory levels and paper grades carried by the acquired plants. We are working off the remaining containerboard purchase and trade commitments and ended the quarter at approximately the same inventory levels that we began, which is higher than what we had forecast. We had planned to bring the inventory levels down significantly while simplifying the grades carried at the plants and leveraging the larger integrated system. This will take place over the next 2 quarters and better day-to-day visibility once our systems are in place will certainly help us. Last week, as you know, we notified our customers of a $70 per ton price increase on our linerboard and corrugated medium grades effective March 1. We will work as we normally do to implement the full price increase. I'll now turn it back to Mark. Mark Kowlzan: Thanks, Tom. Looking at the Paper segment, EBITDA, excluding special items in the fourth quarter was $37 million with sales of $154 million or 24.2% margin compared to the fourth quarter 2024 EBITDA of $39 million and sales of $151 million or a 25.9% margin. Sales volume was 1% above the fourth quarter of 2024 and 4% below the third quarter of 2025. Prices and mix were up 1% from the fourth quarter of 2024 and down less than 1% from the third quarter of 2025. Performance exceeded our expectation on higher sales volume and strong underlying operating performance at the International Falls mill. For the full year, Paper segment EBITDA was $148 million or -- well, with $615 million of sales for a 24.1% margin. 2024's EBITDA was $154 million on sales of $625 million for a 24.6% margin. I'll now turn it over to Kent. Kent Pflederer: Thanks, Mark. Cash provided by operations was a fourth quarter record $443 million. And after $319 million of CapEx, free cash flow was $124 million. In addition to CapEx, the primary payments of cash during the quarter included share repurchases of $153 million, dividend payments of $112 million, net interest payments of $53 million and cash tax payments of $15 million. We repurchased 760,000 shares during the quarter at an average price of $201.03. We have approximately $283 million of remaining repurchase authority. For the full year '25, cash from operations was $1.55 billion with capital spending of $829 million and free cash flow of $725 million. Our year-end cash on hand balance, including marketable securities was $668 million, with liquidity of about $1.25 billion. Our final recurring effective tax rate for 2025 was 24.7%. Regarding full year estimates of certain key items for the upcoming year, we currently estimate dividend payments of $450 million, total CapEx to be in the range of $840 million to $870 million and DD&A is expected to be approximately $700 million. Our full year interest expense in 2026 is expected to be approximately $139 million and net cash interest payments should be about $147 million. The estimate for our book -- 2026 book effective tax rate is 25%. We have planned annual outages in 2026 at all of our mills, which will cover a higher number of outage days and tons in 2025. Including lost volume, direct costs and amortized repair costs, we currently expect the outages to total about $1.39 a share. The current estimated impact by quarter during the year is $0.16 in the first, $0.35 in the second, $0.24 in the third and $0.63 in the fourth. I'll now turn it back over to Mark. Mark Kowlzan: Thanks, Kent. Our employees put in a tremendous effort and delivered outstanding results for PCA during 2025 when business conditions were challenging at various times. We completed the acquisition of the Greif business and achieved significant progress on integration and improving the operations. We successfully started up our Glendale, Arizona plant and completed numerous capital and operational projects to improve our capabilities and efficiency in our corrugated business and continue to serve and profitably grow with our customers. Our Paper business continued to deliver outstanding results through its commitment to customer service and manufacturing excellence. As a company, we still have many key strategic capital opportunities in progress or ahead for the 2026 year and beyond. Our balance sheet remains high quality. We have flexibility to continue to take advantage of internal or external investment opportunities that generate shareholder value. We continue our time-tested and balanced approach towards capital allocation, investing in our business to profitably grow our earnings and cash flows and returning value to shareholders through dividends and buybacks. We accomplished a lot in 2025 and are positioned to accomplish even more this year. Looking ahead, as we move from the fourth and into the first quarter, as Tom mentioned, we see demand improving and expect year-over-year growth in corrugated volume in our legacy box plants and strong shipment volume from the acquired plants. First quarter volume is seasonally lower than the fourth quarter. And even with 1 more shipping day, overall volume is expected to be slightly lower than the fourth quarter. We'll now be running our mills full, but production will be lower than the fourth quarter with 2 fewer operating days, slightly more outage tons and Wallula running in its new reconfigured state. We expect slightly lower inventory levels at the quarter end. Price and mix will seasonally improve, and we expect to see some benefits from our containerboard price increase in March. Export containerboard sales will be slightly higher than the fourth quarter and prices should be flat to slightly down. Paper volumes will be lower with 2 fewer operating days and price/mix is expected to be slightly lower and will begin to improve in March with our recently announced uncoated freesheet price increase. With the exception of fiber prices, we expect price inflation across most of our direct, indirect and fixed operating and converting costs. In addition, wood, energy and chemical costs will also increase due to winter conditions that impact usages and yields for these items. Our cost structure will begin to benefit from the Wallula reconfiguration during the month of March. Labor and benefits costs will be higher due to the normal timing-related items that occur at the beginning of the new year for annual increases, the restart of payroll taxes and share-based compensation expenses. Freight will be slightly higher, and we expect slightly lower depreciation expense. Lastly, scheduled outage expenses will be lower, and we assume a lower corporate tax rate. Considering these items, we expect first quarter earnings of $2.20 per share, excluding special items. We are, in fact, assessing last weekend's winter storm across multiple regions, which caused some of our plants to be down earlier in the week and which could negatively impact shipments and operating and transportation costs for the quarter. With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constituted forward-looking statements. The statements were based on current estimates, expectations and projections of the company and involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in the annual report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. And with that, Jamie, I'd like to open the call for the Q&A. Operator: [Operator Instructions] Our first question today comes from George Staphos from Bank of America Securities. George Staphos: I hope you're doing well. I guess the first question I had is on operations in the mills. And I guess -- yes, in the mills overall, we have the outages. You call out the sequential pickup in variable costs for inputs. We have fewer days and also you're going to try to take down inventory to some degree. Kent, is there a way to maybe size or give us a bit more granularity on what looks like it will be a decent increase in cost per ton in the containerboard business? We're not surprised by the 1Q sequential drop, but just trying to figure out in earnings. Just trying to get maybe a little bit more granularity on what the cost per ton might look like 4Q to 1Q. Mark Kowlzan: I'm not sure we're going to run the system full. We've got the typical seasonal weather impacts taking place along with the recent storm. So there's some uncertainty there. But again, we're basically faced with the normal year-over-year inflationary concerns that we always see in January with labor, medical benefits, cost type matters. And then just the winter usage and yield matters with energy and wood. Again, I'd like to give you a number, but I don't have that off the top of my head. George Staphos: No, that's okay, Mark. I guess maybe a related question. I know you're still assessing but what have you built into your guidance for the quarter related to the winter storms from an earnings standpoint or more sort of a factor standpoint from a volume versus cost qualitatively? Mark Kowlzan: George, we're just starting. We've had plants down from the Texas region all the way across the Gulf region up through the Mid-Atlantic. Some of these areas are still down without power. We've got power outages continuing in Tennessee. The Dallas region is -- has sought out and coming back, but things are coming back as we speak literally on the call this morning. The mills ran through this. The 2 biggest mills that were impacted, the Counce, Tennessee mill and the Riverville, Virginia mill. Both mills did run through this quite well. We had exceptional support from all of the employees and the mills ran through this. The problem was we couldn't ship any tons out during the period of time. So just in the last 24 hours, we started moving trucks and rail into Counce and Riverville. But nevertheless, we've had a huge number of the box plant system down for the few days. Tom, do you want to add a little color on that because it's a pretty significant... Thomas Hassfurther: Yes, I think the important thing is, George, to understand, it's going to be very hard for us to get our arms around this until we find out what the impact is on that book of orders that were not shipped in the short term and whether they'll pick back up with our customers going forward. Obviously, our customers were down as well. So it's -- we've been through these before. And sometimes if it's too long of a process, there are orders lost. Other times, we get right back up and we can catch up. So we'll just have to see as this month goes on and really kind of probably as this winter goes on because they're calling for another big storm coming on in the Mid-Atlantic and Southern region this weekend. So we'll just have to see what happens. But I think overall, I mean, we've -- I think we weathered it pretty decent, although we had a lot of box plants down. And the transportation is another big issue that exists, whether it's rail or truck, if we can get the product out once we get the plants and mills up and going. Kent Pflederer: George, back to your first question, it's Kent. Ex freight and with a little bit of Wallula benefit in, but not all of it, we're about $15 million total on the cost line in the mills. And so running that through, that's maybe $10 a ton. George Staphos: Okay. I appreciate that, Kent. Last one, and I'll turn it over, just to be mindful. What gives you comfort that at Massillon, you're through the reliability issues? And for that matter, what gives you comfort? And what caused the inventory mismatch in the acquired facilities? Again, presuming it's going to be worked down, but hopefully by 1Q, but what caused that? Mark Kowlzan: Yes, I'll talk about the operational matters and then I'll let Tom talk about the inventory. During the month of -- if you went back to the acquisition date in September, we spent 6 straight weeks with probably 200 PCA personnel assisting Massillon along with contractors, essentially rebuilding Massillon Mill from bearings, bushings, pumps, motors, we put our hands on everything, gas turbine rebuild, again, all of the mechanical infrastructure. And then during the period of time during December that the mill was down, we continued to address some of the even finer detail items, some operational improvements, even down to lubrication technology, again, more bearing monitoring. So I'd like to say that over a 3.5-month period of time, we've essentially rebuilt the Massillon Mill. So it's become the little mill that could. It's -- we've improved operational efficiency at both Massillon and Riverville from the -- from probably a 15% improvement overall in operational efficiency, the way we measure efficiency. So both mills are very close now to running to the PCA standard efficiencies. Tom, do you want to talk about the inventory again? Thomas Hassfurther: No. Go ahead, Kent. Kent Pflederer: So George, I'll at least start on the Massillon piece to quantify it. We were maybe 10,000 tons above where we'd forecasted finishing up the year. Some of that were taking purchase commitment tons. Some of that was -- we were a little bit lower than forecasted shipment volume. So Tom, I'll let you expand. Thomas Hassfurther: Okay. So I think, George, think of it this way. We had -- we knew we had a lot of work that needed to be done. We knew we had to get our reliability up in a number of things. And fortunately, we had the financial flexibility to go do that right away to prepare us for 2026 and the demand we saw coming forward in 2026. Now that said, that -- everybody did an outstanding job, and we've got -- we're in good shape starting in 2026. But there's another big piece of this that was part of that inventory miss, and that is that we had -- again, the Greif had a lot of containerboard purchase and trade commitments that were in place that we just chose to absorb basically in the fourth quarter. And we don't have a lot of visibility from a systems point of view into a lot of their day-to-day activities like we do at PCA. So those were the main drivers for the inventory miss. And -- but I think the most important thing is we got all that work done upfront and put ourselves in good shape for 2026. Operator: And our next question comes from Michael Roxland from Truist Securities. Michael Roxland: Just wanted -- Tom, I wanted to follow up on that last point in terms of the purchase and trade commitments that Greif had in place. Can you just provide some more color around those commitments? Is it something you're looking to keep? It's something that you're looking to get rid of once those contracts expire? Just any color you can provide around those commitments and what you're looking to do with them? Thomas Hassfurther: Okay. Mike, I'm going to ignore the color part and just tell you that those commitments and purchases, we no longer are keeping or pursuing or anything like that. Those were agreements that Greif had. We would not typically have any of those in place, and we're discontinuing those. We met the commitments, and we're moving forward from there. Michael Roxland: Perfect. Got it. And it sounds like demand has inflected and need to run full. But you have 2 less shipping days in 1Q. So this is a theoretical question, I mean if you had those 2 extra shipping days in 1Q, would things be looser and volumes be softer? Or has demand firmed up enough such that you would still be running full even with those 2 extra shipping days? Mark Kowlzan: If we had the 2 extra days, we'd still be running full. I mean the way we've looked at the entire year for the full 2026, we expect to run the entire mill system full out. And so -- which is a high-class problem to have. So Tom, do you want to add anything? Thomas Hassfurther: No, we'd -- it's -- this is just a matter of a 30-day period that we're looking at as opposed to the long term. So we would absolutely be running full out if we had the 2 extra days. Michael Roxland: Got it. And then just from a demand perspective, you guys have called out in recent quarters, the housing environment, you've called out protein. Any inflection in those particular end markets that are contributing to this better demand? Thomas Hassfurther: Well, I think as I mentioned in the comments that the underlying demand is improving, and it's improving in all the segments, which is what's really positive for us. As I've talked about over the last -- certainly last year and maybe even going into the previous year, auto, building products, durables, those segments were down and continue to be down all the way through the fourth quarter. But -- and they work their inventories down to the bare bones also, by the way. And we're seeing some pickup in that area, and that's a real positive for us because those are still large segments for us. And obviously, we're doing well in the other segments and the other segments continue to do well. But I think consumer sentiment is getting better. The GDP is up. 4% the previous quarter, a little over 4%, forecast to be up over 5% this quarter. If you just think about at worst, box demand could trend at half of the GDP, and that's a big number in terms of demand. So everything underlying demand has been -- is very positive right now, Mike. Michael Roxland: Got it. Just one quick follow-up just on a housekeeping question. Are you reflecting the $70 per ton in your 1Q guide? So is that part -- is that -- are you the guys that say $70 per ton for March 1. Is that included in the $2.20 you're guiding for 1Q? Kent Pflederer: The answer is no. We have a little bit into March, but not the full benefit. Michael Roxland: So you are baking in though that -- so you are counting that in your 1Q guide a little to some extent. Thomas Hassfurther: Just a small amount is what we're putting in the forecast. As you know, these price increases, I mean, they take place over -- for us, they take place over about a 90-day period. And then we have some contracts that extend to midyear and that sort of thing. But for the most part, I mean, we're baking in. Of course, it's effective starting March 1, but we can't bake in the full amount, obviously. Michael Roxland: Got it. Very helpful, a lot. Good luck in 2Q. Mark Kowlzan: Thanks, Mike. I appreciate it. Operator: Our next question comes from Mark Adam Weintraub from Seaport Research Partners. Mark Weintraub: Just a few -- 2 quick clarifications. One, just to be clear, the $70, you get that in containerboard in March, but you're talking about because it takes a while to flow through into boxes is why it would have a fairly de minimis impact in 1Q. Is that correct? Thomas Hassfurther: Correct. Correct, Mark. Yes. Mark Weintraub: And just second clarification, just to make sure I wasn't missing something. If there were 2 more shipping days, then you would have more demand on your mill system, not less in the short term? Thomas Hassfurther: Correct. Mark Kowlzan: Yes. Mark Weintraub: Okay. And then just 2 -- just going back to costs. Last year, you had talked about $0.50 to $0.60 impact going from 4Q to 1Q and that you expected to get about half of it or even perhaps a bit more than that back in the second quarter because some of it is seasonal, et cetera. Could you share those types of metrics this time around? Kent Pflederer: Yes, we can, Mark. It's about $0.45 to $0.50 4Q to 1Q. We will get, excluding Wallula, a little under half of that back. But then Wallula, the cost improvements there start kicking in more so in the second quarter. Mark Weintraub: Okay. Super. And then the -- can we also contrast how the containerboard box markets feel now relative to how they felt this time last year? I mean, obviously, you went with price increases January 1 last year. You got -- at least in terms of what Pulp & Paper Week reflected partial increases. How does it feel this time around versus the last 2 years? Thomas Hassfurther: No, I'm only going to -- I can only speak for PCA. So let's just -- I want to qualify that. How does it feel for us? I mean it feels improved. In fact, much improved, I think, because there were still a lot of question marks in place a year ago. A new administration was going to take hold. A lot of things were up in the air. We dealt with -- we were already dealing with potential tariff stuff and all these other things, there were question marks hanging in the air. Those are all pretty well cleared up at this point in time. And I think the most encouraging thing is what I just mentioned earlier relative to GDP and consumer sentiment. GDP being up over 4% last quarter, projected to be up over 5% this quarter. Those are big numbers and make a big difference in terms of corrugated box demand. And also, I think another great metric is, is for the first time in over 4 years, you've got wages that are now ahead of inflation. And that will also improve the consumer sentiment going forward. They may not feel it immediately, but I think throughout the year, I think that's an important metric for our business. Mark Weintraub: Great. I appreciate it. Mark Kowlzan: Thank you. Operator: Our next question comes from Gabe Hajde from Wells Fargo Securities. Gabe Hajde: Not to be combative here, but I'm curious like I think GDP is projected to be up 3%, 4% in 2025, yet box demand has been pretty muted, sluggish, disappointing. There seems to be a clear inflection in your tone. I'm curious if you can, is this something specific to what PCA is doing, maybe the new Glendale box plant and internal initiatives? We heard from someone else this morning more hunters on the field versus gatherers. It's just -- there's obviously been a clear change in tone on the demand side. And then we've been dealing with this seemingly jockeying around of orders and inventories at quarter end and then the first month of the new quarter. Any visibility, any work you guys have done to try to discern if that's going on here or again, if this is more durable in terms of order patterns? Thomas Hassfurther: Well, Gabe, I wish I could emphatically give you great answers here. But all I can do is anecdotally talk about the fact that we do have these discussions with our customers. We are trying to find out what they're thinking and what they're doing because that's important to our ability to adapt our business accordingly. But I can tell you, there is a much more positive vibe across our entire customer base right now. These starts and stops we experienced last year was quite unusual, quite frankly, because I think everybody was trying to figure out what consumer demand really was and what -- and CapEx spending from companies and all these other sorts of things, what was really going to occur because start, stop, start, stop. I mean, we had -- I have customers that talked about having product that they were importing that they then add value to and then sell in the market that were stuck in ports in different places, waiting for tariffs to find out what the tariffs were going to be, all these other sorts of things. So it was an unusual year, in my opinion. And a lot of that's now cleared out. And I think that's helped the visibility going forward. And I think it's also helped the positivity going forward in terms of predictability. So that's about the best I can tell you. Gabe Hajde: All right. On the Greif acquisition, some of the feedback that we've gotten is that it feels maybe a little bit of flow out of the gate. And I know you guys had a plan going in. But maybe, Mark, can you just talk about, let's say, an impromptu mill rebuild in 3.5 weeks. Was that part of the plan? And as you project forward and think about the acquired assets, you talked about running full for the rest of this year, but for planned maintenance outage, do you expect that to be kind of reaching that, I guess, EPS accretion level in the second quarter, first quarter, second half of this year? Just any thoughts on that? Mark Kowlzan: As far as the 2 mills, the Massillon mill and the Riverville mill, we learned a lesson from Boise. And we also have a different organization in place now than we did 13 years ago. But we took advantage of the fact that we have the technology engineering group in-house and decided that after the acquisition, we would execute an immediate corrective action at the mills and go in, in force and do what PCA does well, and that's provide operational expertise. And so we took a couple of months in the fall right through December at Massillon and essentially addressed all of the issues that normally might take a few years to address. And so all of the normal maintenance matters are behind us now. We've got -- we've identified -- like the gas turbine opportunity at Riverville. We've identified some bigger long-term cost takeouts at Riverville. And then we'll continue just to instill the day-to-day normal practice at Massillon and Riverville in terms of operational expertise. But no, we accelerated that execution and took advantage of the opportunity this fall when we not only had the capability, but we were going to manage inventory to our needs, and so we took advantage of that. Gabe Hajde: Got it. One last thing on... Kent Pflederer: And Gabe, sorry, on the accretion piece, we are forecasting it to be slightly accretive in the first quarter and then improving as we get on and seasonality improves as well there. So... Gabe Hajde: One quick last one, hopefully on CapEx. Just, I guess, directionally, I think things are probably coming in maybe a little bit heavy in '26, and you talked about maybe only a smidge of the $250 million for the 2 gas turbines, the majority of that hitting in '27. Just directionally, would we expect things to be flattish next year on CapEx or down? I know we're just kicking off '26, but just any preliminary thoughts? Mark Kowlzan: I think we're in a range right now that is in this low $800 million. The gas turbines will continue to keep the number on the higher end here. We're finishing up the big box plant in Ohio. We've got a couple of other projects that will finish up this year on the box plant side. We've got -- on the bigger pieces of capital, you've got the Jackson, Alabama winder installation and improvements there. So there's a few discrete big pieces. Some of those will be wrapping up this year. My goal, quite frankly, would be to see the number come down. There's a number of reasons for that. Part of it is just the psychological discipline that you want the organization to take a pause once in a while and step back and then look at what's been done over the last few years and then go truly put some optimization on all of the capital. So without giving you a number and quantifying that number, my goal would be to bring the number down below the $800 million level. We did that back in 2022 into 2023. And then we had the opportunities, and we brought that number up into the $600 million level. Last year, $800 million with the bigger projects and new box plants. So it really depends on the opportunities, but we are mindful of the discipline required to spend the money wisely. So long answer to a question, but the goal would be to get it down, but we will take advantage of the opportunities. Gabe Hajde: Good luck. Mark Kowlzan: Thank you. Operator: Our next question comes from Anojja Shah from UBS. Anojja Shah: I just wanted to ask more specifically what changed in January? It does seem like there was a pretty sudden upturn in demand. And I know you talked about less uncertainty versus last year, but consumer confidence numbers are still kind of depressing and CPG earnings tone hasn't really changed. So do you think your customers are responding to maybe the promise of stimulus in the one big beautiful bill? And then after we get through tax refund season, we can see some choppiness again in demand? What are you hearing from your customers on that? Thomas Hassfurther: I think the upturn in demand is a couple of things. One is, obviously, as we've talked about from an inventory standpoint, they ran inventories incredibly low. So you can't continue to operate forever at these tremendously low inventory numbers. But I think there is a lot more positivity going forward with tax reform, a number of different things. I mentioned wages and some other things, consumer sentiment. It depends on who -- it depends on what survey you're looking at, too. One day, you get a survey that's positive. The next one, it's a little more negative. I think the questions get slandered and a number of different things occur. But I think overall, any time you get more money in the pockets of the consumer, we're going to see more demand, and that ultimately reflects in the box business. And I think from our customers' point of view, of course, we try to align with the very best and the ones that are the -- tend to be the winners in their space, they tend to have a much more positive viewpoint going forward. And as I said, all the noise that took place in 2025 with all the different things that were going on with the new administration, I think a lot of that -- the air is cleared on that. And I think people can see demand improving and count on it a little bit better than they did in the past. Anojja Shah: Yes. Okay. That's good to hear. Let's hope you're right. And then for my second question, did I miss the cash tax expectation for 2026? And could you get a meaningful step down year-over-year this year because, I don't know, maybe immediate depreciation expensing provisions on Glendale or anything else? Kent Pflederer: Anojja, we didn't provide what the cash tax forecast would be for the year. It will be higher though than we paid out in '25. The Greif acquisition and being able to take some of the immediate depreciation on those assets was a big help. So -- but we'll be approaching maybe a little more normal levels, but we will still get some benefit from the bonus depreciation provisions. Anojja Shah: All right. Sounds good. I'll turn it over. Mark Kowlzan: Thanks, Anojja. Operator: Our next question comes from Anthony Pettinari from Citi. Anthony Pettinari: For the price increase for containerboard and boxes, should we expect the timing and implementation of the price hike for the kind of the Greif portion of the business to be pretty much identical to the legacy business? Or do they -- are there any sort of existing contracts or terms that might make it a little bit different or longer? Thomas Hassfurther: We would expect the acquisition plants to roll out the same as PCA. Anthony Pettinari: Good. Got it. And I mean, there were some pretty large mill closures in the industry last year. And obviously, you have Wallula. I understand that you don't sell into the open market as much as others. Can you just talk about sort of availability of board in the open market from a PCA perspective and just sort of what the market feels like given some pretty major supply actions that happened at the end of last year? Thomas Hassfurther: Yes. All I can tell you is from a PCA perspective, we're going to have to run the mills full out. Things are going to be tight. We're not going to have additional board that we're going to be able to sell into the open market. And that's all I can comment on. You can draw other conclusions from your comments relative to the industry. Anthony Pettinari: Got it. Got it. Maybe just one last one. In terms of the CapEx for '26, $840 million to $870 million, I think you said the energy projects would be a small sliver of that. I'm just wondering if you can quantify that. And then if there are any other major projects maybe on the box plant level that we should think about for '26 that you'd point out? Mark Kowlzan: We're -- again, we're finishing up the detailed engineering right now and getting ready to get approval. So there'll be a small amount of -- if we're spending $250 million, you might spend $50 million this year on ordering equipment and getting steel and different things ordered. But the bigger pieces of capital this year of the $800 million-plus are coming from the completion of the new Ohio box plant, the big project down at Jackson, the Jackson Winder project and all of the expansion down at Jackson was over $100 million of project over a 2-year period. And then we've got a couple of other big projects at the Counce #2 machine. It's a couple of phases of work, but the first phase begins this March. And so we're putting in a considerable amount of effort to upgrade the #2 paper machine. And then we're finishing up a project in Syracuse, New York. And so there's a couple of other big box plant upgrade projects that are finishing up. And then the rest is just the numerous normal projects that we always bring on, on the converting side, new converting pieces of equipment that are being installed, corrugators, converting lines, upgrades so it's spread out evenly, but that's the good news that we're continuing to invest and grow with the customers as they need us to. Anthony Pettinari: Okay. That's very helpful. I'll turn it over. Mark Kowlzan: Thank you. Operator: Our next question comes from Phil Ng from Jefferies. Philip Ng: A question for Tom. The pickup in orders in January, how much would you attribute that being from that destock that you saw reversing? Is that uptick pretty broad-based, isolated a few end markets? When I look at the spread between bookings and billings, it's quite large, large than normal from what I can tell. I think that's a bullish indicator, but just give us a little more color on how we kind of interpret some of these things. Thomas Hassfurther: Okay. I think, Phil, it's very difficult to separate out anything relative to inventory restocking. There's some of that. I don't think that's the majority of it by any stretch. I think that our customers are preparing for more demand. They've got more demand. That's what we're hearing. I think that the -- right now, being late in the month, we've got a lot more visibility as an example, into February, and February remains very strong. So it's kind of following on to January, which helps the bullishness of the forecast. And in general, it's just a much more positive feeling across the board. And as I mentioned earlier, we've got some of those segments that were real laggards last year that are beginning to show some new life and come back to what I'd consider to be a little more normal demand that we've seen in the past. And I think as housing begins to come forward again, I think with mortgage rates now having dropped under 6%, that's a real catalyst for new homebuilding and remodeling, et cetera. So that will be a big benefit for us in that sector. Philip Ng: Got you. And then pretty encouraging, all that great stuff. And then I think your commentary is you expect to be running full out all of this year. Thomas Hassfurther: Yes. Yes. Philip Ng: Is that a function of demand getting much better this year? I mean, certainly, the Wallula piece is part of it. But predicated on that, like what kind of box shipments should we assume for you to be running full out? Thomas Hassfurther: Well, it's -- we're definitely going to be up. And I think one of the things that we're really focused on this year, although the capital intensity in this business is tremendous, as alluded to in these numbers, that we have to spend capital every year to get the job done. I think as Mark mentioned earlier, we are going to be really focused on maximizing the returns on the capital that we've put in place, and this is going to be a great year for us to really test that. And so we're very well positioned for significant growth in the business. And -- but again, you don't build for some exorbitant amount of growth because that never happens in this business. So we're well positioned for the normal growth plus a little is where we're really positioned for. So I think we'll be in good shape. And of course, then we've got the ability to spend more capital if needed, if those opportunities present themselves. Philip Ng: Okay. Tom, I don't want to pin you on the number, but it sounds like you're expecting '26 box demand for the broader industry to be more normalized this year and then do PCA kind of stuff kind of grow... Thomas Hassfurther: No. What I'm saying is that the -- I think the demand is going to definitely be up this year. And we at PCA will do what we normally do in terms of how we perform versus the total demand. Philip Ng: Okay. Makes sense. And then a question for Kent. It was helpful color. You said you expect the Greif deal to be modestly accretive in 1Q. I think last quarter, you gave us a framework in terms of LTM EBITDA in that $240 million range and maybe $20 million of run rate synergies by 2Q. Appreciating things move around. Is that still a good way to think about it? Or perhaps some of that gets pushed out a little bit in terms of achieving those targets? Mark Kowlzan: No, that's a very good way to think about it. That's where we still are. And I think we'll be in a better position to talk about some synergy opportunities in the next couple of calls going forward now that we're able to operate this thing at full capacity. Philip Ng: Okay. Super. I appreciate it guys. Mark Kowlzan: Thanks, Phil. Operator: [Operator Instructions] Our next question comes from Charlie Muir-Sands from BNP Paribas. Charlie Muir-Sands: Just a couple of follow-ups. You've obviously outlined a big list of all the projects that are the focus of CapEx at the moment. If we think ahead sort of 12 months from today, given that you're going to be running, you said, all out throughout this year, you anticipate, how much more capacity do you think you'll have in a 12 months' time from today versus now? And how are you thinking about any kind of constraints or things you might need to do in order to get ahead of that? And then I've got one follow-up question. Mark Kowlzan: The short answer to that is I'll let you know then what we're planning to do going forward. Nothing's changed in terms of how PCA goes about our business to look at supplying containerboard into the converting side of the business. Tom just said it, we never get too far ahead of ourselves. Part of the impetus for the Greif acquisition is that we had 2 mills that we looked at that say we're producing in that 600,000 tons run rate a year. We looked at that. We know how to improve the operations. And we said we'll probably get over a couple of year period of time, depending on how much capital we want to spend, probably another 200,000 tons out of the 2 mill system. And so that provides the growth runway for the next couple of years for us. So that's how I'm looking at it. But it's going to be tight. We're going to have to run very well as we normally do, run very efficiently. But never forget, we're always looking out on the horizon of where the next containerboard capacity will come from in PCA. And we've got different levers to pull and different ways to get there, but that's one of the high-class problems that we face all the time. Tom, do you want to add that? Thomas Hassfurther: No. Nothing really more to add other than we're -- we'll grow with our customers. That's how we operate. Charlie Muir-Sands: And just the follow-up was you quoted your bookings and billings numbers so far. Can you just clarify, is that a fully legacy PCA number? Or is that line getting blurred now? Have you sort of moved customers from Greif operations into PCA or vice versa? Or is that an all-in number? Thomas Hassfurther: Okay. That's -- I'm giving you essentially the legacy PCA number. But I also -- the visibility I do have into our Greif business, it -- doesn't quite mirror that, but it's pretty close to that. Mark Kowlzan: Thank you. Are there any other questions, Jamie? Operator: Mr. Kowlzan, at this time, there are no more questions. Do you have any closing comments? Mark Kowlzan: Yes. Again, I want to thank everybody for joining us today. And also, I just want to put out a big thanks to the folks at the Riverville Mill and Counce Mill in particular, a number of the employees and managers spent 3 or 4 days living at the mill during the storm and protecting the assets and running the mill and safeguarding things. So from up here in Lake Forest to the facilities, thank you. And then all the box plants that are down and people that have been without power, again, it's been a struggle, but things are coming back. So we appreciate everybody's effort and the dedication that we have from our PCA employees and look forward to talking with everybody on the next call in April. Thank you. Have a good day. Operator: Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good morning, and thank you for joining us today for QCR Holdings, Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. Following the close of the market yesterday, the company issued its earnings press release. If anyone joining us today has not yet received a copy, it is available on the company's website, www.qcrh.com. With us today from management are Todd Gipple, President and CEO; and Nick Anderson, CFO. Management will provide a summary of the financial results, and then we will open the call to questions from analysts. Before we begin, I would like to remind everyone that some of the information management will be providing today falls under the guidelines of forward-looking statements as defined by the Securities and Exchange Commission. As part of these guidelines, any statements made during this call concerning the company's hopes, beliefs, expectations and predictions of the future are forward-looking statements, and actual results could differ materially from those projected. Additional information on these factors is included in the company's SEC filings, which are available on the company's website. Additionally, management may refer to non-GAAP measures, which are intended to supplement but 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 and non-GAAP measures. As a reminder, this conference call is being recorded and will be available for replay through February 4, 2026, starting this afternoon, approximately 1 hour after the completion of this call. And will be accessible on the company's website. At this time, I will turn the call over to Mr. Todd Gipple at QCR Holdings. You may begin. Todd Gipple: Good morning, everyone. Thank you for joining us today. I'd like to start with an overview of our fourth quarter and full year 2025 performance, followed by some additional color on our business. Nick will then walk us through the financial results in more detail. We delivered our strongest quarter of the year in the fourth quarter and produced record full year results. Performance was strong across all key operating metrics, approaching or exceeding the upper end of our guidance ranges for net interest margin expansion, gross loan growth and capital markets revenue. I am very proud of our 1,000 teammates for their hard work, providing exceptional service to our clients, growing all parts of our business by creating new client relationships, taking exceptional care of the communities in which we live and work and generating superior returns for our shareholders. Their work not only produced record earnings in 2025, but also sets the foundation for continued momentum in 2026. Our exceptional earnings were driven by significant contributions from net interest margin expansion and robust loan and deposit growth, which drove a substantial increase in net interest income, along with continued strong capital markets revenue. In addition, our wealth management business remains a key strategic growth engine, providing a meaningful contribution to our record results. As I have mentioned previously, I view our company as operating through 3 primary lines of business: traditional banking, wealth management and our LIHTC lending platform. Each of these businesses produced outstanding results for the quarter and the year. We continue to deliver strong organic growth and drive enhanced profitability in our traditional banking operations. Our unique multi-charter model anchored by autonomous community banks that attract outstanding talent and high-value clients enables us to consistently outperform competitors and take market share. We continue to grow market share last year as we added significant new clients in all parts of our traditional banking business. Our markets remain very healthy, supported by solid growth, stable economic conditions and very strong commercial and industrial activity. Our digital transformation is also progressing as planned with the successful completion of the first of 4 core system conversions in October. These upgrades are already delivering meaningful benefits for both our clients and our employees. Looking ahead, 2 additional conversions are planned for April and October of this year, further improving and modernizing our technology stack. These investments will expand our service capabilities, enhance the overall client experience, drive productivity gains and improve our operating leverage. Our Wealth Management business continues to be a significant component of our earnings growth. In 2025, we added nearly 500 new client relationships, bringing in over $1 billion in new assets under management. Our strong capabilities in this business have created 5-year compound annual growth rates of 10% for both assets under management and revenue. This success reflects the expertise of our team and the strength of our relationship-based model, which connects our traditional banking clients with dedicated wealth advisers across our markets. As we expand our wealth management business in Central Iowa and Southwest Missouri, we are building momentum, deepening client engagement and taking market share from our larger competitors. Our LIHTC lending business also delivered exceptional performance in the second half of the year, reflecting the sustained demand for affordable housing and the expertise of our talented team. Developers continue to successfully advance their projects despite earlier headwinds, underscoring the resilience of the affordable housing industry. In addition to robust demand for affordable housing, recent legislative actions have expanded available tax credits and further strengthened the outlook for the federal LIHTC program. These enhancements, which continue to receive bipartisan support, represent a significant milestone in the program's 39-year history. Our deepening relationships with leading LIHTC developers across the country, combined with healthy market appetite, position us to further grow this business and deliver meaningful and consistent contributions to our overall financial performance. Having operated in the LIHTC business for nearly a decade, we continue to view this platform as a highly durable, profitable and differentiated growth engine for the company. Our success is anchored in deep relationships with developers nationwide. And in 2025, we added 18 new developer partners to our network. Our relationships with some of the top affordable housing developers in the country position us for continued strong and sustained production. While we continue to punch above our weight class in this business, industry data suggests that our current level of production represents only a small fraction of the total LIHTC market. This highlights the substantial growth opportunity ahead and potential to further scale our platform. Building on our momentum and the depth of our pipeline, we are raising the upper end of our capital markets revenue guidance, resulting in a range of $55 million to $70 million over the next 4 quarters. We also made significant progress on our strategic objective of improving balance sheet efficiency within our LIHTC lending business, particularly during the 2- to 3-year construction phase, which is typical for many LIHTC projects. In the fourth quarter, we successfully sold $285 million of LIHTC construction loans at par to a third-party investor. This strategy expands our capacity for additional permanent LIHTC lending and further enhances our opportunities for additional capital markets revenue. It also strengthens our regulatory capital position by reducing risk-weighted assets, providing greater flexibility to allocate capital more effectively. Having the capability to sell these LIHTC construction loans will allow us to generate capital markets revenue more efficiently with less capital, improving our operating leverage and our financial results. In addition, we used the proceeds from this transaction to retire our highest cost FHLB term advances, further lowering our overall funding costs. Because we are originating new LIHTC loans at such a strong pace, our new loans added during the quarter essentially offset the impact of the construction loan sale, minimizing the impact to NII. In the future, we plan to strategically execute additional LIHTC construction loan sales and securitizations. While the timing will depend on market conditions and other factors, the strong growth in our LIHTC platform is expected to mute the impact of these transactions on net interest income and support opportunities to further grow our capital markets revenue. In addition, LIHTC securitizations and construction loan sales will allow us to cross the $10 billion asset threshold more efficiently and effectively. We began proactively incorporating the costs associated with operating at the $10 billion level into our noninterest expense run rate several years ago. We also recently secured increases in our future interchange revenue and lower debit card processing costs through our digital transformation initiatives and new third-party contracts. As a result, we are well positioned to control the timing of surpassing the $10 billion asset mark with limited financial impact. 2025 was a record-setting year for our company, marked by exceptional growth across all core businesses. We are focused on continuing to deliver top quartile financial results, and we hold ourselves accountable for creating long-term sustainable growth in earnings per share and tangible book value per share. Our team has built a foundation for sustained momentum, supported by investments in talent and technology that enhance our competitive advantage. In our investor presentation released yesterday alongside our Q4 earnings, we showcased several slides that underscore our exceptional long-term performance. One highlight is on Page 5 of the investor presentation, which evaluates the performance of all publicly traded banks with assets between $1 billion and $20 billion. Out of 216 banks, QCRH is 1 of only 7 that achieved a 5-year average ROAA above 130 basis points, a 10-year TBV CAGR exceeding 10% and a 10-year EPS CAGR greater than 15%. Our exceptional performance in all 3 metrics resulted in a 10-year total shareholder return of more than 250%, far exceeding the TSR for our high-performing peer group. Our ability to generate top quartile EPS and TBV per share growth is a result of our unique business model and the strength of our team. We truly have the best bankers in each of our markets, backed up by a shared services team that allows them to focus on providing raving fan service to our clients. As we begin this year, we are focused on advancing our digital transformation to deliver optimized technology to our clients and our team, further expanding our wealth management business and continuing to grow our LIHTC lending platform. Combined with a positive NIM outlook, expanding operating leverage, solid loan and deposit pipelines and a stable credit outlook. The initiatives position us to deliver superior financial performance and create continued strong returns for our shareholders. I will now turn the call over to Nick to provide further details regarding our fourth quarter and full year 2025 results. Nick Anderson: Thank you, Todd, and good morning, everyone. We delivered record adjusted net income of $37 million or $2.21 per diluted share for the quarter and record full year adjusted net income of $130 million or $7.64 per diluted share. These exceptional results were driven by significant growth in net interest income from increased average earning assets and net interest margin expansion. In addition, we had solid wealth management revenue growth, strong capital markets revenue and improved asset quality. Net interest income increased $4 million or 22% annualized in Q4 and $23 million or 10% for the year, driven by continued margin expansion. The LIHTC construction loan sale late in Q4 did not materially impact net interest income. On a tax equivalent yield basis, NIM increased 6 basis points from the third quarter, near the upper end of our guidance range. This expansion was supported by a 14% increase in average earning assets, a significant improvement in our cost of funds and a favorable mix shift to noninterest-bearing deposits. Our disciplined approach to deposit pricing, combined with a liability-sensitive balance sheet has driven cost of funds betas that are more than double those of our earning assets in the current rate cutting cycle. Since the Fed began cutting rates in 2024, our deposit costs have declined by 56 basis points compared to a 32 basis point decline in loan yields. We continue to experience the repricing of lower-yielding loans into higher market rates as new loan yields added during the quarter exceeded loan payoff yields by nearly 30 basis points. As we move further into the rate cutting cycle, however, we expect that positive arbitrage to moderate. We still remain positioned to benefit from future rate reductions with rate-sensitive liabilities exceeding rate-sensitive assets by approximately $700 million, providing meaningful upside to margin in a declining rate environment. For future cuts in the Fed funds rate, we expect 1 to 2 basis points of NIM accretion for every 25 basis point cut in rates. If the yield curve steepens, we'd expect NIM expansion at the top end of that range. And if the yield curve remains relatively flat, we would expect NIM expansion at the lower end of the range. Our NIM to EY has expanded 32 basis points over the past 7 quarters, reflecting disciplined execution and favorable balance sheet positioning. We expect this momentum to continue and are guiding to additional core margin expansion in the first quarter between 3 to 7 basis points, assuming no further federal rate cuts. Further upside in our first quarter NIM is supported by repricing opportunities on approximately $140 million in fixed rate loans currently yielding 5.55%, which are expected to reset nearly 50 basis points higher. We also anticipate continued CD repricing during the first quarter with approximately $390 million of maturities, currently costing 3.94%, which we expect to retain and reprice nearly 50 basis points lower. We also expect investment yields to continue to expand, supported by a solid pipeline of new municipal bonds priced in the high 6% range on a tax equivalent basis. In addition, the retirement of the FHLB term debt is expected to contribute nearly 2 basis points of incremental margin improvement. Noninterest income totaled $39 million for the fourth quarter, driven primarily by $25 million in capital markets revenue. Despite the slower first half of the year, capital markets revenue reached $65 million in 2025, surpassing the upper end of the $50 million to $60 million annual guidance range we established to start the year. Our Wealth Management business delivered $5 million in revenue for the fourth quarter, a 4% increase compared to the prior quarter. For the full year, wealth management revenue grew $2 million or 11%, underscoring the strength of this business. Continued growth in assets under management across our markets not only enhances our platform, but also provides stability and diversification in our revenue mix. Now turning to our expenses. Core noninterest expenses increased $4 million in the fourth quarter when excluding the $2 million nonrecurring prepayment fee associated with retiring higher cost FHLB term funding. The linked quarter increase was primarily due to elevated variable compensation resulting from strong capital markets performance and record earnings. Higher professional and data processing expenses related to our first core system conversion as part of our digital transformation also contributed to this increase. Our variable compensation structure is designed to maximize operating leverage and provide expense flexibility across changing revenue cycles, aligning employee incentives with shareholder returns. Despite the increase in noninterest expenses, our adjusted core efficiency ratio came in at 56.8%. We continue to prudently manage expenses while investing in talent and technology to support our operations team with initiatives that enhance future operating leverage to strengthen the scalability of our multi-charter community banking model. Even with continued investments in our business during 2025, we maintained strong discipline over core noninterest expenses, which were up only 4% for the year, in line with our strategic goal to hold noninterest expense growth below 5%. Looking ahead, we expect noninterest expenses to be in the range of $55 million to $58 million for the first quarter of 2026, assuming capital markets revenue and loan growth are within our guided ranges. This outlook reflects our continued commitment to disciplined expense management aligned with our 965 strategic model, which targets noninterest expense growth below 5%, while driving operating leverage and strong profitability. Looking ahead, our continued investments in technology, combined with the flexibility of our variable compensation structure will enhance scalability and efficiency, positioning us to deliver sustained operating leverage as we grow. Moving to our balance sheet. During the quarter, total loans grew by $304 million or 17% annualized before the impact of the construction loan sale and the planned runoff of the M2 portfolio. Our traditional loan portfolio demonstrated strong growth, increasing $92 million or 8% annualized in the fourth quarter and $185 million or 4% for the year when excluding the runoff of the m2 portfolio. Looking forward to 2026, we have a solid pipeline and expect to sustain this momentum as we are guiding to gross annualized growth in a range of 8% to 10% for the first quarter. with growth ramping up to a range of 10% to 15% for the remainder of the year. Complementing our loan growth, total core deposits grew $64 million or 4% annualized in the fourth quarter. Average deposit balances rose by $237 million or 13% annualized when compared to the third quarter. For the full year, core deposits increased by $474 million or 7%. Our deposit mix improved for the full year with an increase in noninterest-bearing balances and a 34% reduction in higher cost broker deposits, further strengthening our funding profile. Strong deposit growth across our markets highlights the success of our relationship-driven approach and validates our efforts to expand our deposit market share while providing a stable core funding base for future growth. Asset quality remains excellent. Net charge-offs were static compared to the third quarter, while provision for credit losses increased by $1 million. Total criticized loans continued to improve, decreasing $5 million in the quarter and $20 million for the full year, reflecting a 12% reduction. Total criticized loans, a key leading indicator of loan quality, are at their lowest level since June of 2022. As a percentage to total loans and leases, total criticized loans declined 7 basis points to 1.94% during the quarter, the lowest level in more than 5 years and remains well below the company's long-term historical average. Our total NPAs to total assets ratio remained constant at 0.45%, which is approximately half of our 20-year historical average. Our allowance for credit losses to total loans held for investment increased 2 basis points to 1.26%. While our asset quality remains very strong and our criticized loans continue to decline to record low levels, we increased our provision at year-end to bolster our already strong level of ACL. This is consistent with our long-standing credit culture of maintaining robust reserves even during times when credit quality is favorable. We executed additional share repurchases in the fourth quarter, repurchasing approximately 163,000 shares, returning $13 million of capital to shareholders. For the full year, we returned nearly $22 million to shareholders, repurchasing approximately 279,000 shares at roughly 1.3x our current tangible book value. Through last week, we repurchased approximately 32,000 additional shares, increasing total repurchases under the program to more than 310,000 shares since commencing in the third quarter of last year. Our tangible common equity to tangible assets ratio rose by 27 basis points to 10.24% at quarter end, driven by strong earnings and improved AOCI, partially offset by share repurchases. Our common equity Tier 1 ratio increased 18 basis points to 10.52% and our total risk-based capital ratio increased 16 basis points to 14.19% due to our strong earnings growth and the construction loan sale, partially offset by share repurchases. We delivered another quarter of exceptional growth in tangible book value per share, which rose $2.08 to approximately $58, reflecting 15% annualized growth for the quarter. Over the past 5 years, tangible book value has grown at a compound annual rate of 13%, highlighting our continued strong financial performance and long-term focus on creating shareholder value. Finally, our effective tax rate for the quarter was 8%, down from 10% in the prior quarter, reflecting lower pretax income and an increase in the mix of our tax-exempt income relative to our taxable income. Our tax-exempt loan and bond portfolios have continued to support a low effective tax rate. Assuming a revenue mix in line with our guidance ranges, we expect our effective tax rate to be in the range of 8% to 10% for the first quarter of 2026. With that added context on our fourth quarter and full year results, let's open the call for your questions. Operator, we are ready for our first question. Operator: [Operator Instructions] Our first question today comes from Damon DelMonte from KBW. Damon Del Monte: First question, just appreciate the guidance on the capital markets revenues, $55 million to $70 million over the next 4 quarters. Just curious, do you guys expect any seasonality kind of in the beginning part of the year? Just trying to kind of model out a cadence for expected revenues. Todd Gipple: Damon, thanks for asking that question. We certainly did want to set expectations a bit for the first quarter. And this is a chance to remind everyone that our first quarter is historically our slowest quarter of the year for capital markets revenue. It's really not just us. The entire affordable housing industry gets off to a bit of a slow start each year. I really think developers push themselves and their teams to get things closed by 12/31, then maybe take a little breather for a month or so. So as a result, we expect our first quarter here in '26 to be far better than it was the first quarter of last year. But I do want to make sure we set expectations. We should not all expect another $20 million-plus quarter here. Our Q1 capital markets revenue has averaged $11 million in the past 5 years. We had last year $6 million in there. We've had a $13 million. We've even had a $16 million. But yes, Damon, I'm grateful you asked the question. Q1 is a bit slower start. It's one of the reasons we're so focused on providing rolling 12-month 4-quarter guidance. That's really how we evaluate our performance. That's how we evaluate the strength of our business. And yet we know the first quarter can be a bit seasonally slow. Damon Del Monte: Got it. Great. Okay. That's helpful. And then in the past, you've talked about the securitization of moving some of the loans off the balance sheet. And I think last quarter, you kind of talked about midyear here in '26. Is that still on the table to be done? And if so, do you have a kind of an updated target size of loans to securitize and move off? Todd Gipple: Yes, Damon, thanks for asking about that as well. We do continue to target sometime in the first half of this year. I expect us to have that perm loan securitization happen prior to June 30. We do that with Freddie Mac. And Freddie is not -- well, they're a GSE and not a full government agency, but they can sure act that way sometimes. So they're undergoing some changes in their securitization program for the M Series program we use. And what I mean by changes is they're making it harder and it's taking longer. But we still expect something in the $300 million to $350 million range prior to June 30. Operator: Our next question comes from Nathan Race from Piper Sandler. Nathan Race: Could you just help us with some guideposts in terms of a starting point for earning assets in the first quarter, just some of the -- just given the moving pieces with the securitization in 4Q and then just the expectation of pay down some wholesale borrowings as well? Todd Gipple: Yes. So earning assets heading into the first quarter would be very consistent with where we ended earning assets. That construction offtake happened very late in the quarter, actually December 22. So that's why NII was really not impacted by that. So where we ended 12/31 in terms of earning assets is where we're going to begin. We talked about very robust loan growth plan for this year. We do feel like we're going to be 12%-ish for the full year, but that's going to be a little backloaded as well. That's why we're guiding to more like 8% to 10% gross loan growth in the first quarter. We think that will accelerate in the last 3 quarters of the year, closer to 12 15. We feel really good about loan pipelines, both traditional and LIHTC. So we'll be ramping earning assets up here throughout the quarter, but starting point would really be the 12/31 number. Nathan Race: Okay. So not necessarily the average balance in the fourth quarter for earning assets, right? Todd Gipple: Correct. Correct. Average balance is far greater because that loan sale happened 12/22. Nathan Race: Understood. Okay. And then, Todd, can you just update us in terms of what inning you're in, in terms of having the cost and the expense run rate around the transformation and the investments you're making? And then just any thoughts in terms of how that translates in terms of the expense run rate over the second quarter and back half of this year relative to the guidance you provided for 1Q? Todd Gipple: Yes. Nate, I think I'm going to let Nick talk a little bit about NIE run rates, and I might tag on a little bit about how we're thinking about $10 billion. Nick Anderson: Looking ahead here, obviously, you saw we increased our guidance range for NIE, the $55 million to $58 million. Updated range continues to assume that we make further investments in the digital transformation. The approximate midpoint of the $55 million to $58 million range is just about 5% increase over our core NIE year-over-year. So what's making up some of that increase, I would kind of lay it out this way, about $4 million of digital transformation spend, another $4 million in salary benefit costs and a couple of million in occupancy related. So, despite the increase in the 26% range, we still expect to create more operating leverage and pushing that efficiency ratio lower as we see some expansion in our revenues that outpace our NIE here. Todd Gipple: Yes. So Nate, I'm going to go ahead and tag in on this with the $10 billion thoughts. We ended the year right on top of $9.5 billion. We still expect to stay under $10 billion here at the end of '26. That will have a lot to do with the timing of some of our construction loan offtake later in the year. I don't know that we'll be as precise as doing that almost near the end of the year. But certainly, we're going to be very mindful of the impact on NII when we do term loan securitizations and construction loan sales. Many of you are familiar with our 965 strategy, and we want to grow NII close to that 9% for the full year. And because of a strong organic gross loan growth, we're going to be able to do both. But we certainly expect to come in just under $10 billion at the end of calendar '26. We will go above $10 billion in '27. And as a result, starting in July of '28, we're going to have the rigor of $10 billion and the Durbin impact. But we are layering in, in that 5% guide that Nick gave everyone, that is not just digital transformation, that is building for the infrastructure we need for $10 billion at the same time. So we're building it in. We don't expect there to be a blip in '28 as a result of going over. And that's really important to us. The 5% and 965, we are very diligent about making sure we don't have expense creep so we can continue to improve EPS and TPV per share. So sorry for the long answer to your short question, but thought we'd give a little bit of current color and a little bit of future. Nathan Race: That's great and very helpful. Just a question in terms of kind of the deposit gathering expectations. Obviously, you have a pretty robust loan growth outlook out there for this year. Just curious kind of what you're seeing in terms of opportunities to continue the momentum on the deposit gathering front. And just as you look at kind of the balance sheet growth outlook for this year, if we just assume maybe a flat rate environment or a static rate environment, do you see kind of incremental balance sheet growth accretive to the margin? And just within that context, curious what kind of opportunities you're seeing to continue the deposit gathering efforts within the clients that you work with on the low-income housing tax credit side of things. Todd Gipple: Sure, Nate. Thanks. Great question. I'll talk a little bit about how we're looking at deposit growth, and Nick can give you a little bit more of the margin and NII implication after that. But the one thing that all 1,000 of our teammates universally understand is we have to continue to improve the right side of our balance sheet, both core deposit growth and improving our mix. So everyone is focused on that. And there's really 3 underlying strategies. We continue to lean in hard to net new retail checking accounts. That doesn't move the needle in dollars. But over 10 and 20 and 30 years, that is incredibly meaningful in terms of the stability of our funding costs. So we are very focused on growing net new retail checking accounts and it only counts in our scorecard if we get their direct deposit and really become their bank. We're really leaning hard into private banking, that top 10% to 15% of retail in each of our markets. It's a big part of our Quad City and Cedar Rapids and Southwest Missouri markets. I'm proud of our leadership in Central Iowa. They've added some really great talent in private banking in Central Iowa, which happens to be our largest MSA. So that's going to help us with core deposits and wealth management pipeline. And then where we can move the needle more significantly each year is treasury management. We have a great technology platform. We have great people. We are just being more precise and intentional on non-borrowing targets. Typically, bankers tend to focus on lending, and we're getting them all focused on gathering deposits. We've got to get NIB back up. That's going to take a while, but we're really focused on the right side of the balance sheet. And I would just end before I turn it over to Nick, we expect our growth to be funded with core deposits, not wholesale. And we've worked that down a fair amount during the year. So that's our continued focus. Nick, maybe talk about -- and both NIM and NII. Nick Anderson: Yes. So Nate, I'll probably reference a little bit our success in '25 in moving the deposit mix shift. We did have some success in reducing brokerage. We lowered that by $120 million. That's just 3% of our total deposits today, and that's helping reduce some of our cost of deposits. As Todd said, NIB continues to be an area where we need to move the needle further faster. We did increase that $24 million. They're about 13% of our total deposits. So when I look at the growth for '25, and this kind of leads into maybe how you can think about the growth in '26, about half our growth came from the correspondent network. so about $238 million. That's more priced probably at the market, if you will. There are some noninterest-bearing deposits inside of that business that do help. We also saw the other half of the growth then really came from a couple of hundred million in commercial and $32 million in retail. So I would highlight there our success in really continuing to drive into our markets, getting those operating accounts on the commercial side over time, that should continue helping our noninterest-bearing deposits. So I think the short answer is a lot of our success in '25 is similar to how we move into '26 and think about the growth there. Nathan Race: Okay. Got it. If I could just sneak one more in along those lines. Obviously, a notable M&A announcement involving a long-time Iowa competitor recently. So just curious if there's any kind of early indications on opportunities for share gains, particularly on the deposit gathering front in light of that announcement and potential disruption. Todd Gipple: Sure. yes, Nate, we are already on top of the MOFG sale. It is really adjacent to the Cedar Rapids market. We have great leadership in that market, very focused on taking clients and taking market share. We don't have to be located in that market to do so. And we already have a target list and are working it pretty effectively. We expect to take some of the best clients out of that platform. [ Nikolai ] is an incredibly good performer, but we're pretty certain that some of the folks in Iowa City, Iowa are not going to be all that thrilled that all the decisions are made out of state, and they're certainly going to lose some talent. So we view it as an opportunity. Again, our entire company was founded on the backs of not very good M&A in the Quad Cities and Cedar Rapids. So we know how to take advantage of that, and we certainly expect to. Operator: Our next question comes from Daniel Tamayo from Raymond James. Daniel Tamayo: Maybe starting on the LIHTC business. So you gave the updated guidance increase from last year's guidance. It would be kind of flat to down a bit if we took the midpoint from -- on a year-over-year basis. And then that would be kind of a, I guess, 2- or 3-year trend of just a little bit down on the revenue side. Obviously, longer term, it's up. It seems like there's great opportunities there. You've been growing it a ton. Just curious kind of long term, how you think about growth opportunities within the LIHTC business. Are there bankers that you would need to add to do that? Are your current bankers at capacity or near capacity? You talked about the developer relationship opportunities. But I'm just curious kind of as we take a step back on this LIHTC business, which continues to be more important for your business overall, kind of what the growth opportunities might look like on a longer-term basis? Todd Gipple: Thanks for the great question, Danny. We are very excited about the future of this business. If anything, I would just ask everyone to focus less on the top end number of our range and more on the direction that we here in the last 2 quarters have moved it up a couple of times. We understand that might look a little light considering the back half of this year. candidly, I'm okay with that if maybe the biggest concern folks might have is we're being a little conservative with our guidance. I think what it has to do with Danny, is we have worked really hard on this business this year. And while we've all worked hard on making this a better business, our LIHTC team is incredibly talented, and I don't know that they've ever worked harder. And so we're just trying to be realistic about the fact that we need to operate in this space a little bit with the new construction offtake that we have, make sure we're fully prepared and ready to grow that business. But certainly, we expect to be able to take the new developer relationships, the new third-party relationships on construction offtake and continued strong performance by this team and further grow the business. So we do have expectations for further growth. I think I'd just say let's operate in this environment a little bit, let's prove the numbers up. We want to maintain our [indiscernible] ratio here. That's always been important to us. So we think the future is quite bright. Daniel Tamayo: Understood. I appreciate that. I guess from an efficiency perspective, you talked about the expectation for positive operating leverage in the business and certainly contributing to the overall franchise. How should we think about that 5% kind of expense target that you've had for a long time. What does that contemplate from a LIHTC growth perspective? Is that kind of the range of fee income growth that you've provided, so somewhere around the midpoint and then you would perhaps be above 5% if the LIHTC revenue got better? And then sorry for a long question here, but wrapping that into a profitability discussion, how do you think you -- how much further do you think you can take this thing? I mean you're over 1.50% ROA last couple of quarters. Does that -- do you think that can continue to move higher? Todd Gipple: Danny, first, I'll just say your assessment of the guide on NIE is very accurate that when Nick is providing that guide, we're assuming we're kind of down the middle in terms of guidance on loan growth, on capital markets revenue, on performance. So you've got that nailed. We're quite proud of the back half of this year and finishing with core ROA at 150. But we expect to continue to grow earnings per share and tangible book value per share at a better than average clip and stay in the double digits there. And so for us to do that, we have to continue to move up ROAA, and it's pretty frothy already at 150%. But the way we get there, Danny, is -- and so I'm really glad you asked the long question because I think it's important to me that people understand we are not going to achieve greater ROA simply by further growing the LIHTC business. that will help, and we expect that to happen, and we expect that to add tremendously to profitability. But at the same time, we have to improve the ROAA performance of our traditional banking space, and we have to get continued 10% growth in wealth management. We do not want to grow earnings solely on the back of our LIHTC business. It's really important to us. Our team is really good at it. We expect it to grow. It's a tremendous ROA and EPS engine, but we're not just focused on that. We have to get traditional banking to improve and wealth management to continue to grow at 10%. So we want all 3 to grow ROAA in the future, and we expect that to happen. So on the traditional side, really 2 things, improving the right side of the balance sheet and how we fund. As we get better at that, that will help earnings. And then the operating leverage we're going to get from digital transformation and some other things. We expect that in really starting in '27, more fully in '28. So those 2 things will help traditional. So Danny, I answered your long question, a long answer, but I wanted to take everyone down that path that while we expect great things out of the future of our LIHTC business, we really need all 3 segments to continue to improve performance. Daniel Tamayo: Understood. That's helpful, Todd. And then maybe just a cleanup one, although also a little longer term in nature, but for you, Nick, just on the effective tax rate. Obviously, the tax-exempt portion of the balance sheet has been growing as you indicated. I mean, should we expect the effective tax rate to continue to trend downward in coming years or quarters and years as that business continues to be a bigger part? Nick Anderson: Yes. Danny, when we look at our effective tax rate, obviously, very high performing, very low effective tax rate there. We did -- I think full year, we landed around 6.5%, and that was compared to 7% in '24. And both those years had some pretty decent performance, both of those years were record years. To your point, though, the percentage of our tax-exempt business on our balance sheet that drives our income statement, it's about 30%. So when it hits the income statement. So that's -- I think that's probably pretty consistent of where we're expecting that to head. We did give guidance for the next quarter, 8% to 10%, but I think that makes sense given some of the lighter activity we're expecting here in Q1. So I think, hopefully, that helps to answer your thoughts there. Can that continue to trend lower over time? I guess my short answer is it depends a little bit on the makeup of our balance sheet. But we continue to off balance sheet some of our LIHTC business, so that's going to moderate. And I think kind of the level we're at and have been at here more recently is what you should assume. Operator: Our next question comes from Brian Martin from Janney. Brian Martin: Nick, maybe I just missed the end of that on the tax rate. But just the tax rate over the balance of the year, just -- do you expect it to change materially off the first quarter level? Or I guess, did you suggest otherwise? Maybe I just didn't catch that. Nick Anderson: Yes. I think it will continue to be pretty static. So I think your 8% to 10% or the 8% to 10% we guided to, I think that's a fair assumption to use for the '26 model. Operator: Got you. Okay. That's helpful. And just one other housekeeping on the earning asset number. What was the end-of-period earning asset number versus the average? How much lower was the end of period than the average? Do you have that? Todd Gipple: Nick has that, and he is pulling that up right now, Brian. Nick Anderson: Yes. No worries, Brian. It really was right on top, slightly under where we ended the average. So average was like $8.872 billion. So it's, call it, $20 million, $30 million below that. Brian Martin: Below it. Okay. Got you. I just want to make sure that. And then, Todd, your comments about just getting better elsewhere. I mean, do you see an opportunity on -- I mean, it sounds like there's an opportunity on the funding side, certainly with the DDA at around 13%. I mean, do you expect to be able to -- do you see an opportunity to move that up? Or is that -- I guess, do you have targets kind of on where that may trend over time? And then just kind of how you're thinking about the loan-to-deposit ratio here? Todd Gipple: Sure. yes, Brian, we know we have to improve the right side of our balance sheet for us to continue to improve the performance of our traditional banking space. So we're right now at about 13% NIB. We've been in the 20s. And we know that the rapid increase in rates previously changed the behavior of virtually every deposit client in the country, and they became rate sensitive after spending well over 10 years being non-rate sensitive. And so that has impacted our NIB. We have to have a clear path to improving that, and I do expect it to improve. I would certainly expect us over time to move that up to be more peer like, something in the high teens and maybe even 20%. That is not going to happen in a couple of quarters. Candidly, that's not going to happen in a couple of years. That's just going to take a lot of hard work over a long period of time. We're going to have to see some of our clients become less rate sensitive and allow us to have higher PE balances of noninterest-bearing because of our relationship. And we think over time, we'll have some success with that. But that is not going to happen quickly. It's going to take a lot of work. And the other thing is, over time, we want to be better funded with core deposits and be able to lower our loan-to-deposit ratio. It will never get I don't anticipate it's ever going to get below 90%, but we'd like to operate more in the low 90s than the high 90s. And I think over time, we'll get there. But again, our big focus on the traditional banking space is 2 main things, and that is our funding mix and our operating leverage. And we have plans to improve both. Brian Martin: Got you. And that operating leverage, Todd, I mean, in terms of getting that lower, I mean, you're targeting kind of getting to the low 50s from where you're at today, that's kind of where the trend line is moving toward or the hockey puck moving to? Todd Gipple: Exactly, Brian. That is not going to happen here for a couple of years while we're investing in the bank of the future and still paying for the bank of the past or current. We're going to stay within that 5% growth on expenses and have that discipline, but it's really going to start more in '28 and beyond where we think that efficiency ratio can drop from the mid-50s to the low 50s. Brian Martin: Got you. No, that's helpful, and it makes sense. Maybe just last 1 or 2 for me. Just on the loan guide or just kind of the loan outlook. In terms of -- it sounds like there's obviously a securitization and maybe potentially later in the year, a couple more of these construction offtakes. Just when we think about the loan growth of the guide, I mean, is this a number that's net of kind of all the activity that you're anticipating here in terms of the sales and the securitizations? Or how do we think about the net loan growth kind of as you go through with all the actions you expect here over the next couple of quarters? Todd Gipple: Yes. Brian, that's a fair question. It's kind of a difficult answer simply because the exact timing of some of this offtake is not real precise just yet, and that's not because it's uncertain. That's because it's going to depend on how fast our loan growth is and when we think the right time is to sell some of that off. We're blessed to have a tremendous partner in the construction aspect of this business, and they are very anxious to have more of our construction loans, and we're anxious to do that with them. But -- so I apologize that's a little choppy. So what we can talk about is our gross loan growth. We think that's going to be very strong. What I'm really thrilled about is last quarter was the best quarter of the year in terms of loan growth. And while 70% of that was LIHTC, traditional bank was 30%, and that's the best traditional bank growth we've had in a long time, and our pipelines on traditional bank growth are very strong. What I will tell you is because I know what you really need to do, Brian, is figure out the impact on NII. And I know that's why some more precision would help. What I will tell you is we are very focused on doing all this with the balance sheet, but also growing NII. And we are going to target that 9% and 9.65%. So the offtake will mute loan growth year-over-year. But during the year, we expect it to help produce NII growth. Brian Martin: Got you. That's understood. That's super helpful, Todd. I guess you know what we're trying to get to. So -- and just the last one for me was just on the capital management and just the buyback. You talked about M&A not being an issue or not being really a factor. It certainly sounds like that continues to be the case. But in terms of the buyback, how do you think about -- is this opportunistic here? Or I guess, is it ongoing? -- you plan to be in the market kind of regularly? Or just how are we thinking about the repurchases? Todd Gipple: Yes. Brian, thanks for asking about that. We hadn't really talked about the buybacks. And I would beat your word, opportunistic. That's how we've always felt about it. At current valuations, even today's, buybacks are an attractive use of capital for us. We know it benefits our shareholders. There's no real algebraic formula on when, how much, what price. It's certainly more of an art than a science. But we would intend to be opportunistic. And when we think about buying shares back, we tend to think forward about where TBV and EPS are headed. So sometimes we get a little more confident about buying shares at these valuations, knowing where EPS and TBV are headed in the future. So a good example of that. We spent $25 million so far under the current authorization. That's 312,000 shares. And what's lovely about that is that was at a weighted average price of $78. So we feel really, really good about having done that for our shareholders. And we'll remain opportunistic and try to do that when it makes sense. Operator: Our next question comes from Jeff Rulis from D.A. Davidson. Ryan Payne: This is Ryan Payne on for Jeff Rulis. Just one for me here. Revisiting the loan growth and LIHTC side, what kind of competition are you seeing in LIHTC and maybe the reasons it feels isolated? And then anything you're seeing on loan competition in general? Todd Gipple: Sure. Yes. Thanks for the question. What I would tell you is in terms of competition in the LIHTC space, -- we talked a little bit about this in our scripted comments, but what makes us really encouraged about the future growth of LIHTC is we have really -- our team is tremendous. And we hear that from our developer clients directly about how much they appreciate our team. And we've grown this business pretty nicely. But based on industry data that we can get, we only have around 2% of the market. And that obviously makes us very encouraged about potential for future growth. So in terms of headwinds and competition in that space, -- the candid about it, the only time we really end up losing deals is when the equity provider to that developer also has either an in-house perm loan or a relationship with someone on the perm side because developers, first and foremost, need equity. And so equity sometimes will drive the selection. Not to be cavalier about it, but that's about the only time we lose transactions is if an equity player comes in and says, I'm only going to give you the equity if you do the perm with us. So to combat that, we are working with equity providers that are perm loan agnostic, where they would love to partner with us because they know developers like our program. So we are working really hard to further our relationships with equity providers that can be partners with us on the firm. So that's why the future growth of LIHTC, we're optimistic about it. In terms of local competition for traditional banking, in several of our markets, there is not a transaction that happens in the market without us knowing about it. And candidly, maybe all 4 markets. We tend to be at the table for most anything of substance in our 4 markets. It's because of our structure and our great team. So sometimes what we're deciding is are we willing to do it at a certain price. And so pricing is tough right now. We're doing a great job. Our bankers are doing tremendous work, maintaining relationships and getting paid as well as we can. But typically, the competition for deals is going to be more about pricing and whether we can make it or not. Operator: And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Todd Gipple for any closing remarks. Todd Gipple: Thank you for joining our call, everyone. We very much appreciate your interest in our company. Have a great day, and we look forward to connecting with you soon. Thank you. Operator: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good day, ladies and gentlemen, and welcome to the MSCI Fourth Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. [Operator Instructions] I would now like to turn the call over to Jeremy Ulan, Head of Investor Relations and Treasurer. Sir, you may begin. Jeremy Ulan: Thank you, and good day, and welcome to the MSCI Fourth Quarter 2025 Earnings Conference Call. Earlier this morning, we issued a press release announcing our results for the fourth quarter 2025. This press release, along with an earnings presentation and brief quarterly update are available on our website, msci.com, under the Investor Relations tab. Let me remind you that this call contains forward-looking statements, which are governed by the language on the second slide of today's presentation. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from the results anticipated in these forward-looking statements. For a discussion of additional risks and uncertainties, please see the risk factors and forward-looking statements disclaimer in our most recent Form 10-K and in our other SEC filings. During today's call, in addition to results presented on the basis of U.S. GAAP, we also refer to non-GAAP measures. You'll find a reconciliation of our non-GAAP measures to the equivalent GAAP measures in the appendix of the earnings presentation. We will also discuss operating metrics such as run rate and retention rate. Important information regarding our use of operating metrics such as run rate and retention rate are available in the earnings presentation. On the call today are Henry Fernandez, our Chairman and CEO; Andy Wiechmann, our Chief Financial Officer; and Baer Pettit, our President. Lastly, we wanted to remind our analysts to ask one question at a time during the Q&A portion of our call. We do encourage you to ask more questions by adding yourselves back to the queue. With that, let me now turn the call over to Henry Fernandez. Henry? Henry Fernandez: Thank you, Jeremy. Good day, everyone, and thank you for joining us today. MSCI is generating impressive momentum across product lines and client segments. Our leadership in the global investment ecosystem and relentless focus on innovation has enabled us to drive a strong financial performance. In the fourth quarter, we achieved organic revenue growth of over 10%, adjusted EBITDA growth of over 13% and adjusted EPS growth of almost 12% for the quarter and almost 14% for the full year. Our attractive all-weather franchise, client centricity and alignment with favorable long-term secular trends have positioned us to deliver on the long-term growth targets we have set for MSCI. Since MSCI's IPO a little over 18 years ago, we have achieved a compound annual growth rate of nearly 13% for total revenue, nearly 15% for adjusted EBITDA and over 16% for adjusted EPS. In addition, we have now delivered 11 consecutive years of double-digit adjusted EPS growth. We intend to continue with all these records at MSCI for the years and decades to come. In the fourth quarter and through yesterday, we also bought back nearly $958 million of MSCI shares at an average price of about $560 per share. Over the last 2 years, we have repurchased almost $3.3 billion of our shares at an average price of $554. As you can see, we have a very strong conviction on the prospects and potential of MSCI, and we believe our franchise remains undervalued. In Q4, MSCI's operating metrics included net new subscription sales of $65 million and nonrecurring sales of $31 million, bringing total net sales to over $96 million. Q4 was, in fact, our second best quarter ever for recurring net new subscription sales, and we grew a growth rate of 18%. Across MSCI, our retention rate was over 94% for the full year. All of this resulted in total run rate of over $3.3 billion, growing 13% and comprised of total ABF run rate of $852 million, growing 26% and recurring subscription run rate of over $2.4 billion, growing over 9%. Q4 showed how MSCI is using our deep rooted competitive advantages to drive growth. With newer client segments, in particular, we are doubling down on key opportunities while reinforcing our position as the essential intelligence layer of global investing. So for example, our index flywheel is helping clients form thematic baskets, gain global exposures, unlock new distribution channels, launch tradable products and hedge exposures. In Q4, we delivered our best quarter ever for new recurring subscription sales in Index. Meanwhile, total ETF and non-ETF AUM linked to MSCI indices reached approximately $7 trillion, driven by record inflows into our clients' ETF products linked to MSCI indices, particularly listed ETF products in Europe. In general, asset-based fees remain a consistently strong contributor to our top line with a durable track record of positive annual cash inflows into ETFs linked to MSCI indices every year stretching back more than a decade. We also had a strong quarter in Analytics, where we posted our second best Q4 on record for new subscription sales. In Private Capital Solutions, we drove recurring sales growth of 86%, supported by our rollout of innovative new products and landing new client relationships. In Sustainability and Climate, our new subscription sales were lower than last year's levels, with particular softness in the Americas. In Sustainability, MSCI is expanding our solutions across all client segments and asset classes to address emerging risks and opportunities that go beyond environmental, social and governance matters. Examples include AI and supply chain disruptions on companies and fixed income instruments in people's portfolios. In climate, MSCI is emphasizing physical risk and energy transition tools that promote consistent standards and a common language across companies, industries and regions. Physical risk is just one area where we have been leveraging AI to enhance our capabilities with tools such as geospatial asset intelligence. We're also harnessing AI to enhance our solutions in custom indices, risk insights, ESG controversies and private assets. For example, MSCI has decades worth of historical data on private markets, and we're now using AI to process this data in significantly larger volumes and then feed it into our total portfolio insights. Our company-wide total embrace of AI represents a technology power transformation that will increase the value of our tools for clients across the board. I will now review our Q4 performance among individual client segments. In general, MSCI is unlocking significant opportunities across high-growth client segments. With hedge funds, MSCI delivered 13% subscription run rate growth and 26% recurring net new sales growth. One prominent deal in the quarter was the index rebalancing team at a top global hedge fund for MSCI's new extended custom index module, which spans almost 5,000 custom indices. This highlights the growing appeal of our index product ecosystem and the need for more tools from MSCI. Moving on to wealth managers. MSCI achieved nearly 11% subscription run rate growth, including 15% recurring sales growth. As we drive further adoption of our index and analytics tools among home offices and wealth platforms of large investment managers. For example, in Asia, we closed 2 major CIO office deals for our multi-asset class factor models, which helped make 2025 our best year ever in new recurring subscription sales in the wealth segment in APAC. Among asset owners, MSCI posted close to 11% subscription run rate growth along our strongest recurring net new sales growth in 5 years, driven by private capital solutions and analytics. For example, we are seeing rising demand across regions from pension and sovereign wealth funds for our total portfolio solutions spanning public markets, multi-asset classes and especially private markets as clients increase their private asset allocations. Shifting to banks and broker-dealers, MSCI delivered subscription run rate growth of over 9% with large deals from index and analytics. The expansion of basket trading among banks has created new opportunities for us given our capabilities in quantitative investment strategies and custom indexing. In Q4, this trend helped MSCI secure a landmark deal for our new basket builder solution with a prominent bank in the Americas. Using our tool, traders can rapidly create a standard and custom index baskets across client and internal workflows with MSCI index content and IP forming a fundamental basis of these baskets. Turning finally to active asset managers. MSCI achieved recurring net new sales growth of 13%, primarily driven by index, along with subscription run rate growth of over 7%. Our Q4 results bode well for the gradual recovery of our performance with this important client segment. Active ETF products remain an exciting opportunity for active asset managers and for MSCI. In 2025 alone, MSCI supported our clients' launch of over 50 new fee-generating active ETF products in the market. As Q4 demonstrated, we are well positioned to benefit from AI, accelerate innovation and drive adoption of new and existing products for established and emerging client segments while still delivering compounded EPS growth for shareholders. And with that, let me turn things over to Andy. Andy? Andrew Wiechmann: Thanks, Henry, and hello, everyone. It's great to see the strong momentum across the business. This momentum is supported by our pace of innovation that is fueling growth across client segments and product areas. Index subscription run rate growth accelerated further to 9.4%, including 16% growth in custom indexes with some key wins among banks and hedge funds, as Henry highlighted. We also had success with asset managers, where index recurring subscription sales growth was nearly 10% and index subscription run rate growth was slightly above 8%, reflecting the expanding usage of our content. Index retention remained strong at nearly 96% for the full year and 95% for the quarter. The acceleration in index subscription run rate growth was complemented by asset-based fee run rate growth of 26%. Equity ETFs linked to our indexes captured a record $67 billion of inflows during the quarter, totaling $204 billion for the full year. This growth is driven by extremely strong inflows into ETFs linked to MSCI developed markets ex U.S. indexes, including EFA and World and MSCI Emerging Markets Indexes, where we see large and rapidly expanding ecosystems being established around our indexes. We see extraordinary runway to fuel those franchises well into the future, and we are extending the ETF agreement with BlackRock through 2035 to solidify that tremendous future growth. To enable this growth, we will lower the fee floors impacting certain superscale ETFs on which we have been capturing a larger share of the overall economics. The aggregate impact will translate to be roughly 0.1 basis points based on year-end 2025 AUM levels with roughly a 0.05 basis point decrease on January 1 of this year and another 0.05 basis point decrease on January 1 of next year. Outside of the timing of these adjustments, we expect the fee dynamics to remain consistent with the trajectory we have seen before with respect to our overall ETF basis points. Our close partnership with clients like BlackRock and the shared success we've achieved together position us well to drive enormous upside. In Analytics, we had subscription run rate growth of over 8%, driven by our second highest Q4 ever for recurring sales and higher retention. Recurring sales in Analytics benefited from strong sales of our enterprise risk and performance tools, notably with banks and asset owners in addition to continued momentum with our risk models. In Sustainability and Climate, one of our largest Q4 new subscription deals was with a large European wealth tech firm, positioning MSCI to be the embedded provider of Sustainability Solutions for small- and medium-sized wealth managers in Europe aided by our clients' distribution network. This win drove a meaningful contribution to the product line's new recurring subscription sales in Q4. In Private Capital Solutions, we saw growth accelerate on the back of closing almost $8 million of new recurring subscription sales in the quarter, an increase of 86% from the prior year. We've seen strong traction with our total plan offering and our transparency data, both of which have benefited from numerous enhancements and new capabilities. In Real Assets, run rate growth was almost 6% with improving retention as well as sales of new solutions. Turning to our 2026 guidance, which we published earlier this morning, our expense outlook reflects the powerful operating leverage benefits of our business with continued investment initiatives fueling future top line growth. I would highlight that CapEx reflects the anticipated build-out of a new London office space as well as increases in software capitalization related to key business investments across products. Our full year tax rate guidance reflects an expected Q1 tax rate of 18% to 20%, which is higher than past years as we will likely have a slight stock-based compensation headwind this quarter. Free cash flow guidance reflects the expectation of approximately $100 million of higher expected cash taxes in 2026 compared to 2025 due to various onetime discrete tax benefits in 2025 and the timing of cash tax payments between '25 and '26. Our capital position remains strong with an ending cash balance of over $515 million at the end of December. Subsequently, we have paid down $125 million on our revolver, which now stands at $175 million. We will continue to pay down and draw the revolver in modest amounts from time to time to support our capital uses and optimize interest expense. In summary, MSCI's strong Q4 results are reflective of our mission-critical, durable solutions and our accelerating pace of innovation. We are seeing solid momentum in delivering new products, capabilities and enhanced go-to-market efforts, and these are translating through to tangible results. We are focused on meeting client needs and enhancing value across client segments by delivering increasingly integrated solutions. As we've said in the past, the goal of MSCI is to have a fully integrated company in which each product line benefits from and contributes to every other product line. This will amplify the powerful compounding financial algorithm that has fueled our business, and we remain committed to delivering the firm-wide long-term targets of low double-digit revenue growth, excluding ABF, adjusted EBITDA expense growth of high single digit to low double digit and adjusted EBITDA growth of low to mid-teens, enabled by the powerful operating leverage of our business. And we expect ABF to be an outsized double-digit grower through cycles and a key driver of the financial algorithm. However, we will no longer maintain product line-specific long-term targets to better reflect our focus on managing our investments across integrated product lines and delivering outsized growth across the company. Lastly, this change will not impact our current reporting, and we will continue to provide the same level of transparency and disclosure with continued reporting along product lines. As you can tell, we are very excited with the strong pipeline and opportunities in front of us, and we look forward to keeping you posted on our progress. Before we open the line for questions, I'll turn it back to Henry, who wants to take a moment to recognize Baer as he approaches retirement. Henry Fernandez: Thanks, Andy. I want to take this moment to recognize my business partner and friend of 26 years, Baer Pettit, who has played a critical role in turning MSCI into the standard setter we are today. Baer announced his retirement in November, and he will formally step down as President on March 1. I know I speak for the entire senior leadership team at MSCI when I say that we will miss him tremendously. Looking ahead, I'm now excited to work with Alvise Munari and Jorge Mina, who many of our shareholders and the analysts that follow us already know very well as we seek to build on MSCI's momentum and deepen our relationships with both newer and more established client segments. And with that, over to you, my very good friend and business partner of many decades, Baer Pettit. Baer? C. Pettit: Thank you, Henry, and greetings to you all on this my final earnings call. As you may doubtless imagine, this is something of a difficult moment for me and one about which I have mixed emotions. Serving as MSCI's President and a member of our Board of Directors has been a tremendous honor and privilege that I could not have imagined when I joined the firm's Head of EMEA coverage over 25 years ago. Not many people get the chance to impact the global investment ecosystem, and I'm grateful to have had the unique opportunity to help lead MSCI's growth and influence on the investment industry. As a long-term owner operator, I was clearly delighted by the Q4 results, which show the resilience of that all-weather franchise, which we have spoken about on numerous occasions on this call. If there's one thing that has characterized MSCI in the quarter of a century that I've been here, it is the firm's constant ability to reinvent itself and to seek new opportunities in a variety of market and industry context. Many of those opportunities have proven to be extremely resilient and will remain a source of shareholder value for many decades ahead. The highly creative and client-focused teams at MSCI are wired to always keep looking for new opportunities and to drive client value and hence, the growth of the firm. The evolution of MSCI into a truly multi-asset class provider of insight and actionable content for investors and other market participants has not happened overnight. The content and capabilities have grown both through organic investments and the variety of acquisitions with which you are familiar. The great power of the MSCI franchise is rooted in our talented people, who I know will continue to set new standards and drive innovation. It is also grounded in the value that our clients and shareholders derive from the growing number and variety of solutions MSCI deploys. This is what in the past I have referred to as 1 plus 1 equals 3. Notably, it is clear that the efforts that have been put into private markets are really starting to pay off and that this strong combination of public and private markets capabilities will be a key driver of our franchise. And these capabilities create opportunities in a variety of client segments across the globe. I have no immediate plans ahead of me. It truly has been an amazing journey for which I thank all my colleagues at the firm. I'm certain that as a shareholder, my retirement savings are in good hands and that this great franchise will continue to create value for clients, shareholders and employees for a long time to come. Thank you very much. And with that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question for today comes from the line of Toni Kaplan from Morgan Stanley. Toni Kaplan: Baer, I really wish you all the best. Henry, I wanted to talk about AI. You talked about some of the launches that you made. Which do you think are going to be sort of the most meaningful for adoption in the near or medium term, however you want to frame it? Which clients are showing the most interest? And I guess, what could this mean for your growth rate both in maybe '26, but also even beyond that? Henry Fernandez: Thank you, Toni. The journey with AI started 3, 4 years ago for us and initially has been extremely focused on creating AI agents to help us with the day-to-day operations of the company. We use AI extensively in applying to understanding controversies, for example, on ESG ratings. We've been using AI very, very deeply in the gathering of tremendous amount of data in the private markets and private assets and the like. So those are 2 big examples, but we -- there are about 120, 140 projects that cut across the company in using AI to augment the capacity of our smart and talented employees to leverage their smartness and capabilities. Then halfway through it, we started focusing intensely on using AI for products. The first application of it was in our Analytics business in terms of putting AI insights into the portfolios that are running in our servers for our clients, AI insights to understand the performance, the risk, the correlations. So in a way, it's like adding hundreds of people on people's eyes, in this case, digital people, of course, agents to understand what's going on in the performance of our portfolios and the activities of our clients' portfolios. And therefore, that has taken off. We've had a lot of embrace of what we call AI insights in the Analytics product line. So that's been a big benefit. Then we look at AI in terms of automating the custom index creation capability. As you know well, we've been working for a couple of years on designing a software application integrated with our production environment to create a large number of very fast custom indices and custom baskets for trading, for investment, for investment products and the like. One of the things that we realized was a slowdown in that process is the human interaction of understanding the methodology, back testing the methodology and all of that. So we've been training AI agents to do that process much faster than the humans with obviously a lot of human supervision, right? So that is something that is already in place and it's already being rolled out as another example of that. So I think that most of our product lines will benefit enormously with AI agents in terms of either servicing the client or giving insight to the portfolio to our clients or being able to much faster create IP and the like. But I just wanted to highlight 2 examples on the efficiency side in terms of controversies and data capture and private assets and 2 examples on the product side. But I could give you 20 other examples in each category, but I just wanted to exemplify the enormous potential. The last thing that I would say is still early days in our application of AI across the board in MSCI. And we're extremely excited. The company is turning into a total AI machine, and we think it's a godsend to us, as I've said in the prior call. Operator: And our next question comes from the line of Alex Kramm from UBS. Alex Kramm: I wanted to come back to a topic that I think I asked about a couple of times last year, which was this whole idea of international flows picking up and flows moving away from the U.S. I think we've started to really observe this in the marketplace now. I heard there was a recent asset management conference in Europe where the sentiment was better than it's been in years. So it seems like there's excitement growing in your customer base. So wondering if this is actually starting to drive new sales, better conversations? And maybe most importantly, is it giving you better opportunities for maybe pricing a little bit more aggressively? Henry Fernandez: Thank you, Alex. All of the above for sure. Now we're a subscription business, as you know. So things don't take off immediately the same way that they don't go down immediately. So all of this stuff takes time. And of course, you -- a lot of what we do is serve the long-term asset owners in the form of pension funds, sovereign wealth funds, endowments, foundations, family offices and the like. And a lot of those parties don't turn their portfolios on a dime, right? They look at the secular trends, they take their time and all of that. So obviously, as you know well, Alex, the immediate effect has been in the devaluation of the dollar. Obviously, the dollar has been out of favor and people have been selling the dollar and selling dollar assets, as we know. And therefore, that has translated into significant flows into MSCI equity indexes that are ex U.S., developed markets ex U.S. And likewise, we've seen the revival of emerging markets as well. I mean, we saw Korea hitting an all-time high for a couple of days this week. and the like. So we are definitely seeing the benefit of that. And we're seeing the benefit in the flows, the $200-plus billion of flows into ETF linked to MSCI indices, the ETF of our clients linked to MSCI indices. That is a strong indication that people are putting their assets in non-dollar assets, right, in those dollar securities. So that's another trend. On the subscription side, we, for sure, have seen a significant uptick in activity in Europe, in EMEA. Evaluating our -- in one of our QBRs last week, we were very pleasantly -- or pleased and surprised to some extent that our run rate in EMEA in Index including subscription and ABF is higher now than the Americas, which is an incredible feat, right, to achieve given the nature of the capital markets in the United States. And that is on 2 fronts. One, the subscription of our products in EMEA plus obviously, the huge inflow of assets into EMEA listed ETF. I mentioned that in my prepared remarks that we have seen a significant increase in inflows into ETF listed in Europe. So we're seeing that. And we had a very strong quarter in Asia Pacific, obviously, in the fourth quarter. Obviously, sometimes it is -- one quarter is very strong. The other quarter may be a little weaker or softer. But I think that we have a very great franchise in APAC, and we're beginning to see significant activity inside APAC, and away from the APAC investors going into dollar assets. But it's still very early days in all of this. The great rotation of assets away from dollar assets in the U.S. is just an early analysis. It is too early to tell whether that will continue on a secular basis or it's just cyclical for now, given the geopolitical aspects and the economic aspects, but we're well positioned either way. Operator: And our next question comes from the line of Manav Patnaik from Barclays. Brendan Popson: This is Brendan on for Manav. Just wanted to ask on the private assets, look like it has its best net new quarter. And it's been -- you've obviously been excited about the opportunity there, but it's been taken some time for it to unfold. But I guess what drove that? And then is this the early innings of a trend do you think? Or is there some kind of onetime item? Or what do you guys see there? Andrew Wiechmann: Sure, sure. Yes. Thanks, Brendan. It's Andy. So yes, it's been great to see the PCS run rate tick up. We also saw the real asset run rate growth tick up a bit. And we are seeing encouraging trends on a number of the key areas that we've been investing in and building out and enhancing over the last couple of years. Maybe just to give a couple of areas of focus and areas where we've seen traction on the PCS side first. The strong sales were around areas like our total plan offering, which we've been really developing and proactively going to market around as well as our transparency offerings. Both of those, we've seen very good momentum on and a pickup in growth rates. We saw good growth not only in Americas, which, as you know, is a big part of the PCS franchise, but we saw actually tremendous success and traction in EMEA as well. That's been an area we've been intently focused on and building out our go-to-market effort, and we are starting to see some shoots there, which is encouraging. The outlook is positive. We believe this is a massive, massive opportunity for us. We've got a very robust product development pipeline. And so we've mentioned some of these in the past, but we continually come to market with capabilities and content sets that really don't exist in the market today, and we know there is strong demand for. So things like our recently launched Document Management and SourceView offering. We're seeing significant client interest around that and positions us to do more for clients, so continue to expand the value that we are bringing to them. And by the way, that's something that is enabled by AI as well. And AI has been a key enabler, not only on the data sourcing front, as Henry said, but also expanding the range of capabilities and insights we can give to clients. I would also highlight things like our asset and deal level metrics, things like our suite of indexes, including our private capital -- or sorry, private credit indexes are all things that we're now in a position, I think, to drive that adoption and standardization. And so it is good to see the strong fourth quarter. We see attractive opportunities ahead of us. We see good momentum here and think we can continue to drive that. And we are also getting strong traction with a wide range of partners and distribution channels such that our content and solutions are going to be increasingly accessible and easily usable across a wider range of the ecosystem, and that includes in areas like the wealth channel, which we believe is a big opportunity. On the real asset front, definitely some positive signs there. I think we've seen some green shoots in the industry. I think investment rose in the U.S. across nearly all commercial real estate sectors. There are some areas like office and retail, where there is double-digit growth. And we've seen private capital moving from not only institutions, but we've seen private investment dollars coming back in as well. So it's all good signs, and we're seeing that translate through to some early movement. We still got a ways to go, but early movement with our Index Intel offering and traction with our -- some of our new products like our data center product. So early days on that front, but definitely encouraging, but very exciting around the PCS opportunity. Operator: And our next question comes from the line of Ashish Sabadra from RBC Capital Markets. Ashish Sabadra: Andy, I wanted to ask you a question about the free cash flow puts and takes. You obviously called out the $100 million of cash taxes impacting free cash flow. I know you don't guide -- so I was just wondering if you could talk about some other puts and takes like CapEx and interest expense and stuff like that. And I know you don't guide to adjusted net income and EPS, but we all look at free cash flow as a proxy. So is the right way to think about it like on top of free cash flow as that cash tax and the reduction in share count, and we should still get the low to mid-teens EPS growth in '26 in line with the long-term targets? Andrew Wiechmann: Yes. So I would -- I'd highlight a few things in addition to the cash taxes, which was a meaningful item here. But we've got a couple of sizable timing-related items that are depressing the free cash flow in 2026. But I would highlight that we are projecting strong double-digit collection growth with stable working capital dynamics. So the core fundamental underlying dynamics of the business remain quite healthy. In addition to the cash taxes, which, as I alluded to, is expected to be roughly $100 million higher than 2026. Part of that relates to some tax payment deferrals from '25 to '26, about $30 million of those and roughly $50 million of onetime discrete benefits in '25. But on top of that, we also, as a reminder, issued -- had 2 debt issuances in the third and fourth quarters of 2025. Just given the interest payment schedules on those, we had no cash interest payments in '25. So there's going to be a meaningful step-up in the cash interest expense in '26 to the tune of $90 million. And so that creates some noise in that period-to-period comparison. And then the last thing I would highlight, and you see this in the CapEx guidance is we are building out a new London office space. As you know, London is one of our key offices, one of our bigger offices. We are moving locations there, and we'll have meaningful CapEx around that build-out, which will amount to about $25 million of occupancy CapEx. Beyond that, we are -- and I alluded to this, we are continuing to invest in software solutions. Henry touched on this, notable investments into custom index and basket builder capabilities, which we're very excited about, many of the PCS capabilities that I just alluded to. And so that also is adding to the CapEx. But those 3 items are leading to some comparison noise when you look at '25 versus '26. But if you look at top line and cash collections continues to be very healthy. And we continue to believe there's a strong trajectory of free cash flow growth going forward here, particularly free cash flow per share. Operator: And our next question comes from the line of Alexander Hess from JPMorgan. Alexander EM Hess: First of all, Baer, congratulations on your retirement. And yes, congratulations again. I want to maybe ask about the reiteration of the medium-term targets and then some comments, Andy, that you said that about the strength of the pipeline. Can you give us a little bit more color on how you break down that pipeline strength into sort of a cyclical uplift, the megatrends that have been discussed on the call versus new product innovation? I know that you called out sort of a number that, that was last quarter on new sales. But just sort of any color on what's driving that pipeline would be really helpful and how that might convert into the low double-digit target. Andrew Wiechmann: Sure. Yes. So as I mentioned, we're definitely encouraged by the pipeline. Henry alluded to this earlier, but there is an environmental dynamic here on the margin. I think we've seen constructive buying behavior across many client segments. On the margin, we've seen a good degree of confidence on a number of fronts. I think the sustained favorable market momentum is something that does feed into that confidence. And as we mentioned, we saw pretty good results and some improvement in sales and growth with asset managers, which is an area where, listen, we continue to see the secular pressures, and we'll continue to see some of those secular dynamics at play. But we've seen on the margin a slightly healthier environment across asset managers. But I would highlight, most importantly, as you alluded to, a lot of the momentum we see and the pipeline opportunities are related to the actions that we are taking. And so it does relate to the innovations that we are releasing across the company, our enhancements to client service and go-to-market and our orientation around client segments. I think on all those fronts, we're opening opportunities up in many of these new big client segments as well as within our existing well-established client segment areas. So we're seeing decent momentum on both fronts here. Just to specifically hit your question about new product contribution to sales. Listen, we saw in 2025, roughly a 20% increase in the contribution to recurring sales from recently introduced products. We continue to see a strong and building pipeline of opportunities related to those new products and those cut across almost every part of the company, but it's something that is definitely creating pipeline opportunities for us. So we're definitely excited. Operator: And our next question comes from the line of Kelsey Zhu from Autonomous. Kelsey Zhu: On ESG, I guess, a while ago, we talked about the regulatory headwinds or regulatory uncertainty in Europe and how that's impacted growth. What are you seeing in that market more recently? And when should we expect ESG to recover in Europe? Henry Fernandez: So the recovery in Europe is already taking place. No doubt about that. Not at the pace that we wish it will be happening, but it's already taking place. Obviously, it's in the context of a new reality that not everything in terms of performance and portfolio construction needs to be ESG when the pendulum swung too far on that side. The big, big focus is on financial materiality in people's portfolios. And we're also benefiting from a consolidation of suppliers of ESG data and ratings and analytics into the European market. We alluded to this in the prepared remarks that one of the important sales that took place in Sustainability was this wealth technology platform in which we have -- we become the supplier of choice compared to others, and they've eliminated that other supply. So there is a benefit that we're getting from that. I think -- so I'm hopeful and the pipeline indicates that we will continue to grow at a decent clip in Sustainability in Europe. I don't think we have reached bottom yet in the Americas market, in the U.S. market, not in Canada, but in the U.S., given some of the political sort of undertones in the various states and all of that. So that will continue to be soft. I think we're holding our own, and we're consolidating. We're being very aggressive in displacing others in the marketplace, et cetera, but that is going to remain a pretty significant battleground on that. And in APAC, the business never took off totally, and it kind of slowed down a little bit given all the issues around the world. But we've been putting in place new management, new salespeople, new dialogue and penetration. And I think that it will be a meaningful, maybe not a strong contributor to our Sustainability sales. Now more importantly than all of this, I will say, strategically, is one of the things that is completely dawn on us was that the onset of the ESG revolution, so to speak, was just the early days of understanding emerging nontraditional risks and opportunities and the analysis of securities and then the build-out of portfolios. So as time goes by, we will be using a lot of our expertise and our data and our client relationships to expand the ESG/Sustainability franchise into analyzing the effect of other risks in portfolios. And those are obviously, tariffs. We have enough data and capabilities to analyze where companies are producing goods and services, right, and where they're selling them. Supply chain, the effect of AI on companies, we have enough data and are getting much more to analyze the effect of AI. Is it a good thing for a company? Is it a bad thing for a company and the like. So obviously, climate will be the mother of all emerging risks in clients' portfolios. We will be doing that, especially on a physical risk basis. We're really pivoting significantly from not just transition risk, but to physical risk, which is where the big demand is today and especially with shorter-term pools of capital like banks and insurance companies in addition to the longer-term pools of capital. So we're very excited about this area of our business. It is going through a transformation for sure. It has slowed down, but we're hopeful that with all the comments that I made plus the pivoting towards other forms of emerging risk, given the franchise that we have and the expertise that this will be a long-term grower for us. Operator: And our next question comes from the line of Craig Huber from Huber Research Partners. Craig Huber: Baer, all the best to you going forward. I thought you did a great job. Andy, on the cost side of things, have a couple of quick questions here for you. As you know, the last 4 years or so 2021 to '24, your Analytics costs were flat, give or take. And then the last 2 quarters, back half of last year, they're up 11% to 12%. Can you just give us a little more understanding about what you guys are investing in there in the Analytics area? And is this -- what should we expect there in 2026? And then my nitpick question on the Sustainability and Climate side of things, your costs there in the fourth quarter, I guess, were down about 6% year-over-year. Was that just some true-up maybe you did on maybe bonus accruals? Or what happened there? I want to understand that also going forward for Sustainability. Andrew Wiechmann: Sure. Yes. So Craig, on the Analytics side, we can get some natural lumpiness, both on the revenue side and on the expense side and the expenditure side more generally in Analytics. Things that will impact EBITDA expenses, but overall operating expenses as well are things like the level of capitalization that we see in any given period. Expenses like severance, and that's something where we did see some variance, particularly in the fourth quarter, can cause some swings in period-to-period comparisons. FX is one that you've probably seen in the past. We do have some meaningful exposure to non-USD employee expenditures on the Analytics side. So FX, especially when you see a depreciating dollar can lead to some expense pressure there. And so a lot of it is just kind of the traditional drivers of lumpiness that we will see. There have been some elevated expenses related to infrastructure investments that we've been making. Again, I wouldn't focus too much on that, but that has been a piece that stepped up. We are, as Henry alluded to, making a number of enhancements around our AI insights, many of the capabilities that he alluded to in terms of being able to dynamically build baskets, look at signals -- investment signals on a real-time basis. We've got some very cool projects going on and continue to build out capabilities in other frontiers across our equity analytics and multi-asset class analytics. So I wouldn't focus too much there. And as you know, we don't necessarily solve for -- aren't driving for specific margin or even expense growth rate in any specific segment, but continue to allocate just based on where we see the attractive investment opportunities. Yes. On the Sustainability and Climate front, listen, I would say along those same lines, we always manage our expenditures dynamically, and we are proactively allocating based on the opportunities we see and market dynamics. We are continually reallocating to those areas that we think generate the fastest payback and have the highest return. We continue to invest in definitely key areas in Sustainability and Climate. Henry touched on a number of those areas that we are focused on. But on the margin, there are areas where we're investing less. And so on the full year, you did see roughly flat. I think it was 2% expense growth, as you alluded to in the fourth quarter, down 6%. So there is some noise around other expenses that can be lumpy, but you can see we are generally growing expenses less in Sustainability and Climate. Operator: And our next question comes from the line of Owen Lau from Clear Street. Owen Lau: For private asset, you highlighted a number of opportunities there. One of the key themes in this space is tokenization. How does this tokenization trend impact your world or you don't see much of an impact at this point? Andrew Wiechmann: Sure. Yes. So I think it is potentially a big catalyst for us on a number of fronts. I'd say it hasn't been significant to this point. I think it can have a significant impact on markets and financial products, a number of areas that we are focused on and see big potential. But your question specifically around private assets, listen, we know there is -- and this is why we are investing in the space and seeing tremendous opportunities. Investors are getting deeper into what is in their portfolios, understanding their risk, what's driving returns, what's the value that managers are providing, how to think about, I'd say, more of a traditional asset allocation across private assets. And so you see a tendency, especially with more open-ended type vehicle structures and continuation funds that people are more dynamic in how they invest their money across private assets. And it is a cumbersome process today. I think as many of you appreciate, we have seen tremendous growth in the secondary markets there, both secondary funds, but also secondary transactions of LP interest. As the world moves towards tokenization and really streamlines ownership transitions, sales and purchases of private assets, it's going to necessitate the need for things that we are investing in, like evaluated prices, like credit risk, like portfolio tools. And so we think tokenization could be a big accelerant for not only the private markets generally, but the tools that we offer. Operator: And our next question comes from the line of Scott Wurtzel from Wolfe Research. Scott Wurtzel: Just wanted to go back to some of the remarks you made on the active asset manager end market. I mean it sounds like there's been a little bit of a shift in tone towards kind of more positive outlook on that end market. So just wondering if you can kind of share a little bit more color on some of the trends you're seeing there and what's driving maybe a little bit more positive sentiment on the outlook there. Henry Fernandez: Yes. So clearly, active asset management in a world of high concentration in indices, especially the superscalers and technology have had a tough time performing relative to indices around the world. So we have seen continued outflows, cost pressures and the like. So what we have done throughout '25 is evaluate which is the best way that we can help this industry. They need us badly in order to return to high growth and profitability. And so I alluded to the move of active portfolios to an ETF wrapper and MSCI can play a very large role in doing that. Secondly is to help a lot of these clients create investment products so that we are turning -- gradually turning MSCI from a cost center in the -- inside many of these managers to trying to be a profit center, a revenue-producing center, a new product development center. Now not every manager will want us to be as proactive, but we are offering that opportunity to people in that. We are also helping clients consolidate suppliers into us. We're an extremely reliable, dependable supplier. Many of these active managers have a lot of -- a dozen index suppliers, a dozen analytics suppliers and all of that, and they can easily consolidate to us. So that's another initiative that we have and therefore displacing competitors in that area. So it's a gradual process. But the important part, and I think what you're seeing in the results is that we are -- we took a meaningful part of the first half of '25 to say we need to change the way we approach this segment. We cannot continue to be just one more cost pressure on them, and that's bearing a lot of fruits. And the journey is still early, and we believe that we can return to higher growth with them. Operator: And our next question comes from the line of Faiza Alwy from Deutsche Bank. Faiza Alwy: I wanted to ask about the AI efficiencies that you referenced earlier in the call and have referenced previously. So sorry for the 2-parter. But one, I'm curious if you're able to potentially quantify some of the benefits from the efficiencies that you're expecting this year and how much incrementally you're able to reinvest in the business? And then I guess, longer term, I know you haven't changed sort of your longer-term outlook around profitability, but I'm curious if at some point, this can result in better profitability over time? Or do you think there's just going to be continued reinvestment, whether it's in the form of new products or potentially some pricing give back to your clients? Henry Fernandez: Yes. So it's definitely a question that necessitates maybe a long answer, but we're going to try to be as brief as possible. We can follow up with you offline. The first thing strategically to recognize is AI is a godsend to us in 2 directions. The first direction, very importantly, is that through the application of AI, we can lower the run rate of expenses in our existing business. And in doing so, we can then take those savings and put them back into the run rate of investments in what we call the change the business, the new innovation, the new areas. We have enormous opportunities at MSCI, and we are severely handicapped in prosecuting all those opportunities by the size of our investment dollars. And we have been extremely disciplined not to take the money out of the profitability of the company. It has to come from the reallocation of cost in the company. So that is something that is beginning to play into the expenses of the company in 2026. It started a little bit in '25, but it's going to play in '26, it's going to accelerate in '27 and then accelerate further in '28 to the point in which we can grow the rate of growth of our organic investments in the company at a much higher pace, probably double the pace that we've been growing so far. So that is a significant opportunity for us. The second one is AI is going to help us accelerate significantly the pace of product introduction because, for example, we've been able to -- through AI and the application of AI to gather much more data and more granular data in private assets. And that has allowed us to create terms and conditions of credit in private credit, have been able to help us analyze the holdings of funds so we can create eventually holdings-based private asset indices and things like that. So that's going to accelerate us quite a lot. And since we've never been a big workflow software applications company, AI also will help us accelerate the ability of people to use our content. We have something called at MSCI, how do our clients consume our content? We do analysis of every product line like that. And through AI, our clients will be able to consume our content much easily, much broadly than through sort of inflexible sort of workflow applications and the like. So those are a few examples of that. Why don't we take it offline so we can -- our team can tell you more about the quantification of all of this. Operator: And our next question comes from the line of George Tong from Goldman Sachs. Jinru Wu: This is Anna Wu on for George Tong. I wanted to start by extending our congratulations and best wishes to Baer. My question is on cancellations. Can you give us some color on conditions you believe that needs to occur before we might see a sustained reduction in cancellations? And how do you see those underlying dynamics across segments? Andrew Wiechmann: Yes. Maybe an overarching comment here, and I alluded to this earlier, we are seeing some improvement in overall client dynamics on the margin. Generally, it's relatively consistent. But on the margin in areas like asset managers, even in places like EMEA, we are seeing some improving dynamics. So that's helpful. I would say the areas where we see lower retention rates are in -- and you've seen a slightly lower retention rate in Sustainability and Climate. I think Henry alluded to some of the pressures that we're seeing in the Americas on the Sustainability and Climate front. And then in real assets, we've seen a slightly lower retention rate, although it has been lumpy and has improved in spots. And as I alluded to, we are seeing some encouraging trends on the real asset front. Outside of that, we, I think, are seeing pretty good engagement from clients. We're seeing overall health improving. And I think a key component of driving the higher retention rates beyond just the environment are the things that we are doing. So enhancements to client service, which are resulting in enhanced client satisfaction, improvements in the products that we're releasing and the innovations we talked about, many of which are to facilitate and support price increases. And so I'd say we'll continue to see some of the pressures in those same areas. I've mentioned this in the past on the Sustainability and Climate front, on the real asset front, some lingering pressures in parts of the asset management market. But overall, I'd say we've got good momentum, and we're doing the right things to drive strong engagement and retention. Operator: And our next question comes from the line of David Motemaden from Evercore ISI. David Motemaden: Andy, in the past, you had mentioned some potentially elevated cancels for asset managers in Europe. I'm wondering if that played any impact on the retention levels this quarter and how you're thinking about that in 2026? Andrew Wiechmann: Yes. It's -- listen, building off the last question and my response there. Yes, it has been one of the dynamics that we've seen for the last couple of years actually. We've seen a slightly lower retention rate in EMEA. Just good to mention that. I think we saw a retention rate slightly below 93% in EMEA in Q4 versus a retention rate slightly above 94% in the Americas in Q4. It does bounce around quarter-to-quarter, but generally, we've seen a higher retention rate in the Americas for the last couple of years, and I think that is a reflection of those dynamics that I've alluded to in the past around some of the pressures on asset managers there, some of the M&A transactions that have occurred. I'd say we're not expecting any pickup in the future. As I alluded to, if anything, we're seeing some improvement in client dynamics on the margin. But I would say we're generally seeing a fairly consistent dynamic on the EMEA front. And that lower retention rate actually, we see it across product lines other than S&C. So Sustainability and Climate does have a higher retention rate in EMEA versus the Americas. But outside of that, we see a slightly lower retention rate in EMEA versus the Americas. So I'd say no notable change in dynamics, if anything, slight improvement on that front. Operator: And our next question comes from the line of Jason Haas from Wells Fargo. Jason Haas: I'm curious if you could help reiterate what's driving the strength in index recurring subscription revenue outside of asset managers. Is there any way to help like stack rank what those drivers are and just your level of confidence in those continuing? Andrew Wiechmann: Sure. Yes, it is multifaceted. But at the highest level, we are seeing a move in the investment industry, and this is one of the most powerful trends impacting the investment industry is a move towards personalization, customization, customized outcomes, custom portfolios. And index is a very efficient and effective mechanism to reflect a specific investment view, investment objective or a strategy that an investment industry participant has. And so that is underlying the opportunities we see across the new products we're releasing, existing products that we have as well as the client segments that we're going after. Maybe to tackle your question along client segment lines, our highest growth client segment has been and in the fourth quarter was hedge funds. You've heard us talk a lot about the trading ecosystem and opportunity with hedge funds, broker-dealers, trading firms. That growth is being fueled by their thirst for content. That's content to help them better understand markets better, better understand our indexes. They are increasingly looking for more content sets that we're actively releasing that ultimately help them navigate the markets and capitalize on opportunities more effectively. And so we saw 19% growth with hedge funds in the fourth quarter. We saw 10% growth with broker-dealers. And related to that, we see broker-dealers developing things like over-the-counter derivatives, index-linked swaps, structured products as tools to help their clients, whether those are institutions or even high net worth individuals achieve specific investment objectives and risk and return and exposure objectives across their portfolio. And then even on asset managers and asset owners, when you look at the growth we've seen there, it is -- and the growth is, I think, 8% on both asset managers and asset owners and index. It is licensing more content from us across more parts of their organization and more use cases, and they are just finding more utility in the breadth of content and tools that we are providing on the index front that enable them to achieve their specific objectives via index portfolios. And so I'd say broadly, it's being fueled by this need and demand for custom outcomes, we're feeding that with our existing Index IP, but also more and more custom indexes. Henry alluded to some of the new capabilities that we are releasing now and on the verge of releasing over the coming quarters, things like our Basket Builder, advancements on the custom index front that allow clients to actually directly interact with and back test portfolios and build their outcomes. We think that's going to unlock massive opportunities. So listen, in the near term, we're fueling the growth, you're seeing nice growth, and we have been for several years with the trading ecosystem buying more content, but we're seeing elevated growth and enhancing opportunities across all parts of the investment ecosystem to use our index content. So I'd say it's a very compelling opportunity and part of the reason we remain so bullish and excited about the future. Operator: And our final question for today comes from the line of Alex Kramm from UBS. Alex Kramm: Sounded like you wanted some follow-ups, so hear this. Now this is a quick one, and it's actually a follow-up to my earlier question. I think Henry suggested that you are having a little bit more pricing power as the environment has gotten better. So maybe for you, Andy, any more meat you can put around this? I think in the past, you've talked about contribution from pricing, et cetera. So maybe a little bit more in terms of 2026, what are you expecting across the different segments? Andrew Wiechmann: Yes. I would say, generally, the contribution from price increase has been relatively stable. There are puts and takes across the business based on innovations, enhancements we make to existing services, client health and usage of our tools. And as I've alluded to before, there are certain areas or Henry talked about it in areas like S&C where the health does vary in different geographies. But overall, we've seen a relatively stable contribution from price increases. As you're asking about, and I think I alluded to this back in December, and we've mentioned before, the enhancements we are making on many fronts, we are monetizing through price increases. And so that's something that's not only supporting up sales, but price increases. So I would say there's some nice sustainability and durability to our ability to continue to increase price because we are significantly enhancing the value that our clients get from our tools. And this is an area where AI is particularly exciting, where it's allowing our clients to do more with the services we provide and be more efficient in how they operate. And those should allow us to continue to unlock commercial value through price increases over time. Operator: And I'd now like to hand the program back to Henry Fernandez, Chairman and CEO, for any further remarks. Henry Fernandez: So thank you, everyone, for joining us today. As we have described this morning, MSCI's all-weather franchise helped us complete another strong year of underlying business performance and attractive margins. We are also building momentum in the company in terms of creatively and aggressively selling across all client segments what we currently have. And the new product machine and the new innovation mode of MSCI is getting into high gear, and that will help us continue the momentum that we have generated in the last 2 quarters. It feels like we kind of bottom out in the second quarter of last year. Obviously, too early to tell at this point, but we feel pretty confident and pretty encouraged by the pace of innovation, the pace of selling, the dialogue with clients, the market drop and for sure, the level of innovation and product launches that we are achieving. I'd like to take this opportunity one more time to thank my long-time friend and business partner, Baer. MSCI would not be what it is today without Baer, your contributions, your leadership, your dedication, your owner-operator mentality. We wish you great happiness and fulfillment and good health in your retirement. And we, for sure, will be taking care of your retirement dollars here and make them multiply. So with that, again, I'd like to thank everyone. C. Pettit: And thank you, Henry, for your partnership, an incredible leadership, which I'm very confident will continue. Henry Fernandez: Thank you. Thank you all. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Ladies and gentlemen, good day, and welcome to the Q3 FY '26 Earnings Conference Call hosted by Larsen & Toubro. [Operator Instructions] I now hand the conference over to Mr. P. Ramakrishnan from Larsen & Toubro. Thank you, and over to you, Mr. Ramakrishnan. Parameswaran Ramakrishnan: Thank you, Dorvin. Good evening, ladies and gentlemen. A warm welcome to all of you to the Q3, 9 months FY '26 Earnings Call of Larsen & Toubro. The earnings presentation was uploaded on to the stock exchange and on our website at 6:45 p.m. I hope you have had a chance to take a quick look at the numbers and the presentation details as well. I will first walk you through the important highlights for Q3 FY '26 in the next 20 to 25 minutes or so, post which we will take questions. Please note that when the Q&A session starts, I will also have with me our Deputy Managing Director and President, Mr. Subramanian Sarma. Before I begin the overview, the disclaimer from our end. The presentation, which we have uploaded on the stock exchange and our website today, including the discussions we may have on the call today, may contain certain forward-looking statements concerning L&T's business prospects and profitability, which are subject to several risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. I would request you to go through the detailed disclaimer, which is available in Slide 2 of our earnings presentation that we have uploaded a while ago. I will start with a brief overview on the economic conditions in India and the Middle East, which are key markets for the company, especially for its projects and manufacturing businesses. The Indian economy continues to demonstrate resilience, supported by steady growth conditions and easing inflationary pressures. The Q2 GDP growth printed at 8.2%, a 6-quarter high and underpinned by robust performance in the projects and manufacturing and the services sectors. The full year real GDP growth for FY '26 is projected at 7.3%. The inflation dynamics have also improved with CPI easing materially. The RBI now anticipates CPI inflation at 2.9% for Q4 FY '26. The continued emphasis on capital outlays remains likely with indications of calibrated reallocations towards strategic sectors such as defense. Additional funding support for urban redevelopment and infrastructure modernization is anticipated, reflecting the government's broader focus on strengthening urban capacity and service delivery. Private CapEx in India through 2025 remains supported by residential and commercial real estate activity, increasing investments into digital infrastructure, data centers and the power sector that including renewables as well. Semiconductors are emerging as a new age CapEx theme, supported by policy initiatives and announced project pipelines. Within manufacturing, CapEx continues in sectors such as cement, broadly reflecting domestic demand and capacity requirements. CapEx in iron and steel and other base metals continues to be influenced by capacity expansion and modernization plans and a supportive medium-term demand outlook. The global economy is entering calendar 2026 with growth expected to remain modest at roughly the 3% range. The United States is anticipated to continue outperforming other major advanced economies, supported by relatively accommodative financial conditions, though some moderation in momentum is likely as fiscal support gradually tapers off. The growth in the Euro Area and Japan is expected to remain measured. Turning on to the GCC region. The growth is expected to remain relative buoyant in 2026 with real GDP expansion projected in the 4% to 4.5% range. In Saudi Arabia and the UAE, capital deployment remains oriented towards priority transformation agendas, including large-scale investments in digital and AI-enabling infrastructures such as data centers and cloud capacity alongside ongoing urban development and infrastructure initiatives. The region is also seeing sustained investment momentum in gas and renewable energy projects, reflecting long-term energy diversification goals. Having covered the macro landscape, let me now share a few important highlights for the quarter with respect to L&T. Number one, L&T Realty. The parent Larsen & Toubro has initiated a transfer of its Realty business undertaking to L&T Realty Properties Limited, a wholly owned subsidiary through a slump-sale under a Scheme of Arrangement subject to regulatory approvals. This marks the start of a phased consolidation of all real estate assets into a unified platform, positioning L&T Realty for greater scale, agility and financial strength to capitalize on India's real estate growth. Point number two, the Precision Engineering & Systems business of the company entered a strategic partnership with General Atomics Aeronautical Systems to manufacture Medium Altitude Long Endurance, Remotely Piloted Aircraft Systems, RPAS in India. Under this partnership, L&T will participate in the upcoming 87 MALE RPAS program of the Ministry of Defense, where L&T will be the prime bidder and General Atomics, the technology partner. Point number three, the Heavy Engineering business of the company has signed a memorandum of understanding with the U.S.-based nuclear energy solutions provider, Holtec International Asia to offer design and build solutions for heat transfer equipment. This collaboration is intended to provide advanced solutions for nuclear and thermal power plants worldwide, with a particular emphasis on heat transfer technologies for conventional power plant islands and balance of plant systems. Number four, data center business. The data center business has announced the rebranding of its business as Larsen & Toubro-Vyoma. The brand will spearhead L&T's expansion into hyperscale data centers across key Indian metros, including Mumbai, Chennai and Bangalore with facilities designed to support high-performance computing and advanced data storage requirements. Point number five, the company has earned the coveted honor of being the only Indian corporate featured among the top 200 environmental firms globally in the latest list of Top Environmental Firms published by the New York-based Engineering News-Record. Lastly, the company's MSCI ESG ratings was upgraded from BBB to A in November 2025. I will now cover the various financial performance parameters for Q3 FY '26. We witnessed our highest ever quarterly order inflows in Q3 FY '26 of INR 1,356 billion, recording a 17% growth year-on-year, led by a strong ordering momentum witnessed across both India and overseas markets. Out of the total order inflows in Q3 that I just now stated of INR 1,356 billion, the Projects & Manufacturing order inflow constituted INR 1,164 billion, up by 18% on a Y-on-Y basis. Of this INR 1,164 billion of order inflows of the Projects & Manufacturing segment, the domestic orders were at INR 620 billion, up 30% and international orders constituted balance INR 544 billion, up 7%. The group revenues grew 10% Y-on-Y, led by steady progress across most of the businesses. The project execution levels remain broadly in line with expectations, barring a few sector-specific challenges. The Projects & Manufacturing portfolio margin improved by 50 basis points Y-on-Y to 8.1%. As of December 2025, the net working capital to revenue ratio improved to 8.2%, reflecting an improvement of 450 basis points on a Y-on-Y basis. Our recurring PAT at INR 44 billion reported a strong growth of 31% Y-on-Y. The reported PAT for Q3 FY '26 was at INR 32 billion, down by 4% Y-o-Y, owing to a onetime impact of INR 11.9 billion arising from the new Labour Codes legislation. Our return on equity as on 31st December 2025 is at 16.5% and is up 40 basis points Y-o-Y. The return on equity includes an impact of almost 110 basis points arising from this onetime provision on account of Labour Codes. Now I move on to the individual performance parameters. During the quarter, our group order inflows stood at INR 1.36 trillion, registering a Y-on-Y growth of 17%, driven by the sustained traction across our key businesses. Within this, the Projects & Manufacturing portfolio crossed the INR 1 trillion order inflow marked for the first time, with order inflows of INR 1.16 trillion, up 18% Y-o-Y, underscoring a broad-based demand environment across both domestic and international markets. The growth in the P&M portfolio was driven primarily by strong domestic inflows, which grew 30%, as I said earlier, and international inflows up 7% Y-o-Y. The increase in domestic order inflows was led by Hydrocarbon, CarbonLite Solutions and the Buildings & Factories businesses. The growth in international orders was supported by the Renewables and Power Transmission & Distribution subsegment. During the current quarter, international orders accounted for 47% of the Projects & Manufacturing portfolio compared to 52% in the corresponding quarter of the previous year. Now moving on to the prospects pipeline. Our prospects pipeline is at INR 5.92 trillion for the near term vis-a-vis INR 5.51 trillion at the same time last year, representing an increase of 7% on a Y-on-Y basis. The increase in the prospects pipeline is mainly led by CarbonLite Solutions and the Precision Engineering & Systems businesses. The broad breakup of the overall prospects pipeline for the near term is as follows: Infrastructure, INR 4.02 trillion, which is almost in line with the previous year number of INR 4 trillion. Hydrocarbon segment, INR 1.26 trillion vis-a-vis INR 1.44 trillion last year. CarbonLite Solutions, INR 0.40 trillion vis-a-vis less than INR 0.01 trillion last year. The Hi-Tech Manufacturing segment is at INR 0.42 trillion as compared to INR 0.07 trillion last year. Moving on to the order book. The order book is at INR 7.33 trillion as on December '25 and up 30% as compared to December '24. In terms of composition, approximately 92% of the total order book is from the Infrastructure and the Energy segments. While in terms of geographic mix, 51% of the order book is from domestic market and 49% relates to international jobs. The breakdown of the domestic order book of INR 3.76 trillion as of December ' 25 comprises central government jobs share being 12%, state government and local authority share at 22%, PSU or state-owned corporations at 30% and private sector at 36%. It is worth mentioning here that the private sector share has risen meaningfully from 21% in March 2025 to 36% in December 2025, supported by strong traction in the thermal power sector, storage systems, residential and commercial real estate and emerging opportunities for building capacities in ferrous and nonferrous space. Out of the international order book of INR 3.57 trillion, around 75% is from the Middle East. With respect to additional details on our order book, around 10% of the total order book is funded by bilateral and multilateral agencies. In addition, as of December 2025, slow-moving orders constitute roughly 3% of the overall order book, while INR 10 billion worth of orders were deleted during the quarter. Further details are available in the accompanying presentation slides. Coming to revenues. Our group revenues for Q3 FY '26 stood at INR 714 billion, registering a Y-on-Y growth of 10% with international revenues constituting 54% of the total group revenues during the quarter. The growth in the Hi-Tech Manufacturing, Energy projects and the IT&TS businesses drove the overall revenue growth. The revenues from the Projects & Manufacturing business for Q3 FY '26 is INR 523 billion, up 11% over the corresponding quarter of the previous year. Moving on to EBITDA margin. Our group level EBITDA margin, excluding other income for Q3 FY '26 is 10.4% as compared to 9.7% in Q3 of the previous year. The improvement in EBITDA margin is primarily driven by operational efficiencies across businesses. The EBITDA margin in the Projects & Manufacturing business portfolio for Q3 FY '26 is at 8.1% and shown an improvement almost by 50 basis points from 7.6% in Q3 of the previous year. This progress is in line with our assessment at the start of the financial year. The details will be covered when I elaborate on the performance of each of the segments. Our recurring PAT for Q3 FY '26 at INR 44 billion was up by 31% on a Y-on-Y basis. The increase in recurring PAT is reflective of improved activity levels, operational efficiencies and efficient treasury management. Reported PAT for Q3 FY '26 is at INR 32 billion, down by 4% over Q3 of last year due to this onetime material increase in provision for employee benefits on account of the new Labour Codes legislation. The group performance P&L construct, along with the reasons for major variances under the respective function debt is provided in the presentation. Coming on to working capital. Our NWC to sales ratio has improved from 12.7% in December '24 to 8.2% in December '25, mainly due to an improvement in the gross working capital to sales backed by strong customer collections during the last 12 months. Our group level collections, excluding the Financial Services segment for Q3 FY '26 is INR 642 billion vis-a-vis INR 591 billion in Q3 of the previous year. With continued focus on customer collections, our cash flow from operations, excluding Financial Services in Q3 FY '26 was at INR 79 billion as compared to INR 21 billion in Q3 of the previous year. Our group cash flows, excluding Financial Services, has been given in the annexures alongside the reported cash flows for the entire group to enhance the clarity on the cash flow movements. Finally, trailing 12-month return on equity for Q3 FY '26 is 16.5% as compared to 16.1% in Q3 of the previous year, an improvement of 40 basis points. The trailing 12-month ROE, excluding the impact of this onetime Labour Codes provision stood at 17.6%, broadly in line with the target of 18% that we have set ourselves to during this last year, that is FY '26 for the Lakshya plan. Very briefly, I will now comment on the performance of each business segment before we give our final comments on our outlook for FY '26. We start with the Infrastructure segment. The infrastructure order inflow grew 26% in Q3 FY '26 on a Y-on-Y basis, driven by strong domestic private sector demand, spanning residential and commercial buildings, semiconductor fab plants, data centers, minerals and metals, solar PV plants and transmission lines. These together account for nearly 55% of the domestic orders for the quarter. The order book of this segment is at INR 4.24 trillion as of December '25. The book bill for Infra is around 26 months. Like I mentioned earlier, our order prospects pipeline for Infra for the near term is INR 4.02 trillion, similar levels as compared -- similar levels as the same of December '24. This Infra prospects pipeline of INR 4.02 trillion comprises of domestic prospects of INR 2.61 trillion and international prospects of INR 1.41 trillion. The subsegment breakup of the total order prospects in Infra is -- comprises of Transportation Infra share at 19%, Heavy Civil Infrastructure share of 19%, Water & Effluent Treatment share of 18%, Buildings & Factories at 15%; Power Transmission & Distribution, 11%; Renewables, 9%; and Minerals & Metals, 9%. The revenue for the quarter for the Infrastructure segment registered a modest growth of 5% on a Y-o-Y basis. The domestic market saw subdued progress due to slowdown mainly in the Water & Effluent Treatment projects business. However, the execution momentum remains strong in the international portfolio. Our EBITDA margin in this segment was at 6.1% in Q3 FY '26 as compared to 5.5% in Q3 FY '25, with the uptick largely driven by stages of completion across projects. Moving on to the next segment that is Energy Projects, which primarily comprises of Hydrocarbon and the CarbonLite Solutions business. The order inflows in this segment were robust at INR 460 billion in Q3 FY '26 compared to INR 388 billion in Q3 of the previous year, supported by ultra-mega orders across both Hydrocarbon and CarbonLite Solutions. During the quarter, the Hydrocarbons Offshore wind business secured an ultra-mega order to supply offshore HVDC converter stations to a leading European renewable energy operator. In the CarbonLite Solutions business, we have received letter of award intent for an ultra-mega order from a major Indian private sector utility operator. The order book of this Energy segment is at INR 2.48 trillion as of December '25, with the Hydrocarbon order book at INR 1.83 trillion and the CarbonLite Solutions order book at INR 0.65 trillion. We have an order prospects pipeline of INR 1.66 trillion for this Energy segment for the near term, comprising of Hydrocarbon prospects of INR 1.26 trillion and CarbonLite Solutions prospects of INR 0.40 trillion. The CarbonLite Solutions order prospects are largely domestic, whereas the Hydrocarbon prospects are largely from outside of India. The Q3 FY '26 for the Energy segment stood at INR 127 billion, reflecting a steady 15% growth and underscoring execution progress on a larger order book. The Energy segment margin in Q3 FY '26 is at 5.9% as compared to 8.3% in Q3 of last year. The margin decline in the Hydrocarbons business is primarily due to cost overruns in a few competitively priced domestic and international projects. As highlighted in previous earnings calls, these projects are in their terminate execution phase and are expected to conclude over the next few quarters, during which margins will remain soft. This is already factored into our PM margin guidance for FY '26. The CarbonLite Solutions margin is reflective of a significant share of revenues from jobs, which are yet to cross the margin recognition threshold. Moving on to the Hi-Tech Manufacturing segment, comprising of the Precision Engineering & Systems and Heavy Engineering businesses. The order inflows in Heavy Engineering moderated due to project deferrals. In the PES business, the decline in order inflows was primarily on account of a high base in the previous year. The order book of this segment is INR 379 billion as of December '25, with the PES order book at INR 315 billion and Heavy Engineering order book at INR 63 billion. Our order prospects pipeline for the near term in this segment is INR 237 billion, comprising of INR 190 billion of Precision Engineering prospects and the remaining INR 46 billion from Heavy Engineering business. The segment revenue at approx INR 33 billion registered a strong growth of 34% Y-on-Y, driven by execution ramp-up in the PE Systems business. During the quarter, favorable job mix and operational efficiencies in the Heavy Engineering aided segment margin improvement. Moving on to the next segment, which is the IT and the Technology Services segment, which this comprises largely of the two listed entities LTIMindtree and LTTS and as well as our newly incubated businesses of digital platforms, data centers and semiconductor design. The revenues for this segment is INR 135 billion in Q3 FY '26, registering a growth of 12% on a Y-on-Y basis. Operational efficiencies and the ForEx tailwinds drives the segment margin improvement. I will not dwell too much on this segment as both the companies in the segment are listed subsidiaries and the detailed fact sheets are already available in the public domain. We move on to L&T Finance Limited, which is forming part of the Financial Services segment. Here again, the detailed results are already available in the public domain, but very briefly, the Q3 witnessed the highest ever quarterly retail disbursement and improved collection efficiency and as well as asset quality. The Financial Services business has achieved 98% retailization of its loan book in December 2025. The return on assets remained healthy at 2.31% for Q3 FY '26 and adequate capital is available in the balance sheet to pursue growth in the medium term. Moving on to the Development Projects segment. This segment includes the L&T Hyderabad Metro and the Power Development business comprising of the 1,400-megawatt coal-based power plant at Nabha in Punjab. Within L&T Hyderabad Metro, the higher average fares following the May '25 fare hike contributed to the revenue growth and margin improvement with the average fare per passenger rising from INR 38 in Q3 FY '25 to INR 47 in Q3 FY '26. The average daily ridership during the quarter stood at 4.14 lakh passengers as compared to 4.45 lakh passengers in the same period of last year. As a result of this, L&T Hyderabad Metro reported a net loss of INR 1.85 billion in Q3 FY '26 as compared to a net loss of INR 2.03 billion in Q3 of the previous year. As mentioned in the previous earnings call, L&T has reached an in-principle understanding with the government of Telangana for the acquisition of its entire stake in L&T Hyderabad Metro. Under the proposed terms, the government of Telangana will pay INR 2,000 crores towards L&T's equity investment and assume the Metro's entire debt of around INR 13,000 crores. The decline in revenues of Nabha Power was mainly on account of lower power demand, while the margin improved due to cost efficiencies. I move on to the last segment, which is Others. This segment largely comprises Realty, Industrial Walls, Construction Equipment and Mining Machinery and Rubber Processing Machinery. The segment witnessed robust order inflows during the quarter with L&T Realty recording its highest ever presales in a quarter of approx INR 50 billion. During this quarter, L&T Realty had a successful launch of its L&T Green Reserve Noida project, which recorded a presales of more than INR 40 billion in its first week of launch. The segment revenue at INR 25.9 billion recorded a 55% Y-on-Y growth, primarily driven by higher handover of residential units in the Realty business, which also led to segment margin improvement. Before we conclude, let me cover the guidance on the various parameters for FY '26. On order inflows, our 9 months order inflow has seen a strong growth, 30% Y-on-Y based on a strong CapEx momentum. Basis the 9-month performance and the healthy prospects pipeline for the near term, we will be exceeding the 10% order inflow guidance for FY '26. On revenue, the group revenue grew by 12% in 9-month FY '26 and is broadly in line with our estimates. We expect the customary ramp-up in project execution during Q4 and are reasonably confident of achieving our full year revenue growth guidance of 15%. On margins, our Projects & Manufacturing EBITDA at 7.9% for 9 months of the current year is in line with the target that we have set ourselves at 8.5% for the full year FY '26. Lastly, on working capital, we had earlier guided the net working capital revenue of 12% by March '26. However, with stronger collection intensity and improved contractual terms, our net working capital revenue has improved sharply to 8.2% as of December '25, and we expect to close the year with a revised target of around 10%. With this, I complete. Now we can take Q&A. I also -- as I indicated to you earlier, our Deputy Managing Director and President, Mr. Subramanian Sarma, will be also there in the call. It would be good that if you can put all the strategic questions before this call and take advantage of his presence. Any bookkeeping questions, you can maybe take it towards the later part or you can connect independently with me or the IR team. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Mohit Kumar from ICICI Securities. Mohit Kumar: Congratulations on another stellar quarter. My first question is on the Kuwait. At the beginning of the fiscal, we are very, very positive on the Kuwait prospect side. We understand that the few orders have got canceled. The question is, are you still positive for the next fiscal for Kuwait or coming quarters? Do you think -- the second related question is that even if this project comes back, do you think this will come at a much lower scope and size? Subramanian Sarma: Okay. This is Sarma here. First of all, I think as we clarified in our earlier communication, the Kuwait orders were not part of our order book. So I think let me clarify that. So nothing changes in terms of what is there for our quarter 4 order inflow prospects, pipeline, et cetera, et cetera. Having said that, yes, it is a bit of a disappointment that some of those projects where we had participated in the competitive bidding and where L1 have been sort of canceled for a simple reason that the budget they had for each of these projects, we always knew that when we are bidding that we are far above the budget. Something has gone wrong in their system, and they were trying to get the additional funds, but I think that was becoming difficult for them. So they have canceled it. But these projects cannot be canceled because these are strategically important projects. These are very important for maintaining their production as well as for meeting their targets. So they will come back. They have already started working on it. There will be some minor tweaks, but this will come back. And I think we are very positive that -- all of these tenders will be out this year -- this calendar year, and they'll get awarded this year. And since we have demonstrated our competitiveness in the previous bidding, I am positive that we will maintain our competitiveness in the forthcoming bid also. So nothing really lost, except that we have lost some time. Mohit Kumar: Understood. My second question is on the revenue growth guidance. I think at the beginning of the year, we had given 15% revenue growth guidance. And given that the 9-month our revenue growth is slightly around 10%, 12%. Do you think we still -- are you still holding on the 50% revenue growth guidance? Parameswaran Ramakrishnan: So Mohit, I think -- while I was concluding my presentation, I gave an update on the revenue guidance itself. Q4 has always been the most busiest quarter for the Projects & Manufacturing business portfolio. So we continue to retain our guidance of 15% for the full year, and we are reasonably confident that Q4, the way we have planned, the execution momentum will be at a fast forward space, both for the Infrastructure -- for all the segments in the Projects & Manufacturing space. That is baked in. Operator: Our next question comes from the line of Sumit Kishore from Axis Capital. Sumit Kishore: Exceptionally strong performance on order inflows and the working capital improvement is also quite remarkable. My first question is with oil hovering around $60, $65, what is your outlook on Middle East, if oil prices remain at these levels? If it persists at this level, do you foresee any prospects getting pushed out? And also the second part of the question is, if you can comment on the execution that we have seen in the quarter, specifically in Hydrocarbons with such a large order backlog, maybe 11% for the quarter appeared a bit low. I know you shouldn't look at quarterly numbers, but still it appeared a bit low. And how long can the margin pressure in Hydrocarbons, specifically persist? While you have called out that it will be weak in second half of the fiscal, but how long can this persist based on your evaluation of the Hydrocarbon order backlog? Hello? Hello, am I audible? Subramanian Sarma: Yes, yes, yes. You are audible, sorry. Sarma here again. I think -- yes, I was talking about oil prices globally, whatever is happening, I think it's good that oil prices have held their price range around $60, $65, which is a positive development in my view. And from every conversation I'm having with the senior executives of all these national oil companies. I think everyone believes that the oil will be priced range bound in that $60 to $65. And as such, the capital allocation for the projects, which are of interest to us will remain unaffected. Because if at all there is a drop in oil prices, it will have an impact on some non-essential projects. But our projects which are important for maintaining production and enhancing the production, they are pretty much well on track. So I don't see any impact of the oil prices. I mean, as such, it is stable. And even if there is a slight drop, I don't expect any significant impact on the pipeline of opportunities. That is one part. Second thing is that margins, yes, I think there is some -- like we have said, it's a portfolio of projects. Sometimes some projects is facing issue as well as some projects sometimes have some challenges. I expect Hydrocarbon business to come back on full strength maybe 2 or 3 quarters from now. Parameswaran Ramakrishnan: So Sumit, just to add, I did emphasize that the margin guidance of 8.5% remains the effort for taking into account that we have had a good 9 months despite the fact of Hydrocarbon margins having moved southward this year. As I stated earlier, as Mr. Sarma also reiterated that we expect some of these, I would say, stressed projects to get closed in the near term and margin should move northward hopefully next time after some quarters. Sumit Kishore: Yes, that was very clear. My second question is in relation to the subdued performance in the domestic Infra segment in terms of growth, mainly dragged down by water, as you have pointed out. So is there any clarity on what is happening in water? How long can this drag sort of continue for the domestic Infra business on growth? The next DFC is not going to get awarded anytime soon. The next high-speed rail is not going to come anytime soon. So what is the outlook for the domestic Infra business? Parameswaran Ramakrishnan: So I did mention, Sumit, that the order prospects pipeline as we typically talk about is only for the balance period of the year. So as it stands now, the prospects pipeline for Infra, which is for another 3 or 4 months, still is at the same level. And the more important thing, it comprises of domestic prospects of INR 2.61 trillion. And I reiterate the important thing in the prospects pipeline, especially for domestic is concerned, is that we are now slowly looking at a higher share of private sector prospects. Of course, there are certain large projects of the government, which possibly should get announced maybe after the budget session is all done. But we are fairly certain that this year has been a good mix of both public and private order inflow in the domestic side that has helped us, and that is something we believe will should continue into the near term. Coming to the first part of your question as far as water is concerned, yes, certain projects which have been under the central plan funded, some of these projects have faced headwinds in terms of fund allocation. And to that extent, I would say we have also calibrated our execution momentum in this segment to the extent of funds that we receive. Had this fund allocation been normalized, had we witnessed the growth of revenue in the Infra segment would have been more. Operator: Our next question comes from the line of Amit Anwani from PL Capital. Amit Anwani: Again, hopping on the water business. So what was the kind of growth in Infra as we can understand it was 5% for Q3 also because of the impact of water. If we adjust that, what kind of growth was there in the ex of water business in Infra for 9M to 9M. And I can see there is still water opportunity you have highlighted in the prospects for Infra, roughly about 18%, which is 65,000 to 70,000 more. So are we looking for more conversion and all these orders, which we are including in the prospects, how the terms are different than what currently we are executing and calibrating. Parameswaran Ramakrishnan: So I think you had two questions, Amit. So let me put it from a statistics perspective that suppose if the water segment was not there as part of the Infrastructure portfolio, then the revenue growth that we have demonstrated at 5% on a growth would have been actually a little more higher to almost 8% to 9% growth, because we have consciously because of the projects not getting funded, so the execution momentum has come down. And because of that, the growth in revenue has been modest at the overall segment level. As far as the order prospects is concerned, I did talk about INR 720 billion of order prospects, which is there for the near term. Depending on the type of projects and the underlying funding, we will be bidding according to what we feel should be the right way. But due care is being taken to ensure that we don't get into blocked into working capital because of absence of funding. And also one more point I wish to add. And in fact, internally also, we have split the water business into domestic and international. And we are now putting a lot more focus on the desal plants and water transmission projects that are coming up, opportunities that are coming up in the Middle East largely. And we do believe that in the near term, some amount of international water projects also would come up as an ordering opportunity for us. Amit Anwani: Sir, on P&M margin, which you guided for 8.5% and you did highlight it that we have already factored in the cost pressure for a few legacy orders. So is it the correct understanding that we can be eyeing for -- once these orders complete, as you said, 3, 4 quarters, we'll be eyeing for a meaningful margin improvement since these orders would be out and new orders getting executed. So some color on medium-term margin since we saw some improvement this quarter. But since legacy orders will be out, what is the things lying ahead in terms of margin? Parameswaran Ramakrishnan: So Amit, I think it has been always our practice that we give guidance for all the major parameters for the year, okay? And Mr. Sarma alluded to the fact that the Hydrocarbon margins being subdued in the current year is because of two, three projects, both domestic and international. I also wish to assure you that these projects are at the final stages of completion. And hopefully, the margin uptick would be seen sometime maybe after 2 or 3 quarters into the next year. But how much of that will add up to the margin segment, kindly wait until we close FY '26 and taking the assessment because the budgeting for all the company will start in the next month or so, we should be in a better position to give you a guidance for FY '27 and beyond sometime in May. Amit Anwani: Right, sir. And lastly, sir, on the media article of Chinese player probably getting allowed for the BTG orders. Any assessment you guys have done in terms of impact it could have if this is really happening? Subramanian Sarma: No, I think it is a little bit misplaced that concern because as we understand from the policymakers, the allowance of -- or allowing Chinese players is not for the full equipment. It is only for certain components. In fact, we had done that advocacy also to allow us to import some of the special alloys which are required for the thermal power plant, which was not earlier allowed. So that I think is permitted. So in reality, I think it does not affect. In fact, it still protects us, and we see a good positive opportunity unfolding in the next subsequent quarters with the thermal power plant, with BTG being manufactured in India. Operator: [Operator Instructions] Our next question comes from the line of Aditya Bhartia from Investec. Aditya Bhartia: Sir, just wanted to understand about the TenneT order. How many packages have you already recorded until now? And how should we think about the opportunity going forward? Parameswaran Ramakrishnan: Can you repeat that question, Aditya, please? Aditya Bhartia: Sir, about the TenneT order, I think there are 6 packages of that. Just wanted to understand how many packages would we have recorded until now? And is it fair to assume that all 6 packages would be coming to us as a replacement contractor? Or could others be also involved in this? Subramanian Sarma: See, we have -- Sarma here again, we have a framework agreement. And like you said correctly, we have 12 gigawatts, that means 6 packages of 2 gigawatt each. Currently, what we have included in our order inflow and which will then generate revenue is two of those. And then we are in discussion with the third and fourth with the customers, and we'll have to see when it happens, when they call up, then we will advise you, and we will include that in the order flow. So as and when they get called out, we will include that in our order inflow, but we have a potential for all 6, yes. Aditya Bhartia: Understood, sir. So does that mean that it is almost kind of confirmed that we'll be getting third or fourth packages? Or is there some negotiation that is how does it work? Subramanian Sarma: No, it means that we have been selected for the whole program, right? So -- but then there are certain -- timing-wise, the customer has to decide when he wants to call up which project. So we'll have to wait. So -- but I think when they call up, then we'll have a secured position. But until he calls off, we are -- as a prudent policy, we are not counting it. Aditya Bhartia: Understood, sir. Understood. And my second question is on the margin erosion that we have seen on the Hydrocarbon side. You mentioned that there are certain orders wherein we are seeing cost overruns. Just want to understand roughly which -- when would we have won these orders? Is it that competitive intensity was very different at that time and it has subsequently improved? So how are you seeing the whole scenario out there? Subramanian Sarma: Yes, yes. I mean, see, most of the projects which are part of the legacy projects in the portfolio have been secured during the COVID time or post-COVID time. And then we had a huge Ukraine war issue and then we had a bunching effect. And I think -- unfortunately, I think many things kind of coincided. And we are getting through those. I mean, I think one by one, we are handing over. Like I said before, I mean, 2, 3 quarters, we should be out of it. Aditya Bhartia: Understood, sir. And just one last question. We are now getting some orders like metro contract that we announced today. Some of the other orders are also of really large size. So is it fair to assume that execution time lines going forward would be longer than what we have seen historically? Subramanian Sarma: Generally, this -- I mean, we cannot generalize this because every project will have its own time line. And I mean, they are in the range. So I think it depends upon the complexity of the project. Some of them have too much of tunneling and boring. So then it will be longer and depends on how much the land has been already acquired. So there are various parameters to look at. I don't think it will be appropriate to generalize, but they are all in the typical range. Parameswaran Ramakrishnan: Just to add to what Sarmaji just now spoke, I did comment that the book-bill infra order book is 26 months. That includes today's press release of an order that was secured in the previous quarters, okay? The average order book execution period for Hydrocarbons is around 29 months. For the CarbonLite Solutions, it is around 48 months. Operator: Our next question comes from the line of Mohit Pandey from Citi. Mohit Pandey: My question is on margins for the international portion of E&C in light of the commodity price movement. I understand steel is the most important commodity for us, which has not seen as much price movement. But for the other commodities, how should one think on the impact on the fixed price international orders that we have on the backlog? Subramanian Sarma: Generally speaking, like you rightly said, I think our biggest exposure is on steel in terms of commodity, mostly on the international project. And steel, fortunately, has been pretty stable. There has not been much volatility at all -- if at all, there has been a little bit of a downward pressure, not upward pressure. And our risk is generally between the time we submit the bid till award. I mean that is the place -- that is the time period where we are a little bit exposed. Otherwise, after we secure the job, we try to one way or the other hedge either by placing the order quickly or doing some pre-engineering and placing the orders or having some prebid agreements. So I'm not expecting major exposure to the commodities, except copper and nickel has been a little bit volatile. But then again, we'll have a policy of hedging as quickly as possible. And we also allow some contingency in our estimates, we know how the fluctuation is. Unless like Ukraine kind of thing, Ukraine, Russia war kind of situation happens, I think rest of the volatility, we are able to manage. Mohit Pandey: Understood, sir. And specifically on the renewables in the Middle East, given silver tends to be an important part there, how to think about that... Subramanian Sarma: No, renewable contracts, I think most of the price risk we have already naturally hedged, we have passed it on to the customer. We had one issue a couple of years back. After that, we have taken a very, to say, practical approach or a prudent approach. We have passed on that risk to the customer. So all our renewable projects, we are subjected to very limited risk in terms of commodity... Parameswaran Ramakrishnan: On the execution -- no material price. Subramanian Sarma: Yes, yes. Mohit Pandey: Understood, sir, sir. And secondly, just a clarification. So the 3% slow-moving parts... Subramanian Sarma: And also I think some of the large contracts we secured from Qatar and all, has also got designated items, which means that some of the price risk is with the customer. Even in international contracts, we are seeing a trend where the customer is willing to accept some amount of price risk, for not all items, but for certain items, which are more like what I would say, volatile. Mohit Pandey: Understood, sir. Sir, secondly, a clarification on the slow-moving parts of the backlog, the 3% that was mentioned, that would be primarily water projects. Is that understanding right? Parameswaran Ramakrishnan: Yes, it's a combination of largely water projects. Of course, there are certain projects that we secured last year, but the right-of-way, clearances has not been provided. Consequently, they have been classified as slow moving. But I wish to tell you it is not a source of worry at this juncture. Operator: [Operator Instructions] Our next question comes from the line of Puneet Gulati from HSBC. Puneet Gulati: Congrats on great numbers. My first question is on the Middle East order book. Assuming oil prices remain where they are, do you foresee a potential for higher project offering into this year, calendar '26 and this fiscal '27? And also, how do you think about your market share in Middle East? Do you see more room for it to grow from where you've already reached? Subramanian Sarma: Generally speaking, I think the overall atmosphere is quite positive. There is a strong pipeline of opportunities in various countries within the Middle East, like with this be it Saudi, Qatar, UAE and also in Kuwait will come back again, as I spoke earlier. So we are -- yes, we are seeing like there's a good momentum there, and we have a good presence. And I think in terms of market share, we are ourselves a bit selective depending upon the type of projects and our competitiveness, and also the terms of the contract. Overall, we are maintaining a decent share. Puneet Gulati: Okay. And on the private sector orders, which have increased, do you foresee higher margins and better working capital control there? Subramanian Sarma: Generally, I think, yes, private sector by -- if you in comparison to public sector are more favorable to working capital. Payment terms are always a little bit more favorable. There's more flexibility when we are negotiating. Parameswaran Ramakrishnan: Short-term milestone event. Operator: The next question is from the line of Bharani V. from Avendus Spark. Bharanidhar Vijayakumar: Am I audible? Operator: You are audible, sir. Bharanidhar Vijayakumar: Yes, Yes. So on this domestic prospect of INR 2.61 trillion, how much would private be part of it? Parameswaran Ramakrishnan: Sorry, can you repeat that question? Bharanidhar Vijayakumar: Of the domestic prospects we mentioned now of INR 2.61 trillion, how much will be private? Parameswaran Ramakrishnan: Roughly around 35%. Bharanidhar Vijayakumar: Okay. Related to domestic prospects and overall Infrastructure prospects, which has been flat, we have been strong in the past in segments like Heavy Civil, of course, Water and even Transportation Infra. But right now, of course, water is slowing down, and we are not very confident on the domestic prospects on Transportation Infra, Heavy Civil, et cetera. So what is our likely outlook for these segments for FY '27? Of course, we will continue to do well on private and on Middle East, but just your thoughts on FY '27 outlook and order inflow from our traditional stronghold areas, especially in India? Parameswaran Ramakrishnan: So Bharani, if you track the domestic order inflows in last year also, actually, we had a drop, okay? But I think that's the credit of our business model that if certain segments for whatever reason, there is a pause, okay? There are other segments which we cater to is showing a revival. Insofar as Infrastructure segment is concerned, domestic, we have seen sustained traction coming back in B&F and Minerals & Metals. So if there has been, of course, water projects, prospects are there, but given the payment terms and the conditions and all, we have been a little more careful in pursuing those opportunities. But the fact is that there are two other segments, which are seeing a clear case of revival. And we feel that this revival will potentially have a, I would say, will offset some of the muted or subdued opportunities in very large Heavy Civil and Transportation Infra projects. But we do believe that the government in the -- maybe in the 1st February budget announcement will kickstart the growth momentum back into taking large projects, and that will hopefully compensate for the subdued business conditions insofar as CapEx is concerned. But private sector is showing distinct revival in many sectors, which I also highlighted during my earnings presentation. Bharanidhar Vijayakumar: Okay. My second question is on the new ventures like electrolyzers, data centers, batteries and semiconductors. Can you update on what has been the CapEx so far in each of these segments? And what more would happen or in some sense, what is the total CapEx expected and how much we have already done in these subverticals? Parameswaran Ramakrishnan: Okay. So as of now, we have almost 32 megawatts of capacity of data center, out of which 14 megawatts is up and running, another 18 megawatts will get commissioned by the end of this fiscal year. The total CapEx investment in the data center is roughly in the range of INR 1,000-odd crores, okay? And so far as semiconductor is concerned, most of the spend that we are doing is still on what you call the investments into creating design-led semiconductor chips, okay? We are in touch with the multiple sectors in this particular segment, customers. And whatever spend is happening, most of that is actually getting washed through the P&L itself for both semiconductors. And as far as electrolyzer is concerned, we have already actually made a perfect design of more or less 100% indigenous 4-megawatt stack. We are now slowly upgrading it to 8-megawatt, 10-megawatt stack. And we do expect a lot of opportunities to come in the near term. Operator: The next question is from the line of Atul Tiwari from JPMorgan. Atul Tiwari: Congrats on great set of numbers. Sir, just one question on thermal power opportunity. Over the past 1 year, obviously, your orders have also benefited a lot from thermal power project. So as of now, over next 2, 3 years, how many gigawatts of the total market size you see in the pipeline from states and the central and the private entity? Subramanian Sarma: Yes. I mean I think the -- yes, it's a bit of a pleasant surprise for us also that how the market is developing in the thermal power plant. And it's been good news for us, and we booked quite a bit of orders. And going forward, we believe that overall, I think the country will still add about maybe 15 to 20 gigawatts in the next 2 years or so. We still see 4 to 5 gigawatt opportunity for us as a minimum in the coming years. Atul Tiwari: Okay, sir. And sir, what proportion of your total order book today will be at fixed price? And what proportion will have price variation clause of some kind or other? Hello? Operator: Sir, if you are speaking, you are not audible at the moment. Parameswaran Ramakrishnan: Sorry. What I meant is that the fixed price constitution of our order book is in the range of 55% to 45%. 55% is fixed price, 45% is variable. Operator: Our next question is from the line of Priyankar Biswas from JM Financial. Priyankar Biswas: Congratulations to the team. So my first question is, sir, what I understand is that you have previously highlighted there was a significant -- like in the past call as well that there was a significant drag down due to the monsoon, particularly extending even well into the 3Q as well. So had it been, let's say, a relatively normal monsoon and leaving the water part aside, so what could have been -- what is the amount of work that you may have lost in the domestic space, so in terms of execution? Parameswaran Ramakrishnan: So Priyankar, in fact, in the month of October itself, I did mention that October also could see some amount of slippages given the fact that the monsoon in some parts of the country where we are having projects got extended, correct? I think I clearly remember this. But I wish to tell you, Q4, we believe -- I mean, I don't think there are any events that -- climatic events that are disruptive. So consequently, we do see a normative Q4 for almost all the segments, be it domestic or international. Priyankar Biswas: Sir, what I meant is like because of this, let's say, monsoon drag, so let's say, had it not been there in this Q3, what sort of growth maybe we could have achieved? If you can give some color? Parameswaran Ramakrishnan: It's extremely difficult, Priyankar, to talk about 5% growth that we had in Infra segment for Q3, whether how much that would be. I don't think it's not possible to put a number to that. Priyankar Biswas: And sir, if I just squeeze one more in. So like I understand that two packages for offshore HVDC were booked in this particular quarter. So what would be the rough quantum of that? Parameswaran Ramakrishnan: It's ultra mega. So ultra mega for us is more than INR 15,000 crores... Priyankar Biswas: Okay. Okay. So -- and like since you have given the prospects as well for Hydrocarbons, so like for this three and fourth, which you are in discussions, are it there in this year's prospect? Or should we be thinking of it more from a next year prospect? That's my... Parameswaran Ramakrishnan: Next year, next year. Nothing in Q4. It can happen earlier next year. Operator: Our next question is from the line of Amit Mahawar from UBS. Amit Mahawar: Sarma sir, I just have two quick questions. First is on Middle East. Now we basically, by far, have the best competitive position that we had in the last more than 15, 20 years in Middle East. Do you think next 2 years, cyclically, the competition in Korea, in particularly Europe, strokes U.S. can come back? Any color there? And if you can help us understand next 2 years on the P&M and core share of Middle East is going to be more than maybe 50% in the next 2 years? That's first, sir. Subramanian Sarma: Competition, we see, we have been operating in the same environment for the last few years. Chinese are there, Koreans are there, Europeans are there. Sometimes even for smaller contracts, we have the local. So I think the landscape in terms of competitiveness is not changing much. On the contrary, I would say that we have established ourselves quite well. The customers prefer us to win the jobs and sometimes even the competitors are coming and seeking partnership with us. So I don't think nothing has -- much has changed. It will remain pretty much the same. If at all, it will be a little bit positive for us in the next 2 years. What was the second question you said? Amit Mahawar: The share of core top line P&M... Subramanian Sarma: I mean it's very difficult to put a number because it depends on what happens in the Middle East in relation to what happens in the domestic. I mean I think the good news is that I think we are growing well, and we'll continue to grow. I think we are very confident about it. Amit Mahawar: Very fair. And second quick question is, if the current slowdown in some segments in domestic market, particularly water, transportation, sustain for the next 1, 1.5 years, do you see the risk of not exactly like the COVID risk, but the time cost delays, which are difficult to pass on next year. If it improves, I understand, but if it sustains for the next 1 year, we will have to evaluate it sharper, sir? That's it. Subramanian Sarma: We do not think that water thing will last that long. I mean this should get resolved. It is a bit unfortunate that there has been some kind of suspension of the work in those areas because of the payment issues. But we are continuously in dialogue with the government. And maybe within a quarter, that should get unlocked and things should start moving. So I don't think we should draw any different conclusions from that. Operator: Our next question is from the line of Pulkit Patni from Goldman Sachs. Pulkit Patni: So my first question is, I understand the impact of a depreciating rupee on your services business. How should we understand the impact of a depreciating rupee on your core EPC business in light of margins? I mean just some broad guidelines would be helpful. That's question number one. Parameswaran Ramakrishnan: So should I take it now? Or are you going to put another question also? Pulkit Patni: Okay. My second question is, similarly, while we understand that you hedge commodities, et cetera. But even in the commodity market, the movement has been quite drastic in the last couple of months. So are we able to hedge all of that? Or we could expect some bit of negative impact of that in the next, say, couple of quarters or so? Those are the two questions. Parameswaran Ramakrishnan: Okay. So the first part, I will respond. As far as FX risk is concerned, Pulkit, I think you never heard from us, at least I can recall, never ever commented that our margins are up or down because of exchange rate variations, because it is -- because of the very proactive and timely hedge practices that we do to ensure that project risks are covered at least for financial risk part that is on the exchange rate side, okay? So as and when the projects are secured and if the international projects or even domestic projects having a lot of ForEx outflows, we have a mechanism by which we are able to cover the contracts at the rates at which they were estimated by bidding for the project. And that is how it is being done. So we have not -- in fact, even for the ITTS companies, some part of the exchange rate depreciation has flown into their P&L. But also I would like to say they also have a layered hedging process, and that process has been consistently followed to ensure that the margins are not substantially impacted by adverse exchange rate movements. The same applies for the project part of the business as well. Now coming to commodity prices, Mr. Sarma did allude to steel and other places, but I think he will respond. Subramanian Sarma: Yes. I mean I think like I said, see, you have to understand that when we are bidding for these jobs, we do quite a bit of substantial amount of pre-bid engineering work. So we have a reasonable amount assessment of the quantities. So like I said, I think our open exposure is only for the bid submission to bid award date, I mean, if we are successful. And so once we are awarded, then we -- based on the different commodities and their volatility, we go and hedge those commodities based on the estimates we have already done. Now what could be left unhedged portion could be maybe 5%, 10% as part of the engineering development. I mean -- but that is not very significant because that gets covered through contingency. Pulkit Patni: Sure, sir. So these high commodity prices right now is something that you are not that worried about? Subramanian Sarma: No. Operator: Our next question comes from the line of Aditya Mongia from Kotak. Aditya Mongia: I limit it to one question. Mr. Sarma, you talked about certain projects that you win are more strategic in nature. If I were to be kind of thinking through your entire overseas ordering that has happened, let's say, in the last 1 year, how much of those would you classify into areas which are more strategic for your customers? I'm just trying to get a sense of what part is then remaining which is at risk in case, let's say, crude moves further down. So just trying to get a sense of your exposure to strategically important large projects during the last 1 year on the overseas side. Subramanian Sarma: Actually, in fact, if you look at it, what we have won, I mean, most of the international projects are in the oil and gas sector. It is in the renewable sector and some of them are now in the critically important Infrastructure, like data centers and things like that. And I would classify them, all of them are very strategically important. I mean -- and they are not going to be sort of impacted by the oil prices, because oil and gas projects, as I said, will continue regardless of where the oil prices are. And renewable projects is -- and the data center projects are deliberate plan of all these countries to gradually invest to prepare themselves for the energy transition. So I think they are also building up their alternative energy portfolio in a very calibrated way. So all of them are very strategic. We are not in those -- see only those non-strategic projects are some highway projects, some motorway projects, some beautiful building, some aspirational building or some tourists under development. We are not involved in any of those. Operator: That was the last question, ladies and gentlemen. I would now like to hand the conference over to Mr. P. Ramakrishnan for closing comments. Over to you, sir. Parameswaran Ramakrishnan: Thank you, everyone, for attending this call at a late hour. It was a pleasure to interact with all of you. Good luck and wishing you all the very best. Thank you. Subramanian Sarma: Thank you. Operator: Thank you. On behalf of Larsen & Toubro, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.
Operator: Greetings, and welcome to the GCC Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Sahory Ogushi, Head of Investor Relations. Please go ahead. Sahory Ogushi: Good morning, everyone, and thank you for joining. With me today are Enrique Escalante, our Chief Executive Officer; and Maik Strecker, Chief Financial Officer. The earnings release detailing this quarter's results was released yesterday after market close and is available on GCC's IR website. This conference call is also being broadcast live within the Investors section at gcc.com, and both the webcast replay of the call and transcript will be available on the same site approximately 1 hour after the end of today's call. Before we begin, I would like to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in yesterday's press release and in our quarterly report filed with the Mexican Stock Exchange. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. With that, let me now turn the call over to Enrique. Hector Enrique Escalante Ochoa: Thank you, Sahory, and good morning, everyone. At GCC, we manage the company with a long-term view. Our markets are cyclical and can move quarter-to-quarter, but our strategy is firm and gives us flexibility to adapt to short-term conditions without changing our mid- and long-term view. We focus on disciplined execution, operational reliability and capital allocation across cycles. And this approach guided our decisions throughout the year. During 2025, we operated in an environment where external conditions influenced the pace and timing of customer decisions. As conditions evolve, we revised our expectations in the summer. From that point forward, our focus sharpened with an increased emphasis on cost management and operational discipline, and we delivered record sales for the full year of USD 1.4 billion, reflecting the strength of our operational model, disciplined execution across the network and particularly strong performance in the U.S. These results demonstrate the resilience and demand across our markets. From an earnings standpoint, it is also important to keep perspective. 2024 set a record benchmark for margins and returns, and that level remains the reference point for where we expect the business to operate over the cycle. While we did not replicate those record levels in 2025, we came very close, and we continue to position the company to move closer over time as efficiencies, cost actions, commercial initiatives and network investments take us to near records. The fourth quarter did not introduce new dynamics. Instead, it confirmed the trajectory we have outlined earlier in the year. Our operations were reliable, customer [indiscernible] the same mix and activity dynamics we managed through 2025 with improved execution translating into record quarterly results. Our people strategy remain a constant source of strength in 2025. We continue to invest in safety, training and leadership development, reinforcing a culture of operational discipline and accountability. Safety performance improved again in the fourth quarter and full year results reflected continued progress across key indicators with recordable incidents, including lost time incidents declining 10.5% year-over-year. Our continued recognition as a Great Place to Work further reflects the strength of our culture and employee engagement and the consistency with which we have integrated these values across the organization. Training is embedded across the company with structured programs aligned to specific plant and functional needs. Through the GCC Training Institute, we delivered more than 15,000 hours of training during the year. This investment supports reliability today and prepares our teams for the ramp-up of Odessa and the next phase of growth. Progress on our planet strategy continued steadily. In 2025, we increased blended cement production, expanded the share of alternative fuel in our fuel mix and continue to reduce our clinker factor. These actions support cost efficiency and operational resiliency while contributing to incremental progress in environmental performance. In addition, our Pueblo and Rapid City plants once again received ENERGY STAR certification, placing them among the top 25% of cement facilities nationwide for electricity efficiency. As we move into 2026, our focus remains on executing these initiatives pragmatically, prioritizing efficiency, reliability and long-term value creation. Turning now to our growth strategy. Our focus on execution and network strength is reflected in how the business performs across our key markets. In the United States, ready-mix was the primary driver of growth in 2025, supported by strong project activity. This project-led demand generated consistent downstream pull for cement and reinforce the strength of our integrated operational model. Ready-mix volumes reached record levels in 2025, increasing 31.5%, while cement volumes increased 2.6% during the year. As a result, we outperformed the U.S. cement market in 2025, driven by disciplined project execution and commercial management. Operationally, this translated into high utilization across our operations, supported by investments in mobile capacity and execution capabilities. Energy-related projects, including wind farm and associated transmission continue to provide volume support throughout the year. Infrastructure activity remained stable through the quarter and continues to provide visibility into 2026, supported by multiyear funding programs and ongoing execution at the state and local level. As we enter the new year, we remain proactive and focused in identifying project opportunities, reinforcing the depth and visibility of our commercial pipeline. Residential construction remain under pressure. Mortgage rates have not sustainably broken below 6% since September 2022. As a result, we do not expect a meaningful improvement in residential activity during the first half of 2026. Oil and gas activity softened during the year and continued to soften in the fourth quarter, reflecting the current oil price environment. This segment is expected to soften further in the near term before improving. While this affects mix, it does not alter our long-term positioning within the network as we rely on the flexibility of our plants to ship different types of cement and adapt to market demand. Throughout the year, our commercial focus remains on protecting margins and returns. While market conditions limited pricing momentum during 2025, the pricing increases announced entering 2026 reinforce our focus on offsetting cost inflation and improving profitability over time. In Mexico, fourth quarter performance was in line with our expectations. Residential demand and bagged cement continues to provide stability, supporting margins. The federal housing initiative is beginning to take shape in certain regions. And as projects move into execution, we expect to be able to quickly increase shipments as its impact materializes during the first quarter of 2026. Infrastructure in Mexico, it's an area of growing optimism. Historically, the first year following election is complex. But during the quarter, we saw projects advance with a more meaningful contribution expected in 2026 as execution accelerates. In addition, mining-related comparisons normalized in November, removing a headwind that affected volumes last year. We expect the segment to perform broadly in line with 2025 levels going forward. Industrial customers remain cautious, advancing projects gradually and using this period to prepare to move more decisively as visibility improves. We're cautiously optimistic about the industrial activity improving in the second half of 2026 as trade discussions become clearer. Capital allocation in 2025 remain consistent with our long-term priorities. We continue to focus on ensuring that recent investments in cement distribution and aggregate operations across our network reach their full potential, allowing us to ship product to more destinations, easing the pressure to rely on single markets with a larger volume. In parallel, the Odessa expansion continues to progress on schedule and within budget. Our M&A posture remains unchanged. We continue to evaluate opportunities that strengthen the existing network and meet our strategic and financial criteria while maintaining balance sheet strength and flexibility. As we look ahead, 2026 will be a pivotal year for GCC. With Odessa completing construction and entering ramp-up, the company moves into a new phase focused on integrating capacity, optimizing logistics and strengthening earnings power across the network. With that, let me turn the call over to Maik for a review of the financial results. Maik Strecker: Thank you, Enrique, and good morning to everyone. For the full year 2025, we delivered record consolidated sales of USD 1.4 billion, an increase of 3% year-over-year, driven primarily by volume growth in the United States. Fourth quarter sales totaled $360 million, up 7% year-over-year, consistent with the operating trends discussed earlier. During the year, the depreciation of the Mexican peso created some headwinds, which reduced consolidated sales by approximately $80 million on a reported basis. In the United States, ready-mix volumes increased by 31% for the full year and 27% in the fourth quarter, driven by strong activities tied to wind farm and infrastructure-related projects. Cement volumes increased 2.6% for the full year and 1.4% in the fourth quarter, supported by strong ready-mix activity and contributions from infrastructure and commercial projects across our network. Average cement pricing in the U.S. decreased by 1.2% during the year, reflecting product, project and geography mix dynamics. The aggregate business performed well and delivered the results we expected when we acquired the assets, contributing positively to our EBITDA generation and reinforcing the strategic rationale for advancing our aggregates growth strategy. In Mexico, cement volumes decreased 3% for the full year, however, increased 11% in the fourth quarter, supported by normalized demand in the mining segment and early execution of infrastructure and housing projects. On the cost side, full year cost of sales as a percentage of sales increased by 2.5 percentage points, reflecting factors discussed earlier in the year, including the absence of the natural gas liability benefit we recognized in 2024, higher fuel and power costs, a lower contribution from the [indiscernible] segment and increased transfer freight as we ship products to new terminals. In addition, during the year, we incurred higher freight costs as product was supplied from the Pueblo cement plant to support customers during the period in which the Rapid City cement plant was offline. While this resulted in higher transfer costs, it allowed us to meet customer commitments, preserve volumes and demonstrate the flexibility and competitive advantage of our distribution network. In the fourth quarter, cost performance benefited from disciplined inventory management, which offset the unfavorable inventory impact we recorded during the first 9 months of the year. SG&A expenses declined modestly as a percentage of sales for the full year, reflecting a reduction in consulting services as part of our cost and expense optimization initiatives, partially offset by higher operating expenses. As we move into 2026, we're placing renewed emphasis on cost discipline, particularly third-party spend, fixed cost and staffing optimization while maintaining our standards for reliability and safety. As a result, full-year EBITDA totaled $492 million with an EBITDA margin of 34.9%. Importantly, the fourth quarter delivered record EBITDA margins of 39.6%, up 3.4 basis points with EBITDA increasing to $142 million, reflecting improved operating execution as the year progressed. The depreciation of the Mexican peso reduced EBITDA by approximately $6 million on a reported basis during the year. Free cash flow for the full year totaled $349 million, representing a conversion of 71% of EBITDA with a strong fourth quarter contribution of $156 million, driven primarily by higher EBITDA generation. On capital allocation, we returned $45 million to shareholders through a combination of share buybacks and dividends. During the fourth quarter, we deployed $7 million in buybacks. We remain disciplined and opportunistic in balancing shareholder returns with investments for growth and keeping our financial flexibility. Strategic capital expenditures totaled $309 million in 2025, reflecting continued investment in our Odessa project and logistics across our network. As of year-end, we have invested approximately $600 million in the Odessa project and associated logistics capabilities with the remaining $150 million planned for 2026. We ended the year with a strong balance sheet with cash and equivalents of $969 million and a net debt-to-EBITDA ratio of negative 0.7x, preserving flexibility as we prepare for the next phase of growth and the ability to act decisively on future opportunities. In summary, 2025 reflects a year in which we delivered record sales, observed mix and one-off impacts, maintained strong operating discipline and continued to invest in strengthening our network. With that, I will turn the call back to Enrique. Hector Enrique Escalante Ochoa: Thank you, Maik. As we look ahead, our guidance reflects a year focused on stabilization and execution, consistent with our strategy. We are entering 2026 with a clear operating backdrop, a stronger network and defined levers within our control. In the United States, we expect cement volumes to grow at a high single-digit rate, driven primarily by the contribution from new markets and the initial ramp-up of Odessa. Cement pricing is expected to be flat, reflecting product, project and geography mix dynamics. In ready-mix concrete, volumes are expected to decline at a high single-digit rate, reflecting a high comparison base in 2025, while pricing is expected to be flat, reflecting product mix and the broader distribution of volumes across new markets. In Mexico, cement and concrete volumes are expected to grow at a low single-digit rate, supported by increased infrastructure and residential activity. Pricing for both products is also expected to increase at a low single-digit rate. At the consolidated level, EBITDA is expected to grow at a mid-single-digit rate, driven primarily by higher sales volumes. During the year, the one-off incremental logistics costs associated with the ramp-up will continue to weigh on margins, while cost discipline and efficiency initiatives will help manage the transition. Turning to capital allocation. Capital expenditures in 2026 are expected to be $270 million as the Odessa expansion nears completion, and we will continue with logistics investments across the network. Free cash flow conversion is expected to remain strong and consistent with historical levels. In closing, we remain focused on restoring margins towards the levels achieved in 2024, executing the Odessa ramp-up in a controlled manner and maintaining financial flexibility. While the pace of improvement will vary by segment and geography, we believe the actions we are taking position GCC to deliver resilient and improving performance through the cycle. Thank you for your continued support. We will now open the call for your questions. Operator: [Operator Instructions] Our first question today is coming from Alejandra Obregon from Morgan Stanley. Alejandra Obregon: Perhaps the first one is for you, Enrique. So you mentioned 2026 will be a pivotal year for GCC. And of course, Odessa plays a big role, and if you've provided a little bit of color on that. But just wondering if you can walk us through the different milestones that you think that will make 2026 a pivotal year? Is it kind of like a new distribution setup, savings, energy growth? Anything that you think we will be seeing throughout the next quarters? And so that's the first question. And the second one is perhaps for you, Maik, on CapEx. So you mentioned $150 million of strategic CapEx for, if I understood correctly, new investments on distribution. Just wondering if I got that right and if you can be a little bit more granular on where you think those $150 million are going in 2026. Hector Enrique Escalante Ochoa: Number one, in your question about 2026 pivotal comment. Of course, I mean, bringing a new cement line online in a challenging market is in itself a challenge, right? But we have a strong experience from what we did exactly under even worse conditions when we started up the Pueblo plant during the Great Recession. So we have to obviously manage initially, I mean, a good start-up of the plant. It's a challenging business. It's always -- there are always things in those big equipment that we need to be in control of, and we expect to do that successfully. So that's the first part of this pivotal change. And of course, as we ramp up, we need to have a very good coordination of how we start returning volume that Samalayuca is shipping into the region back as we start, I mean, switching customers, I mean, to the cement produced in the new country. And this, of course, also has to have a good coordination with the series of terminals that we're setting up in several cities and towns to precisely have a more controlled entry into the market, I mean, cautiously, slowly, but with a firm mid strategy of how we will position that increased capacity over time in different markets. So there's a lot of moving parts at the same time as we introduce the new Odessa line during the year. Maik Strecker: Very good. Alejandra, thanks for your question regarding the CapEx. So the $150 million, that is really primarily driven by the project, Odessa, and that's the heavy lift there. However, there's also some additional logistics capabilities that we're building out, starting at the plant level with rail and truck capabilities really to be able to ship that incremental volume and distribute that. That was always part of the scope, and it's now just the time to execute on that. And then what Enrique just said, right, we're looking at several markets where we plan to distribute the volume. And for that, we need some logistics capabilities as well, smaller terminals, access again to rail and so on. So that's kind of the scope of that $150 million for Odessa. In addition, as you saw, we guided for some additional growth CapEx as well. The total is $200 million, which is related to energy-related alternative fuels, continue to invest in the aggregates business to unlock potential there and so on. Operator: Your next question today is coming from Garrett Greenblatt from JPMorgan. Garrett Samuel Greenblatt: I was wondering if you could give a little more color on the regional demand drivers, specifically around U.S. cement volumes up high single digits as opposed to pricing flat. I guess just wondering how those dynamics play out and then for Mexico as well. Hector Enrique Escalante Ochoa: Garrett, yes, as I mentioned, I mean, in my answer to Alejandra, it's a challenging year with a lot of different market or segment performance, right? I mean we are relying on the infrastructure segment more than anything to offset further decreases in short-term in the Oil Well cement market as that industry, I mean, gets more stability and more visibility going forward. So that's one offset. That's why one is growing and the other one is decreasing and one is offsetting each other, right? Residential, as we mentioned, it's weak. It's continued at the same level, I mean, for us this year. There are some other segments like, I mean, obviously, everything that is commodities in the agricultural, I areas where we participate are having, I mean, a strong -- normal to strong, I mean, performance. So that's good for us that we have this mix of segments all the time. So we think that overall, I mean, there is going to be, of course, compensation from some segments with others. And that's why I mean we're basically projecting I mean a flat volume for the year. Mexico, on the contrary, we're seeing some increases overall, pretty much, I mean, driven by housing. The federal government initiative, it's taking off now. I mean it seems like there is clear, I mean, funding and direction to build, I mean, the houses on that federal program. And we're already experiencing projects in several of our locations in Mexico. And we're already shipping volume specifically for that segment. And as we mentioned, the mining segment, I mean, it's stable now. I mean we already stimulated. I mean, the volume loss from the couple of mines that ended operations, I mean, last year. So the conversion is, of course, it's going to be better. And at the local level, I mean, municipal projects, especially some state projects are taking off now. And obviously, I mean, with some growth over last year, it's also going to help, I mean, the improvement in the Mexican market. Garrett Samuel Greenblatt: Great. And maybe just a quick follow-up just on what you're expecting in terms of pricing in the U.S. Have you sent out any letters? Or do you plan to do midyear increases as demand trends progress through the year? Hector Enrique Escalante Ochoa: We are always, I mean, committed to recover at least our cost inflation through pricing in every market where we operate. We're very disciplined in that respect and very consistent. We announced an $8 price increase in the U.S. for January. There are always, I mean, conversations with the different individual customers about, I mean, their ability to take on, I mean, the price at this moment or delays a couple of months and then obviously, one-on-one conversations about, I mean, the total amount, I mean, to increase. Everything I will say, so far, it's going well in those conversations, pretty normal, and we expect, obviously, to execute the majority of that price increase in the first quarter of this year. So that's a very good news. Now in our case, specifically, I mean, we're not in our guidance reflecting directly that price increase that we're going to execute because of several factors that we alluded to during our comments here. Of course, we have a big -- I mean, mix effect here with, again, more cement going to construction segments and less to Oil Well cement, which obviously command different prices. And so that mix doesn't help in terms of the increase. We also have a lot of project work related to infrastructure mean that we mentioned. And in some cases, that project work also has, I mean, a lower pricing than the regular ready-mix precast, I mean markets that are usually very stable. And of course, I mean, there's one third, I mean, factor here that is geography, right? With the start-up of Odessa, and as I mentioned, we're going to do this, I mean, slowly and cautiously. Dispersing more cement to further away locations in smaller volumes, that commands higher freight, of course, and somehow that is reflected on a lesser, I mean, net price because one has to compensate on that incremental freight to be competitive in distant markets. So that's the third factor, I mean, that we have there. And finally, I think that we had, some one-offs in last year that affected in our pricing strength with some segments and some markets derived from things that we disclosed, I mean, last year with some problems in the Rapid Plant during the winter of last year to start up on time because of an accident with there and then an issue with the ball mill that were in the Odessa plant that also delayed us a little bit. So we needed to make some adjustments, I mean, to recover market share that we lost during those incidents. And we did that successfully, I mean, last year. That's why, obviously, we're running much better than the industry as a whole in terms of cement growth. And also comparing our own region, we accomplished that recovery of market share, and we got back basically to our normal levels of share. We're going to, I mean, now run constant there. I mean we don't see any more need to continue, I mean, pressing on prices because of that reason. That's already behind us. So with all that said, with all those -- a combination of all those 4 factors, that's why we're seeing a flat price in our guidance. I see -- I personally see this as a very positive, I mean, ironically because, I mean, I think that it takes us back to a very good solid platform, and it's only building up from this, what I call one-off because of all these reasons at the start of the first 6 months of 2026. So we're very -- I mean, pleased and confident that this is the right strategy for GCC and it's going to be successful for us. Operator: Next question today is coming from Carlos Peyrelongue from Bank of America. Carlos Peyrelongue: I joined a bit late, so I apologize if you have answered this already, but I just wanted to get a bit more color on the status for demand for cement from oil -- from the Texas, in particular, from Oil Well cement. If you could comment a bit on that would be helpful. Hector Enrique Escalante Ochoa: Yes, Carlos, thank you for the question. Yes, we already comment on that, as you were pointing out. I mean, obviously, we're seeing still more pressure in the Permian Basin on demand for Oil Well cement. I mean, given the uncertainty and lack of clarity of where, I mean, the oil price -- international oil prices and the segment is going to end this year. We believe, of course, it's transitory and cyclical as has demonstrated throughout history. And that's why we feel very confident that we really prepare a good, I mean, expansion of Odessa, taking those cycles into account and being able to capitalize on construction cement when the Oil Well demand is slow. So having said that, that's why we're shifting more to, I mean, infrastructure projects. That's where we're concentrating, I mean, for the rest of this year, I mean, as our driver for demand in the U.S. So it's work project, infrastructure, I mean, everything, I mean, related to that segment. And that's how we plan to set the decrease in Oil Well demand. Carlos Peyrelongue: Understood. And have you given some guidance as to your expectation to utilize the new capacity that you build in Odessa in terms of what's the expectation for this year or next year to get to higher utilization rates on that new capacity? Hector Enrique Escalante Ochoa: Yes. Definitely, we lower our expectations compared to what we planned when we were, I mean, planning I mean the construction of the plant. The market conditions are totally different. If you remember at that time, I mean, all U.S. markets were basically sold out and so the conditions were very different. And so that's why we're adjusting our ramp-up of the plant to a much more slower and careful introduction of the plant. The line is going to run at full capacity itself, the new line. So we capture there the decreases in variable cost compared to the current, I mean, [indiscernible] in Odessa. And of course, the line run at full capacity will substitute all that Oil Well cement that is produced currently in that plant, plus the imports that we're bringing from Samalayuca into the area. So that's a way of optimizing, I mean, our cost structure and our network. Where we're going to feel the pain, of course, of this slowdown is going to be in the Samalayuca plant that it's going to have to slow down its shipments to West Texas. And so we're, again, going slowly in the introduction based on those factors. But I think that's the best strategy for us at the moment. Operator: Next question is coming from Marcelo Furlan from Itaú BBA. Marcelo Palhares: My question is related now to capital allocation going forward. So you guys are guiding now for this $270 million of total CapEx for this year. So I'd like to understand if we could expect this level of CapEx, let's say, below the $300 million levels as the new normal for the company at least for the medium term. And my next question regarding to capital allocation is regarding M&A. You guys have provided some color that the likelihood of guys likely seeking M&As in the aggregates business in the U.S. and so on and so forth would be likely to be the main driver. So I'd like to understand if this strategy continues in terms of pursuing this type of M&As. And if you guys could give a little bit more color on potential size if you guys are expecting only small bolt-on acquisitions or if you guys could likely reach to larger M&A activities after due completion. So these are my questions. Maik Strecker: Yes. Thanks for the question. Regarding capital allocation, as I already mentioned, out of the $200 million growth CapEx, $150 million is really allocated to finishing Odessa and the related logistics capabilities. Then the remaining $50 million also already mentioned, but we have some very high-return projects around fuel and energy that we want to execute. Again, and that's in the context really to optimize these very important input costs for the company. A third element here is aggregates, right? We have the first year of the new aggregates business under our belt. We see some opportunities to optimize, to grow, to expand that will require some level of CapEx. And we have some, again, very high return quick projects to execute on. So that kind of comprises the $200 million in growth. And then the $70 million in maintenance, it's in line with our previous years to really keep the cement plants, the network in new light conditions to really perform well for the market that's in front of us. So that's on CapEx. Regarding M&A, yes, we are very active. We have a pipeline of more smaller midsized opportunities. I would call them bolt-ons to, again, the existing aggregates network that we now have within the cement network that we're operating. Again, those are small and midsized acquisitions similar to what we have done in 2024. And again, now that we know pretty well how these markets perform and where the opportunities sit, you will see us throughout the year '26 being very active and focused on that. That's kind of the most actionable part. Nevertheless, as we always stated, we remain very focused also on cement, looking at options for cement to grow the network across the United States, and that remains to be part of the focus as well. Operator: Next question is coming from Emilio Fuentes from GBM. Emilio Fuentes De Leon: First of all, congratulations on the results. I have 2 questions, if I may. First of all, on CapEx during the quarter, is it correct to assume that the downtick on CapEx is related to a postponement on the ramp-up of the Odessa plant given the current market situation? And second, is -- are the extraordinary weather events seen during the beginning of first quarter 2026 in the U.S. already reflected on the guidance? Or is there any downside risk to the guidance given the rough start to the year given related to weather? Hector Enrique Escalante Ochoa: This is Enrique. I will take your second question first and then turn it to Mike for the CapEx. I think that the weather, even though it's been very severe in the U.S., it's not abnormal for us. So no, it does not affect our guidance at all. I mean, for us, I mean, this is, again, in the regions where we participate, pretty normal, I mean, weather pattern. So we'll be fine in terms of our shipments for the quarter. Maik Strecker: Yes. Enrique, regarding the CapEx for the quarter, it's a little bit of timing. The reason we came in lower than kind of what we had expected and also the Q4 of 2024 was purely timing. We're -- from an Odessa perspective, we're in execution phase and everything is towards the defined time line to be completed kind of Q2 of this year. So you saw a little bit of timing effect there on the strategic CapEx in the quarter. Operator: Next question is coming from [ Azeem Tori ] from Anfield Investment Research. Unknown Analyst: Maybe first a question on the ramp-up of Odessa. So you're adding a lot of capacity in the local market. Is it fair to assume that you will try to address some of the big urban centers of Texas like the Dallas Urban Center or the San Antonio Urban Center? And if you -- when you're talking about like new distribution or new terminal center, is it new terminal that you would develop to support the commercial strategy of this Odessa cement plant? That would be my first question. And then second question on the price increase that you've announced of $8. Is it $8 price increase that you have announced in every single state, including Texas? And a last question around the cost inflation that you're expecting in your cement business. I think we see a lot of data center being built around the United States. They are consuming a lot of electricity. Do you see a risk of electricity prices going up in the coming years in the U.S. that could potentially impact your margin? Maik Strecker: Yes. Let me start with the question around the network and the additional volume from Odessa. As Enrique already kind of walked us through, the plan really is to distribute through several markets, small and bigger. North Texas is a market that we see a lot of growth. And yes, we plan to participate in that growth. But we also see good levels of growth for Odessa closer to home. In that part of the country, there are some very interesting data centers planned. So we'll participate in that. And then as mentioned, we're looking at kind of small and midsized markets to establish distribution points agile with some level of CapEx, but not heavy CapEx load. And I think through that distribution, the goal is to have that very focused and measured introduction of the Odessa capacity. So that's on that. Regarding cost of inflation, as mentioned also, we're taking some proactive steps. We're investing in capabilities around power with solar projects. We're investing in some additional capabilities utilizing more natural gas, pipeline infrastructure and burning capabilities. So all of those, we see as kind of a proactive step to manage the future cost dynamics around fuels. So that's key for us. And I think with that, we should be able to manage accordingly what's ahead to come. Unknown Analyst: And the price increase... the $8 price increase, is it everywhere in every state? Or is there a difference from one state to another? Hector Enrique Escalante Ochoa: The price increase was announced in all the regions where we participate, including Texas. Unknown Analyst: And so far, the discussion is encouraging and you would expect to get part of this during the first quarter. Hector Enrique Escalante Ochoa: We will. I mean that's evolving dynamic and fluid, and we expect to get the majority of that announcement. Operator: Our next question is coming from Enrique Soho from Fundamental Capital. Unknown Analyst: Could you give us some insights into your and the Board's thoughts into potential corporate action or financial engineering to further unlock value and decrease the valuation gap between you and peers? Maik Strecker: Yes. Thanks for the question. I think, first off, our goal is really operationally to perform and to unlock the value by improving our margins. Again, our benchmark is 2024, the 36.6% and to get back to that level and to show that we get back to those very attractive margin levels, number one. Number two, when you look at our kind of cash flow conversion, we maintain a very high level and push that hard, again, to show the value. And then as you have seen, we're looking at kind of the overall shareholder returns with buyback program. We're more proactive on that. You've seen the dividends continuously to be increased over the years. So all those are elements, how we demonstrate the value of GCC and where we push for further investments from shareholders. And yes, strategically, we get the question. We're looking at what long term from a corporate structure, we should consider to further enhance kind of the value of the company and the value to all shareholders. That is a conversation that we have on a regular basis with the Board, with the team. And these topics are, for us, very long term and it's part of the tools and the portfolio of how do we increase the shareholder value for all participants. Operator: Your next question today is coming from Alejandro Azar from GBM. Alejandro Azar Wabi: Just a quick follow-up and to clarify something on my end. Regarding the Odessa plant, the start of the plant remains second and third quarter of this year. What you are delaying is just the ramp-up or you are delaying the start of the plant? And can you give us more color on delaying the ramp-up for you guys, what that meant before? Were you planning to reach full capacity in '28, '27, and that's where you're delaying? That would be my question. Hector Enrique Escalante Ochoa: I think that, I mean, the -- I mean, it's not delay the start-up of the plant. The plant is going to start up on time. We continue to run the project on schedule. So we should be, I mean, ramping up in the third quarter basically of. We're testing many of the equipment for commissioning, I mean, a good portion of the plant already. So things are progressing well there. So I think that what we are referring to here is entering at a slower pace, not delaying it on time, but entering at a slower pace overall for GCC. And I'd like to reemphasize overall because for us, it's managing the whole network through the start-up of the Odessa new line. Again, I mean, I mentioned we plan to, I mean, as quickly as we can run the line at full capacity. That means probably shutting down both of the other [indiscernible] today at the plant in order to favor, I mean, running the more modern and efficient plant. And the effect of that because we cannot put all that cement in the market today, the effect of that is a slowdown in other parts of the network in GCC, more specifically the Samalayuca plant. So again, I mean, where we're going to feel the pain or take the burden of the start-up of the line in Odessa is going to be in Mexico and part of the shipment that, that plant was doing in West Texas and other markets. Alejandro Azar Wabi: That's very clear. Just another clarification on my end, and that's implicitly in the 5% growth in the guidance, right? Hector Enrique Escalante Ochoa: Yes, sir. Operator: Our next question today is coming from [ Matias Ostrowicz ] from Citibank. Unknown Analyst: I joined a bit late, so I apologize if you have already replied to this. But I'm just wondering about your price guidance in the U.S. market. Was your guidance relatively flattish considering your volumes are in the high single digits. Is it a mix situation? Or is it just softness in the market? Hector Enrique Escalante Ochoa: Well, I would say derived from the softness in the market, I mean -- and there are many factors that I already mentioned, Matias, of why we are going to experience a mix effect between segments. Again, I mean, more construction cement and less Oil Well cement that affects negatively the average price. And geography, with more shipments to further markets precisely of that new, I mean, production in Odessa going to further different markets in every direction. So we keep it a smaller impact in dispersed market. So that's, again, another factor that is affecting obviously our price, our average mix price to be competitive in longer destinations or further away destinations. And again, I already talked about, I mean, other effects, but it's basically, again, a mix and geography effect that it's putting pressure or that it's compensating the price increase that we're doing in every U.S. market. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to Ms. Ogushi for any further or closing comments. Sahory Ogushi: Thank you again for your time and continued interest in GCC. We look forward to speaking with you again soon. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Wolfgang Wienand: Also a warm welcome from my side to all the ladies and gentlemen here in the room, of course, also to the ladies and gentlemen joining us online to our full year 2025 conference. And before we actually dive into the presentation, please take a look at our safe harbor statement, take note and feel bound to it. Quickly, we prepared a rich agenda for you today. And Philippe, myself, I guess, are very much looking forward to present this strong set of numbers to you and later on in the Q&A, discuss with you about what 2025 was to us at One Lonza and actually what 2026 in the future will bring. So One Lonza full year 2025 performance, kind of diving a little bit deeper into the business platforms, then the outlook 2026 and afterwards, you shooting questions at us and us providing useful answers. So my 5 key messages for you today. First of all, the One Lonza team delivered strong profitable growth in 2024, top line growth in constant exchange rates of above 21% and an expanding margin to 31.6%, plus 1.4 percentage points ahead of our upgraded CDMO outlook of July 2025. This business, of course, was driven by Vacaville, but not only. The underlying business actually expanded very nicely as well and at low teens constant exchange rate sales and also in line with our CDMO organic growth model. We successfully launched our new operating model 1st of April to introduce new ways of working in a new way, how we actually present ourselves to the outside world, to our customers and increase elevate the customer experience within One Lonza across all technologies and all business platforms. We actually saw and continue to see strong underlying business momentum. And considering the things that actually happened last year in terms of how the future supply chains in the pharmaceutical industry will look like, we, at Lonza actually are very well positioned to also support our clients on that journey, and I'll speak to that later in much more detail. Then the outlook for 2026. We expect our top line to grow at 11% to 12% in constant exchange rates and the CORE EBITDA margin to further expand, reaching a level well above 32%, which means actually that we, in 2026, will already enter the corridor of 32% to 34% that 2 years ago was given to you as a midterm guidance for 2028. Briefly on the CHI business, which developed well as planned and has shown growth, again, in line with the outlook that we provided to you a year ago and will from now on, considering that we intend to exit that business be accounted for as a discontinued operation. The exit process is advancing as planned. And with that, briefly, as a reminder for you our vision, which kind of states our ambition, which is we are the pioneer and the world leader in the CDMO industry with cutting-edge science, smart technology and lean manufacturing. In short, what it says actually Lonza is in a position to outgrow the underlying market and create outstanding value. What does it take to create outstanding value? First of all, an attractive underlying market. That is the case in the pharmaceutical industry. It takes a strong business model, the CDMO business model. But in order to outgrow and create superior value, we need something special, which actually is what we introduced to you a year ago, a little bit more than a year ago in December 2024, our unique One Lonza Engine, consisting of 5 elements, high-performance teams, leading scientific, technological and digital ecosystem, unparalleled customer partnerships, end-to-end execution excellence and plug-and-play investment and integration capabilities. While these are broad claims, highly abstract, I actually decided and want to share a number of evidence and proof points for our claims. First of all, high-performance teams. We continuously try to hold ourselves true in terms of that what is in my mind as a CEO and in the minds of the executive leadership teams actually is in line with reality for which we actually do voice of employee surveys every 6 months. And among the top 200 leaders of Lonza, 95% of them strongly support the new mission and purpose of Lonza. In terms of engagement index, also above 80%, which is really an outstanding value. So full support of high-performing teams. In terms of scientific support to our clients, Lonza and its GS system supported more than 100 commercial products. It is the leading cell line in the industry, unparalleled customer partnerships with a new operating model and creating an elevated customer experience, we actually have been able from an already industry-leading level in 2024 to further increase Net Promoter Scores, I mean, twice, 100% for big pharma and 50% for small biotech within just 12 months. Our integrated offering is gaining momentum, significantly increasing in terms of us offering Drug Substances and Drug Product services. And last but not least, in terms of our ability to continuously add people, technologies and acquisitions. Synaffix is a great example, acquired in 2023 and integration already done in the first quarter of 2024 and more notably, the integration of Vacaville mid of 2025. I'll speak to that in much more detail later. So in terms of, I mean, outgrowing our market, I mean, what are the components, which in the end lead to our ability as proven in the past 2025 and as we expect it to continue over the next year and years to come. First of all, it's the underlying market growth, 6% to 7% available to everyone. Then there is the increase of outsourcing. So pharmaceutical companies deciding not to manufacture everything in-house, but rather go to trusted partners like Lonza and have their products developed and manufactured. They are adding 1% to 2% growth increment. Then there is active market selection. So us deciding where to play, which are the high-growth, high-value market segments in the underlying pharmaceutical market, adding another 1% to 2%, leading to an underlying, I mean, selected market growth of 8% to 10%. And then there is the Lonza Engine. What makes us special, which is why people come to us, which provides for an additional upside, 2% to 3%. So overall yielding an underlying growth potential for Lonza of low teens, 10% to 13%. So I talked about market and us taking conscious decisions in terms of where to play, where not to play. Let's briefly break it down. The overall underlying pharma market is probably USD 1.2 trillion, growing at 7%. clinical pipeline, more than 7,000 molecules. Based on the technologies that we have chosen for ourselves, and based on the positioning in the value chain, in the product life cycle from early phase development down to commercial manufacturing, we at Lonza are able and operate within a USD 100 billion market growing at 8% to 10%. And we, in terms of future potential, are able to cover more than 90% of the innovative pharmaceutical pipeline to fuel future growth. Quickly on outsourcing because there was a lot of discussion in the last year in terms of, I mean, will the world change? And if so, how? And what does that change? Would that change mean for the CDMO business model? First of all, and we should never forget that the CDMO business model is a beautiful business model. It's a sustainable business model because it adds tangible value and creates efficient global pharmaceutical supply. This has been true over the last 15 years and will be true in the next 15 years to come as well. But let's be more specific with all the big numbers and the big headlines out there about large pharmaceutical companies investing in the U.S., we kind of just took from actually historic figures and also Bloomberg consensus forecast what actually the world and the pharmaceutical companies themselves expect going forward in terms of their own CapEx behavior. And the outcome actually is in absolute terms, CapEx of the top 20 large pharma companies between 2015 and 2025 grew at a CAGR of 3%, and it's expected to grow at a same CAGR between 2025 and 2030. So no change. Kind of normalizing it for CapEx -- sorry, for sales, same outcome. We will not leave the corridor of 4.5%, maybe 5% of revenues. So no real change in terms of the CapEx behavior of large pharmaceutical companies. What will most likely change though, is where that CapEx will be spent. And it's just likely that more of it, which would have otherwise been spent 1 or 2 years ago around the world might rather go to the [ S ] to a larger extent. So no change when it comes to large pharmaceutical customers. I mean for small and midsized biotechs, actually, there has not been the option anyway to spend a lot of money into own captive manufacturing. They shouldn't, they can't and they won't. And those small and midsized biotech companies are actually gaining traction. And we shared here for 2015, the share of innovation, so new clinical assets becoming available for small pharma, 60% versus 40% of large pharma. This increasing to 75% in 2025 and 25% for large pharma. So those companies will spend every dollar they have on the true value driver of their business, which is innovation. They will continue to rely on reliable partners like Lonza to make their products happen to turn their breakthrough innovation into viable therapies and true products. However, regionalization is most likely to stay with us and to further evolve going forward. And here, Lonza as the one global CDMO being able and having a track record to build and operate all around the world is very well positioned to support our clients on that journey as well. So here is some evidence what it specifically means when I speak about the largest global manufacturing network in the whole industry. First of all, demand is kind of distributed 1/3, 1/3, 1/3 across the U.S., Europe and Asia, rest of world. And we actually have significant presence, significant capacities in all those key regions in the U.S., 5 sites and in Europe, 6 sites, 2 in Asia. Looking back in terms of how we have built that global manufacturing network from 2020 to 2025, we as Lonza spent CHF 10 billion in terms of CapEx, out of which CHF 3 billion went into U.S. capacities. With Vacaville and all those investments in the past, we have created the largest mammalian CDMO business in the U.S., very well positioned like no one else to actually help our clients for U.S. supply for U.S. demand. And all that leads to an active business portfolio of more than 1,000 molecules at a certain -- at a given point in time, approximately 10% of our revenue is related to early phase business, so preclinical Phase I, 20% Phase II and the remaining 70% for Phase III on commercial assets, which leads to strong revenue visibility. We have a very low concentration in terms of risk and us being exposed to individual products, and we have a high level of diversification by technology, indication and company type. And with that, I actually continue with sharing what we believe have been the business highlights in 2025. Three topics. First of all, a robust sales momentum across all our key modalities, technologies, so mammalian, small molecule, bioconjugates, drug product and also the Bioscience technology platform had significant growth again in 2025, driven by mammalian small-scale assets and maturing growth projects across different technologies. We actually saw sustained high commercial contracting, again, across technologies and sites, altogether, well above CHF 10 billion signed in 2025, of course, materializing over the years to come, including a fifth significant long-term contract for Vacaville with further contracts, sorry, for Vacaville being in late-stage negotiations. So thirdly, on CHI, we saw as planned, as predicted, the recovery of the business returning back to growth, almost 4% and the margin expanding as planned. The exit process is also advancing as planned. And as I said before, we will actually report CHI as a discontinued operations as we should for a business that we will not keep within our portfolio. So this is actually what we are currently doing to not only deliver the business as promised today, but to also prepare the company for future growth. Currently, the teams are managing 23 CapEx -- growth CapEx projects around the world. Again, no other CDMO actually can do it, has proven to be able to do it. Lonza can do it. Currently, 23 large CapEx growth projects worth CHF 7 billion. 90% of it for commercial and mixed assets, so highly profitable and 100% in Europe and the U.S. A few examples to point at. In Visp, a large-samammalian started GMP production in 2025 and will be ramped up with a tilt towards the second half 2026. Going forward, a large important project for Lonza and for our clients. Commercial bioconjugation, it's a medium-sized CapEx project will actually start stepwise from 2029 and then reach peak sales in the mid-2030s, large-scale fill/finish and Stein ongoing, start expected for '27 peak sales also in the early 2030s. Type 1 diabetes cell therapy, cool technology science, CRISPR/Cas together with Vertex in Portsmouth, start expected in 2027 and peak sales around 2030. And Vacaville, I mean, I thought about the headline, make it as crisp and as clear as possible. A great fit to Lonza coming at a great point in time, creating the largest CDMO mammalian network in the U.S. in one go. So remember, we paid in 2024, CHF 1.1 billion for that asset. Closing was 1st of October, and we expect the site to fully deliver to its full potential in the early 2030s. Some evidence why we are so happy and so confident and so optimistic for what we will be doing with that site and already start to do with that site. First of all, a very stable and strong team. I've been there after JPMorgan, doing town halls, taking investors there and also talking to people. We have attrition rate of 99 -- I mean, actually retention rate of 99-point something, so essentially 100%. Great people willing to work for us and embracing the opportunity that Lonza actually gives to them. It's a high-quality asset, as you can expect from Roche and the investment that we have started to do of up to CHF 500 million is into the flexibility of the site so that we can even further increase operational efficiency. Customer interest is very high, remains high, as evidenced by now altogether 5 large commercial contracts for the site, which will, by the way, be able to already now kind of substitute the Roche volumes going out by 2028 and will make the site deliver at the stable level that we have seen today, plus/minus. So very good outcome also in terms of the commercial development and the selling of that capacity. Also important, the first U.S. FDA inspection under the new ownership in Q4 last year was a very strong outcome, only minor observations, which could be resolved almost immediately. First successful tech transfer. So a site which actually didn't receive so many products over the past years had to prove that. And we have been able to execute that tech transfer in a seamless way, and the team actually lived up to the challenge of now operating within a CDMO business model, and I actually included a quote of the responsible external manufacturing head of that large pharmaceutical company, "A truly seamless tech transfer into Vacaville execution at a level I have rarely experienced in my career." And I can tell you, this gentleman is not 21 years old. He has seen a lot. right? Last but not least, post-merger integration finalized successfully mid of 2025. So what we can actually say now and announce to you today is that this site is now a regular part of our global manufacturing network and will be managed as such and will start to contribute and continue to contribute over the next years. As a heads up, now that we actually can tell you that already with those 5 contracts in our business portfolio, we can actually substitute the Roche business and deliver stable revenue plus/minus at the current level until 2028. We will not further comment and report on individual contracts for that site as we don't do it for any other site in our overall manufacturing network. And with that, I hand over to Philippe, who will take you through our financial figures for 2025. Philippe Deecke: Thanks, Wolfgang. Good afternoon, and good morning to people joining from the U.S. also from my side. Before I start, let me just give you 1 or 2 disclaimers. All numbers that I will present are for the Lonza continuing business, which means that they all exclude our CHI business. The CHI business, as was mentioned by Wolfgang, is now reported as discontinued operation according to the definition in IFRS 5. Further, as usual, our sales growth rates are in constant currencies. All other growth rates are in actual currencies. With that, let me go to the key financials. I need to click myself. So first of all, the Lonza business delivered CHF 6.5 billion in 2025. This is CHF 1 billion more sales than we did back in 2024. So CHF 1 billion growth, 21.7% of constant currency growth. This is ahead of the upgraded guidance of 20% to 21% that we communicated back in July last year. This includes roughly CHF 0.6 billion of sales from our Vacaville site, so slightly at the upper end of the CHF 0.5 billion that we had forecasted. We're very pleased, obviously, operationally, Wolfgang mentioned that we're very pleased with the site operationally. We are also very pleased financially with the contribution of Vacaville. Organically, the organic business, excluding Vacaville, contributed or grow at low teens, which is fully aligned with our CDMO organic growth model. Going to the margin. We delivered a margin of 31.6%, up 1.4 percentage points, also very pleased about that. And this as well is ahead of the guided range of 30% to 31%. Three main contributors to the margin. One is, of course, operating leverage. When you grow the top line at that rate, of course, we are not growing our cost at the same rate. So administration costs, sales and marketing costs, research costs are growing at a much lower rate, providing leverage. Second, the maturing of our growth projects. Some of our projects are now getting close to higher utilization and therefore, increasing their margin. And number three, several targeted productivity initiatives across the organization. One word on FX. You see that we had an FX impact of roughly 2.5 points on both the top line and the bottom line. This is coming mainly from the weakening of the U.S. dollar back in the early part of 2025. Luckily, we have a very strong natural hedge. We are selling and having costs in roughly the same currencies. We're helping that as well with additional financial hedging program to protect our margins. With that, let's go to the sales evolution. As you can see on this page, we had good performance from 2 of our large platforms. Let me start with the exceptional performance of our ADS business, Advanced Synthesis, with very strong contribution from both bioconjugates as well as small molecule assets, the platform growing 22% organically. We had very -- we had several assets in both platforms growing and ramping up simultaneously and growing at a fast pace. On the I&B, in Integrated Biologics, you see a growth of 32%, a large chunk of that obviously coming from the Vacaville side, but also the other organic assets ramping up nicely. Going to Specialized Modalities. This was probably or is the soft point of our performance in 2025. We had discussed that in the first half last year and in Q3. We saw soft operational performance from the Cell & Gene business that actually continued during the year, but we're looking forward to a much better year in 2026. And then on the microbial side, where we experienced a phasing towards the end of 2025 into 2026. Also here, a better '26 is expected. The platform ended up with a small decline of minus 3%. Moving on to our CORE EBITDA performance. Here, again, very pleased with the progress, reaching 31.6%, close to the 32%, but we'll do that in 2026 and beyond. So the 3 key reasons why we grew our margin. I mentioned that before, but maybe a little bit more detail, again, operating leverage where we have very strong cost discipline across the organization now, both at headquarters level, but as well in the different sites. We have several maturing assets, especially in mammalian bioconjugates and small molecules that are allowing us to offset the dilution from the newer assets. And last but not least, operational excellence and high utilization in our commercial sites allow us to offset a slightly negative mix versus 2024. Maybe a few words to the platforms. I'll start with ADS, again, an exceptional margin improvement of 5 points, reaching margins of 42%. This is even slightly above the margins that we delivered in the first half of 2025. So here as well, again, very pleased. However, this is an exceptional year, and we will probably look at the normalization into '26. Looking at Integrated Biologics, a slight margin decline here of 0.9%, mainly due to unfavorable product mix and as well some new assets that have been coming online and growing in 2025. And then this is also the platform where we have the highest U.S. dollar exposure. And so while we have hedging, there is some impact from the weaker dollar. On SPM, I think very pleased that the platform could almost hold their margin at 17%, only down 0.5% despite the lower performance. This is due to some profitable mix and as well some very high cost discipline across the platform. Moving over to our CapEx details. You see here that we spent roughly CHF 1.3 billion in our CDMO business. Again, CapEx is a key enabler for Lonza's future growth and also a key focus for the organization now and going forward. The CHF 1.3 billion was spent most of it on gross assets, 60% of the spend was for growth. This includes a diversified portfolio of the 23 projects that Wolfgang mentioned earlier. You see as well that the peak of CapEx is behind us. This was in the past year. You see in the middle of the page that we are on a slope to actually normalize our CapEx spend. This -- in 2025, we reached 19.6% of CapEx, slightly below the guided range of low 20s, mainly due to some higher sales and some more discipline in maintenance spend. We're looking at high teens for 2026. And then over the midterm, normalizing in what we call our CDMO organic growth model for CapEx in the mid- to high teens. The normalizing CapEx also allow us to do great progress on our free cash flow. You see for this year that for our continuing business, we delivered CHF 0.5 billion of free cash flow, CHF 545 million, almost double the amount we delivered back in 2024. One of the key reasons, obviously, CapEx, which has been stable while the business has been growing, but also actually very strong management of inventories and trade working capital in general. You see that our trade working capital grew CHF 200 million. This is much less than what obviously our business has been growing in '25. And so you see that our trade working capital in percent of sales has actually declined by almost 5 points. Our inventories -- inventory coverage is also declining almost by a week, and this is something that we will focus a lot more to continuously drive down inventories to the right amount for our business. Moving from cash to our capital allocation framework. This is not new. We have not changed anything on that slide. This is more of a reminder for you, obviously, because a lot of people are asking us the questions about what will we do with the CHI proceeds. Well, first of all, it's not sure that there will be CHI proceeds depending on the exit route that will actually happen. But let me take you through our priorities in terms of capital allocation. Priority #1 is the investment into maintenance, infrastructure and systems. Why? Because we need to make sure that our base assets and our growing base assets are future-proof and are well maintained and will contribute to the future growth of the company. Priority #2, our progressive dividend policy, very important to us as well, and I'll get to that on the next page, which lead us to our discretionary cash. This is the cash that is available for investment into growth. This discretionary cash may be increased by proceeds from the CHI exit, should it be leading to proceeds. These proceeds as well will flow into what we call discretionary cash, will be invested into organic or inorganic bolt-on M&A investments. Now rest assured that we will be very disciplined in the way we allocate this capital. You know that for internal organic CapEx projects, we use very strict financial thresholds, 15%, 1-5 of internal rate of return and a ROIC at peak of 30%. This is for the organic investments. For bolt-on and M&A, it's not that easy to put a formal threshold, but we will remain very disciplined and basically look at 2 things: one, attractive returns; and second, is there a strategic fit with our Lonza Engine. And if you look back at the last 2 acquisitions being Synaffix and Vacaville that Wolfgang also shared with you, you can see that these were very disciplined and very attractive acquisitions. Looking at our dividend. As you can see, this dividend policy fully in line with our capital allocation framework. The Board of Lonza is actually proposing to increase the dividend by 25% to an amount of CHF 5 per share. This reflects obviously the strong earnings performance and will let shareholders benefit directly from our growth of earnings. Our progressive dividend, just to be very clear, means that we will maintain or grow our dividend per share on a year-by-year basis. And you can see on the chart that we have proven this over the last 10 years. Now let me finish with a quick update on our ESG performance before handing back to Wolfgang. We've made strong progress in 2025 on our ESG agenda. I'd like to drive your attention to the top 2 pie charts. One is the greenhouse gas emission intensity and on the right, the waste intensity. Both of these targets have actually been met in 2025, 5 years ahead of schedule. We are planning to have the intensity by 2030, and we have achieved that already in 2025. We are, therefore, deciding to rebase and to now looking at cutting by 50% the 2021 base, which is in line with the Science Based Target initiative. So great progress on greenhouse gas and on waste intensity. Also great progress on actually renewable energy. As of January 2026, all our electricity in the U.S., in Europe and in China will be renewable sources. Our progress is also well recognized externally, and we've been, for the first time, awarded the EcoVadis Gold rating and have been named again by Ethisphere as one of the world's most ethical companies. So again, great internal progress and great external progress. And with that, I'd like to hand back to Wolfgang, who will take you through the business platform performance and our outlook for 2026. Thank you very much. Wolfgang Wienand: Thank you, Philippe. And indeed, let's take a brief look at the 3 business platforms before then turning our heads towards the future. So Integrated Biologics, robust sales and margins driven by strong demand and operational execution. Here, Vacaville, as discussed before, kind of contributed more than we expected at the beginning of last year. We also saw a margin accretion from strong operational execution, however, was kind of more than offset by growth project dilution and unfavorable portfolio mix, as already mentioned before by Philippe. And also here, it's kind of clear. I mean, the significant amount of contracted business of above CHF 10 billion, a major part of it comes from our Integrated Biologics business platform. So ADS, our Advanced Synthesis business, an exceptional year in terms of sales growth driven by rapid and at the same time, occurring ramp-up of growth assets, which was great to see and actually great to see how well the teams in small molecules and also bioconjugates actually made it work and delivered according to the expectation of our clients, outstanding profitability above 40%, which is probably plus/minus what we can expect going forward from that business in terms of profitability. Our Specialized Modalities business, which is in terms of strategic importance, relevance to us, and an area from which we expect significant future growth over the next years to come and also significant contributions to our profitability. However, it's still suffering from this whole universe being small and limited. And as a consequence of that, also our own business portfolio being much smaller than for the other modalities and as a consequence of that, also more volatile. However, we are one of the very few CDMOs actually having 5 commercial assets in our network. And essentially, each of our manufacturing sites now has one commercial asset. So Bioscience briefly on that, which is our media business plus some other smaller businesses also returned on a very attractive growth trajectory, which supported that business platform. And with that, I actually turn our heads towards the future outlook 2026. What can you expect from us? What do we expect from us in 2026. First of all, continued high demand for the services of One Lonza. So stronger in constant exchange rates, stronger relative growth in the second half as compared to -- sorry, in the first half as compared to the second half. However, in absolute terms, the year will be balanced, and it's more a baseline effect how 2025 look like. Regionalization of supply chains will be with us also going forward. However, will not apply to existing businesses, to existing products in existing assets because typically, no one actually changes a winning team and changes an existing well-functioning supply chain. It's more about where will we allocate new business going forward. And this will be in line with the expectation and the desires and preferences of our clients, probably much more supporting regional demand by regional supply, which will then, in turn, also help -- further help our already strong natural hedge. CORE EBITDA margin expanding from maturing growth projects, productivity, a topic which is very close to my heart, cost discipline and obviously, operating leverage. I mean key priorities for myself, for the whole One Lonza team, of course, continue to elevate the One Lonza customer experience already evidenced by the significant increase in Net Promoter Score, but the journey goes on. A base business, execute with rigor and deliver constant -- I mean, through grinding of our business, our assets, constant margin expansion. Cash, it's going to be important this year or last year actually was an important step forward. We will continue on that journey, and we know how. In terms of growth, execute this 23 growth projects and of course, kick off new ones and also on top of that, being agnostic to doing it organically or inorganically, driving our M&A agenda. Group Functions are elevated in their role and their impact on the businesses, which is around standardization and also making us work in a more consistent way. CHI is going to be an important topic in 2026, driving the exit process and executing it at the appropriate time in the best interest of our shareholders and stakeholders. And with that, I want to close with actually reminding all of us of the financial model that we are applying here at Lonza. Based on our Lonza Engine, there's an underlying market opportunity in terms of growth of low teens every year on average over time. In order to translate those opportunities into tangible business, we need to continue to add capacity, invest. And these investments as long as the growth opportunities on average over time are in the range of low teens, this CapEx requirement will be around mid- to high teens of sales going forward. This then delivers our CDMO organic growth model, which is a constant exchange rate sales growth of low teens percentages on average over time and the CORE EBITDA margin growing ahead of -- so CORE EBITDA growing ahead of sales growth. Specifically for 2026, it means our constant exchange rate at sales growth is expected to be between 11% and 12% and a further CORE EBITDA margin expansion to a level above 32%. So already entering the corridor that was 2 years ago predicted to be achieved only in 2028. So what have been the key messages that I, we shared with you today. First of all, Lonza has delivered in 2025 and is well prepared for the ongoing journey of transformation and growth in 2026 and beyond. We have made progress as promised and are set up for success in terms of consistently delivering our business and also the project in Vacaville and further evolve as the global One Lonza team. We expect, again, significant profitable growth and we'll continue on that journey. And for the longer term, we are having -- we actually defined a clear strategy and the capital allocation framework to deliver in line with our CDMO organic growth model. We are One Lonza, the pioneer global CDMO market leader, manufacturing the medicines of tomorrow for our customers and their patients worldwide. I thank you for your attention and look forward to your questions. David Carter: Many thanks, Wolfgang. I'm David Carter. I'm the Global Head of Communications, and I'm going to be hosting the Q&A session. I'm going to ask my 2 colleagues here to just slightly rearrange the setup for us so that our leaders can relax. Philippe is back on the stage. And I'm going to ask anyone who's got questions in the room, we're going to start with you. If you could say your name, your institution and ask, I know it's ambitious, but if it's at all possible, no more than 2 questions. We will also, for people that are online, flick over to you at a certain point and make sure that you have a chance to ask questions, too. But first and foremost, are there any questions in the room? Let's start over here. Daniel Jelovcan: Daniel Jelovcan, ZKB. So two, the CHF 70 million hedging gain, which is booked in the top line, I'm not an auditor, but shouldn't an hedge can be booked somewhere in the financial expense or below the EBIT. I don't understand the mechanism if you can clarify. And then I ask the second question. Philippe Deecke: Yes. No, this is fully in line with hedge accounting. So this is normal. We've been doing this all along. It's just this year, this -- or last year, 2025, given the volatility in exchange rates, it has been higher than in previous year. But this has always been booked at the same place. Now to be clear as well, this is not accounted for in our constant exchange rate growth. So we remove it from that. Daniel Jelovcan: Okay. And the second question, when I do my calculation in Integrated Biologics, excluding Vacaville, you must have had an organic growth of 8% in the second half, quite a slowdown from the first half which was 17%. Why was that? Was that maybe some batches which were not booked in December, but in January, that's why you're guiding for a strong first half '26. Just to understand the picture. Philippe Deecke: Yes. No special reason. I think there's always volatility between the halves. We've seen that in the past. So I think it's more of a mix rather than kind of batches that would have been blocked in December. So nothing special to notice. It's the different phasing of assets coming online and mix. Nothing different. David Carter: Are there any more questions in the room? We have a quiet house today. We're usually more challenging that. Do we have any more questions online at the moment? We're going to hand over to Sandra online in that case, Sandra, if I could ask you to host the online question session, that would be great. Operator: The first question comes from Ebrahim Zain from JPMorgan. Zain Ebrahim: Zain Ebrahim, JPMorgan. My first question is on the Advanced Synthesis business, and growth momentum sounds -- was really strong in 2025 at [ 22 ] growth momentum going forward in '25 benefited from 2 growth projects that seems and you'll have further growth project contribution in 2026. Margins sound like 40% plus/minus, as you said. So any further commentary there would be helpful. And my second question is just on the Cell & Gene therapy business where you've indicated you expect an improvement in 2026. And just the question is what underpins that confidence? Wolfgang Wienand: Thank you for the question. I'll take the first one, I propose. Philippe Deecke: If you understood the first one, I will pick the second one. So I'm happy to take this. Wolfgang Wienand: Yes. I actually didn't understand the second one, so pass it on. But either way, on ADS, indeed, in terms of profitability, it probably will hover around the 40%. And that's what we expect going forward in 2026 in the years to come. The growth obviously was kind of exceptional in 2025 due to, I mean, many positive events coinciding. But it will be a growth engine going forward as well, but in 2026 and not at the level that we have seen in 2025. And maybe Philippe has made up his mind in terms of the second question in the meantime. Philippe Deecke: No. Second question, I think -- thank you, Zain, it's Philippe. So I think we're confident in terms of the growth rate for Cell & Gene in '26 versus '25. As we mentioned, I think, in the first half, we had some operational challenges in Cell & Gene in one of our sites during '25. This is being resolved. And so the business will kind of continue in a more normal fashion in '26. So from that point of view, yes, we are confident. On top of that, actually, we keep on ramping up commercial products in all of our sites. So all the Cell & Gene sites in the world for Lonza have a commercial product, which is, of course, helping to stabilize somehow the utilization of these sites. So yes, we are much more confident for '26 than what you've seen in '25. Wolfgang Wienand: Before we move on to next question if I could just ask anybody who's joining online to speak as slowly and clearly as possible. The line is not quite so clear at this end. So the slower and clear you are, the more easily we can understand you. So Sandra, I'll hand back to you for the next question. Operator: The next question comes from Charles Pitman-King from Barclays. Charles Pitman: Firstly, just on Vacaville, you're targeting stable CHF 0.6 billion sales now for FY '26 versus prior CHF 0.5 billion. Can you just confirm that this is going to remain stable around CHF 0.6 billion to '28 now. And with these 5 contracts in place derisking that target, can you confirm you're still targeting 30% utilization? Provide a little bit more detail around the predicted phasing of the contract and just confirm whether they all need to be fully ramped by '28 to offset that -- those lost contracts. Then just secondly -- sorry, just secondly, could you confirm what the current Form 483s are currently outstanding for Lonza facilities? And what advised rectifications are required and how this is expected to impact any ongoing operations and just confirm there were no impacts in FY '25. Wolfgang Wienand: Yes. Let me indeed start with the second question. Thank you, Charles. This 483, and there has been rumors around that and around other topics as well on which I will briefly comment in a bit. This 483 actually was a huge success. Not that it wouldn't have been even better to have a clean sheet, but a 483 with only 3, I believe, minor observations, which could either be immediately in the short term, close out or a few weeks later, actually is a very good outcome and receiving 483 is more the standard outcome that essentially across the pharmaceutical industry is yielded. It is not to be also clear around that. It has nothing to do in this case with the warning letter. The sequence from the process of the U.S. FDA is, I mean, a bad 483 with major observations, official action indicated can turn into a warning letter, but it's actually typically not the case, but what typically is the case that you get this form with your observations. And in this case of Vacaville, it actually was a very good outcome with only 3 minor observations which have been immediately being addressed and closed and are all addressed and closed right now. There was no impact, nothing on the ongoing operations and actually nothing of concern. I think that's important to say. There are, of course, also, I mean, at least you're telling us that, because it's not brought to us ourselves, other rumors around Vacaville not being a high-quality asset, not being capable of being run in an efficient way as a CDMO asset and all that, obviously, coming from other market participants. I actually won't comment on that in detail, but I would like to let the evidence that we shared with you speak for itself. Just 2 thoughts, maybe. First of all, and that is kind of my take of it as long as our competition continues to speak about us, and can't help itself to speak about us. I take it as reconfirmation of Lonza being the market leader in the space, first thought. Second thought on Vacaville. And I don't know, but one way of looking at it, of course, is that people might be concerned from a competitive standpoint, what great things we, at Lonza can do with great assets over the next years. But I would like to leave it there, but I wanted to address that because I think it's important. What you should take with me is what I shared with you today, a great asset, a great acquisition at a great point in time with a business secured until 2028 and beyond to keep, actually to substitute the Roche volumes going out and to keep the revenue at the level of where we are today, plus/minus CHF 50 million maybe over time. And that actually leads to the first question of you, Charles, which is on, first of all, phasing and ramping up. First of all, now having 5 contracts, of course, we will continue to sign contracts, right? We don't stop even though we will stop talking about it and reporting it because we don't do it for individual sites, which in the end are run as an integral part of the global network. So we will continue to add business because interest is very, very high. Those 5 contracts, which are large. I mean, they will only come to full fruition after 2028 because that's the time you need to actually tech transfer and ramp it up. So this is already feeding growth beyond 2028 and the other business that we actually will win over the next days, maybe even weeks and months will then take us further for this site to, I mean, come to its full potential, come to full fruition in the early 2030s. I think what is still open from your question, Charles, is the utilization. Yes, it's plus/minus that because the Roche business going out, new business coming in, keeping us stable at around where we are today, plus/minus. And us having the time invest into the flexibility, into the operational efficiency of the asset to them from 2028 onwards, be able to actually run at full steam and make it CHF 1 billion revenue and way beyond CHF 1 billion revenue side within the global network of One Lonza. I hope that answers. Charles Pitman: Can I please just double check on the [indiscernible] 483 as well? Wolfgang Wienand: I actually don't have the details to the degree as I had them for Vacaville, but same here. I mean what I heard, and that's actually the feedback from quality is that this has been actually a successful inspection and all observations have been minor only and have been closed out in the meantime. So also nothing which would worry me or anyone within Lonza and nothing that should worry anyone outside Lonza or anyone holding Lonza shares. Operator: The next question comes from Charles Weston from RBC Europe. Charles Weston: So my first is back on Cell & Gene therapy. You've indicated that perhaps you could have grown faster should there have been no operational issues. So I just wanted to get a sense of how much those issues may have held you back and what the state is of the relationship with any of the customers where they may have wanted more product? And my second is on the EBITDA margin. As you highlighted, you've already hit or you intend to already hit the low end of your 2028 guide 2 years early. Can you help us understand whether there's anything to prevent margins even excluding Vacaville, continuing to grow at similar rates, particularly given there was some negative mix in Integrated Biologics in 2025 that perhaps gives you a nice start. Wolfgang Wienand: Yes. Thank you, Charles. Maybe Philippe starts, and I take the second question. Philippe Deecke: Which is on Cell & Gene? Wolfgang Wienand: Yes. Philippe Deecke: yes, I think I'm not going to quantify, but let me make sure and reassure that there was no customer issues related to that. Of course, this is our first concern when something doesn't go as planned. But then we work very closely with the customer. So on this one, there was no impact on customer and the issues are resolved, and we just need the time to restart everything at the regular run rate. So from that point of view, I think things are fixed, and we're looking forward to return to normal operations in '26. Wolfgang Wienand: Yes, and Charles, on margin expansion, that's our commitment to grow EBIT -- core EBITDA ahead of sales. And our organic growth model, our commitment what we want to do with this company to constantly expand margin, right? And you will see that already this year, and that's how we guided, and you will continue to see that over the next years to come through different measures. Of course, it's expansion of our gross profit margin through pricing, through efficiency when it comes to productivity, again, very close to my heart, cost discipline. It's also about keeping SG&A costs growing at a much lower pace. So operating leverage and a number of growth projects maturing and then contributing rather than diluting our profitability. That's what you can expect from us going forward. And that is our commitment. Charles Weston: I guess I just wanted to ask, is your confidence on hitting the upper end of that now increased given the strong performance you've had in '25? Wolfgang Wienand: Yes. Charles, I would like to leave it there because, I mean, while this margin, of course -- sorry, this guidance has been put out before me joining Lonza, it is, of course, rightfully so still in your hands, which is why I actually used it and kind of went back to it, to tell you that actually, what we are doing is in line with what has been promised to you before, but we're not going to guide again specific margins for specific years, but thought that actually the organic growth model is a much more useful framework for you because it's not guiding for a specific point in time, but rather providing for a trajectory in terms of both top line growth, our margin will evolve and what it takes to make that happen in terms of CapEx. So I actually would like to leave it there, but hope that I've been able -- we have been able to create confidence that this is a serious ambition that we will make happen. Operator: The next question comes from James Vane-Tempest from Jefferies. James Vane-Tempest: Just one on free cash flow, please. Very helpful to have what the business is now and obviously comparing to what that looked like in 2024, at a group level, including the CHI. So last year, you disclosed net working capital was 13.7% of revenues. I guess now we have trade working capital of 34%, showing a reduction. But from memory, in 2024, working capital went up, I think, by around CHF 45 million with Vacaville inventories and receivables into year-end. So my question really is underlying free cash flow for this year because if it's CHF 545 million with this new definition you've got, is CHF 500 million more like the right number on an underlying basis to how to think about for this year, just so we can figure out you understand what the underlying improvements have actually been. Wolfgang Wienand: You start Philippe, I'll take the end. Philippe Deecke: I'll probably finish. James, there is no change in definition in our free cash flow definition. So the comparators to last year is fully comparable to what we do this year. The only thing we have changed is to give you a much more precise view on what our trade working capital, which we believe is a number that we should all track and also be aware. To remind everybody, trade working capital for us is inventory, AR and AP. And so in the past, in net working capital, you had a lot of other things, which included early payments, also discounting liabilities, et cetera, which were partially also even noncash, which is correcting from the EBITDA line. So no change in free cash flow definition. So the improvement that you see in free cash flow versus '24 is the true underlying free cash flow improvement of the business -- of the CDMO business. You'll find in our reporting as well the cash flow from the entire group, including discontinued operation, which top of my head is CHF 674 million, I think, if I remember well. So that's the full group. But in terms of CDMO, this is true underlying performance. Wolfgang Wienand: And adding to that, I mean, the financial engine, if you would like to call it like that. So top line growth profitably, expanding margins and decreasing CapEx as shared by Philippe through not because we would build less capacity, we need the capacity. Otherwise, we wouldn't go. But more discipline in terms of how we execute CapEx, I mean, has the ultimate goal of delivering ever more cash year-over-year. So that's what we are committing to with that CDMO organic growth model. James Vane-Tempest: Sorry to come back, I guess maybe just to ask a question in a slightly different way. I mean in '24, it was highlighted that there was much stronger Vacaville inventories, which contributed to the free cash flow decline. So my question is looking at the growth, is it a clean number, the CHF 545 million? Or does it kind of benefit from perhaps some working capital, which was pulled forward into Q4 '24 rather than actually seeing that in 2025? Philippe Deecke: Yes. I think it's usually the case that our trade working capital is higher in the fourth quarter. I think this is nothing new. So from that point of view, I don't think that the number is anywhere significantly or materially influenced by what you're describing. But please, if you're not satisfied with the answer, it's maybe something you can pick up with Daniel. So we make sure you fully get the answer. Operator: The next question comes from James Quigley from Goldman Sachs. James Quigley: I have two, please. So the first is on the contract signing. So you said well above CHF 10 billion in contract signings in 2025 that follows CHF 10 billion in '24 and CHF 13 billion the year before. Does well above mean between CHF 10.5 billion? Or does it mean between CHF 10 billion and CHF 13 billion. And how do you use this figure? You said before, it could be quite volatile. How are you thinking about it in terms of targeting and signing -- future signing contracts and driving future growth? That's question one. And question two, you gave some good details on the shift in number of molecules in development by pharma and biotech. But how do you think about M&A impacting that commentary around outsourcing and outsourcing trends as it stands as we look at the pharma industry, it looks like there was quite a big need for M&A. We've seen a pickup in M&A recently. So what happens when that shifts over time? And what have you seen when your customers, your biotech customers or even your larger pharma customers have been acquired in the past? Wolfgang Wienand: Thank you, James. To start with the contract signing value. It's not even a KPI. It shouldn't be a KPI because what is it really? It is an addition of value based on signed contracts, which might distribute over 3, 5, 7, 10, 15 years, right? And you just don't know. I mean our recommendation -- first of all, we will not make it a KPI. We will share it from time to time, but we don't believe that it's actually a meaningful KPI for which you should create or can create in a meaningful way, a time [ series ], which will actually tell you anything. On the other hand, it's also clear that, I mean, high contracting will translate into future business, which is why we shared it as a qualitative information, right? So I would, while being relevant, useful, providing confidence reassurance it's actually, I wouldn't even call it a KPI, which is kind of also already the answer of. Let's not talk about, I mean, digits after the comma because it's actually not a precise signs around that. And maybe one further thought, while signing with a certain customer, a 10-year contract, which might even be in the interest of that customer as opposed to signing a 5-year contract. The 5-year contract, even though the value in terms of contracted value, of course, is lower because just 5 years instead of 10 years, it might be commercially more attractive because it offers opportunity to speak about pricing after 5 years rather than being locked in for 10 years, just as an additional thought how to think about that figure not being a useful KPI. In terms of M&A and pharmaceutical assets being acquired by large pharma through M&A takeover of small biotechs, actually, we have seen it all. We actually have seen the molecule just staying where it was with Lonza and the new owner of that asset being super happy, having a robust, proven global supply chain for this acquired asset. We actually have seen also the case where Lonza wasn't involved. But for example, when that pharmaceutical assets came from China, it was important for the Western acquirer to build a robust Western supply chain, calling us and Lonza creating that robust supply chain. And there have been cases and will probably always be cases where if there is capacity and technology and capability available for that asset within the acquirer that this asset might actually be in-sourced or partially in-sourced. So it's kind of business as usual and nothing where we would actually see any trend or any shift in behavior. Operator: We take now the last question for today's call from Odysseas Manesiotis from BNP Paribas. Odysseas Manesiotis: Firstly, on the Visp, large-scale mammalian ramp, your 2030 peak sales assumption seems a bit pushed compared to earlier comments. Could you explain why that is? Was there some movement with contracts from Vacaville so on? And did you manage to deliver commercial batches within 2025 from that facility. And last one quick one on the FX, given the moves you're seeing today. Can I confirm with you that the 2 percentage point headwind you're assuming for the guide takes into account January average rates rather than something closer to spot and would and around 4 percentage point impact be reasonable if we take into assumption today's moves. Wolfgang Wienand: Philippe, do you want to start with the last question, I'll take the 2 first questions. Philippe Deecke: Odysseas, thank you for the FX question. So obviously, I think if you read the small print, our forecast of 2% impact was based on mid-January rates. So I think if you take into account what happened on Friday, Monday, I think the number is probably closer to 2.5%, with probably the rate if you were to use that. So I think 4% is probably too high, but we'll provide you an update in Q1 and in half year again. So I think rates are more volatile nowadays than they were in the past. Rest assured that our financial hedging and natural hedging works to stabilize margin, but we'll provide you an update as rates evolve. Wolfgang Wienand: Yes. And thank you for the 2 first questions. I mean my main assumptions are not lower, to be clear, so now, unchanged. And in 2025, that large-scale assets in Visp actually started GMP production with, let's say, commercial ramp-up starting in 2026 and especially towards the second half of 2026. Operator: I would now like to turn the conference back over to David Carter, if you have more questions in the room. David Carter: Any more questions in the room. We have one just over here. I'm aware that we are slightly running over time, but I'd like to give the room a chance to have a few questions if we can. Unknown Analyst: [indiscernible] I have a question about the CapEx 2025. You had 38% maintenance CapEx. I expected it to be a little less. Could you give us any advice about the next years, will this be the same level? Or will it come down a little? Philippe Deecke: Yes, if you look at our CDMO growth model, it actually tells you roughly how much we want to invest in growth, which is roughly low teens in terms of growth, the rest being mid- to high single digit actually in system infrastructure and maintenance. So that gives you the ratio. I think the ratio this year is probably normal. I think the majority of our investment go into growth. This will be the case also going forward. But this is -- this changes year-over-year depending on the different assets that are planned. But I think the CDMO growth model gives you a fair way to kind of value the amount of capital that would go into maintenance system and infrastructure. Unknown Analyst: And the second question is about one facility you moved from small molecules to the capsules business to be divested. Could you explain what kind of business it is and why you moved it. Philippe Deecke: Yes. This is a small site in Florida. They actually do fill/finish for clinical and very small batch sizes. This is a business that actually came with Capsugel at the time that we moved into small molecules because there were some synergies in what was being filled. I think we feel that this is a better fit with the CHI business overall and in terms of providing growth opportunity for CHI and synergistic. So we moved it back into the CHI parameter. Wolfgang Wienand: For clarification, when Philippe said fill/finish, it's not aseptic sterile manufacturing, it's OSD. So oral solid dosage forms. And especially in the case of Tampa, it's filling and that is where the fill/finish probably comes from of capsules, which actually is a nice fit as a kind of a business extension of the Capsules business itself. And again, came with Capsugel and we thought it makes sense to go with Capsugel because it's not going to be a strategic focus to do OSD for Lonza. Talking about that and kind of as a reminder, what CHI is today is not the same that CHI was when acquired in 2017. So certain businesses, which are strategic for Lonza will actually stay within Lonza, for example, Bend in Oregon where we actually do really high tech around particle design and spray drying. So it's not going to be the same scope that we acquired at the time that we are actually exiting in 2026. David Carter: Any further questions in the room? One just here. Laura Pfeifer-Rossi: Laura Pfeifer, Octavian. I'm just wondering if you could talk a little bit about the Vacaville profitability in '25 and also maybe the outlook for '26 given that you will have new products being transferred there so a little bit of puts and takes, please? Philippe Deecke: Yes. I think profitability for '25 was better than we said. I think it was operationally dilutive as expected. And I think going forward, again, probably 2025 was still an easy year. That's why we called it for Vacaville because I think they produce the same products. Now we are starting to introduce new products. We will have also shutdowns for construction work that we also explained in the past. So I think the margin will improve over time. I think it's not a linear path that will be getting better every year in the same increments. But I think we can confirm that by 2028, the site will be in line with the group at that point in time and therefore, neither dilutive nor accretive at that time, but it's not a straight line, but I think we were happier in '25 than we had expected. Wolfgang Wienand: So while it's adding in a relevant way already until 2028, I mean the rocket we will actually start in 2028 in terms of being ready, having done our CapEx into operational efficiency, new products at attractive pricing, then creating true volume, and that's actually where we will see the full benefit of the site and then reaching peak probably in the early 2030s. David Carter: Very good. We are over time now. So thank you all for your engagement both in the room and online, and I will pass back to Wolfgang to share some final words. Wolfgang Wienand: Yes. Thank you, David, and thank you all here in the room, ladies and gentlemen. And also those joining virtually for spending the time together with us, listening to actually a strong performance of the global One Lonza team delivering and even overdelivering on our promises and also listening to the commitments that we actually made for 2026 and listening to how we think about a great future for One Lonza, which should include, first and foremost, our customers and their patients will include our shareholders and, of course, ourselves as members of the global One Lonza team. So thank you for coming, all the best and looking forward to stay in touch with you the latest for the half year in July. Thank you so much, and have a great day.
Wolfgang Wienand: Also a warm welcome from my side to all the ladies and gentlemen here in the room, of course, also to the ladies and gentlemen joining us online to our full year 2025 conference. And before we actually dive into the presentation, please take a look at our safe harbor statement, take note and feel bound to it. Quickly, we prepared a rich agenda for you today. And Philippe, myself, I guess, are very much looking forward to present this strong set of numbers to you and later on in the Q&A, discuss with you about what 2025 was to us at One Lonza and actually what 2026 in the future will bring. So One Lonza full year 2025 performance, kind of diving a little bit deeper into the business platforms, then the outlook 2026 and afterwards, you shooting questions at us and us providing useful answers. So my 5 key messages for you today. First of all, the One Lonza team delivered strong profitable growth in 2024, top line growth in constant exchange rates of above 21% and an expanding margin to 31.6%, plus 1.4 percentage points ahead of our upgraded CDMO outlook of July 2025. This business, of course, was driven by Vacaville, but not only. The underlying business actually expanded very nicely as well and at low teens constant exchange rate sales and also in line with our CDMO organic growth model. We successfully launched our new operating model 1st of April to introduce new ways of working in a new way, how we actually present ourselves to the outside world, to our customers and increase elevate the customer experience within One Lonza across all technologies and all business platforms. We actually saw and continue to see strong underlying business momentum. And considering the things that actually happened last year in terms of how the future supply chains in the pharmaceutical industry will look like, we, at Lonza actually are very well positioned to also support our clients on that journey, and I'll speak to that later in much more detail. Then the outlook for 2026. We expect our top line to grow at 11% to 12% in constant exchange rates and the CORE EBITDA margin to further expand, reaching a level well above 32%, which means actually that we, in 2026, will already enter the corridor of 32% to 34% that 2 years ago was given to you as a midterm guidance for 2028. Briefly on the CHI business, which developed well as planned and has shown growth, again, in line with the outlook that we provided to you a year ago and will from now on, considering that we intend to exit that business be accounted for as a discontinued operation. The exit process is advancing as planned. And with that, briefly, as a reminder for you our vision, which kind of states our ambition, which is we are the pioneer and the world leader in the CDMO industry with cutting-edge science, smart technology and lean manufacturing. In short, what it says actually Lonza is in a position to outgrow the underlying market and create outstanding value. What does it take to create outstanding value? First of all, an attractive underlying market. That is the case in the pharmaceutical industry. It takes a strong business model, the CDMO business model. But in order to outgrow and create superior value, we need something special, which actually is what we introduced to you a year ago, a little bit more than a year ago in December 2024, our unique One Lonza Engine, consisting of 5 elements, high-performance teams, leading scientific, technological and digital ecosystem, unparalleled customer partnerships, end-to-end execution excellence and plug-and-play investment and integration capabilities. While these are broad claims, highly abstract, I actually decided and want to share a number of evidence and proof points for our claims. First of all, high-performance teams. We continuously try to hold ourselves true in terms of that what is in my mind as a CEO and in the minds of the executive leadership teams actually is in line with reality for which we actually do voice of employee surveys every 6 months. And among the top 200 leaders of Lonza, 95% of them strongly support the new mission and purpose of Lonza. In terms of engagement index, also above 80%, which is really an outstanding value. So full support of high-performing teams. In terms of scientific support to our clients, Lonza and its GS system supported more than 100 commercial products. It is the leading cell line in the industry, unparalleled customer partnerships with a new operating model and creating an elevated customer experience, we actually have been able from an already industry-leading level in 2024 to further increase Net Promoter Scores, I mean, twice, 100% for big pharma and 50% for small biotech within just 12 months. Our integrated offering is gaining momentum, significantly increasing in terms of us offering Drug Substances and Drug Product services. And last but not least, in terms of our ability to continuously add people, technologies and acquisitions. Synaffix is a great example, acquired in 2023 and integration already done in the first quarter of 2024 and more notably, the integration of Vacaville mid of 2025. I'll speak to that in much more detail later. So in terms of, I mean, outgrowing our market, I mean, what are the components, which in the end lead to our ability as proven in the past 2025 and as we expect it to continue over the next year and years to come. First of all, it's the underlying market growth, 6% to 7% available to everyone. Then there is the increase of outsourcing. So pharmaceutical companies deciding not to manufacture everything in-house, but rather go to trusted partners like Lonza and have their products developed and manufactured. They are adding 1% to 2% growth increment. Then there is active market selection. So us deciding where to play, which are the high-growth, high-value market segments in the underlying pharmaceutical market, adding another 1% to 2%, leading to an underlying, I mean, selected market growth of 8% to 10%. And then there is the Lonza Engine. What makes us special, which is why people come to us, which provides for an additional upside, 2% to 3%. So overall yielding an underlying growth potential for Lonza of low teens, 10% to 13%. So I talked about market and us taking conscious decisions in terms of where to play, where not to play. Let's briefly break it down. The overall underlying pharma market is probably USD 1.2 trillion, growing at 7%. clinical pipeline, more than 7,000 molecules. Based on the technologies that we have chosen for ourselves, and based on the positioning in the value chain, in the product life cycle from early phase development down to commercial manufacturing, we at Lonza are able and operate within a USD 100 billion market growing at 8% to 10%. And we, in terms of future potential, are able to cover more than 90% of the innovative pharmaceutical pipeline to fuel future growth. Quickly on outsourcing because there was a lot of discussion in the last year in terms of, I mean, will the world change? And if so, how? And what does that change? Would that change mean for the CDMO business model? First of all, and we should never forget that the CDMO business model is a beautiful business model. It's a sustainable business model because it adds tangible value and creates efficient global pharmaceutical supply. This has been true over the last 15 years and will be true in the next 15 years to come as well. But let's be more specific with all the big numbers and the big headlines out there about large pharmaceutical companies investing in the U.S., we kind of just took from actually historic figures and also Bloomberg consensus forecast what actually the world and the pharmaceutical companies themselves expect going forward in terms of their own CapEx behavior. And the outcome actually is in absolute terms, CapEx of the top 20 large pharma companies between 2015 and 2025 grew at a CAGR of 3%, and it's expected to grow at a same CAGR between 2025 and 2030. So no change. Kind of normalizing it for CapEx -- sorry, for sales, same outcome. We will not leave the corridor of 4.5%, maybe 5% of revenues. So no real change in terms of the CapEx behavior of large pharmaceutical companies. What will most likely change though, is where that CapEx will be spent. And it's just likely that more of it, which would have otherwise been spent 1 or 2 years ago around the world might rather go to the [ S ] to a larger extent. So no change when it comes to large pharmaceutical customers. I mean for small and midsized biotechs, actually, there has not been the option anyway to spend a lot of money into own captive manufacturing. They shouldn't, they can't and they won't. And those small and midsized biotech companies are actually gaining traction. And we shared here for 2015, the share of innovation, so new clinical assets becoming available for small pharma, 60% versus 40% of large pharma. This increasing to 75% in 2025 and 25% for large pharma. So those companies will spend every dollar they have on the true value driver of their business, which is innovation. They will continue to rely on reliable partners like Lonza to make their products happen to turn their breakthrough innovation into viable therapies and true products. However, regionalization is most likely to stay with us and to further evolve going forward. And here, Lonza as the one global CDMO being able and having a track record to build and operate all around the world is very well positioned to support our clients on that journey as well. So here is some evidence what it specifically means when I speak about the largest global manufacturing network in the whole industry. First of all, demand is kind of distributed 1/3, 1/3, 1/3 across the U.S., Europe and Asia, rest of world. And we actually have significant presence, significant capacities in all those key regions in the U.S., 5 sites and in Europe, 6 sites, 2 in Asia. Looking back in terms of how we have built that global manufacturing network from 2020 to 2025, we as Lonza spent CHF 10 billion in terms of CapEx, out of which CHF 3 billion went into U.S. capacities. With Vacaville and all those investments in the past, we have created the largest mammalian CDMO business in the U.S., very well positioned like no one else to actually help our clients for U.S. supply for U.S. demand. And all that leads to an active business portfolio of more than 1,000 molecules at a certain -- at a given point in time, approximately 10% of our revenue is related to early phase business, so preclinical Phase I, 20% Phase II and the remaining 70% for Phase III on commercial assets, which leads to strong revenue visibility. We have a very low concentration in terms of risk and us being exposed to individual products, and we have a high level of diversification by technology, indication and company type. And with that, I actually continue with sharing what we believe have been the business highlights in 2025. Three topics. First of all, a robust sales momentum across all our key modalities, technologies, so mammalian, small molecule, bioconjugates, drug product and also the Bioscience technology platform had significant growth again in 2025, driven by mammalian small-scale assets and maturing growth projects across different technologies. We actually saw sustained high commercial contracting, again, across technologies and sites, altogether, well above CHF 10 billion signed in 2025, of course, materializing over the years to come, including a fifth significant long-term contract for Vacaville with further contracts, sorry, for Vacaville being in late-stage negotiations. So thirdly, on CHI, we saw as planned, as predicted, the recovery of the business returning back to growth, almost 4% and the margin expanding as planned. The exit process is also advancing as planned. And as I said before, we will actually report CHI as a discontinued operations as we should for a business that we will not keep within our portfolio. So this is actually what we are currently doing to not only deliver the business as promised today, but to also prepare the company for future growth. Currently, the teams are managing 23 CapEx -- growth CapEx projects around the world. Again, no other CDMO actually can do it, has proven to be able to do it. Lonza can do it. Currently, 23 large CapEx growth projects worth CHF 7 billion. 90% of it for commercial and mixed assets, so highly profitable and 100% in Europe and the U.S. A few examples to point at. In Visp, a large-samammalian started GMP production in 2025 and will be ramped up with a tilt towards the second half 2026. Going forward, a large important project for Lonza and for our clients. Commercial bioconjugation, it's a medium-sized CapEx project will actually start stepwise from 2029 and then reach peak sales in the mid-2030s, large-scale fill/finish and Stein ongoing, start expected for '27 peak sales also in the early 2030s. Type 1 diabetes cell therapy, cool technology science, CRISPR/Cas together with Vertex in Portsmouth, start expected in 2027 and peak sales around 2030. And Vacaville, I mean, I thought about the headline, make it as crisp and as clear as possible. A great fit to Lonza coming at a great point in time, creating the largest CDMO mammalian network in the U.S. in one go. So remember, we paid in 2024, CHF 1.1 billion for that asset. Closing was 1st of October, and we expect the site to fully deliver to its full potential in the early 2030s. Some evidence why we are so happy and so confident and so optimistic for what we will be doing with that site and already start to do with that site. First of all, a very stable and strong team. I've been there after JPMorgan, doing town halls, taking investors there and also talking to people. We have attrition rate of 99 -- I mean, actually retention rate of 99-point something, so essentially 100%. Great people willing to work for us and embracing the opportunity that Lonza actually gives to them. It's a high-quality asset, as you can expect from Roche and the investment that we have started to do of up to CHF 500 million is into the flexibility of the site so that we can even further increase operational efficiency. Customer interest is very high, remains high, as evidenced by now altogether 5 large commercial contracts for the site, which will, by the way, be able to already now kind of substitute the Roche volumes going out by 2028 and will make the site deliver at the stable level that we have seen today, plus/minus. So very good outcome also in terms of the commercial development and the selling of that capacity. Also important, the first U.S. FDA inspection under the new ownership in Q4 last year was a very strong outcome, only minor observations, which could be resolved almost immediately. First successful tech transfer. So a site which actually didn't receive so many products over the past years had to prove that. And we have been able to execute that tech transfer in a seamless way, and the team actually lived up to the challenge of now operating within a CDMO business model, and I actually included a quote of the responsible external manufacturing head of that large pharmaceutical company, "A truly seamless tech transfer into Vacaville execution at a level I have rarely experienced in my career." And I can tell you, this gentleman is not 21 years old. He has seen a lot. right? Last but not least, post-merger integration finalized successfully mid of 2025. So what we can actually say now and announce to you today is that this site is now a regular part of our global manufacturing network and will be managed as such and will start to contribute and continue to contribute over the next years. As a heads up, now that we actually can tell you that already with those 5 contracts in our business portfolio, we can actually substitute the Roche business and deliver stable revenue plus/minus at the current level until 2028. We will not further comment and report on individual contracts for that site as we don't do it for any other site in our overall manufacturing network. And with that, I hand over to Philippe, who will take you through our financial figures for 2025. Philippe Deecke: Thanks, Wolfgang. Good afternoon, and good morning to people joining from the U.S. also from my side. Before I start, let me just give you 1 or 2 disclaimers. All numbers that I will present are for the Lonza continuing business, which means that they all exclude our CHI business. The CHI business, as was mentioned by Wolfgang, is now reported as discontinued operation according to the definition in IFRS 5. Further, as usual, our sales growth rates are in constant currencies. All other growth rates are in actual currencies. With that, let me go to the key financials. I need to click myself. So first of all, the Lonza business delivered CHF 6.5 billion in 2025. This is CHF 1 billion more sales than we did back in 2024. So CHF 1 billion growth, 21.7% of constant currency growth. This is ahead of the upgraded guidance of 20% to 21% that we communicated back in July last year. This includes roughly CHF 0.6 billion of sales from our Vacaville site, so slightly at the upper end of the CHF 0.5 billion that we had forecasted. We're very pleased, obviously, operationally, Wolfgang mentioned that we're very pleased with the site operationally. We are also very pleased financially with the contribution of Vacaville. Organically, the organic business, excluding Vacaville, contributed or grow at low teens, which is fully aligned with our CDMO organic growth model. Going to the margin. We delivered a margin of 31.6%, up 1.4 percentage points, also very pleased about that. And this as well is ahead of the guided range of 30% to 31%. Three main contributors to the margin. One is, of course, operating leverage. When you grow the top line at that rate, of course, we are not growing our cost at the same rate. So administration costs, sales and marketing costs, research costs are growing at a much lower rate, providing leverage. Second, the maturing of our growth projects. Some of our projects are now getting close to higher utilization and therefore, increasing their margin. And number three, several targeted productivity initiatives across the organization. One word on FX. You see that we had an FX impact of roughly 2.5 points on both the top line and the bottom line. This is coming mainly from the weakening of the U.S. dollar back in the early part of 2025. Luckily, we have a very strong natural hedge. We are selling and having costs in roughly the same currencies. We're helping that as well with additional financial hedging program to protect our margins. With that, let's go to the sales evolution. As you can see on this page, we had good performance from 2 of our large platforms. Let me start with the exceptional performance of our ADS business, Advanced Synthesis, with very strong contribution from both bioconjugates as well as small molecule assets, the platform growing 22% organically. We had very -- we had several assets in both platforms growing and ramping up simultaneously and growing at a fast pace. On the I&B, in Integrated Biologics, you see a growth of 32%, a large chunk of that obviously coming from the Vacaville side, but also the other organic assets ramping up nicely. Going to Specialized Modalities. This was probably or is the soft point of our performance in 2025. We had discussed that in the first half last year and in Q3. We saw soft operational performance from the Cell & Gene business that actually continued during the year, but we're looking forward to a much better year in 2026. And then on the microbial side, where we experienced a phasing towards the end of 2025 into 2026. Also here, a better '26 is expected. The platform ended up with a small decline of minus 3%. Moving on to our CORE EBITDA performance. Here, again, very pleased with the progress, reaching 31.6%, close to the 32%, but we'll do that in 2026 and beyond. So the 3 key reasons why we grew our margin. I mentioned that before, but maybe a little bit more detail, again, operating leverage where we have very strong cost discipline across the organization now, both at headquarters level, but as well in the different sites. We have several maturing assets, especially in mammalian bioconjugates and small molecules that are allowing us to offset the dilution from the newer assets. And last but not least, operational excellence and high utilization in our commercial sites allow us to offset a slightly negative mix versus 2024. Maybe a few words to the platforms. I'll start with ADS, again, an exceptional margin improvement of 5 points, reaching margins of 42%. This is even slightly above the margins that we delivered in the first half of 2025. So here as well, again, very pleased. However, this is an exceptional year, and we will probably look at the normalization into '26. Looking at Integrated Biologics, a slight margin decline here of 0.9%, mainly due to unfavorable product mix and as well some new assets that have been coming online and growing in 2025. And then this is also the platform where we have the highest U.S. dollar exposure. And so while we have hedging, there is some impact from the weaker dollar. On SPM, I think very pleased that the platform could almost hold their margin at 17%, only down 0.5% despite the lower performance. This is due to some profitable mix and as well some very high cost discipline across the platform. Moving over to our CapEx details. You see here that we spent roughly CHF 1.3 billion in our CDMO business. Again, CapEx is a key enabler for Lonza's future growth and also a key focus for the organization now and going forward. The CHF 1.3 billion was spent most of it on gross assets, 60% of the spend was for growth. This includes a diversified portfolio of the 23 projects that Wolfgang mentioned earlier. You see as well that the peak of CapEx is behind us. This was in the past year. You see in the middle of the page that we are on a slope to actually normalize our CapEx spend. This -- in 2025, we reached 19.6% of CapEx, slightly below the guided range of low 20s, mainly due to some higher sales and some more discipline in maintenance spend. We're looking at high teens for 2026. And then over the midterm, normalizing in what we call our CDMO organic growth model for CapEx in the mid- to high teens. The normalizing CapEx also allow us to do great progress on our free cash flow. You see for this year that for our continuing business, we delivered CHF 0.5 billion of free cash flow, CHF 545 million, almost double the amount we delivered back in 2024. One of the key reasons, obviously, CapEx, which has been stable while the business has been growing, but also actually very strong management of inventories and trade working capital in general. You see that our trade working capital grew CHF 200 million. This is much less than what obviously our business has been growing in '25. And so you see that our trade working capital in percent of sales has actually declined by almost 5 points. Our inventories -- inventory coverage is also declining almost by a week, and this is something that we will focus a lot more to continuously drive down inventories to the right amount for our business. Moving from cash to our capital allocation framework. This is not new. We have not changed anything on that slide. This is more of a reminder for you, obviously, because a lot of people are asking us the questions about what will we do with the CHI proceeds. Well, first of all, it's not sure that there will be CHI proceeds depending on the exit route that will actually happen. But let me take you through our priorities in terms of capital allocation. Priority #1 is the investment into maintenance, infrastructure and systems. Why? Because we need to make sure that our base assets and our growing base assets are future-proof and are well maintained and will contribute to the future growth of the company. Priority #2, our progressive dividend policy, very important to us as well, and I'll get to that on the next page, which lead us to our discretionary cash. This is the cash that is available for investment into growth. This discretionary cash may be increased by proceeds from the CHI exit, should it be leading to proceeds. These proceeds as well will flow into what we call discretionary cash, will be invested into organic or inorganic bolt-on M&A investments. Now rest assured that we will be very disciplined in the way we allocate this capital. You know that for internal organic CapEx projects, we use very strict financial thresholds, 15%, 1-5 of internal rate of return and a ROIC at peak of 30%. This is for the organic investments. For bolt-on and M&A, it's not that easy to put a formal threshold, but we will remain very disciplined and basically look at 2 things: one, attractive returns; and second, is there a strategic fit with our Lonza Engine. And if you look back at the last 2 acquisitions being Synaffix and Vacaville that Wolfgang also shared with you, you can see that these were very disciplined and very attractive acquisitions. Looking at our dividend. As you can see, this dividend policy fully in line with our capital allocation framework. The Board of Lonza is actually proposing to increase the dividend by 25% to an amount of CHF 5 per share. This reflects obviously the strong earnings performance and will let shareholders benefit directly from our growth of earnings. Our progressive dividend, just to be very clear, means that we will maintain or grow our dividend per share on a year-by-year basis. And you can see on the chart that we have proven this over the last 10 years. Now let me finish with a quick update on our ESG performance before handing back to Wolfgang. We've made strong progress in 2025 on our ESG agenda. I'd like to drive your attention to the top 2 pie charts. One is the greenhouse gas emission intensity and on the right, the waste intensity. Both of these targets have actually been met in 2025, 5 years ahead of schedule. We are planning to have the intensity by 2030, and we have achieved that already in 2025. We are, therefore, deciding to rebase and to now looking at cutting by 50% the 2021 base, which is in line with the Science Based Target initiative. So great progress on greenhouse gas and on waste intensity. Also great progress on actually renewable energy. As of January 2026, all our electricity in the U.S., in Europe and in China will be renewable sources. Our progress is also well recognized externally, and we've been, for the first time, awarded the EcoVadis Gold rating and have been named again by Ethisphere as one of the world's most ethical companies. So again, great internal progress and great external progress. And with that, I'd like to hand back to Wolfgang, who will take you through the business platform performance and our outlook for 2026. Thank you very much. Wolfgang Wienand: Thank you, Philippe. And indeed, let's take a brief look at the 3 business platforms before then turning our heads towards the future. So Integrated Biologics, robust sales and margins driven by strong demand and operational execution. Here, Vacaville, as discussed before, kind of contributed more than we expected at the beginning of last year. We also saw a margin accretion from strong operational execution, however, was kind of more than offset by growth project dilution and unfavorable portfolio mix, as already mentioned before by Philippe. And also here, it's kind of clear. I mean, the significant amount of contracted business of above CHF 10 billion, a major part of it comes from our Integrated Biologics business platform. So ADS, our Advanced Synthesis business, an exceptional year in terms of sales growth driven by rapid and at the same time, occurring ramp-up of growth assets, which was great to see and actually great to see how well the teams in small molecules and also bioconjugates actually made it work and delivered according to the expectation of our clients, outstanding profitability above 40%, which is probably plus/minus what we can expect going forward from that business in terms of profitability. Our Specialized Modalities business, which is in terms of strategic importance, relevance to us, and an area from which we expect significant future growth over the next years to come and also significant contributions to our profitability. However, it's still suffering from this whole universe being small and limited. And as a consequence of that, also our own business portfolio being much smaller than for the other modalities and as a consequence of that, also more volatile. However, we are one of the very few CDMOs actually having 5 commercial assets in our network. And essentially, each of our manufacturing sites now has one commercial asset. So Bioscience briefly on that, which is our media business plus some other smaller businesses also returned on a very attractive growth trajectory, which supported that business platform. And with that, I actually turn our heads towards the future outlook 2026. What can you expect from us? What do we expect from us in 2026. First of all, continued high demand for the services of One Lonza. So stronger in constant exchange rates, stronger relative growth in the second half as compared to -- sorry, in the first half as compared to the second half. However, in absolute terms, the year will be balanced, and it's more a baseline effect how 2025 look like. Regionalization of supply chains will be with us also going forward. However, will not apply to existing businesses, to existing products in existing assets because typically, no one actually changes a winning team and changes an existing well-functioning supply chain. It's more about where will we allocate new business going forward. And this will be in line with the expectation and the desires and preferences of our clients, probably much more supporting regional demand by regional supply, which will then, in turn, also help -- further help our already strong natural hedge. CORE EBITDA margin expanding from maturing growth projects, productivity, a topic which is very close to my heart, cost discipline and obviously, operating leverage. I mean key priorities for myself, for the whole One Lonza team, of course, continue to elevate the One Lonza customer experience already evidenced by the significant increase in Net Promoter Score, but the journey goes on. A base business, execute with rigor and deliver constant -- I mean, through grinding of our business, our assets, constant margin expansion. Cash, it's going to be important this year or last year actually was an important step forward. We will continue on that journey, and we know how. In terms of growth, execute this 23 growth projects and of course, kick off new ones and also on top of that, being agnostic to doing it organically or inorganically, driving our M&A agenda. Group Functions are elevated in their role and their impact on the businesses, which is around standardization and also making us work in a more consistent way. CHI is going to be an important topic in 2026, driving the exit process and executing it at the appropriate time in the best interest of our shareholders and stakeholders. And with that, I want to close with actually reminding all of us of the financial model that we are applying here at Lonza. Based on our Lonza Engine, there's an underlying market opportunity in terms of growth of low teens every year on average over time. In order to translate those opportunities into tangible business, we need to continue to add capacity, invest. And these investments as long as the growth opportunities on average over time are in the range of low teens, this CapEx requirement will be around mid- to high teens of sales going forward. This then delivers our CDMO organic growth model, which is a constant exchange rate sales growth of low teens percentages on average over time and the CORE EBITDA margin growing ahead of -- so CORE EBITDA growing ahead of sales growth. Specifically for 2026, it means our constant exchange rate at sales growth is expected to be between 11% and 12% and a further CORE EBITDA margin expansion to a level above 32%. So already entering the corridor that was 2 years ago predicted to be achieved only in 2028. So what have been the key messages that I, we shared with you today. First of all, Lonza has delivered in 2025 and is well prepared for the ongoing journey of transformation and growth in 2026 and beyond. We have made progress as promised and are set up for success in terms of consistently delivering our business and also the project in Vacaville and further evolve as the global One Lonza team. We expect, again, significant profitable growth and we'll continue on that journey. And for the longer term, we are having -- we actually defined a clear strategy and the capital allocation framework to deliver in line with our CDMO organic growth model. We are One Lonza, the pioneer global CDMO market leader, manufacturing the medicines of tomorrow for our customers and their patients worldwide. I thank you for your attention and look forward to your questions. David Carter: Many thanks, Wolfgang. I'm David Carter. I'm the Global Head of Communications, and I'm going to be hosting the Q&A session. I'm going to ask my 2 colleagues here to just slightly rearrange the setup for us so that our leaders can relax. Philippe is back on the stage. And I'm going to ask anyone who's got questions in the room, we're going to start with you. If you could say your name, your institution and ask, I know it's ambitious, but if it's at all possible, no more than 2 questions. We will also, for people that are online, flick over to you at a certain point and make sure that you have a chance to ask questions, too. But first and foremost, are there any questions in the room? Let's start over here. Daniel Jelovcan: Daniel Jelovcan, ZKB. So two, the CHF 70 million hedging gain, which is booked in the top line, I'm not an auditor, but shouldn't an hedge can be booked somewhere in the financial expense or below the EBIT. I don't understand the mechanism if you can clarify. And then I ask the second question. Philippe Deecke: Yes. No, this is fully in line with hedge accounting. So this is normal. We've been doing this all along. It's just this year, this -- or last year, 2025, given the volatility in exchange rates, it has been higher than in previous year. But this has always been booked at the same place. Now to be clear as well, this is not accounted for in our constant exchange rate growth. So we remove it from that. Daniel Jelovcan: Okay. And the second question, when I do my calculation in Integrated Biologics, excluding Vacaville, you must have had an organic growth of 8% in the second half, quite a slowdown from the first half which was 17%. Why was that? Was that maybe some batches which were not booked in December, but in January, that's why you're guiding for a strong first half '26. Just to understand the picture. Philippe Deecke: Yes. No special reason. I think there's always volatility between the halves. We've seen that in the past. So I think it's more of a mix rather than kind of batches that would have been blocked in December. So nothing special to notice. It's the different phasing of assets coming online and mix. Nothing different. David Carter: Are there any more questions in the room? We have a quiet house today. We're usually more challenging that. Do we have any more questions online at the moment? We're going to hand over to Sandra online in that case, Sandra, if I could ask you to host the online question session, that would be great. Operator: The first question comes from Ebrahim Zain from JPMorgan. Zain Ebrahim: Zain Ebrahim, JPMorgan. My first question is on the Advanced Synthesis business, and growth momentum sounds -- was really strong in 2025 at [ 22 ] growth momentum going forward in '25 benefited from 2 growth projects that seems and you'll have further growth project contribution in 2026. Margins sound like 40% plus/minus, as you said. So any further commentary there would be helpful. And my second question is just on the Cell & Gene therapy business where you've indicated you expect an improvement in 2026. And just the question is what underpins that confidence? Wolfgang Wienand: Thank you for the question. I'll take the first one, I propose. Philippe Deecke: If you understood the first one, I will pick the second one. So I'm happy to take this. Wolfgang Wienand: Yes. I actually didn't understand the second one, so pass it on. But either way, on ADS, indeed, in terms of profitability, it probably will hover around the 40%. And that's what we expect going forward in 2026 in the years to come. The growth obviously was kind of exceptional in 2025 due to, I mean, many positive events coinciding. But it will be a growth engine going forward as well, but in 2026 and not at the level that we have seen in 2025. And maybe Philippe has made up his mind in terms of the second question in the meantime. Philippe Deecke: No. Second question, I think -- thank you, Zain, it's Philippe. So I think we're confident in terms of the growth rate for Cell & Gene in '26 versus '25. As we mentioned, I think, in the first half, we had some operational challenges in Cell & Gene in one of our sites during '25. This is being resolved. And so the business will kind of continue in a more normal fashion in '26. So from that point of view, yes, we are confident. On top of that, actually, we keep on ramping up commercial products in all of our sites. So all the Cell & Gene sites in the world for Lonza have a commercial product, which is, of course, helping to stabilize somehow the utilization of these sites. So yes, we are much more confident for '26 than what you've seen in '25. Wolfgang Wienand: Before we move on to next question if I could just ask anybody who's joining online to speak as slowly and clearly as possible. The line is not quite so clear at this end. So the slower and clear you are, the more easily we can understand you. So Sandra, I'll hand back to you for the next question. Operator: The next question comes from Charles Pitman-King from Barclays. Charles Pitman: Firstly, just on Vacaville, you're targeting stable CHF 0.6 billion sales now for FY '26 versus prior CHF 0.5 billion. Can you just confirm that this is going to remain stable around CHF 0.6 billion to '28 now. And with these 5 contracts in place derisking that target, can you confirm you're still targeting 30% utilization? Provide a little bit more detail around the predicted phasing of the contract and just confirm whether they all need to be fully ramped by '28 to offset that -- those lost contracts. Then just secondly -- sorry, just secondly, could you confirm what the current Form 483s are currently outstanding for Lonza facilities? And what advised rectifications are required and how this is expected to impact any ongoing operations and just confirm there were no impacts in FY '25. Wolfgang Wienand: Yes. Let me indeed start with the second question. Thank you, Charles. This 483, and there has been rumors around that and around other topics as well on which I will briefly comment in a bit. This 483 actually was a huge success. Not that it wouldn't have been even better to have a clean sheet, but a 483 with only 3, I believe, minor observations, which could either be immediately in the short term, close out or a few weeks later, actually is a very good outcome and receiving 483 is more the standard outcome that essentially across the pharmaceutical industry is yielded. It is not to be also clear around that. It has nothing to do in this case with the warning letter. The sequence from the process of the U.S. FDA is, I mean, a bad 483 with major observations, official action indicated can turn into a warning letter, but it's actually typically not the case, but what typically is the case that you get this form with your observations. And in this case of Vacaville, it actually was a very good outcome with only 3 minor observations which have been immediately being addressed and closed and are all addressed and closed right now. There was no impact, nothing on the ongoing operations and actually nothing of concern. I think that's important to say. There are, of course, also, I mean, at least you're telling us that, because it's not brought to us ourselves, other rumors around Vacaville not being a high-quality asset, not being capable of being run in an efficient way as a CDMO asset and all that, obviously, coming from other market participants. I actually won't comment on that in detail, but I would like to let the evidence that we shared with you speak for itself. Just 2 thoughts, maybe. First of all, and that is kind of my take of it as long as our competition continues to speak about us, and can't help itself to speak about us. I take it as reconfirmation of Lonza being the market leader in the space, first thought. Second thought on Vacaville. And I don't know, but one way of looking at it, of course, is that people might be concerned from a competitive standpoint, what great things we, at Lonza can do with great assets over the next years. But I would like to leave it there, but I wanted to address that because I think it's important. What you should take with me is what I shared with you today, a great asset, a great acquisition at a great point in time with a business secured until 2028 and beyond to keep, actually to substitute the Roche volumes going out and to keep the revenue at the level of where we are today, plus/minus CHF 50 million maybe over time. And that actually leads to the first question of you, Charles, which is on, first of all, phasing and ramping up. First of all, now having 5 contracts, of course, we will continue to sign contracts, right? We don't stop even though we will stop talking about it and reporting it because we don't do it for individual sites, which in the end are run as an integral part of the global network. So we will continue to add business because interest is very, very high. Those 5 contracts, which are large. I mean, they will only come to full fruition after 2028 because that's the time you need to actually tech transfer and ramp it up. So this is already feeding growth beyond 2028 and the other business that we actually will win over the next days, maybe even weeks and months will then take us further for this site to, I mean, come to its full potential, come to full fruition in the early 2030s. I think what is still open from your question, Charles, is the utilization. Yes, it's plus/minus that because the Roche business going out, new business coming in, keeping us stable at around where we are today, plus/minus. And us having the time invest into the flexibility, into the operational efficiency of the asset to them from 2028 onwards, be able to actually run at full steam and make it CHF 1 billion revenue and way beyond CHF 1 billion revenue side within the global network of One Lonza. I hope that answers. Charles Pitman: Can I please just double check on the [indiscernible] 483 as well? Wolfgang Wienand: I actually don't have the details to the degree as I had them for Vacaville, but same here. I mean what I heard, and that's actually the feedback from quality is that this has been actually a successful inspection and all observations have been minor only and have been closed out in the meantime. So also nothing which would worry me or anyone within Lonza and nothing that should worry anyone outside Lonza or anyone holding Lonza shares. Operator: The next question comes from Charles Weston from RBC Europe. Charles Weston: So my first is back on Cell & Gene therapy. You've indicated that perhaps you could have grown faster should there have been no operational issues. So I just wanted to get a sense of how much those issues may have held you back and what the state is of the relationship with any of the customers where they may have wanted more product? And my second is on the EBITDA margin. As you highlighted, you've already hit or you intend to already hit the low end of your 2028 guide 2 years early. Can you help us understand whether there's anything to prevent margins even excluding Vacaville, continuing to grow at similar rates, particularly given there was some negative mix in Integrated Biologics in 2025 that perhaps gives you a nice start. Wolfgang Wienand: Yes. Thank you, Charles. Maybe Philippe starts, and I take the second question. Philippe Deecke: Which is on Cell & Gene? Wolfgang Wienand: Yes. Philippe Deecke: yes, I think I'm not going to quantify, but let me make sure and reassure that there was no customer issues related to that. Of course, this is our first concern when something doesn't go as planned. But then we work very closely with the customer. So on this one, there was no impact on customer and the issues are resolved, and we just need the time to restart everything at the regular run rate. So from that point of view, I think things are fixed, and we're looking forward to return to normal operations in '26. Wolfgang Wienand: Yes, and Charles, on margin expansion, that's our commitment to grow EBIT -- core EBITDA ahead of sales. And our organic growth model, our commitment what we want to do with this company to constantly expand margin, right? And you will see that already this year, and that's how we guided, and you will continue to see that over the next years to come through different measures. Of course, it's expansion of our gross profit margin through pricing, through efficiency when it comes to productivity, again, very close to my heart, cost discipline. It's also about keeping SG&A costs growing at a much lower pace. So operating leverage and a number of growth projects maturing and then contributing rather than diluting our profitability. That's what you can expect from us going forward. And that is our commitment. Charles Weston: I guess I just wanted to ask, is your confidence on hitting the upper end of that now increased given the strong performance you've had in '25? Wolfgang Wienand: Yes. Charles, I would like to leave it there because, I mean, while this margin, of course -- sorry, this guidance has been put out before me joining Lonza, it is, of course, rightfully so still in your hands, which is why I actually used it and kind of went back to it, to tell you that actually, what we are doing is in line with what has been promised to you before, but we're not going to guide again specific margins for specific years, but thought that actually the organic growth model is a much more useful framework for you because it's not guiding for a specific point in time, but rather providing for a trajectory in terms of both top line growth, our margin will evolve and what it takes to make that happen in terms of CapEx. So I actually would like to leave it there, but hope that I've been able -- we have been able to create confidence that this is a serious ambition that we will make happen. Operator: The next question comes from James Vane-Tempest from Jefferies. James Vane-Tempest: Just one on free cash flow, please. Very helpful to have what the business is now and obviously comparing to what that looked like in 2024, at a group level, including the CHI. So last year, you disclosed net working capital was 13.7% of revenues. I guess now we have trade working capital of 34%, showing a reduction. But from memory, in 2024, working capital went up, I think, by around CHF 45 million with Vacaville inventories and receivables into year-end. So my question really is underlying free cash flow for this year because if it's CHF 545 million with this new definition you've got, is CHF 500 million more like the right number on an underlying basis to how to think about for this year, just so we can figure out you understand what the underlying improvements have actually been. Wolfgang Wienand: You start Philippe, I'll take the end. Philippe Deecke: I'll probably finish. James, there is no change in definition in our free cash flow definition. So the comparators to last year is fully comparable to what we do this year. The only thing we have changed is to give you a much more precise view on what our trade working capital, which we believe is a number that we should all track and also be aware. To remind everybody, trade working capital for us is inventory, AR and AP. And so in the past, in net working capital, you had a lot of other things, which included early payments, also discounting liabilities, et cetera, which were partially also even noncash, which is correcting from the EBITDA line. So no change in free cash flow definition. So the improvement that you see in free cash flow versus '24 is the true underlying free cash flow improvement of the business -- of the CDMO business. You'll find in our reporting as well the cash flow from the entire group, including discontinued operation, which top of my head is CHF 674 million, I think, if I remember well. So that's the full group. But in terms of CDMO, this is true underlying performance. Wolfgang Wienand: And adding to that, I mean, the financial engine, if you would like to call it like that. So top line growth profitably, expanding margins and decreasing CapEx as shared by Philippe through not because we would build less capacity, we need the capacity. Otherwise, we wouldn't go. But more discipline in terms of how we execute CapEx, I mean, has the ultimate goal of delivering ever more cash year-over-year. So that's what we are committing to with that CDMO organic growth model. James Vane-Tempest: Sorry to come back, I guess maybe just to ask a question in a slightly different way. I mean in '24, it was highlighted that there was much stronger Vacaville inventories, which contributed to the free cash flow decline. So my question is looking at the growth, is it a clean number, the CHF 545 million? Or does it kind of benefit from perhaps some working capital, which was pulled forward into Q4 '24 rather than actually seeing that in 2025? Philippe Deecke: Yes. I think it's usually the case that our trade working capital is higher in the fourth quarter. I think this is nothing new. So from that point of view, I don't think that the number is anywhere significantly or materially influenced by what you're describing. But please, if you're not satisfied with the answer, it's maybe something you can pick up with Daniel. So we make sure you fully get the answer. Operator: The next question comes from James Quigley from Goldman Sachs. James Quigley: I have two, please. So the first is on the contract signing. So you said well above CHF 10 billion in contract signings in 2025 that follows CHF 10 billion in '24 and CHF 13 billion the year before. Does well above mean between CHF 10.5 billion? Or does it mean between CHF 10 billion and CHF 13 billion. And how do you use this figure? You said before, it could be quite volatile. How are you thinking about it in terms of targeting and signing -- future signing contracts and driving future growth? That's question one. And question two, you gave some good details on the shift in number of molecules in development by pharma and biotech. But how do you think about M&A impacting that commentary around outsourcing and outsourcing trends as it stands as we look at the pharma industry, it looks like there was quite a big need for M&A. We've seen a pickup in M&A recently. So what happens when that shifts over time? And what have you seen when your customers, your biotech customers or even your larger pharma customers have been acquired in the past? Wolfgang Wienand: Thank you, James. To start with the contract signing value. It's not even a KPI. It shouldn't be a KPI because what is it really? It is an addition of value based on signed contracts, which might distribute over 3, 5, 7, 10, 15 years, right? And you just don't know. I mean our recommendation -- first of all, we will not make it a KPI. We will share it from time to time, but we don't believe that it's actually a meaningful KPI for which you should create or can create in a meaningful way, a time [ series ], which will actually tell you anything. On the other hand, it's also clear that, I mean, high contracting will translate into future business, which is why we shared it as a qualitative information, right? So I would, while being relevant, useful, providing confidence reassurance it's actually, I wouldn't even call it a KPI, which is kind of also already the answer of. Let's not talk about, I mean, digits after the comma because it's actually not a precise signs around that. And maybe one further thought, while signing with a certain customer, a 10-year contract, which might even be in the interest of that customer as opposed to signing a 5-year contract. The 5-year contract, even though the value in terms of contracted value, of course, is lower because just 5 years instead of 10 years, it might be commercially more attractive because it offers opportunity to speak about pricing after 5 years rather than being locked in for 10 years, just as an additional thought how to think about that figure not being a useful KPI. In terms of M&A and pharmaceutical assets being acquired by large pharma through M&A takeover of small biotechs, actually, we have seen it all. We actually have seen the molecule just staying where it was with Lonza and the new owner of that asset being super happy, having a robust, proven global supply chain for this acquired asset. We actually have seen also the case where Lonza wasn't involved. But for example, when that pharmaceutical assets came from China, it was important for the Western acquirer to build a robust Western supply chain, calling us and Lonza creating that robust supply chain. And there have been cases and will probably always be cases where if there is capacity and technology and capability available for that asset within the acquirer that this asset might actually be in-sourced or partially in-sourced. So it's kind of business as usual and nothing where we would actually see any trend or any shift in behavior. Operator: We take now the last question for today's call from Odysseas Manesiotis from BNP Paribas. Odysseas Manesiotis: Firstly, on the Visp, large-scale mammalian ramp, your 2030 peak sales assumption seems a bit pushed compared to earlier comments. Could you explain why that is? Was there some movement with contracts from Vacaville so on? And did you manage to deliver commercial batches within 2025 from that facility. And last one quick one on the FX, given the moves you're seeing today. Can I confirm with you that the 2 percentage point headwind you're assuming for the guide takes into account January average rates rather than something closer to spot and would and around 4 percentage point impact be reasonable if we take into assumption today's moves. Wolfgang Wienand: Philippe, do you want to start with the last question, I'll take the 2 first questions. Philippe Deecke: Odysseas, thank you for the FX question. So obviously, I think if you read the small print, our forecast of 2% impact was based on mid-January rates. So I think if you take into account what happened on Friday, Monday, I think the number is probably closer to 2.5%, with probably the rate if you were to use that. So I think 4% is probably too high, but we'll provide you an update in Q1 and in half year again. So I think rates are more volatile nowadays than they were in the past. Rest assured that our financial hedging and natural hedging works to stabilize margin, but we'll provide you an update as rates evolve. Wolfgang Wienand: Yes. And thank you for the 2 first questions. I mean my main assumptions are not lower, to be clear, so now, unchanged. And in 2025, that large-scale assets in Visp actually started GMP production with, let's say, commercial ramp-up starting in 2026 and especially towards the second half of 2026. Operator: I would now like to turn the conference back over to David Carter, if you have more questions in the room. David Carter: Any more questions in the room. We have one just over here. I'm aware that we are slightly running over time, but I'd like to give the room a chance to have a few questions if we can. Unknown Analyst: [indiscernible] I have a question about the CapEx 2025. You had 38% maintenance CapEx. I expected it to be a little less. Could you give us any advice about the next years, will this be the same level? Or will it come down a little? Philippe Deecke: Yes, if you look at our CDMO growth model, it actually tells you roughly how much we want to invest in growth, which is roughly low teens in terms of growth, the rest being mid- to high single digit actually in system infrastructure and maintenance. So that gives you the ratio. I think the ratio this year is probably normal. I think the majority of our investment go into growth. This will be the case also going forward. But this is -- this changes year-over-year depending on the different assets that are planned. But I think the CDMO growth model gives you a fair way to kind of value the amount of capital that would go into maintenance system and infrastructure. Unknown Analyst: And the second question is about one facility you moved from small molecules to the capsules business to be divested. Could you explain what kind of business it is and why you moved it. Philippe Deecke: Yes. This is a small site in Florida. They actually do fill/finish for clinical and very small batch sizes. This is a business that actually came with Capsugel at the time that we moved into small molecules because there were some synergies in what was being filled. I think we feel that this is a better fit with the CHI business overall and in terms of providing growth opportunity for CHI and synergistic. So we moved it back into the CHI parameter. Wolfgang Wienand: For clarification, when Philippe said fill/finish, it's not aseptic sterile manufacturing, it's OSD. So oral solid dosage forms. And especially in the case of Tampa, it's filling and that is where the fill/finish probably comes from of capsules, which actually is a nice fit as a kind of a business extension of the Capsules business itself. And again, came with Capsugel and we thought it makes sense to go with Capsugel because it's not going to be a strategic focus to do OSD for Lonza. Talking about that and kind of as a reminder, what CHI is today is not the same that CHI was when acquired in 2017. So certain businesses, which are strategic for Lonza will actually stay within Lonza, for example, Bend in Oregon where we actually do really high tech around particle design and spray drying. So it's not going to be the same scope that we acquired at the time that we are actually exiting in 2026. David Carter: Any further questions in the room? One just here. Laura Pfeifer-Rossi: Laura Pfeifer, Octavian. I'm just wondering if you could talk a little bit about the Vacaville profitability in '25 and also maybe the outlook for '26 given that you will have new products being transferred there so a little bit of puts and takes, please? Philippe Deecke: Yes. I think profitability for '25 was better than we said. I think it was operationally dilutive as expected. And I think going forward, again, probably 2025 was still an easy year. That's why we called it for Vacaville because I think they produce the same products. Now we are starting to introduce new products. We will have also shutdowns for construction work that we also explained in the past. So I think the margin will improve over time. I think it's not a linear path that will be getting better every year in the same increments. But I think we can confirm that by 2028, the site will be in line with the group at that point in time and therefore, neither dilutive nor accretive at that time, but it's not a straight line, but I think we were happier in '25 than we had expected. Wolfgang Wienand: So while it's adding in a relevant way already until 2028, I mean the rocket we will actually start in 2028 in terms of being ready, having done our CapEx into operational efficiency, new products at attractive pricing, then creating true volume, and that's actually where we will see the full benefit of the site and then reaching peak probably in the early 2030s. David Carter: Very good. We are over time now. So thank you all for your engagement both in the room and online, and I will pass back to Wolfgang to share some final words. Wolfgang Wienand: Yes. Thank you, David, and thank you all here in the room, ladies and gentlemen. And also those joining virtually for spending the time together with us, listening to actually a strong performance of the global One Lonza team delivering and even overdelivering on our promises and also listening to the commitments that we actually made for 2026 and listening to how we think about a great future for One Lonza, which should include, first and foremost, our customers and their patients will include our shareholders and, of course, ourselves as members of the global One Lonza team. So thank you for coming, all the best and looking forward to stay in touch with you the latest for the half year in July. Thank you so much, and have a great day.
Operator: Good day, and welcome to the Renasant Corporation 2025 Fourth Quarter Earnings Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kelly Hutcheson. Please go ahead. Kelly Hutcheson: Good morning, and thank you for joining us for Renasant Corporation's Quarterly Webcast and Conference Call. Participating in the call today are members of Renasant's executive management team. Before we begin, please note that many of our comments during this call will be forward-looking statements, which involve risk and uncertainty. There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Such factors include, but are not limited to, changes in the mix and cost of our funding sources, interest rate fluctuation, regulatory changes, portfolio performance and other factors discussed in our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has been posted to our corporate site, www.renasant.com at the Press Releases link under the News and Market Data tab. We undertake no obligation, and we specifically disclaim any obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. In addition, some of the financial measures that we may discuss this morning are non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release. And now I will turn the call over to our President and Chief Executive Officer, Kevin Chapman. Kevin Chapman: Thank you, Kelly, and good morning. 2025 was a transformative year for Renasant, marked by considerable improvement in our profitability and strong balance sheet growth on the heels of the completion of the largest merger in the company's history. As we discussed during our October call, systems conversion took place in the third quarter of this year, and we continue to build on the successful integration progress that has already occurred. Throughout the year, we have been intentional about maintaining and frankly, accelerating the momentum in the company and believe our financial results reflect that focus. Our goal is to create a high-performing company that leverages the opportunities presented by our presence in many of the country's best economies. We strive to deliver excellent customer service led by an exceptionally talented team. This was evidenced by the organic loan and deposit growth we achieved in 2025. Renasant's core profitability showed significant improvement this year, fueled by the benefits of the merger with The First, along with ongoing efforts to improve efficiency at legacy Renasant. Adjusted earnings per share for the year were $3.06, representing an 11% increase year-over-year. For the year, adjusted ROA grew 94 basis points in 2024 to 110 basis points in 2025. Likewise, the adjusted efficiency ratio saw an approximate 900 basis point improvement year-over-year to 57.46%, and the adjusted return on tangible equity grew from 11.5% in 2024 to 13.79% in 2025. I'm extremely proud of what our team has accomplished this year and excited about how we are positioned to grow on this success in 2026. I will now turn the call over to Jim. James Mabry: Thank you, Kevin, and good morning. I will now highlight financial results for the quarter. The company's net income was $78.9 million or $0.83 per diluted share. Adjusted earnings, excluding merger charges, were $86.9 million or $0.91 per diluted share. Our adjusted return on average assets of 1.29% for the quarter grew 20 basis points from the third quarter, and our adjusted return on tangible common equity of 16.18% for the quarter is an improvement of 196 basis points. Loans were up $21.5 million on a linked-quarter basis or 0.4% annualized. During the fourth quarter, the company sold approximately $117 million of loans acquired from the first which were not considered to be core to Renasant's business. Deposits were up $48.5 million from the third quarter or 0.9% annualized. From a capital standpoint, all regulatory capital ratios remain in excess of required minimums to be considered well capitalized. We recorded a credit loss provision on loans of $10.9 million comprised of $5.5 million for funded loans and $5.4 million for unfunded commitments. Net charge-offs were $9.1 million, which includes $2.5 million recognized in connection with the aforementioned sale of the acquired $117 million loan portfolio. The ACL as a percentage of total loans declined 2 basis points quarter-over-quarter to 1.54%. Turning to the income statement. Our adjusted pre-provision net revenue was $118.3 million. Net interest income increased $3.9 million quarter-over-quarter. Reported net interest margin increased 4 basis points to 3.89%, while adjusted margin was flat at 3.62% on a linked-quarter basis. Our adjusted total cost of deposits decreased by 11 basis points to 1.97%, while our adjusted loan yields decreased 12 basis points to 6.11%. Noninterest income was $51.1 million in the fourth quarter, a linked quarter increase of $5.1 million. This increase includes $2 million in income associated with the exit of certain low-income housing tax credit partnerships during the fourth quarter. Noninterest expense was $170.8 million for the fourth quarter. Excluding merger and conversion expenses of $10.6 million, noninterest expense was $160.2 million for the quarter, a linked quarter decrease of $6.2 million. This decrease includes an offset of $2.1 million in gains connected with branch consolidations during the fourth quarter. We are encouraged by the results of the fourth quarter and the positive momentum going into 2026. I will now turn the call back over to Kevin. Kevin Chapman: Thank you, Jim. As you have heard, Renasant is well positioned for 2026. We have a talented and motivated team, a strong balance sheet and an enhanced profitability profile. The banking industry continues to undergo significant change, and we are optimistic about our ability to take advantage of the opportunities. We appreciate your interest in Renasant and look forward to sharing our results. I will now turn the call over to the operator. Operator: [Operator Instructions] And the first question today will come from Michael Rose with Raymond James. Michael Rose: Just wanted to start on expenses. Really nice step down, Kevin here on the systems conversion. I know this is kind of a long process, extending back to the previous administration to not only get this to the finish line, but also get the conversion done maybe a little bit later than I think you and we all would have hoped. But this was a nice, obviously, quarter of progress. Can you just walk us through kind of the puts and takes of how we should think about expenses through the year? Clearly, there's been a lot of M&A in and around your markets and other deal announced in Texas today. Can you just talk about what's still left to go in terms of cost savings from the first? And then from an opportunistic standpoint, how do you see the hiring playing out? And then I guess, maybe for Jim to wrap up, how should we think about kind of the level of expenses over the next quarter or 2? James Mabry: Michael, this is Jim. And actually, I'll do that in reverse direction from the way you asked it, but I appreciate the question. And I will say, too, apologies upfront if we're not as smooth and filling the questions as maybe we usually are because we're each in a different location this morning due to the storm. And so we'll do our best. And actually speaking of that, we're definitely thinking of folks that have been impacting our marketplace. We're still feeling the impacts of the storm. We've still got lots of people without power. And like other companies, we've had a lot of people at the company working to make sure we get branches open and get people to where they need to be to help serve our customers. So it's been a grind, but hopefully, we're nearing the end of that. With that said, Michael, I'll start and then let Kevin sort of clean it up. But I think in Q3, we talked about roughly $2 million to $3 million we hope to see in Q4 and then in Q1 in terms of sort of core expense reduction, if you will. And I use that word core because I think it ties into, I think, what you're probably alluding to as we go forward in expenses and how we might think about that. So we still feel good about looking at Q1 and having that core number come down again in that $2 million to $3 million range. Salaries as we've seen -- that's the line item that probably shows the most significant impact, and that was down a couple of million dollars in Q4, and we expect a similar result in Q1. So I think our overall guidance in terms of core NIE, if you will, from what we said on the Q3 call remains unchanged. And -- but I do think it's important to talk about how '26 may unfold, and Kevin I would ask you to do that. Kevin Chapman: Yes. Thank you, Jim. And Michael, you're right. I mean, it feels like this quarter has been a long time coming. We announced the merger with the first back in July of '24 and really tried to put eyes on Q4 because we felt it'd be a good look as to how the company's performance was -- would look as we enter '26, and you start to see some of the benefits and the rationale of what we launched 18 months ago. And a lot of that is just cost saves from the merger, but also using it as an opportunity to unlock some of the potential at Renasant, legacy Renasant. And I think you saw this in Q3 that as we went through a conversion, that was the largest conversion that both companies ever contemplated we still grew. We grew in Q4, and we're doing it with less resources. We're doing it with less people. And I think Jim summed up where our expense trajectory as well. I'll just add to that, maybe a little bit of esoteric information about where our focus has been. If you go back and you look at our FTEs, us and the first back in June of '24, Q2 of '24, that was a little over 3,400 employees. I think at the end of this year, we're going to be a little bit above 3,000 employees. So we've eliminated 400 positions. That all hasn't been the first, by the way, and it all hasn't been by way of the merger. But as we stand right now, that number is sub 3,000. And so we are still working towards goals and efficiencies of improving our profitability and again, doing more with less. But also just to emphasize what Jim alluded to and what you mentioned, Michael, is we're seeing real opportunity and disruption, and we're not going to shy away from that. But we're going to continue to make investments in talent that will meaningfully improve our position, our customer service, our customer reach and ultimately improve our profitability. And so there'll be a little bit of a mixed message. We're still going to continue to focus on improving profitability and our expenses at Renasant. We're also going to continue to be very focused in making investments for future growth and future profitability. But like where we are, like our position, like the momentum in the company, like the focus from all of our teammates to improve the metrics that we think are important, but also be willing to be opportunistic and invest in future talent. Michael Rose: Very helpful. Jim, if I can ask a clarifying question. So the $2 million to $3 million, I think, reduction you said in the first quarter, I think that's what you said. So correct me if I'm wrong. But what base is that off of? Is that off of the core ex the merger charges? Or does it also incorporate the add-back from the gain that you guys booked, the $2.1 million gain. So I'm just trying to get a sense for what the base is. James Mabry: Yes. It does incorporate that gain, Michael. So as you said, sort of take the -- I guess, it was roughly $170 million of back out, call it, I think it was $10 million approximately in merger expenses, and then we had that offset of $2 million and change. I don't remember the exact number, but right around $2 million. And that's the number I'm sort of jumping off from for Q1. Michael Rose: Okay. So the $162.3 million roughly versus just ex the merger charge would be $160.2 million, right? James Mabry: Correct. Michael Rose: Okay. Perfect. Maybe just switching to loan growth. If I back out the loan -- or if I add back the loan sale gains this quarter, it looks like the growth was about 3% annualized. Can you just walk us through some of the puts and takes and maybe dovetailing with my prior question just on opportunities, not only for hires, but also for market share gains, just given some of the dislocation. What should we think -- is there any change to what you guys laid out last quarter, which I think is kind of a mid-single-digit growth outlook? Or could it potentially be better just given some of that dislocation and some of the hires that you guys have and plan to make? James Mabry: Kevin? Kevin Chapman: Yes. Thank you, Jim. Thank you, Michael. Yes, as we look at loan growth, really no change to our guidance. We're still targeting for the year mid-single digits. And look, I think '26 can be similar to '25, where there might be some lumpiness in the quarters. I can't project with precision what it will be in Q1, but would just say over a longer time horizon, we're definitely positioned for that mid-single digit. And there is the opportunity for upside as market disruption occurs. But if you break down kind of what led to that 3% annualized in Q4, the production was good. The production was there, and our pipeline is still holding as we look at that. All of '25, we predicted payoffs, and we were wrong for 11 months or 10 months, but they finally materialized in late Q4. And so payoffs were elevated, and that's going to be a wildcard, Michael, as much as market share gain or taking -- being opportunistic with disruption, the payoffs is still going to be a little bit of a wildcard to that net loan growth, maybe on a quarter-by-quarter basis, I don't think it changes our guidance for mid-single digits year-to-date. But when we look at -- again, when we look at how we're operating fully integrated with the first, production coming from all markets through all channels continues to remain good. And so the production is there. The wildcard is just going to be the payoffs. But I think we're well positioned in what we're currently doing. And again, there is upside as market dislocation may present some additional opportunities throughout the year. Operator: The next question will come from Stephen Scouten with Piper Sandler. Stephen Scouten: Kevin, you kind of spoke to maybe the push-pull between investing in growth and trying to manage expenses and profitability. I mean, I guess how can we think about that? I mean, could there be like an overarching efficiency initiative, coupled with a hiring plan? Is it you're adding production people, but trying to normalize maybe back office? Or just kind of how can we think about that push-pull dynamic around those 2 concepts? Kevin Chapman: Yes. So it's really -- it's all of the above. So let me just give you an example. If we just take production hires and terminations throughout the quarter, we eliminated 12 producers, not tied to the merger, not tied to -- there's more accountability measures is what drove that, but we added 6. And so it's that type of push/pull that we've been doing now for the last couple of years where accountability and an expectation of higher performance, not only of producers, but as a company as a whole. That is going to be our focus. With some of the talent that may be out there, Stephen, we may make an investment in back office that gives us scalability to a larger asset size than where we currently are today. And so it's hard to say that we're going to hire these many people and when we're going to hire them just given the opportunity for the disruption. What I'd tell you is, and I think this is consistent with what you've heard from us, our goal is to be high performing, not high performing, excluding all the bad stuff, but high performing. And so as we work to achieve that, A lot of the hiring we're doing, whether it's the investment or whether it is the additions to staff in the back office, that has to be paid for through higher levels of performance. And again, it's really hard to quantify and lay out where that will occur. I would just ask that you look over the last year, maybe the last 18 months, what we've been doing, and it's what's showing up in the numbers is that ROA, that ROE is going up to the right. The efficiency is down into the right. And that will continue to be our plan and our focus as we find ourselves in a really unique position with all the disruption, but also knowing Renasant has to continue to improve its profitability line. Stephen Scouten: Yes. No, that's great context. I appreciate that. And then maybe thinking about kind of capital usage from here. You've obviously got a fairly sizable repurchase plan. Kind of wondering how you're thinking about that given the stock still appears to be undervalued relative to peers and kind of how you'd stack rank that relative to obviously using for organic growth. And if M&A would even be on the table, I would think it'd be low down the priority list for you guys today, but just kind of curious how you think about that capital deployment. James Mabry: Stephen, this is Jim. I'll start and then ask Kevin to add on. But -- so as you know, we -- Q2 was the first sort of combined quarter, and we felt -- after the merger, we felt good about where everything sort of shook out. And we -- I think we still wanted the added comfort of seeing Q3 be on time and on schedule. And with that, we felt more confident in sort of flexing our muscle, if you will, a little bit as it relates to capital uses other than organic growth. So organic growth is still #1, and we're hopeful we'll have a strong year in terms of growth. But I would say in terms of those capital levers, at least near term, the most attractive one to us would be buybacks. And of course, we had some activity in Q4 and would anticipate that activity continues into '26. Kevin, do you want to comment on M&A? Kevin Chapman: Yes. I'll add to that. And look, as we look at our capital plan and capital deployment, Jim laid out many of what's on the table. I'll also add, and I think we did this in the Q4, also redemption of debt. So we've got our full capital plan playbook open right now. And Stephen, that does include M&A. And it's something that we'll continue to look at. It's just got to meet our metrics. It's got to be that right partner. And again, it's a little bit backdropped against all the other opportunities we have, but M&A is still part of our plan. And again, it's something that we're fully ready to deploy if we find that opportunity or when we find that right opportunity. Operator: The next question will come from David Bishop with Hovde Group. David Bishop: Jim, I was wondering maybe some thoughts here. How should we think about the NIM outlook here? It looks like the Fed could be on the sidelines near term. Just curious maybe expectations for the margin here into the first half of the year and throughout. James Mabry: Sure. So we -- coming into -- actually, I'll take a step back. The first, as you know, really helped our asset sensitivity position and lessened our asset sensitivity. And that played out in -- it's played out the last couple of quarters, but certainly in Q4 because we were -- I think, in talking with on the Q3 call and with investors post that, we were guiding to some slight degradation in the margin in Q4, we didn't see that, as you saw, and it behaved really well. Our outlook for '26 on margin. And I think we've got 2 cuts in sort of our outlook of, I think, March and September roughly of 25 bps each. Even with that, we expect the margin to behave relatively stable. We don't see much movement as we sit here today, plus or minus. And so with growth in balance sheet, net interest income should follow that. In other words, should grow as we've got balance sheet growth with a stable margin outlook, we should see some modest growth in those dollars. We're starting our year a little below where we thought we would in terms of loan balance given the loan sale and the payoff activity we had in Q4. But margin outlook, I would say, is stable, and we should have improving NII dollars as we go through the year. David Bishop: Got it. And then maybe as a follow-up, any commentary in terms of the specifics of the loan pipeline, how that broke down at the end of the year relative to the end of last quarter? James Mabry: Kevin? Kevin Chapman: Yes. So yes, Dave, just what -- so it's in line, it's consistent with what we've seen over the past couple of quarters kind of fully baked in with the first. And really, contributions, again, from all areas, no different than where we're seeing the production where all areas are providing. Likewise, we see that in the pipeline. Again, just good activity, good production potential. And again, that's across all segments, whether it's geographic, again, in the states we operate, Tennessee, Alabama, Georgia, the coastal area or even Mississippi or whether we look at it through our channels, the size of the loans, whether some of our small business, our middle market or even our larger corporate and our specialty lines. So just a good pipeline that really covers all the areas of the company. We continue to see that. And that's -- again, that's what we've seen for the last couple of quarters, and that's where we want to position the company. It's just not any one group driving all the growth, but a good contribution from everybody. And Dave, what I may add is that on the consumer side, we've seen a little bit of a pullback on the consumer side. If there is an area that's pulled back a little bit, it's more on the consumer side. But I would say that's probably more by choice than it is consumer behavior. Operator: The next question will come from Jordan Ghent with Stephens. Jordan Ghent: I just wanted to ask about the loan sale and then maybe if you could give any additional color on the types of loans. And then going forward, if we should expect to see any more loan sales? James Mabry: Jordan, this is Jim. So the loan sale involved a portfolio of loans secured by cash surrender value of life insurance policies. And it was a good performing portfolio, high-quality portfolio. And the first had picked it up through an acquisition, a previous deal that they had done. And I think they had sort of looked at that and said it's not really core to our business long term because there was no ancillary business with these loans, and they were not -- they were in and out of the footprint. So they had flagged this and we'd flagged it during diligence. And once we got systems conversion behind us and so forth, we started down that process and sold that book. There aren't any other portfolios or loans or categories at the first that we would see selling or divesting or slowing down. We felt like it was a good match. And David Meredith can add to this, but I think our initial read was we really like what they did. They had good client selection, and we like their book. So we don't really see anything else in the portfolio. But David, you may want to add to that? David Meredith: Jim, thank you. The only thing I would reiterate exactly what you said, it was a solid performing book of business for the first when we went through due diligence, they viewed it as noncore. We viewed it as noncore. And it was with the ability to obtain probably full relationships out of those things, we've chosen to better focus our capital and our attention on those were better in market opportunities for growth, be it other loan opportunities, other deposit opportunities. Jordan Ghent: Okay. And then maybe just one follow-up. I wanted to ask what you're kind of seeing on the loan and deposit competition side, if you're seeing loan yields kind of come down significantly and as well as any irrational behavior? James Mabry: So I would say, Jordan, generally, what we're seeing on both sides of the balance sheet in terms of competition is -- I'll embellish on it, but it's really unchanged. I mean, from what we've said the last couple of quarters, it's very competitive on both sides. I would say probably a little more competitive incrementally on the deposit side. And so our outlook for '26, we hope there is some relief on that front. We're not counting on it in our numbers. And so I think if somebody would say, okay, what's the vulnerability in our margin outlook, it would be maybe in the funding side, but I think we've accounted for it in terms of the way we're thinking about '26 and our margin. But it's definitely on the deposit side more than the loan side. We -- our 5-month special, the rate on that hasn't changed in probably 18 months, and it's sort of stuck at that 4% number, and we'd love to lower it. And hopefully, we'll get some relief on that in '26. But generally unchanged in terms of the competitive landscape on loans and deposits on the pricing front. Operator: The next question will come from Catherine Mealor with KBW. Catherine Mealor: I wanted to follow up on your commentary on buybacks, Jim. You said that you expect the activity to continue into '26. Is it fair to assume that we should see a higher level that we saw in the fourth quarter? You've got a big authorization, but the activity we saw this quarter was pretty light relative to the authorization. Just trying to kind of frame kind of the level of buybacks that's safe to assume in our modeling for '26. James Mabry: Sure. So with all the standard caveats in terms of how much organic growth we see and market conditions, I would frame it this way, Catherine, that I think we're roughly at 11.25% or thereabouts on CET1 at year-end. And I think we want to -- we would not want to -- I think we'd want to end up at year-end '26 something close to that or be willing to end up something close to that, I guess, I would say. And so again, we'll see what the environment holds in terms of other possible levers and so forth. But I would sort of frame it that way. We like where CET1 is. It's going to -- I think we're going to grow roughly 60 basis points, 50 to 60 basis points in that ratio. And so we'd like to end the year at roughly where we started the year. Catherine Mealor: That's fair. That's great. And then maybe one follow-up just on the margin. You added a great new slide, Slide 19 to your deck, which just shows some of the detail around loan repricing and maturity. As I look at that slide and I see fixed rate loans today are at around kind of 5.5% and then variable rate loans are about 6.3%. Where those 2 buckets, as you see those loans reprice and new originations replace it, where are you seeing new loan originations come on kind of relative to those rates? James Mabry: So new and renewed, I'd say, is if we looked at -- I don't remember the December quarter, but probably, call it, right around 6%, upper 5s, low 6s, somewhere in that range. And I think we've got roughly $1.3 billion, if you look at the math on that table that you're referring to, roughly $1.3 billion in fixed rate loans that will reprice and those loans are at, call it, 5.25%. So maybe that helps frame the opportunity there in terms of repricing. Operator: [Operator Instructions] And the next question will come from Janet Lee with TD Cowen. Sun Young Lee: So if I look at the fourth quarter profitability metrics, whether I look at ROA or ROTCE or efficiency ratio, you guys kind of achieved the levels that you wanted to achieve from the first acquisition, the slide deck that you filed a while ago, which was impacted in '25 given the changes in purchase accounting, et cetera. But -- so we're there. So is there any updated thoughts on where you want your profitability metrics to go from here? Or are we are we at the level that you guys wanted to achieve and it's more about scaling from here? James Mabry: Janet, this is Jim. So maybe I'll start with that, but Kevin should add on. So again, I think you summed it up well. We feel -- we're pleased with the fact that we -- except for a couple of assumptions, we're pretty much on pace to achieve what we set out 18 months ago with respect to the merger and the economic benefits of it. So I feel really good about that. And we had sort of pointed all along to Q1 '26 as being -- hopefully being a clean quarter and showing distinctly the benefits that came out of that merger. And the other thing I should have mentioned is in expenses. We don't anticipate any M&A expenses in Q1. We think -- I mean, there could be something that dribbles in, but I think we've incurred the last of those in Q4. So I think you framed it well. We feel like we're very much on pace in '26 to attain largely what we outlined 18 months ago. And I think to sort of go from that to all right, where do we -- how do we think about future profitability and incorporate all the things going on in the industry and around us, I'll turn it over to Kevin. Kevin Chapman: Yes. Great question, Janet. It's just got me reflecting because I think to your point, we're right on top of what we projected 18 months ago. But 18 months ago, that would have put us in the top quartile of our peer group, right, based on what we knew at that time. Well, today, we're not in that top quartile. The peer has moved. I think we find ourselves right in the middle, which isn't where we want to be. Our goal is to be a top-performing company in all areas, including our financial metrics. So no, we're not there yet. One, because we didn't plan to land here 18 months ago and then be satisfied with that. We plan to continue to improve. But what's exciting about what's happened with our peer groups with the peers moving is it's forced us to continue to set our sights on higher goals. And what I see in the company, what I feel in the company is real momentum and real buy into that. And in some cases, opting out of it. But that's okay because that opt out is what will help us achieve our higher performing status. But what I see by and large is most people embracing that and actually relishing in it. And so our goal is to continue to improve from here and chase a moving target with the ultimate goal of being high performing. And I just -- I was somewhat reflecting on just this past year and this morning. And if you look at our results for the year, particularly as we leave Q4, really don't know what we projected as far as pretax pre-provision revenue back in '18. I can't remember what that was, but I suspect it's probably appreciably higher today than what we projected. And what I mean by that is that one thing that we did this year is we maintained our allowance just as we saw some migration in credit. We're not seeing any massive breakout. We don't have any significant concern. But we've also maintained allowance, and that has weighed on ROA a little bit, all things being equal. We're probably a little bit ahead of where we thought provision would be for '25 actual results compared to where we thought it would be in '24. And if you normalize for that, maybe we are a little bit closer to that top-performing peer group. But again, I just out of a mindfulness of caution, we've maintained some reserves. But I think if you look at -- if you look through that and look at the operating results, we're probably doing a little bit better than what we projected. -- but still aren't ready to drop a mission accomplished banner yet. The peer has moved. And frankly, that's what's exciting about this is we're relevant. We're in the game. We're in the middle of the pack rather than the bottom of the pack as it relates to our performance. And the difference between top performing and where we are is a few basis points. And so our execution, the strategies we have, our execution is what will make the difference against the peer group. And that -- to me, that's what's exciting and fun about this. It's not discouraging. You could easily say, well, we did all this work and we ended up in the middle, not the top. That's not really what I feel in the company. What I feel is an excitement that our plan and our team and our execution I feel confident that we'll continue to move up the rankings as we just perform. And we just need a little bit more time to perform. And that will continue to allow us to improve financial performance and ultimately achieve our goal of getting to that top performing or high-performing status. Sun Young Lee: That's great to hear. And just my last follow-up on loan growth. In terms of -- you reiterated that mid-single-digit guide for 2026, you cited strong pipelines. I understand you really don't have a lot of line of sight into payoffs. But what's giving you that confidence that -- are you seeing signs that payoffs are -- have moderated versus the fourth quarter level? And what gives you that confidence? Kevin Chapman: Yes. So I would just say the confidence probably is a little bit more of a longer period of time. So let's extend this out 12 months. It gives me confidence that over the course of the year, things will normalize. It may be abnormal quarter-to-quarter. But over the course of a longer period of time, I think we're well positioned to grow at that mid-single run rate. And that's not only loans, but also funding that appropriately on the liability side with deposits. But payoffs just early on, I mean, we're early on into the quarter. So it's really hard to gauge what payoffs will be for Q1. We're just kind of projecting that it's going to be a similar level of payoffs that we had in Q4, which were elevated compared to previous quarters. But that really isn't necessarily based on what we've seen in the first 20-something days of the quarter. It's really just a concern that these are lumpy. They show up sometimes unexpected or the first 20-something days really aren't in a good indication of what will happen and play out throughout the course of 90 days. But I just -- when I look at our production, when I hear -- when I talk to our teams and hear the opportunities that they see or they're having, the conversations they're having, that's what -- that gives me confidence that we're -- over the course of the year, mid-single digits is the appropriate run rate for us. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Chapman for any closing remarks. Kevin Chapman: Thank you, Nick. And thank you to everybody that listened this morning, and we appreciate your interest in Renasant. We also look forward to meeting with investors throughout the quarter. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Provident Financial Services Fourth Quarter Earnings Call. [Operator Instructions] I would now like to turn the conference over to Adriano Duarte, Investor Relations. Adriano Duarte: Good morning, everyone, and thank you for joining us for our fourth quarter earnings call. Today's presenters are President and CEO, Tony Labozzetta; and Senior Executive Vice President and Chief Financial Officer, Tom Lyons. Before beginning the review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today's call. Our full disclaimer is contained in last evening's earnings release, which has been posted to the Investor Relations page on our website, provident.bank. Now it's my pleasure to introduce Tony Labozzetta, who will offer his perspective on the fourth quarter. Tony? Anthony Labozzetta: Thank you, Adriano, and welcome, everyone, to the Provident Financial Services Fourth Quarter Earnings Call. The Provident team delivered another strong quarter, driven by record revenues, favorable credit metrics and expanding core profitability. Throughout 2025, we built organic growth momentum on both sides of the balance sheet, which combined with positive operating leverage resulted in notable improvement in our financial performance. Accordingly, in the fourth quarter, we reported net earnings of $83 million or $0.64 per share. Our annualized return on average assets was 1.34%, and our adjusted return on average tangible common equity was 17.6%. Pre-provision net revenue was a record $111 million or an ROA of 1.78%. Since closing the Lakeland transaction, we have grown core pre-provision net revenue every quarter. Turning to our balance sheet. Our commercial loan team generated total new loan production of $3.2 billion in 2025. Elevated loan payoffs of $1.3 billion, which were primarily in our CRE portfolio, partially offset our strong production, resulting in net commercial loan growth of 5.5% for the year. We remain focused on generating high-quality diversified loan growth. At year-end, our pipeline remained solid at $2.7 billion with a weighted average rate of 6.22%. Our loan pipeline has consistently been north of $2.5 billion for the last 4 quarters, and more importantly, our originations have grown every quarter in 2025, peaking at over $1 billion in the fourth quarter. On the funding side, core deposits grew $260 million or 6.6% annualized compared to the linked quarter. Favorable trends in our commercial and consumer segments contributed to growth in our average noninterest-bearing deposits of 2% annualized. The deposit market remains competitive, but we continue to invest in our capabilities to drive meaningful growth in our core funding. Provident's commitment to managing credit risk and generating top quartile risk-adjusted returns has remained unchanged. During the quarter, we successfully resolved $22 million of nonperforming loans while experiencing just $1.3 million in associated net charge-offs. As a result, nonperforming assets improved 9 basis points to a favorable 0.32%. The business environment in our market continues to be healthy. And as a reminder, our exposure to rent-stabilized multifamily properties in New York City is less than 1% of total loans, all of which are performing. Growing our noninterest income remains a strategic priority. We generated record fee revenue of $28.3 million in the quarter. I want to take a minute to highlight the momentum and diversity of our noninterest income. Provident Protection Plus continues to drive consistent growth in our insurance agency income. New business and over 90% customer retention helped grow pretax income 13% year-over-year. Provident Protection Plus has a strong pipeline at the start of 2026, and I'm encouraged by the increased collaboration with both the bank and Beacon Trust, which should strengthen further in 2026. Beacon Trust saw revenue growth again in the fourth quarter, increasing to $7.6 million on approximately $4.2 billion of AUM. Beacon remains focused on both growth and retention, and we continue to make investments in talent to help achieve these goals. We also continue to invest in our SBA capabilities, which have been a more significant contributor to noninterest income in 2025, generating $946,000 of gains on sale in the fourth quarter. For the full year, we have generated $2.8 million of SBA gains on sale, which is up from $905,000 in 2024. While total assets grew nearly $1 billion in 2025, our strong profitability helped further build Provident's capital position, which comfortably exceeds well-capitalized levels. As such, earlier this week, we announced a new share repurchase authorization that will allow us to buy back an additional 2 million shares. I'd like to conclude my remarks by discussing our strategic priorities for 2026. We expect to continue investing in revenue-producing talent across our middle market banking, treasury management, SBA, wealth management and insurance platforms. We expect recent balance sheet growth momentum to be sustained and that loan payoff activity will normalize when compared to 2025. Finally, we are preparing for a core system conversion in the fall of 2026, an important investment that will enhance scalability and our digital capabilities. I'm confident in our team's ability to successfully complete this conversion, particularly given how seamlessly we integrated Lakeland Bank in 2024. I'm incredibly proud of the efforts and production of our employees. We are pleased with our organic growth momentum and improved profitability, and we continue to target sustained top quartile performance. Now I'd like to turn the call over to Tom for his comments on our financial performance and to discuss our 2026 guidance. Tom? Thomas M. Lyons: Thank you, Tony, and good morning, everyone. As Tony noted, we reported net income of $83 million or $0.64 per share for the quarter with a return on average assets of 1.34%. Adjusting for the amortization of intangibles, our core return on average tangible equity was 17.58%. Pre-provision net revenue increased 2% over the trailing quarter to a record $111 million or an annualized 1.78% of average assets. Revenue increased to a record for a third consecutive quarter at $226 million, driven by record net interest income of $197 million and record noninterest income of $28.3 million. Average earning assets increased by $307 million or an annualized 5.4% versus the trailing quarter, with the average yield on assets decreasing 10 basis points to 5.66%. This reduction in asset yield was more than offset by a 13 basis point decrease in the cost of interest-bearing liabilities to 2.83%. While a reduction in net purchase accounting accretion limited our reported net interest margin expansion to 1 basis point versus the trailing quarter at 3.44%, our core net interest margin increased by 7 basis points to 3.01%. The company continues to maintain a largely neutral interest rate risk position, but anticipates future benefit to the core margin from recent Fed rate cuts and expected steepening of the yield curve. The core margin for the month of December continued to trend upward at 3.05%. We currently project continued core NIM expansion of 3 to 5 basis points for the next 2 quarters with reported NIM estimated in the 3.4% to 3.5% range for 2026. Period-end loans held for investment increased $218 million or an annualized 4.5% for the quarter, driven by growth in multifamily, commercial mortgage and commercial loans, partially offset by reductions in construction and residential mortgage loans. Total commercial loans grew by an annualized 5.4% for the quarter. Our pull-through adjusted loan pipeline at quarter end was $1.5 billion. The pipeline rate of 6.22% is accretive relative to our current portfolio yield of 5.98%. Period-end deposits increased $182 million for the quarter or an annualized 3.8%, while average deposits increased $786 million or an annualized 16.5% versus the trailing quarter. The average cost of total deposits decreased 4 basis points to 2.1% this quarter, while the total cost of funds decreased 10 basis points to 2.34%. Asset quality remains strong with nonperforming assets declining $22 million or 22% to 32 basis points of total assets. Net charge-offs were $4.2 million or an annualized 9 basis points of average loans this quarter, while full year 2025 net charge-offs were just 7 basis points of average loans. Current quarter charge-offs reflected the disposition of several nonperforming and underperforming loans and the write-off of related specific reserves. We recorded a net negative provision for credit losses of $1.2 million for the quarter as year-end loan closings drove a decrease in approved commitments pending closing, asset quality improved, and there was modest improvement in our CECL economic forecast. This brought our allowance coverage ratio down 2 basis points from the trailing quarter to 95 basis points of loans at December 31. Noninterest income increased to $28.3 million this quarter with gains realized on calls of corporate securities and solid performance from our wealth management and insurance divisions as well as gains on SBA loan sales and increased core banking fees. Noninterest expense increased to $114.7 million this quarter as strong operating results drove increased performance-based incentive accruals, while expenses to average assets and the efficiency ratio were consistent with the trailing quarter at 1.84% and 51%, respectively. Excluding the amortization of intangibles and the related average balance, these ratios were 1.76% and 48.15%, respectively. We project quarterly core operating expenses of approximately $118 million to $120 million for 2026, with the second half of the year run rate being slightly higher than the first half. In addition to normal expenses, as Tony mentioned, we will be upgrading our core systems in Q3 of 2026 and expect additional nonrecurring charges of approximately $5 million in connection with this investment, largely to be recognized in the third and fourth quarter. Our sound financial performance supported earning asset growth and drove strong capital formation. Tangible book value per share increased $0.57 or 3.8% this quarter to $15.70, and our tangible common equity ratio increased to 8.48% from 8.22% last quarter. We realized a $3.4 million benefit to our income tax expense from the purchase of energy production tax credits for the 2025 tax year. We are exploring opportunities to purchase additional similar tax credits for the 2026 year and open carryback years. Excluding the discrete benefit of any tax credit carrybacks, we currently project an effective tax rate of approximately 29% for 2026. Regarding additional 2026 guidance, we are expecting loans and deposits to grow in the 4% to 6% range, noninterest income to average $28.5 million per quarter and are targeting a core return on average assets in the 120% to 130% range with a mid-teens return on average tangible common equity. That concludes our prepared remarks. We'd be happy to respond to questions. Operator: [Operator Instructions] Your first question comes from the line of Mark Fitzgibbon of Piper Sandler. Mark Fitzgibbon: Tom, first question for you. I heard your comments on the effective tax rate being 29% for 2026. I guess I'm curious, those tax credit investments that you announced you made, I think it was $54 million. How does that flow through to the effective rate or when does it flow through? Thomas M. Lyons: So that was in the Q4. Those are 2025 tax year benefits. So that was reflected in the $3.4 million we saw in reduction in income tax expense. Next year's purchases, the 2026 year will be realized in 2026 as a reduction. That's why we're dropping from close to 30% down to about 29% in our estimate of what the effective rate will be. Anthony Labozzetta: It's spread out throughout the year. So it's not a onetime like we did in 2025. Thomas M. Lyons: That's correct. We did them at the end of the year. So it should be spread through 3 quarters of the year in 2026. Mark Fitzgibbon: Okay. Great. And then secondly, I saw the buyback announcement. I guess you have a little bit of excess capital. Could you help us think about how you'd rank your priorities for deployment of excess capital today? Thomas M. Lyons: Yes, I don't think they've changed. Still profitable balance sheet growth is our primary objective. We think that's the longest-term value creator. But we wanted to add additional flexibility to our capital deployment options, which is why we refreshed the stock buyback plan. Anthony Labozzetta: I think that's spot on. Organic growth is our primary focus. The second half of the year, we might look at our dividend as our productivity continues. Obviously, there's always the additional uses of capital we want to invest deeper into our insurance and wealth platforms. And then there's always in the background, the thoughts of mergers, but our primary #1 focus is organic growth. Thomas M. Lyons: Yes. Our capital levels, we're comfortable with where they are now, and we're confident in our capital formation projections for the rest of the year. So again, that was another trigger, as Tony said, to both give some consideration in the remainder of the year to the dividend rate as well as to reintroduce some buyback options. Mark Fitzgibbon: Okay. And I hear what you're saying, Tony, on M&A being sort of back of the list, so to speak. But if you were to look at bank deals, what kinds of things would you be looking for in a potential target? Anthony Labozzetta: Well, I think, as I mentioned in the past, I think, the primary, I would start by saying this team is a pretty outstanding team, and we put together a pretty good engine. Everybody is meshing well. We got a good dynamic group from Board on down. And #1 thing is that the cultures have to be compatible so that we don't create a tremendous amount of hiccups in what we've been building here already that's producing value. So that being said, we would also love to see some additional talent acquisition and then also perhaps new line of business or a market that we're not in, complementary things, adding to the wealth side or the deepening our insurance penetration is certainly something of value, but we do recognize that you can't get all those boxes checked off in any situation. So you have to pick up how many boxes do you want checked off in order to get the deal done, but a lot of good -- still a lot of good franchises out there that we think we could be good partners with. However, I did just cover what we thought was a value of verge. Operator: Your next question comes from the line of Tim Switzer of KBW. Timothy Switzer: I also want to congrats to Tom on his pending retirement. Thomas M. Lyons: Thank you, Tim. Appreciate it. Timothy Switzer: The first question I have is there's been a good amount of talk on conference calls this quarter about rising deposit competition in some of your core markets, particularly on pricing and -- what have you guys seen in the market? Where is the highest level of competition right now in terms of like category or geography? And does that maybe impact your NIM outlook or liquidity management at all? Anthony Labozzetta: Well, I kind of want to say competition is heightening a little bit, but I see the competition for deposits in our market as being universal. It's always been there as long as I've been in this space. It kind of moves here and there in different segments. I would argue that everybody is in a fight for interest -- noninterest-bearing demand and low-cost money, and then that's part of your model. I think from our perspective, we're doing a good job with our core model. If you look this quarter, we had 16.5% growth on average balances. You're seeing, we produced nearly $479 million of commercial deposits this year that are -- tend to be your lower costing deposits. Funding about 24% of our loan production. So those are all good things. So the competition is there. But if you go to market with the right talent and with the right approach, I think you can win your share. I would say a safe answer would be that if everybody has designs to grow high single digits, there's just not enough new money for the -- for everybody's needs. So that's what creates the competition. It's like what -- it's just not enough to cover everybody's growth needs. Timothy Switzer: Got you. Yes, that makes sense. And then can you remind us on -- I think you have close to $5 billion to $6 billion of fixed rate loans repricing in your back book over the next year. Can you repress us on what that number is and maybe the gap on new origination yields versus what's rolling off? Thomas M. Lyons: Yes. The total repricing over the next 4 quarters, this is on the adjustable side, it's about $5.7 billion. Looking for. Okay, back book repricing, cash flows, both amortization and prepays, we're looking at another $4.7 billion over the next 12 months as well. So the pickup in rate is about 30, 40 basis points. I think it adds about 4 basis points to the NIM. Timothy Switzer: Got you. Okay. And then the last question I have is just on the CRE market trends. It seems like it's becoming a little bit healthier, volumes are improving, pricing holding up to rising. Trying to get -- like are you guys seeing the same thing there? And then I believe there's also -- due to some M&A in your market, there's a competitor looking to sell potentially some CRE portfolios in the New York market. Is that anything with your guys' capital levels you'd be interested in? Or just focused on organic? Anthony Labozzetta: Yes. I mean, there's a couple of questions in there. I'll try to tackle them all. I'll start with the last 1 first. There's probably little to no desire for us to acquire anyone's portfolio since our productivity is quite high, and being able to allocate that capital to our clients is more important, right? So the relationship banking that we do, we would view that book acquisition as a filler and it's just not necessary for us in the way we approach our business. When you look at the CRE market overall, I do see a healthier CRE market. Our CRE book has held up incredibly well throughout any of these perceived cycles. You're starting to see other banks that may have stepped a little bit back on the CRE space stepping back in. And certainly, the agencies, if you look at half of our prepayments that I mentioned in the call, 50% of them were with the agencies that basically are offering terms that we just don't do, which is high level of prepayments of IO is rather long-term IOs and high leverage and rates that are just not balanced with the risk reward. So again, I think that the market is healthy, and you're always going to have spotty situations like right now, the big thought process is what's happening on the rent controlled, rent stabilized in New York with the new administration. We're attentive to it. We don't see anything even in our small portfolio that is alarming to us at this point. So knock on wood, everything appears to be healthy going into the 2026 year. Operator: Your next question comes from the line of Feddie Strickland of Hovde Group. Feddie Strickland: I wanted to touch back on loan yields a little bit. And Tom, I think you mentioned this a little bit in your opening comments, but is there the potential for yields to move up a bit as we move into early '26, just given the increase in the pipeline yield of 12/31 versus 9/30? And what you just talked about back book repricing? Thomas M. Lyons: I think so stable to slight improvement overall. Anthony Labozzetta: Yes, that makes sense. We had a little bit of a lift in the 5-year from the prior quarter of about 20 basis points, and that's where the yield improvement came from, where the rate improvement came from. Feddie Strickland: Got it. And then just switching over to fees. I noticed the wealth AUM was down a little bit from last quarter despite what I'd imagine is positive market move impacts, but it still sounds like you're pretty bullish on '26. Can you talk a little bit about what drove AUM maybe a little lower in the fourth quarter? Thomas M. Lyons: It was down a little bit on a spot basis, up on average, though, by about $80 million. We did have some net outflows for the quarter, but we did have some good strong business production during the period as well. So overall client count is pretty stable. Anthony Labozzetta: Yes. I would add, it's a little bit more exciting of what we expect for 2026, right? So we've added some more talent to Beacon to augment the growth and retention strategies that are there. We brought in some teams along with that to help. Pretty exciting early indications. Obviously, it's way too early for any real huge material numbers to change, but we're seeing the engagement. We're seeing new-to-bank clients coming in. We're seeing a group that can deeper penetrate -- deeply penetrate both Provident and work with Provident Protection Plus and the bank to deepen those client relationships. So I'm pretty excited about the prospects for '26 when it comes to Beacon. I'm expecting some pretty good things there. Feddie Strickland: Got it. And just one last one for me. Just is there any desire or opportunity to expand the footprint a little bit more in adjacent geographies? More organically is what I'm talking about. I mean, maybe areas like Long Island, given some of the disruption there, maybe a little further south in the Philly suburbs? Or are you pretty happy with where you are today? Anthony Labozzetta: Well, people that know me, I'm never really happy. So I would say that. Yes, all of the above. I mean, we're already out on Long Island in Manhasset, and we have an office in Astoria. So continuing to penetrate there is obviously intelligent. We like the Westchester, Rockland markets. We do like the mainline around Philly. All of those areas are where we already have teams down there. We don't have physical locations in that -- around that Philly market, but we already have lending teams down there, same as in Westchester and New York. And so seeing us expand geographically in those areas is not something that should surprise anyone on this call. Feddie Strickland: Congrats, Tom, on the retirement. Thomas M. Lyons: Thank you very much. Really appreciate. Operator: Your next question comes from the line of Steve Moss of Raymond James. Stephen Moss: Tom, congrats on your retirement. Maybe just starting back on the accretion numbers here. Just kind of curious, Tom, what you're thinking for total purchase accounting accretion for 2026? Thomas M. Lyons: On the loan book, it's about $60 million for the full year. Stephen Moss: Okay. Got it. Thomas M. Lyons: The volatility there on prepayments, but that's our kind of base case model. Stephen Moss: Right. Okay. So then a lot of the adjustable rate loans you're referring to that are repricing carry rate marks at the current time, just looking to convert those to kind of like a core margin, kind of how to think about that benefit? Anthony Labozzetta: Not all. Some, not all, Steve, just because there's a blend -- a healthy blend of legacy Provident loans and leases. Stephen Moss: Got it. And -- but it is about 3 to 4 basis points or 4 basis points to the margin just from the back book repricing, if I heard that correctly. Anthony Labozzetta: That's correct, yes. Stephen Moss: Okay. Perfect. And then my other question here is just kind of, Tony, in your prepared remarks, you mentioned the hirings planned for 2026. You kind of alluded to it a little bit in some of your earlier commentary. Just kind of looking for any specific niches, maybe you're looking to add how many people you're looking to hire in the upcoming year? Anthony Labozzetta: Yes. As I mentioned the area, I think one of the biggest areas of focus, when we look at hiring the people, it's augmenting some of the things we're doing already, like in the insurance space and in our wealth space, you should expect to see a lot more on the production side and the retention side. I think the -- one of the greatest areas of investments for us this year is going to be in the middle market space. That range of $75 million to $0.5 billion in client size, we think that is an area that we haven't really penetrated deeply yet, comes with all the attributes that we like, strong deposits, strong relationships. We're able to use our wealth group in those segments as well as our insurance. It meets not that our other clients don't, but this is an area that we think is very suitable for us in the scale that we're at. So there's going to be some good -- I wouldn't be surprised in there if you add another 3 to 5 additional complements in this year. Obviously, all of that is timed in the expense guidance we've given, and we were paying -- we are very attentive to positive operating leverage. So it's not -- we're not going to race ahead of ourselves. Also, the other area that you could expect to see some growth, it is in our treasury management capabilities, particularly on the outbound deposit-only categories like deposit gathering functions. We want to deepen that investment as we move into -- deeper into '26. So great -- I mean, it's a great thing because we keep investing in our future and that it's exciting because we're having the growth, and we just want to make sure that we can continue to deliver the growth in '26 and '27. So hiring these productive individuals is going to be critical for us. Stephen Moss: Okay. Got you. That's helpful. And then one last one for me on credit here. Just with the reserve has come down a fair amount over the course of the year. Curious what the potential is for maybe incremental reserve bleed here? Or is there just -- is there less give on that number here going forward? Thomas M. Lyons: Yes. It's largely a model-driven exercise at this point. The macroeconomic variables drive the provision requirements. That said, it feels like we're at a base here, but we've been very consistent in our approach and our methodology throughout the year, and it really has been warranted as you could see, with 7 basis points in net charge-offs over the year. Good strong credit metrics, 32 basis points in NPAs, I think it's 40 basis points NPLs to loans. So the credit quality and the strong underwriting and the low leverage lending we do have all supported the lower allowance coverage ratio. Operator: Your last question comes from the line of Dave Storms of Stonegate Capital Partners. David Storms: Just wanted to start with -- you mentioned in the prepared remarks, a decrease in deposit costs. Just curious as to how you see the room to run here and if there's any specific initiatives that we should keep in mind as you continue to try to bring those costs down? Thomas M. Lyons: I'm sorry, Dave, I had trouble hearing that. Could you just try to speak a little louder, please? David Storms: Apologies, yes. Just around decrease in deposit costs. How much more room do you think there is to run here? And if there's any specific initiatives that we should keep an eye on as you're working through these costs? Thomas M. Lyons: So we are still repricing downward. We didn't get the full benefit of the last cut reflected, which is one of the reasons we wanted to bring to everybody's attention that the margin for the last month of the quarter, December was 3.05% on a core basis. So we'll see the full benefit of that I think every 25 basis point cut that we may get gives us another 2 to 3 basis points in the core margin in terms of improvement. Overall, I'd say our betas are going to continue to run in the 25% to 30% range relative to the Fed rate cuts. David Storms: That's great. And then just one more for me. You mentioned the core systems conversion. Is there anything more you can tell us about maybe the time line for that? And maybe any other tech investments or initiatives that you have on the horizon? Anthony Labozzetta: I think that's the major initiative on the near-term horizon. The conversion is scheduled for Labor Day weekend of 2026. It's the IBS platform of FIS. It's a very commercial-oriented, very proven system commercial-oriented. -- we'll meet the needs -- our needs as we move into the future from a digital perspective or product perspective, everything that we need. It's comparable to a lot of banks between $25 billion and $150 billion are on it. And we talk to them, and the system works very well for them. So I think it's something that we need to do to position our bank for the growth that we're experiencing in our future. Thomas M. Lyons: We expect to realize additional efficiencies in our processes as a result and enhancements that will help our product set and delivery to our customers. Operator: This concludes our Q&A session. I will now turn the conference back over to Anthony Labozzetta for closing remarks. Anthony Labozzetta: Well, thank you, everyone, for your questions and for joining the call. We hope everyone had a good start to the new year, and we look forward to speaking with you very soon. Thank you very much. Operator: This concludes today's conference call. You may now disconnect.
Operator: Hello, and welcome to the Teva Pharmaceuticals Industries Limited Q4 2025 Earnings Conference Call. My name is Alex, and I'll be coordinating today's call. [Operator Instructions] I'll now hand over to Chris Stevo, SVP, Investor Relations. Please go ahead. Christopher Stevo: Thank you, Alex. Good morning, and good afternoon, everyone. Thank you for joining us on our fourth quarter call. Before I turn it over to our CEO, Richard Francis, I just want to remind everyone that we will be making forward-looking statements on this call. Any statements we make are only as of today, and we undertake no obligation to update those statements subsequently. And if you have any questions about our forward-looking statements, feel free to see the appropriate sections in our SEC Forms 10-K and 10-Q. With that, Richard Francis. Richard Francis: Thank you, Chris. Good morning, good afternoon, everybody. Great to have you on the call. Also on the call with me today will be Dr. Eric Hughes, Head of R&D and Chief Medical Officer, who will be walking you through some exciting developments in our pipeline. And then Eli Kalif, my CFO, who will go through the Q4 and the full year results. So starting with, as I always do, the Pivot to Growth strategy and the progress we've made over the last 3 years. As you know, the foundation is the 4 pillars: deliver on our growth engines, I think you'll see in the results that we continue to have great momentum around our innovative portfolio of AUSTEDO, UZEDY and AJOVY and some great progress on our innovation, so step-up innovation. You'll see that we filed olanzapine last year, completed the recruitment of the DARI study, dual-action rescue inhaler and started our Phase III study for duvakitug in UC and CD. And then sustained generics powerhouse, good progress. Our aim is to get this business back to stability, and we have done that. And now we see some exciting growth emerging from our biosimilars portfolio, and I'll talk a bit about that. And then focus the business. This is all about making sure we allocate capital to the correct areas to give the best return. And we'll walk you through a bit of the progress we've had on our transformation program, which is the aim is to have $700 million of net savings by 2027. We made excellent progress in '25, and we're on track to hit the 2/3 by the end of this year 2026. So now moving on to the actual results. So I'm pleased with these results. Now just to orientate you on this slide, the numbers on the left include the Sanofi milestones and the numbers on the right do not. So starting with the revenues. So a 5% increase in revenues at $17.3 billion. EBITDA grew 12% up to $5.3 billion. EPS grew 19% to $2.93 and free cash flow was up 16% to $2.4 billion. And our net debt to EBITDA is now at 2.5x, which is, as you know, our goal for 2027 is to 2x. So we're well on our way to do that. Now a slide that I've shown over the last 12 quarters actually, to show that our return to growth, which was our strategy, part of the Pivot to Growth strategy when we launched it in 2023. And as you see, we've consecutively done this. And we did that in Q4, where the growth was up 11%. Now that did include the milestone from Sanofi. If you take that away, we were slightly down at 1%. But let's look at it over a 3-year period. So over a 3-year period, these are impressive results, once again, reminding you that we had multiple years of sales decline. And so in 2023, we actually grew the business 4%, in '24, 11% and then last year, 2%. So we're well on track for our CAGR of mid-single digit, as you can see from the slide there. Now let's get into a bit of detail as to what's driving these good results. So on the next slide, you'll see the innovative performance is one of the key areas of growth for us. And AUSTEDO, UZEDY and AJOVY hit $3.1 billion for the year. This is up about 35%. So excellent results there. And I'm really pleased to tell you that in Q4, we surpassed $1 billion for our innovative portfolio that you see on the screen here. But in a bit more detail, AUSTEDO grew at 34% at $2.26 billion. UZEDY was up 63% at $191 million, and AJOVY continues to perform, was up 30% at $673 million. Our generics business was flat, worth noting this excludes Japan from these numbers. Now I've talked a lot about moving from a pure-play generics company to a biopharma company. I think these results show we clearly have done that. And now it's a question of just how much we can keep driving this innovative portfolio and the pipeline that comes through. Now moving on to a bit more detail. I wanted to talk to you a bit about AUSTEDO. So AUSTEDO had a really strong quarter in quarter 4, as you can see, $725 million, up 40% for the quarter. And for the full year, $2.2 billion, up 35%. And this was delivered with good underlying growth. As you can see, TRx is 10%, and there's a 19% rise in milligram volume. This is driven by both new patients and better adherence. It's worth noting that AUSTEDO XR now accounts for 60% of new patients. Now -- very impressive results here. Now we did have in Q4, these numbers did reflect some year-end inventory stocking and some favorable gross to net. And Eli will talk a bit more detail about that. But if you actually take that out, then we still grew at 20% in Q4. So once again, the underlying growth of this product is very strong. And because of that, we're giving the guidance of $2.4 billion to $2.55 billion for 2025 (sic) [ 2026 ]. I think it's worth noting that if we do hit the upper end of that, then that means we've hit the $2.5 billion a year ahead of schedule. But we'll talk in a bit more detail of the puts and takes to that range. Now moving on to UZEDY. UZEDY also had another strong quarter, $55 million, up 28% and for the full year, up an impressive 63% to $191 million. TRx volume grew an impressive 123% year-over-year. And it's worth noting that more than 83% of the NBRx generated -- was generated by patients transitioning from oral therapies or treatment naive, which confirms that UZEDY is expanding the long-acting injectable market, not just taking share. Now another impressive fact on UZEDY is it's the fastest-growing long-acting injectable in its category. And because of this momentum, our guidance reflects this. And as you see, we have a guidance of $250 million to $280 million for 2026. Now moving on to AJOVY. AJOVY had a strong quarter as well, up 43% year-on-year at $211 million. And for the full year, it's $673 million, up 30%. So once again, for a product that's fairly mature, really strong growth. AJOVY continues to be #1 preventative anti-CGRP injectable in the top U.S. headache centers, and it leads in 30 markets across Europe and international. And this continued growth is driven by, I think, our commercial excellence, our ability to continue to take market share to manage the pricing and the payer environment in the U.S. and to continue to expand in new geographies. And because of this strength, we're giving a guidance of $750 million to $790 million. Now moving on to the pipeline. So we talked about the products we have in the market and the excellent progress we made on those, but the pipeline is really exciting here. And I do want to mention this, even though I know Eric will talk a bit about it. The things I always remind people about this slide is every product we're going to launch has a potential of over $1 billion. The size of the markets we're entering into are significant and our entry points into these markets are in the short term. And if you look at the total, the total of the portfolio can be over $10 billion of peak sales. There's an addition to this slide that some of you may not have seen, which is we will be announcing 2 new indications for duvakitug later this year, once again, highlighting that is a pipeline in a product. Now moving on to our generics business. Our generics business, our aim was to get this back to stability, and we've done that. And the generics business was flat in 2025 versus 2024. Now one of the things that I do always highlight is you need to look at the generics business over a multiyear period because of the fact that some years, you have more launches than others. That's just part of the business. And as you see here, our 2-year CAGR is 6%. But for 2025, the U.S. grew at 2%, international markets, 1% and Europe declined 2%. Now we continue to see good performance from our biosimilars business, and I think I'll move on to that now to talk you through that. And where we started with biosimilars over the last 3 years, we've made tremendous progress. It's worth noting that we now have 10 assets in the market globally, and we're going to launch 6 additional between now and the end of 2027. Then we have another 10 assets that are going to start launching from '28 and beyond. So some impressive numbers here. So the aim was to build a world-leading portfolio, and we've done that. In fact, I think we have the second largest portfolio of biosimilars now in the industry, and we've launched the most biosimilars since 2020. And because of this, we're well on track to grow our biosimilars business by $400 million by 2027. Now to close out, as you've seen by some of the numbers we've talked about, we're well on track to hit our 2027 guidance. The CAGR, I talked about, we currently stand at 6%. The operating margin will go into a bit more detail, but with the success of our innovative portfolio, we're very confident about 30%. Net debt to EBITDA at 2x, we're already at 2.5x and cash to earnings is 80%, Eli will walk you through a bit more detail on that. But with that, I'll hand you over to Eric to talk about our exciting pipeline. Eric Hughes: Thank you, Richard. Starting with the slide that Richard went over briefly. One of the things about this pipeline is there's 3 Phase III programs and 2 burgeoning Phase II programs. And the market potential is big, like Richard mentioned. But more importantly, it's the unmet medical need that we take pride in and what we're potentially going to address. And finally, I'd like to say that we planned over 5 years for submissions. So we're very proud of the fact that we've turned around this innovative pipeline and moved it forward so quickly. But I first want to highlight olanzapine LAI. We got the submission in on December 9, and we're looking forward to the EU submission in the second quarter of this year. We've shown that this olanzapine LAI that can address an unmet medical need in schizophrenia has great safety and efficacy, and we want to discuss that with the health authorities and hopefully get that approval at the end of this year. So something very exciting to look forward to. Next, on our DARI program, our dual-action rescue inhaler, we're very proud of the fact that we finished the targeted enrollment of this study at the end of 2025. And in fact, we're going to continue enrolling it to accelerate the back end of the study. And the most important thing about that enrollment, one of the things that's most difficult is the fact it has pediatrics, adolescents and adult patients. So I think that the opportunity here for a differentiated product of a dry powder inhaler and the fact that we have the potential to have adolescents and pediatrics in the label is a true differentiator for this program, addressing a large unmet medical need in asthma. And then moving on to duvakitug, a very exciting brand-new biologic class that's in development. A year ago, we showed really exciting Phase II data in both ulcerative colitis and Crohn's disease, posting very good numbers in both with a nice dose response. But now we're excited to be looking forward to the maintenance data in the first half of this year. And the important thing about the maintenance data is that we will show hopefully the durability of response. And that's really what people need in ulcerative colitis and Crohn's disease. These are chronic diseases that people frequently fail on their advanced therapies and need more. So durability in the long term is most important. And just a review, this represents 58 weeks of exposure, looking at 2 different doses given subcutaneously every 4 weeks. And Richard also mentioned that we started our Phase III programs with our partner, Sanofi, the SUNSCAPE and STARSCAPE, started right on time, and we're accelerating those programs and executing very well, and we'll be looking forward to new indications this year. And then moving on to anti-IL-15. We had a very exciting announcement at JPMorgan that Royalty Pharma provided funding for our program in vitiligo for a Phase II/III program. This is really great external validation of our program, what we will -- what we believe is a very differentiated product to address a number of unmet medical needs. First, in vitiligo, this is something that systemic therapies are needed for, and that results will be available in the first half of this year. But also celiac disease, we're running our second proof-of-concept study with a biopsy endpoint that will be available in the second half of this year. But in addition to that, alopecia areata, atopic dermatitis and eosinophilic esophagitis are all possible targets for this very important cytokine. And then on to emrusolmin. One of the things I've been very impressed with is the rate at which we've been enrolling this study. This is a Phase II study looking at critical endpoints of an important unmet medical need. I always like to remind people the mean survival in this disease after diagnosis is 6 to 10 years. So this is a very important unmet medical need. We are working hard to make sure that this study not only enrolls quickly, but we will over-enroll to make sure that this Phase II program is as pristine as powerful as possible, really potentially capitalizing on the ability to accelerate this approval. And before I get on to my last slide, I just wanted to do a shout out for the AJOVY team at Teva. They've done a great job in generating data in migraine, and it's very satisfying to see our innovation is recognized by the New England Journal of Medicine with a publication this month. This is great work by the team and really got that sort of the approval for the only and first CGRP antagonist to be approved for pediatrics with episodic migraine. So very proud and great work and kudos to the team. But finally, I just want to go over something that we take with great pride. We have a very exciting 2026 coming up with many different milestones in the R&D organization. The duvakitug data, as I mentioned, will come out in the first half. For anti-IL-15, vitiligo data in the first half and celiac data in the second half of 2026. We'll be looking for that final event in the asthma exacerbation study of DARI by the end of the year, which would be completing the Phase III study. The emrusolmin will be targeting a futility analysis at the end of this year, even in the face of accelerating and increasing the enrollment in that Phase II study. And obviously, we're looking for the anticipated approval of olanzapine LAI at the end of the year, and we'll be talking about our first human data for our anti-PD-1 IL-2. So a really exciting year full of catalysts. We're looking forward to all these milestones. And with that, I'm going to pass it off to Eli Kalif. Eliyahu Kalif: Thank you, Eric, and good morning and good afternoon to everyone. I will review our 2025 financial results, focusing on our fourth quarter performance, followed by our outlook for 2026. I would like to start with the following key messages that highlight our consistent execution throughout 2025. First, we delivered solid Q4 and full year results, driven once again by our fast-growing innovative portfolio, which is also driving a meaningful shift in our margin profile. This was our third consecutive year of growth since we launched our Pivot to Growth strategy. Second, we continue to strengthen our balance sheet with a net debt reduced to approximately $13 billion and a net debt-to-EBITDA ratio of 2.5x, well on track to achieve our target of 2x and our journey to investment-grade ratings. Third, we made significant progress on our transformation programs, achieving $70 million of our planned savings in 2025, staying on track to deliver approximately $700 million savings by 2027, achieving our 30% non-GAAP operating margin targets. And lastly, with our performance in 2025 and outlook for 2026, we are well positioned to achieve our long-term financial targets for 2030. Now moving to Slide 28. Before I start with the results, I would like to remind everyone that in the fourth quarter of 2025, Teva initiated a Phase III of UC and Crohn's indication for our duvakitug program. As per the collaboration agreement with Sanofi, we received $500 million in Q4 of 2025 for this development milestone. This payment positively contributed $500 million to both our revenue and free cash flow and had a positive contribution to our adjusted EBITDA of approximately $410 million. During this presentation, I will be discussing our results for the quarter and for the full year of 2025, excluding the impact of these milestone payments. In addition to these payments, I will also be excluding any contribution from the Japan business venture, which we divested on March 31, 2025, to help to provide you with a like-to-like comparison of our financial results. Now starting with our Q4 GAAP performance. Our Q4 revenue were approximately $4.2 billion, up 2% in U.S. dollars or down 1% in local currency year-over-year. Our key innovative products, AUSTEDO, AJOVY and UZEDY continued strong momentum, all meeting or exceeding our guidance for the full year. This strong growth in our innovative portfolio and stable generics was offset by lower proceeds from the sale of certain product rights compared to Q4 2024. GAAP net income and EPS were $480 million and $0.41, respectively, including the payments for the development milestones. Now looking to our non-GAAP performance. Our non-GAAP gross margin increased by 80 basis points year-over-year to 56.2% and resulted in our full year gross margin at 54.7%, well above the top end of our guidance range. This increase was mainly driven by a stronger-than-expected growth in our key innovative products, mainly AUSTEDO. Non-GAAP operating margin decreased by approximately 120 basis points year-over-year to 26.7%, mainly because of the higher planned investment in OpEx to support our innovative growth. Overall, we ended the quarter with a non-GAAP earnings per share of $0.68 compared to $0.70 in Q4 2024. Total non-GAAP adjustments in Q4 were $649 million. This included impairment charge of $77.3 million, mainly related to a manufacturing facility in Europe. Our free cash flow in Q4 was approximately $800 million and $1.9 billion for the full year, coming at the higher end of our guidance range, excluding the development milestones related to duvakitug. Moving to Slide 29. We are making significant progress in our Teva transformation programs to deliver targeted savings of approximately $700 million by 2027 through a well-defined and planned efforts. During 2025, we achieved $70 million of initial savings, demonstrating solid momentum and execution and continue to expect roughly 2/3 of our total savings target to be realized by the end of 2026. These transformation efforts, along with the ongoing portfolio shift towards high-growth and high-margin innovative products provide a clear path to achieving our 30% operating margin target by 2027, even as we continue to invest in our business for long-term growth. Now let me turn to our 2026 outlook. As I mentioned earlier, 2025 was a year of a strong progress on our Pivot to Growth strategy. We delivered revenue growth, expanded profits and margin, invested in our innovative products and pipeline and made significant progress towards our journey to investment-grade ratings. In 2026, we remain focused on continuing this momentum and executing on accelerate growth path to our strategy. Starting with our revenue guidance for 2026. We expect full year revenue of $16.4 billion to $16.8 billion. This represents a range of approximately 1% growth to 2% decline compared to 2025 on a normal base, excluding the $500 million development milestone payments and $75 million contribution in 2025 for the Japan business venture. This revenue guidance is consistent with our previous communication and reflects continued strong momentum in our innovative portfolio, including AUSTEDO, AJOVY and UZEDY combined with a low single-digit growth in global generics business. It's expected to largely offset revenue headwinds of approximately $1.1 billion from generic Revlimid in 2026. We expect non-GAAP gross margin in 2026 to be in the range of 54.5% to 55.5%, showing a further improvement over a strong 2025, driven again by the ongoing positive shift in our portfolio mix and the cost savings from our ongoing transformation programs. As a result, and as previously communicated, we expected our non-GAAP operating income and adjusted EBITDA to both growth in absolute dollars and as a percentage of revenue compared to 2025. Our operating expenses are expected to be in the range of 27% to 28% of revenue with a higher impact of the transformation program cost savings in the second half of the year. We expect finance expenses to be approximately $800 million in 2026, lower than 2025, reflecting the reduced debt levels and ongoing deleveraging. Our non-GAAP tax rate is expected to be in the range of 16% to 19%, slightly higher than 2025, which benefited partially from IP-related integration plans and the recognition of certain U.S. tax attributes. This brings us to expected non-GAAP earnings per share range of $2.57 to $2.77. Our 2026 free cash flow is expected to be in the range of $2 billion to $2.4 billion, representing a strong ongoing improvement in our cash conversion profile and consistent with our long-term targets. Now lastly, let me provide you with some directions on how we think about quarterly progression in 2026. We expect revenue to gradually increase over the course of the year with the revenue in the second half of 2026 slightly higher than the first half. Q1 is expected to be light, mainly due to the following: First, a year-over-year decline in our U.S. generics revenue, mainly because of approximately $300 million in generic Revlimid revenue from Q1 of 2025 that is going away. Second, on AUSTEDO, during Q4 of 2025, on top of AUSTEDO's strong underlying performance, we had the benefit of a year-end inventory build and a onetime gross to net of approximately $100 million. While we expect a strong year-over-year growth for AUSTEDO in Q1 2026, we expect Q1 revenue to reflect the sequential impact of these onetime benefits. We also expect AUSTEDO revenue in Q4 '26 to be potentially down year-over-year due to a different purchasing patterns and pricing environment ahead of the IRA implementation in January 2027. Our non-GAAP margins are also expected to be gradually ramped up over the course of the year, in line with the revenue trajectory as well as savings from the ongoing transformation programs. The onetime revenue dynamics that I just talked about will also impact gross margin in Q1 beyond the normal seasonality we see going from Q4 to Q1. Free cash flow is also expected to ramp up over the course of the year. Now on the next slide, I would like to highlight the strong free cash flow trajectory that we are on. There are 3 main elements that are going to continue to drive incremental free cash flow, going from approximately $1.9 billion in 2025, excluding duvakitug milestone payments to more than $3.5 billion by 2030. First, our innovative portfolio is uniquely positioned to continue to grow strongly, driving higher margins and free cash flow. In addition, we are on track to achieve $700 million savings from transformation programs by 2027. We don't stop here, and we'll continue to drive modernization of Teva beyond 2027. Second, we continue to strengthen our balance sheet through working capital and CapEx optimization. And lastly, we continue to deleverage, reduction in our debt expected to result in lower finance expenses by approximately 50% by 2030, and we expect to see a reduction in our legal payments over time. Now turning to the next slide on capital allocation. Our capital allocation strategy is focused on driving our Pivot to Growth strategy. This means keep investing in our key growth drivers and our world-class innovative pipeline. We are also making significant progress towards our target of 2x net debt-to-EBITDA and an investment-grade credit ratings. This progress is recognized consistently by the major credit rating agencies, including the recent upgrade by S&P and an improved outlook by Moody's. With the progress we have been making, I expect to see us achieving these goals in not-too-distant future, which also position us very well to thoughtfully evaluate additional ways of returning capital to our shareholders. Finally, before I conclude my review of our 2025 performance, I would like to reiterate our long-term targets. We are clearly on the journey to be a leading innovative biopharma company. With our growing innovative mix, a number of key pipeline developments this year and our free cash flow trajectory, we are confident about the directions we are on to achieve our 2027 and 2030 financial targets. With that, I will now hand it back to Richard for his closing remarks. Richard Francis: Thank you, Eli, and thank you, Eric. So the next slide I'm going to go on to here is the one Eric showed, but I think it's one that's worthy of being repeated. A really exciting year here for Teva with regards to milestones on our innovative portfolio. We have 7 milestones here on this slide. So very proud of that, very proud of what the team has achieved. Obviously, we have some exciting data around vitiligo and anti-IL-15 and celiac disease. We have the olanzapine launch later this year. We have the duvakitug maintenance data, the futility analysis, which could accelerate our ability to get to market with emrusolmin treating this very serious disease. So lots of opportunity here to continue this transition to a world-class biopharma company. Congratulations once again to the R&D team for moving this through so quickly. In just 3 years, we progressed this pipeline at record speed. Now it's because of this pipeline, it's because of the continued strong performance we have in our innovative portfolio that I mentioned earlier and Eli also mentioned, is why we're confident about the opportunity to continue to grow Teva top and bottom line and why we think it's an attractive investment opportunity. Because as you can see here, not only do we have significant headroom for AUSTEDO, AJOVY, we have the LAI franchise with UZEDY performing well, but olanzapine about to join it this year. I highlighted the amount of biosimilars that will be launched over the next few years. And then as we look forward, that pipeline, the readouts I just mentioned will start to come to fruition. So we'll be able to continue this momentum going forward. To move on to my final slide, just to conclude. Our growth journey continues. We have 3 years of consecutive growth. We have a 6% CAGR. Our innovative brands are growing at double digit, and they have headroom to keep growing. We have near-term milestone readouts, 7 in '26. And we have a stable outlook for our generics business, and we continue to focus on accelerating our Pivot to Growth journey. And with that, I'll open the floor to questions. Thank you. Christopher Stevo: Thanks, Richard. Alex, before you line up the question queue, I just want to remind callers, please limit yourself to one question and one follow-up. And if time permits, we will be more than happy to answer additional questions from you if you get back in the queue. Thank you. Operator: [Operator Instructions] Our first question for today comes from David Amsellem of Piper Sandler. David Amsellem: So I have one question on AUSTEDO and one on UZEDY. So helpful color on the guide, but I wanted to dig more deeply into the various pushes and pulls regarding AUSTEDO in 2026. Can you talk about net pricing dynamics and what's baked into your assumptions ex the gross to net favorability in 4Q and ex stocking? How should we be thinking about what your assumptions are regarding net pricing as we move through the year? And then how should we be thinking about what your assumptions are regarding volume growth, particularly on a per milligram basis. So that's number one. And on UZEDY, kind of a similar question. There's a lot of volume growth, obviously, but there's obviously significant government exposure, particularly Medicaid. So how should we be thinking about net pricing there? And what kind of assumptions you baked into your UZEDY guidance? Richard Francis: David, thanks for the questions. So let me start with AUSTEDO. I think the main point to highlight first here is we're really pleased with the momentum we have with the TRx growth we have, with the adoption of XR and the continued growth of the milligrams, as you saw there at 19%. So the fundamentals are really strong. We see a huge opportunity to continue to grow this from a TRx point of view with the amount of patients who are still untreated. So that fundamental is really strong. I think when it comes to the pricing, I think as we communicated last year, our aim has always been to make sure we get value and access. And so we've been very diligent about that for this year. And so obviously, it has got more competitive, but we've taken a very disciplined approach to that. And so I think we've maintained that value and access. So I don't think you could think of that as anything that's -- anything of any significance there. And I think the thing to think about with AUSTEDO is what we've finished 2025 with some really strong growth, both on our top line as well as on our milligrams and TRx. And as I said, if you back out that inventory build and the gross to net is still very strong performance. And so if you look at how we're performing across this range, I think we have a very strong range here. It does take into account some expectation that there may be some destocking in Q4 in 2026, but we'll see how that plays out. But probably the final thing I'll say on AUSTEDO, just to help give some clarity. If you do look at the range we've got and you back out the inventory build that we had in Q4, the growth of the brand is about -- the range is from 11% to 18%. So very strong growth on what is a lot bigger base. So I think that helps answer your question on AUSTEDO. On UZEDY, then as you've seen, very strong growth on UZEDY, really strong growth on TRx and continued really good change in the dynamics of this market that shows the quality of the product. But to your question, I think it's always important to understand that we have Medicaid and Medicare. And so we have that mix. And obviously, we know one is more profitable than the other. And how that mix plays out we've taken into account with our guidance and our range. But we see this product continued momentum, particularly as you look at the TRx being so high. So I think this product, we have a lot of enthusiasm around, but that's the fundamentals around the pricing. We factored them in, and it really comes down to those 2 channels. Thanks for the question, David. Operator: Our next question comes from Louise Chen of Scotiabank. Louise Chen: Congrats on the quarter. So my first question was, I wanted to ask you where you see the greatest disconnect between what you're excited about in your pipeline and what the Street is really missing on those products? And then second one, just a follow-up on AUSTEDO, I wanted to ask you how we should think about modeling 2027 in light of IRA and any other pushes and pulls you see here? Richard Francis: Okay. Thanks for the questions there. So the pipeline, I'll probably tag team this a bit with Eric. What -- look, I'll never say anybody is missing anything because everybody is very experienced in this business. I do think that our pipeline has come along very fast, think of fast side, maybe that's caught people unaware. But I think the quality of our antibodies, the quality of anti-TL1, the quality of duvakitug, I think, will show out in the data. So I think probably what's going to happen, I'd anticipate is as we turn over these cards and we see the data, then I think Teva will get recognized for what is a world-class pipeline. But it's probably a bit surprising for people to see just the quality of the pipeline that's emerged in such a short space of time. But maybe I'll hand it to Eric to give his view on that. Eric Hughes: Yes. Thank you, Richard, and thank you, Louise, for the question. I would emphasize something Richard said. I think the speed at which we turn around the innovative portfolio is quite honestly caught people by surprise. We've turned on a brand-new biologic for duvakitug, which is probably the best-in-class product for TL1A. We've launched or we will launch, hopefully, olanzapine LAI this year. But don't take our word for it. We've had external validation on 4 of these 5 programs. Olanzapine LAI got Royalty Pharma funding. Duvakitug was partnered with Sanofi, who saw the value. The DARI program was acknowledged by Abingworth. The anti-IL-15 program was recently acknowledged again by Royalty Pharma. And even emrusolmin, we've received Fast Track designation and an orphan designation. So across the entire innovative pipeline, we've accelerated them, I think, a little bit to the surprise of investors. But just look at the external validation that we've had in the pipeline and take that into consideration of your valuation. Richard Francis: Thank you, Eric. And then moving on to your final question about -- I think it was sort of asking for guidance on AUSTEDO in 2027, which I'm not going to give. Obviously, we've said we're going to do $2.5 billion for AUSTEDO in 2027. We remain very committed to that. As you see in our range that we have announced today, there's a potential that we will hit $2.5 billion in 2026. So we'll have to see how this plays out. I think the most important thing for AUSTEDO is to keep reminding everybody that 85% of people who suffer from tardive dyskinesia are still not treated. And so the opportunity to keep helping these patients to bring these patients in and give them therapy, I think, is a significant growth driver for AUSTEDO. So we also have the work we're doing on making sure that people can benefit from AUSTEDO XR. And as you can see there, 60% of new patients go on to AUSTEDO XR, and we know that helps with compliance and adherence, which obviously also in turn increases value. So I think we have a lot of value drivers for AUSTEDO, but I really don't want to get drawn into 2027 guidance at this moment. I think what I'm hoping people would see is what we have great momentum from '25. We're carrying that into '26, and we'll talk about '27 maybe this time next year. Operator: Our next question comes from Ash Verma of UBS. Ashwani Verma: Congrats on all the progress. So maybe just first one, how are you thinking about funding the R&D? So increasingly seeing more royalties and/or profit share. Just when you think about it strategically, how do you balance not giving away attractive economics to your partner versus seeing a meaningful increase in your internal R&D spend as you fund the growing pipeline? And then secondly, on the TL1A upcoming maintenance data, we've seen some competitors that the maintenance data versus the induction sort of went up on efficacy measures by high single digit to mid-teens in terms of percentage points. Is that a fair expectation to have as you look towards your upcoming results? Richard Francis: Ash, thanks for the question. I'll tag team this with Eric again. But on the R&D funding, I think the question was, how are you going to fund this? Are you going to be giving away value if you keep doing these partnerships? So I think the way we think about it is we have a big late-stage pipeline. We have a lot of opportunities to drive significant value creation. And when you have a good pipeline, in my experience and my belief is it's about moving it faster to the market to have patients benefit from it and to get revenue. And so we're moving a big pipeline really quickly here. Now how does it impact the economics? It really doesn't impact the economics in any meaningful way for a couple of reasons. One is these -- all these brands will be above $1 billion. Some of them will be multiple billion brands. The second thing is, which is an interesting fact that I think people miss on Teva is we're starting with a company with a very different gross margin than many other biopharma companies. So every time we launch an innovative product, it transforms our gross margin, which transforms our ability to drive EBITDA to drive EPS and cash flow. So as I said, the fact that these are not in any way giving away value in the broadest sense. But even with regard to Teva, they don't because of where we actually start this journey. The other thing I'd also like to highlight on this, we are launching so many products over such a short period of time that, that is the focus we're on. And we're going to have a potential to launch 4 products in 5 years, and we're going to actually announce more and more indications. So I think the pipeline is about making sure we move it quickly to the market. But in no way are we giving away value. I'd say we're accelerating value because of the speed we're moving. And then with regard to the key to the TL1A maintenance data, what are our expectations? I'll hand it over to Eric to answer, and then I'll conclude. Eric Hughes: Sure. Yes. Thanks, Ash, for the question regarding what we anticipate from the maintenance data of TL1A. So I'd start off by saying what's the history we've been telling with regard to duvakitug at Teva. We started by saying that we found in our in vitro work that we had the most potent antibody, the most selective antibody and the one that probably has the lowest antidrug antibodies. I think it's about 3% to 5% we saw in our Phase II study. So with that, we went into our Phase II program that we executed very well at speed. And then we came up with the highest reported numbers for both ulcerative colitis in Crohn's disease in 2 very well-controlled and run studies. So the in vitro translated into a very good result in Phase II. So if you translate that into what we anticipate in the maintenance, if you think that we have the most potent, the most selective, the lowest antidrug antibodies and that we can execute the study well, I would hope that when we lock the database, we see great results. So I'm bullish on it. Hopefully, that comes true, but we'll see what the data shows. Richard Francis: Thanks, Eric. We stand by the fact that we have and we believe we have the best TL1A. Operator: Our next question comes from Jason Gerberry of Bank of America. Jason Gerberry: One for Eli, just I didn't catch this, but can you talk about in 2026 guide, sort of what's the gross margin outlook versus the OpEx spend ratio? I think the latter would be in that 27% to 28% range you guys have talked about historically, but I just wanted to make sure that, that was confirmed from a modeling perspective. And then just for my follow-up, on vitiligo, I was trying to maybe understand kind of what we're going to get with this upcoming Phase Ib. Will we get VASI75 scores through the full evaluable period? Are you expecting most of these 30-plus patients to make it through the full evaluable period? Just kind of wondering how robust that data will be. Richard Francis: Thanks, Jason. Thanks for the question. So over to you, Eli, on the gross margin. Eliyahu Kalif: Jason, thanks for the question. So on gross margin, we end up the year, if we exclude the 2 milestone payments at a 54.7% gross margin. We are looking to be in the range of 54.5% to 55.5% in 2026. In terms of the OpEx, there are kind of mainly 2 dynamics there. First of all, -- and as I mentioned in my prepared remarks, we're going to see a bit higher OpEx, still in the range between 27% to 28% in the first half versus the second half just because of the revenue dynamics during the year. But there is also another element inside the OpEx, we're going to see more reduction in our G&A and actually shifting that reduction in between R&D and sales and marketing and able to stabilize it at the range of 27% to 28%. So this one didn't change versus our prior communication. Richard Francis: Yes. And the thing I'd add on to that, Jason, is gross margin is a really exciting story for us because as you see, as we continue to grow our innovative portfolio, we continue to launch products, that gross margin will just keep going up. It's just going to be a question of how much, but it will keep going up because of the fact that we're changing our portfolio so dramatically. Now with regard to the vitiligo data, I'll hand over to Eric. Eric Hughes: Yes. Thank you, Jason, for the question. So the data that we're going to be presenting in the first half of 2026 is a single-arm study for patients with vitiligo. It's about 38 patients in total. It will have the traditional and known endpoints for this field, which is facial VASI and total VASI. So it will be easily comparable to other treatments out there. And that reminds me the important thing here is that there are limited treatments for vitiligo today. There's one approved, which is a topical that only covers 10% of your body. And ones that are in development are the ones that what we need, things that are systemic in treatment, not only the face, but the entire body, more than just 10%. So one of the exciting things we think about when we talk about our anti-IL-15 program in vitiligo is this has the potential to be a once subcutaneous shot every 3 months. So a quarterly shot potentially to treat a systemic disease. So we're looking forward to that. You'll -- I think you'll get data that we'll be able to compare it to other treatments out there in development and approved. Operator: Our next question comes from Chris Schott of JPMorgan. Christopher Schott: Just sticking on IL-15. On the development time lines in vitiligo, can you just elaborate what exactly you need for that 2031 pathway versus '34? And I guess, is there a similar opportunity in celiac there as well? And if I can just do a really quick one, just coming back to AUSTEDO. I think you were talking about roughly $100 million benefit in 4Q, and it sounds like that's between rebate and inventory. Just when we think about destocking in 1Q, can you just clarify how much of that was inventory and how much was kind of this reversal of rebates? Richard Francis: Thanks for the question, Chris. Eric, do you want to start with the anti-IL-15, vitiligo and celiac? Eric Hughes: Sure. So thank you for the question on IL-15. So just to start off with IL-15 is it's a key cytokine in a number of different indications I mentioned before. We're working on vitiligo and celiac. I'm excited by both the potential for alopecia areata, atopic dermatitis or eosinophilic esophagitis. They're all interesting and important for this cytokine. For vitiligo, we're particularly excited because this is a program that we can move quickly. It has precedents for the regulatory endpoint. It's an endpoint that you can easily measure. You see the results. So that makes it a little bit more easy. And there's an unmet medical need here. We need systemic therapies, as I mentioned before. So we're thinking out of the box at Teva, we are accelerating this program in a clever pathway of a Phase II and Phase III study that we can work very quickly with the regulators. So the potential for a once quarterly dose subcutaneous shot is very exciting for us. Richard Francis: Thanks, Eric. And then on the AUSTEDO question, Chris, the way to think about that $100 million is the vast majority, the vast majority pretty much was the inventory. So that's why, obviously, we have a lot of confidence about 2026 in our numbers. So hopefully, that helps, Chris. Operator: Our next question comes from Umer Raffat of Evercore ISI . Umer Raffat: If I look at the delta versus consensus this quarter, it looks like it's driven by sales and marketing when I take out the one-timer impact of the milestone. And coincidentally, I feel like this is probably the highest sales and marketing spend quarter we've seen in the last 3 years or so. So I'm curious why that is, especially because it's happening in the middle of the transformation that's underway, number one. Secondly, for '26 guidance, is it fair to say that the Royalty Pharma $75 million payment for Phase IIb is embedded within the EBITDA? And is there any other milestones that are baked into the EBITDA guidance as well from TL1A or anything else? And then finally, on vitiligo, OPZELURA obviously has not necessarily done too well, but as Eric pointed out, has limited coverage. But is it fair to say that on the scores like OPZELURA showing about 30% facial VASI75 score, you would want to be tracking meaningfully north considering Royalty Pharma is all excited and they're not funding celiac only doing vitiligo. I'm just curious about your overall take on expectations. Richard Francis: Umer, thanks for the questions. You got a few into that one question there. So thanks for that. On the sales and marketing and the OpEx, I'll hand that to Eli to talk about. Eliyahu Kalif: Okay. Umer. So first of all, about the question about Royalty Pharma, out of the $75 million, the way that we're viewing, it's actually going to spread over '26 and '27 with 1/3 out of the $75 million going to happen in '26. It's more kind of backloaded for '26 year. And that's the only thing that's embedded there. We don't have any other, I would say, assumptions in our EBITDA related to TL1A milestones or anything like that. As far as related to the sales and marketing, if you actually back out the higher revenue due to the milestone, you get to kind of a 15.4% on sales and marketing. But going forward, next year, we're going to see that one actually 16%, and why? Because we are keeping investing in our growth engine, which is AUSTEDO and actually heading to next year, building kind of investment into our olanzapine launch. So we're going to see that one increasing. But all in all, the whole bucket going to be, from a dollar perspective, really kind of flat, but also from a percentage perspective due to the fact that you will see our transformation program going to impact the G&A, as I mentioned to Jason, and that's kind of a reduction in G&A going to split in between the R&D investment and into the sales and marketing. Richard Francis: Thanks, Eli. And look, one thing I'll just add on to the back of that before I hand it over to Eric. If you think about the guidance for this year, the EBITDA range, I think, is showing the value of the programs we put in place, the value of driving our innovative portfolio, the fact that when we talk about our transformation program, it was $700 million of net savings after investing in our growth drivers. And so we've allowed ourselves to make sure that we can drive this innovative portfolio, which helps drive that EBITDA, but at the same time, our efficiency programs help also drive the EBITDA. So I think we're very pleased and proud of the fact that our EBITDA starts with a 5 in front of it, which I think is important. But we're very mindful of how we spend our money and where we allocate our capital. When it comes to vitiligo, I'll hand that over to Eric. Eric Hughes: Thank you, Umer, for the question. So when it comes to what data we've seen with the topical out there today and what's in development, I always want to be competitive on any endpoint what you talk about. So hopefully, when we lock the database and get that results, we can show that we're competitive against what's available. But again, let's focus again what patients need. They need systemic therapy that's conveniently given. So it's almost inappropriate to compare it to a topical on 10% of your body. But certainly, we hope to be competitive. Operator: Our next question comes from Les Sulewski of Truist. Leszek Sulewski: Congrats on the progress. I just wanted to focus on the biosimilars side. So what's the launch cadence and expected profitability profile, particularly given the U.S. channel and PBM dynamics? And then what are the prerequisites for targeting the 10 new products beyond 2028? And you've previously evaluated or mentioned reevaluating BD within the space. So what type of, whether it's in-licensing, co-development or tuck-ins fits your leverage and margin profile today? And has that bar changed given the latest policy dynamics? Richard Francis: Thanks for the questions. So talking about biosimilars, yes, it's an exciting time. And I think the fact that we built the second largest portfolio and continue to add to it in such a short space of time is a testament to the prioritization we put behind it. But to sort of give you a bit of specifics and -- when we talk about -- we have 10 in the market now, we have 6 to launch between now and '27. Those 6 -- majority of those will be across both U.S. and Europe, which is important because we haven't actually had a presence in Europe of any significance. And we know that market is a market with quicker uptake, more predictability and some very clear returns. So excited about that. And to name just a few, we have biosimilar Prolia, biosimilar Xgeva, biosimilar Simponi, biosimilar Eylea and biosimilar Xolair. So we have a lot coming through of those markets and most of those are in both. I think it's Simponi that's just in the U.S. Now you highlighted the 10. And you sort of -- in your question, it sounded like we had targeted 10. No, we have 10. They are in our pipeline. But we're just going to add to that. So we have 10, which is why I said we can start launching '28 onwards, but we are continually adding to that. And the final part of your question is doing this through partnerships, how does that work out in gross margin. So we are going to continue doing it through partnerships, and it still is attractive from a gross margin point of view with the right partnership. It's still accretive to our business, our generics business significantly. So that's how we do it. And you'll probably start to see some deals coming through already in the first half of this year as we already build out this portfolio beyond the '26. So -- and then the final thing I'll add on that, this biosimilar portfolio is coming through thick and fast, and that's going to really help us drive the generics business going forward, both in Europe and in the U.S. But thanks for your question. Christopher Stevo: Les, could you repeat your BD question, please? Leszek Sulewski: Essentially, I just wanted to get a sense of if there's a potential for you to kind of dive a little bit deeper via BD within the space, if there's anything available out there via partnerships that you've previously had and essentially what's your strategy for that space? Christopher Stevo: Sorry, are you asking about biosimilars? Richard Francis: Yes. So that's what I thought. So that's -- I think I answered that question, Les. We'll continue to do the partnerships. Some of those we already have good, big partnerships with companies that we think we can have the potential to expand those, whether that's mAbxience, whether that's Samsung. So I think we're looking at expanding. But also we have other companies that have approached us to be their partner because obviously, the performance we've had in the U.S. has been impressive. We have the fastest-growing biosimilar Humira. We have a very fast-growing business now in the U.S. So I think people are seeing that. But yes, it will be through partnerships, the majority of it. Operator: Our next question comes from Dennis Ding of Jefferies. Yuchen Ding: I had 2, if I may. Number one, sort of a big picture question on R&D. What is your R&D philosophy at Teva? And I guess how much derisking do you think we'll get around the R&D platform from the data readouts this year? I'm also curious what else could be planned for 2027 as you advance some of these newer drugs forward? And then number two, just a question around BD. I'm curious as you transition to a novel biopharma company, if your BD philosophy has changed at all and if Teva might be interested in doing acquisitions in, let's say, the classic biotech space rather than what's historically been spec pharma. Richard Francis: Thanks, Dennis. Thanks for the question. I'll tag team that with Eric and maybe start on the philosophy of R&D or maybe we call it the strategy. Eric Hughes: Yes. No, thank you for the question, Dennis. And this is a very important question. And I think that the philosophy in the way that we operate at Teva is we are ruthlessly driven by data. We have, first and foremost, a pipeline in Phase III and Phase II that's relatively derisked. I think emrusolmin is probably the lowest on the probability of success. But when you think about our programs, we use known science, we combine it in a way that will execute well and quickly with regulatory approvals. And that's based and driven solely on data. One of the things I've noticed and been able to achieve here at Teva is when we see data, we pivot and we move forward with it. That's something I hadn't been able to do in my career in other places. So speed and execution driven by data with this philosophy of known science and derisked assets is how we will move forward. I think that's baked into every one of our programs at this point. Richard Francis: Thanks, Eric. And then to move on to your next question, you said what about BD and as we pivot into a biopharma company. So firstly, thank you for the recognition that we are pivoting. And I think we pivoted. But anyway, we'll keep showing that with the pipeline as it comes out. But yes, we are actively looking at BD. We think we have a commercial powerhouse of the team. I think you've seen that with the results of AUSTEDO, UZEDY and AJOVY. And so we want to add to that team. Now that said, we have, as Eric highlighted, a really exciting pipeline. So the organic growth we have coming through is impressive. So we're not desperate to do BD. We don't have to. At the same time, it fits into our TA areas of CNS neurology and immunology, then I think it's very synergistic, and it makes a lot of sense. So we are very active in that. What is interesting, I think, within the last year to 18 months, the amount of approaches we've had has significantly increased. And I think that's because they see Teva as a partner both from an R&D perspective, the speed which we move things through the clinic is exciting, but also primarily because of the commercial capability and muscle we have and the focus we give assets when we have an asset, whether it's in development, we focus and we move it quickly, whether it's in the market, we focus and we actually drive sales. So I think we'll hopefully be able to talk about some things going forward, but we are very disciplined in our capital allocation, and we think it's the right asset at the right time at the right price, we'll definitely do it. But because of the pipeline we have that's coming through, we can stick to that in a very disciplined way, and we will because going back to that fourth pillar of the Pivot to Growth strategy, it's about focused capital allocation, making sure we give a good return on that in the short, medium and long term and create value for shareholders. So thanks for your question, Dennis. And I think with that, I think that is the final question. We went over a bit, but I think we did start a couple of minutes late. So thank you for your questions and your interest in Teva, and I look forward to following this up later with our Q1 results. Thank you. Operator: Thank you all for joining today's call. You may now disconnect your lines.
Alex Ng: Good afternoon, and welcome to Stolt-Nielsen's earnings call for the final quarter of 2025. As always, the earnings release and related materials are available on our website. We'll be recording this session and playback will be available on our website from tomorrow. Included in this presentation are various forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, and we refer you to our latest annual report for further details. I'm Alex Ng, Vice President of Corporate Development and Strategy. Joining me today are Udo Lange, our CEO, and Jens Gruner-Hegge, our CFO. At the end of our presentation, there will be a Q&A session where we'll be taking questions in the room and online. [Operator Instructions] Thank you, and over to you, Udo. Udo Lange: Yes. Thank you so much, Alex, and welcome, everyone, here in London and of course, on the call as well, and thanks for joining us today for our fourth quarter results. The presentation will follow the usual format. I will begin with an overview of the group's results for the quarter and the full year, and then Jens will cover the financials before handing back to me to run through the performance of our divisions, our view of the market outlook and a few concluding remarks. In an unpredictable and challenging market context, I'm really pleased that overall, Stolt-Nielsen has delivered a solid finish to 2025, achieving EBITDA of $186 million for Q4. This completes the year with $776 million in EBITDA, which was at the upper end of our guidance and the second highest EBITDA result achieved in our history. We continue to communicate that Stolt-Nielsen is not a shipping company, but a logistics business. Non-Stolt Tanker operations account for 57% of our asset base and 45% of our EBITDA. We are building our non-tankers earnings base through our capital investment program to continue to grow long-term sustainable cash flow for our shareholders. For this quarter, while Stolt Tankers EBITDA fell 18% from the same quarter last year, the resilience of the other areas of our business resulted in a 13% drop for the group overall. Optimizing value creation from our portfolio is the driver of our M&A activities. In the period, we acquired 100% of Suttons, a U.K.-based ISO tank operator through which we can leverage the scale and flexibility of Stolt Tank Containers' global platform to expand our service offering for our customers. Aligned to our strategy to grow Avenir whilst preserving balance sheet flexibility, we have also very recently announced that we are in discussions to sell down a portion of our equity in Avenir. We also issued a new Norwegian bond. It was one of the tightest spreads for a logistics company achieved in the Norwegian bond market, showing our good access to markets and the credit investors appreciate our portfolio, and the master of the bond is in the room, Julian, thanks for the outstanding work there. You'll remember that last year, we evolved how we communicate our earnings potential, aligning our EBITDA guidance with our business model for the full year. In 2025, we came in towards the top of our range, and we hope you find our transparency in this regard helpful, and we are committed to continuing with this approach. Based on what we know today, we expect that our 2026 EBITDA will be in a range of $600 million to $750 million. Jens will elaborate on this more a bit later, but I wanted to flag a couple of key points here. We are excited about integrating Suttons into our core business. However, there will be some integration costs this year and positive EBITDA impact from the Suttons business is not expected until 2027. This also assumes that the de-consolidation of EMEA is completed in line with our announcement on Monday, and that is, of course, relevant for the like-for-like year-over-year comparison. And we expect to be able to refine this range as the year progresses. Let's now turn the page to review our financial highlights. I'm really pleased with the results achieved in the quarter in a complex market backdrop. Operating revenue was down 4% or $29 million year-on-year, which is predominantly on account of weaker freight rates in Stolt Tankers. EBITDA before the adjustment for fair value came in at $186 million, down $27 million on last year due to lower rates in Stolt Tanker and in Tank Containers, partially offset by performance in our Gas operations. Operating profit was down year-over-year by $35 million, mainly due to the performance in Tankers and Tank Containers, plus additional depreciation from the consolidation of the Hassel Shipping 4 and Avenir. Net profit was also down, driven by the same factors as well as higher interest expenses. Free cash flow was down EUR 38 million year-over-year, driven by higher CapEx, including from the acquisition of Suttons International and new building deposits in our NST joint venture. Net debt-to-EBITDA has increased to 3.12x as a result of the investments we have made over the year. I will talk more about how we are investing for long-term growth a bit more later. Over the page, we look at some of the key drivers of performance. Looking at the snapshot of the whole year, we have delivered a solid performance with the second highest EBITDA result in the company's history despite demand headwinds from a weak global chemical market as well as geopolitical uncertainty and tariffs impacting sentiment. We have remained focused on our strategy and on supporting our businesses to maintain their leading market positions. Stolt Tankers earnings were impacted by ongoing geopolitical uncertainty with lower freight rates weighing on performance whilst volumes remained stable. Over the last 18 months at Stolthaven, we are focused on optimizing for higher-margin business. This strategy has delivered success in certain markets, and we end the year with average utilization for the year up slightly, a positive outcome in a difficult market. Tank Containers have also been navigating a highly competitive market and performance here has been impacted mainly by lower transport margins. For the year overall, the mix of EBITDA generated outside of Stolt Tankers increased to 43% from 35% last year. This is $40 million more than last year as investments across our portfolio, help diversify our earnings. Our global teams are doing a fantastic job of working together to help our customers keep their supply chains moving in a safe and reliable way. And I want to thank all our people for their dedication across the year. They truly live our purpose of moving today's products for tomorrow's possibilities. In November, we announced the acquisition of Suttons International, a U.K.-based ISO tank operator. I wanted to give you a bit of additional color on the rationale for the acquisition and how it supports the Tank-Container strategy. We acquired Suttons in November, adding over 11,000 ISO tank containers to the fleet, growing our fleet by around 20%. The acquisition is aligned with our corporate strategy to accelerate growth in one of our asset-light businesses, leveraging Stolt Tank Containers' global platform to support customers with efficiency, reliability and flexibility across their supply chains. We have been investing in creating a scalable global platform for Stolt Tank Containers, driven by a strong focus on digitalization and efficiency, and we aim to drive sustainable growth, operational consistency and improve customer outcomes by leveraging this platform to successfully embed Suttons within our business. Suttons not only brings tank capacity, but also enhances our customer offering as we bring in specific expertise in gas distribution, domestic short sea and China domestic services. With an expanded fleet, global reach, a more comprehensive service offering and an improved digital experience, customers will benefit from our scale, efficiency and global network. As we talked about it on our Capital Markets Day, the ISO tank container market is highly fragmented. As you can see here on the chart, this transaction cements Stolt Tank Containers' position as a leading ISO tank operator and gives us potential for further profit margin growth. As well in this market, we see low levels of new tank production and ongoing capacity rationalization, which we expect to lay the foundation for an eventual market recovery and Stolt Tank Containers will be well positioned to take advantage of a potential upturn. Our strategy puts our three most important stakeholders at the heart of everything we do, our shareholders, our customers and our people. We focus on developing our people to continuously improve our customer experience and on value creation for shareholders through our unique market leadership across liquid logistics and other business investments. We paid an interim dividend of $1 per share in December, which takes shareholder distributions since 2005 to over $1.4 billion. Our commitment to balancing distributions, conservative balance sheet and investing into our business is key to delivering long-term shareholder returns. Our unique position in liquid logistics benefits customers as they build and optimize robust supply chains in uncertain and demanding markets. 70% of our top 50 customers use more than one of our service, and we continue to outperform industry norms with respect to Net Promoter Scores. This year, the average Net Promoter Score of our Logistics businesses was 52, up from 40 in 2024. Our people are the beating heart of our business and their passion and commitment drive our success. This year, employee engagement remains strong. Our employee engagement survey showed a sustainable engagement score of 86%, outperforming industry's peers in all benchmark categories with also a record response rate of 91%. We have created a workplace where our people want to stay and the average tenure for Stolt-Nielsen employee is over 9 years. To support our strategy, we have been making targeted investments to position our business for long-term growth and to ensure our Liquids Logistics Solutions remain compelling for the future. We spent approximately $500 million in 2025 and increased our asset base to $5.8 billion. In 2026, we have plans to extend this further by around $380 million investments. We strengthened our market position and customer value proposition in all 3 logistics businesses. In Stolt Tank Containers, we continue to invest in assets to maintain our network, acquiring the remaining 50% in the Hassel Shipping 4 joint venture and ordering 2 additional modern fuel-efficient 38,000 deadweight new-builds with our joint venture partner, NYK. At Stolthaven terminals, we started construction of a new terminal in Turkey, while our terminal in Taiwan advanced towards operational status. And we invested to expand capacity in the U.S., Korea and New Zealand. I touched upon the rationale for the Suttons acquisition and that investment sits in the FY '25 Tank Container figures in addition to new tanks in our core business. We also acquired the remaining shares of Avenir in 2025, reflecting our excitement in continuing to capitalize on the growing need for LNG bunkering as announced this week. We are now exploring a partial sell-down of this holding for an additional value creation opportunity while still having commitment to grow Avenir's fleet in the future. Based on project approved to-date, we will reduce our CapEx spend by around $130 million year-on-year while both sustaining our current operations and driving future growth opportunities and innovations. We will see the full impact of these investments over the coming months and years. And I'll now pass on to Jens for the financials. Jens Grüner-Hegge: Thank you, Udo. And great to see everyone. Good morning to those of you calling in from the United States, and good afternoon to everyone here. As Udo did, I will compare fourth quarter of '25 with fourth quarter of 2024. And just as a reminder, our fourth quarter runs from September 1 through November 30, every year. To reiterate what Udo has talked about, the company's performance is resilient in a challenging environment. But let's dive into the numbers. Now we talked about a lot of transactions that happened in the last 12 months. So since I'm comparing fourth quarter of '24 with fourth quarter '25, we have added a column here to take out the impact or to normalize the impact of the three major transactions, which was the acquisition of 100% of Hassel Shipping 4, 100% of Avenir and now lately also the Suttons acquisition. So comparing those to the normalized with the current -- with the last quarter last year, the drop in revenue was driven by Tankers, reflecting the lower freight rates, which were partly offset by a 6.9% increase in volume following additions to the fleet over the last 12 months. Terminals revenue was flat and STCs was down by about $5 million, excluding the Suttons impact, while Stolt Sea Farms revenue was marginally up. The reduction in operating expenses partly offset the reduction in revenue and was driven by lower TCE hire costs and lower owning costs in tankers. Excluding the impact of Hassel Shipping 4 and Avenir, depreciation expense was only marginally up, and that was reflecting really additional leases that we've taken on and additional terminal capacity that has been delivered and become operational. The equity income from our joint ventures was up substantially, and that was driven by a prior year impairment that we took at HIGAS of about $5 million and past operating losses at Avenir that has since now seen a significant improvement in the operations in the last quarter. A&G expense was up compared to last year, mostly reflecting annual inflation adjustments as well as a consequence of the weaker U.S. dollar because a lot of our A&G expenses are in non-dollar, Euros, Pounds and Asian currencies. Also, last year, we reversed an over accrual for profit sharing in the fourth quarter of last year, which had a negative impact of about $11 million. So you normalize for that, the increase is more normal. Adjusted operating profit for the quarter was, therefore, $88.5 million. That's down from $130.4 million in the fourth quarter last year. And as you can see from the difference between the reported numbers and the adjusted numbers, the acquisition that we talked about contributed about $7 million to that operating profit. And as you can also see, about 40% of the increase in the reported net interest expense was due to an increase in the net debt related to the acquisitions and other capital expenditures that we had during the year. While the rest was due to lower interest income as we reduced the holding of cash on hand compared to last year, and you will see that on the subsequent slide. Other relates to dividends from our equity instruments, so dividends that we have received on investments. And income tax was down, reflecting an insurance-related tax provision taken in the fourth quarter of '24 as well as prior year tax adjustment at terminals, offset by higher taxes at corporate due to improved profitability that we've seen at Avenir and Stolt Sea Farm. And consequently, the net profit for the quarter ended up at $59.6 million, as Udo said, with EBITDA of $186 million. Let's take a look at the cash flow. So cash from operations was down this last quarter, predominantly reflecting the weaker earnings, but still at healthy levels. If you compare to previous years, still a very strong cash-generating quarter. Dividends from JVs were down, but this was offset by positive working capital from the prior year and cash spent -- if we move to capital expenditure, cash spent on capital expenditure was substantially up, reflecting the acquisition of Suttons as well as increased progress payments on our new buildings and as well terminal capital expenditures for the ongoing expansions that we have. Offsetting this was the net cash receipts for repayments of advances from our joint ventures, as you can see. There was a lot of debt activity -- funding activity, and Julian has done a tremendous job in keeping the company with a very strong liquidity position. During the fourth quarter, we raised $297 million in new debt, and that was to refinance expiring facilities and as well to fund the capital expenditures that we have ongoing. And I'm tremendously grateful both to Julian and his team, to the rest of the company has been working hard on making this possible as well as to all our banks and financiers. After adjusting for FX, we had a reduction in cash of $16.1 million, and we ended the quarter with cash and cash equivalents of $144.6 million. If you look at the bottom right of this slide, you see our total liquidity position, which at the end of the fourth quarter was $477 million, that includes revolving credit lines of $332 million, committed lines that is and slightly up from last quarter. I mentioned the significant reduction in cash on hand last -- of the fourth quarter of '24, we had $335 million in cash, which, of course, generated a lot of interest income, and that's why you see that sort of half of the interest expense increase that we saw in the last 12 months. Talking about capital expenditures. During the quarter, it totaled $138 million. That was of course, led by the STC acquisition of Suttons also the ongoing terminal expansions and as well progress payments that we have ongoing on the new-buildings that we have. And therefore, overall, for '25, we spent $511 million on CapEx, slightly below what we had indicated at the previous quarterly earnings release as some of it has been pushed out to 2026. For this year, we expect to spend $383 million with the focus being on tanker new-buildings, terminal expansions, Avenir new-buildings and Stolt Sea Farm expansions. Now expect this to probably change somewhat as the year progresses as it normally does as we commit to new projects, but this should be a good indication of what we expect to spend. And it's slightly down from last year, but we're also coming out of 2 years, '24 and '25, where we had significant capital expenditures. And whereas we intend to continue to invest strategically in our businesses, we also need to focus on integrating our added capacity into our operations for maximized long-term benefit, not only for our shareholders, but also for our customers. Moving over to our debt profile. It here reflects the refinanced debt that is mentioned in the bullet at the bottom right. So there was about $86 million that we have repaid since the end of the fourth quarter. So our current balance for 2026 remains at $351 million. As part of this financing, we also -- since quarter end, since what I showed here in the financials, we also added $145 million in additional liquidity, which is available for further debt reductions, progress payments and other capital expenditures. So we continue having a very strong liquidity position going forward. You see the two orange blocks. Those are the 2 bonds that we have, one maturing in '28 and $150 million, the one that we just did in September maturing in 2030. And if you look at the bottom left of this slide, you can see the increase in gross debt in the first quarter reflects the consolidation of Hassel Shipping 4 and Avenir and then again, a slight increase in the fourth quarter of '25, reflecting the Suttons acquisition, and on average, our interest rates have come slightly down from 5.6% in the previous quarter to 5.39% in this quarter, reflecting general interest movements as well as tightening of margins that we have achieved on new financing. The continued steady performance of the company supports our covenants and covenant compliance. The increase in debt and therefore, net debt to tangible net worth as well as a net debt to EBITDA seen in the first quarter was really -- in the fourth quarter was really due to Hassel Shipping 4 sorry, in the first quarter was due to the Hassel Shipping 4 acquisition, and Avenir. And in the fourth quarter, you can see that same impact from the Sutton's acquisition. Debt to tangible net worth is now at 1.04x. That's well below our covenant limit, which is 2.25x. So we have plenty of headroom, slightly up from the prior quarter where we were at 1.01x. I mean with the lower EBITDA that we have seen in this last quarter compared to previous quarters, the EBITDA fell slightly to $788 million, and with that, we have seen the EBITDA to interest expense go slightly up to 5.6x and the net debt to EBITDA increased from 2.94x to 3.12x, as you can see at the bottom left graph here. So overall, we're in a very comfortable position relative to our covenants, a good liquidity position, a good balance sheet position. So the company is well prepared for what lies ahead. We gave today guidance of $600 million to $750 million and wanted to talk a little bit more about what that entails. So why are we doing this? Firstly, we want to offer insight into our outlook for the year, what we see ahead. We believe it is aligned to the nature of our businesses and our business model to promote a longer-term view of the company, not a short-term quarter-to-quarter, but really give you the longer-term view that we work towards. We also want to facilitate fair pricing of the company as a diverse logistics business rather than as a shipping company. So taking into account everything that we know today, what we believe will happen over the next 12 months, we expect EBITDA for the full year 2026 to be within a range of $600 million to $750 million. Now this guidance is underpinned by a number of key assumptions. As you can see some of them here on the slide, relating both to global macroeconomic picture generally and specific factors affecting the liquid logistics market. And particularly, that there are no substantial geopolitical changes versus what we see today. So we are expecting this to continue. More specifically, the guidance is before fair value of the biological assets, before any gains or losses on sales of assets and other onetime noncash items. And it also excludes any 2026 EBITDA contribution from Avenir LNG. We've taken that out because of the announcement that we made earlier in the week and the consequential de-consolidation that, that will have. So I just want to make sure that everybody understands the basis for our guidance. It does include, however, the potential Suttons integration costs that will be incurred during '26. As such, the guidance is provided -- that we have provided is subject to some uncertainty beyond our control due to the current operating environment that we're in. And with that, I would like to hand it over to Udo, and he will cover the segment highlights as well as the market outlook. Many thanks. Udo Lange: Let's first start with Stolt Tankers. The chemical tanker markets have continued to soften this quarter as the market uncertainty around geopolitics and tariffs continues unabated. Demand is there and spot volumes, in particular, are elevated, but freight rates are weaker than the prior year. Operating revenue declined by 14% as the rate decline was only partially offset by a 4% increase in operating days due to additions to the fleet. COA renewal rates were down in line with our expectation. And we expect to see the COA ratio increase over the coming quarters. Operating profit was likewise down, predominantly driven by the decline in spot freight rates for regional and Deep Sea, which was largely offset by lower trading expenses and lower time charter expense. However, further impacting the operating profit was higher owning expenses and depreciation and lower joint venture equity income. Maren and her team continue to work hard to navigate this highly complex and unpredictable macro environment with a laser focus on delivering for our customers, and I really want to thank them for all their efforts. Looking more closely at Tanker rates. We are seeing some early signs of rates beginning to stabilize. While the TCE for the quarter was around $24,500 per operating day, showing a decline of 19% year-over-year, on a quarterly basis, the gradient of decline has flattened and TCE was just 1% down versus Q3. As things stand today, we are seeing the usual winter strengthening in crude and product tanker markets, which could be supportive for spot rates within the chemical segments as well. However, at the risk of being repetitive, we are not just a chemical tanker business. We encourage the market to consider our performance across all the areas of our diversified portfolio. And I want to remind you that we have moved to full year EBITDA guidance for the business as a whole. Thanks to Guy and the Stolthaven team who have maintained steady utilization and kept operating revenue stable year-on-year in an uncertain market. EBITDA saw a modest decline of 4% with operating profit down 8% with these declines driven by investments in IT alongside some inflationary impacts and slightly less equity income from our joint ventures. Looking ahead, we expect the storage markets to remain stable, notwithstanding some caution and delayed decision-making on tank rental commitments from our customers. And so Stolthaven Terminals will continue to focus on optimizing margins and utilization. In response to the challenging demand drivers for storage, we are actively adopting our approach to specific market dynamics to better adapt to local conditions, and our investments in additional capacity at existing sites in the U.S. will start to come into play towards the end of the year. We expect to benefit from additional capacity in Houston and New Orleans coming online in a staggered fashion during Q3 ramping up and reaching full effect in 2027. The tank container market continues to be challenging. And in this context, Hans and his team have done a great job to drive revenue at Stolt Tank Containers up $5 million or 3%. This result has been driven by stronger shipment volumes, which offset the impact of lower ocean carrier freight rates. EBITDA and operating profit declined due to lower transportation margins and cost inflation. I now want to cover our view of the market and concluding remarks before we open for Q&A. This time last year, we spoke about the impact of geopolitical events on global trade flows. We highlighted a number of areas of macro uncertainty and discussed how these might play out through 2025. Today, the list of macro factors driving global uncertainty remains similar with the addition of two factors affecting our underlying markets. Geopolitical risk has not abated. Whilst we see some international players starting to selectively transit the Red Sea, there appears to be no clear resolution on events in the area, and we see new risks in international relations, especially in the Middle East. Risks and opportunities related to global tariffs and sanctions remain with trade policy changes impacting customer sentiment. The shadow fleet continues to impact around the edges of our markets and fluctuations in the crude oil market continue. We also continue to face a subdued global chemical market, which is struggling from production-underutilization. The timing of new build deliveries will also have a supply side impact over the next 2 to 3 years. In the face of these risks, we are well positioned to continue to deliver our value proposition for our customers across the supply chain. We are laser-focused on this, planning strategically and operationally so that we can be flexible and react with agility to macro events. We have strong relationships with our customers, and we are working closely with them to navigate these challenges and keep liquid chemicals moving around the world. Despite these market risks, supply and demand fundamentals are currently supported by a tight MR market. GDP growth is expected to be around 3%. Seaborne trade growth is expected to be muted this year with a return to growth expected in 2027. We are watching developments carefully with some caution, but we expect volumes to remain relatively stable year-on-year. MR rates have been trending gently upwards through 2025 and are predicted to remain at a high level, which has typically kept them operating in the CPP market, limiting the potential for swing tonnage in our market. As mentioned previously, we do expect some new-builds to enter the market in 2026 and 2027, and this creates some uncertainty on the supply side. However, the aging global fleet means that there remains high potential for retirements of vessels to manage global supply if necessary, with around 30% of tankers aged 20 years and older by 2027. To wrap up, we are focused on leveraging our diversified logistics businesses to steer them through global supply chain complexity and delight our customers by executing our liquid logistics strategy. To support both our core liquid logistics businesses and explore new opportunities and innovations, we are positioning ourselves for long-term growth through targeted strategic investments. We invested strategically through 2025 and will continue to do so through 2026. This disciplined capital allocation strategy translates into balance sheet flexibility and headroom to meet all our obligations. Our investments will convert into EBITDA-generating assets given time. And despite the market turmoil continuing, we expect the full year EBITDA to fall within a range of $600 million to $750 million. As we look to the year ahead and beyond, our strong strategic foundations position us well to navigate future challenges and opportunities. Our people, clear purpose and diverse portfolio provides the resilience and quality required to deliver long-term value for our shareholders, customers and other stakeholders. Thank you for your attention, and I will now pass you back to Alex for Q&A. Alex Ng: Thank you very much, Jo. So we will start Q&A with questions in the room. [Operator Instructions]. Thank you very much. And then we'll take questions from the Internet as well. Please? Unknown Attendee: Just on the guidance, you did mention on the '25 results, the split between tankers, non-tankers. You have a bit of a range in your '26 guidance. Can you give some color on your expected split and also perhaps on the sort of which segment is going to cause that variance in the range? Jens Grüner-Hegge: Okay. So if you look at the other businesses, the non-tanker businesses, they tend to be more stable. We know that there's a cyclicality in the tanker markets. Now looking at the performance that we've seen so far through the year, the third and the fourth quarter of 2025, we saw that was pretty stable from quarter-to-quarter. The reduction was really early in the year. Going forward, we mentioned also that we see that there is a certain short-term floor because we've seen the strengthening in the MR markets recently, which is lending some support. But I think it's worthwhile noting that as we get into the second half of 2026, you will see more of that order book that we showed being delivered. So we see more of a risk in the tanker market as you get into the second half than in the first half. And we know that these new-buildings will be delivered sort of second half '26 into first half of '27. So if you take that into consideration of what we saw in the fourth quarter, I would expect for the next few quarters that mix to be relatively stable with the exception of capital expenditures becoming operational. And that will be gradual. Again, I think most of that we expect to happen also towards the second half of the year when we're looking at the terminals business. So you'll probably start seeing more of a non-tanker growth in EBITDA in the second half of the year and potential challenges for the Tanker segment in the second half of the year. So you will start seeing that balance shifting towards more non-tanker business. Did that answer your question? Unknown Attendee: Yes, that's really good color. Also on the Red Sea, sort of -- this is a tricky one, but at what point do you expect to return? I mean there's a lot of talks about Maersk now entering the Red Sea again. What's sort of your point of action on entering the Red Sea? Udo Lange: Yes. So I can take that. So of course, chemical tankers is among the most risky vessel-type that you can navigate through the Red Sea, because a drone attack on that hitting the wrong tank has a significant bigger impact than when you have a conventional ship. So we are really very, very cautious, and we monitor that. So of course, it's good to see that Maersk is taking that effort, but we normally look really more towards the tail-end. And of course, what's currently going on in the Middle East and the U.S. fleet coming in. So we don't expect this to happen anytime soon. Alex Ng: Any additional questions in the room? Okay. Then we will move to the questions coming from those online. There's a couple of themes that maybe we can club together. I think the first one really goes to our liquid logistics strategy. So maybe one for you, Udo. How successful has the liquid logistics strategy been so far with customers? Udo Lange: Yes, I would say I'm really excited about how it latches more and more on. And that, of course, has to do with the increasing complexity globally. So if I take the amount of strategy sessions that we have now with customers versus 2 years ago, it's a complete different ballpark. But it has also to do with the capability that we are building in our own team. So of course, this -- remember, we come from very strong three divisions and now they need to collaborate more together, more and more people need to understand how do I really position all of Stolt-Nielsen in front of the customer. And that is really remarkable to see how deep that actually goes. So we have now not only sessions where we look at large customers, we also look at sessions that we have with medium, with small customers, and we do this around the whole world. So it's pretty exciting. The development is really exciting. And we are getting better and better at it and the customers appreciate it actually more and more. And we see most important, of course, it's not the activity, and we see business out of it. So we have met a customer that didn't have Tank Container business with us before talked about the whole portfolio, and we got Tank Container business. Met another customer we were very small on the tank container side. So the beauty is because we are market leading really in all 3 segments, each of the businesses is actually strong also with different customers. Sometimes it's the same, sometimes it's different ones. And it allows us to take our strong relationship and then introduce the other businesses as well. And don't forget what is also unique is, we are the only player who has end-to-end shipping where we have a deep sea fleet, we have regional fleets and we have barging fleets. And then we have terminals and then we have tank containers. And now the Suttons, we even have gas and short sea and China domestic. So that's just really beautiful because you just we have one page now where we put this all together and you sit in front of sea level. And they, of course, not necessarily know Stolt-Nielsen, but then they are like, "oh, that's really interesting. You're building a terminal right now in Taiwan, and we need to talk about our Southeast Asia logistics strategy". Maybe how can that all come into a hub-and-spoke system. And so that's really nice how the capability that we have, A, add value for the customer, gives us more business, but also how our organization is more and more capable to position this. Alex Ng: Questions for you, Jens, related to how we triangulated the EBITDA guidance. And the first one was, can you share any information from what the EBITDA contribution was from Avenir in 2025? Jens Grüner-Hegge: Yes. If you look at -- it's related to the guidance, it might be more relevant to us what we're expecting there. But '25 was a transition year for Avenir. As you will have seen in the comparison with '24 was that it was a -- 2024 was a drag. We've seen that turn into an improvement, a positive contribution. For '26, you're looking at about mid-$20 million EBITDA contribution that would be expected. And with this separation out, we are actually looking to be able to grow that faster than what possibly could have done on our own. So it is a -- it's about mid- $20 million in 2026 in the number if you want to have that in the back of your mind when you look at the guidance. Alex Ng: Thank you, Jens. And then another question related to guidance. You mentioned that Sutton won't contribute EBITDA until 2027. But do you expect it to be EBITDA-negative during '26 or just close to breakeven? Jens Grüner-Hegge: If we look at the year overall, our expectation is it won't be a drag. It will -- the benefit that we get from the additional volume, the additional tanks, there will be some integration costs as we -- as there always is with an M&A. But we expect a neutral impact in '26, and then we should see that really start taking off in '27. Udo Lange: Yes. I think on the base business, but of course, the integration cost year-over-year, it is a drag. Jens Grüner-Hegge: The cost is there, so yes. Alex Ng: A question related to strategy. Avenir is you announced the partial sale of that asset. Can there be any read across to whether Stolt Sea Farm will be on the table in order to clarify the strategy around liquid logistics? Udo Lange: No, these are completely two different strategic conversations. So you know we are since more than 50 years in agriculture. We are the market leader in the premium segment. And the business is developing quite nicely. We are investing. We are super happy with the returns that we are seeing. What is different on Avenir, remember, we had a joint venture and -- but we also realized that while we believe in the strong future of that market, that the other partners were -- for them, it was less strategic. So we then remember, we acquired 100% for Avenir, but well knowing that, that, of course, would have a significant capital expenditure exposure for us. So -- but we felt we believe we can grow in this market. But then at the same time, of course, we also looked at, well, now let's look for strategic partners where we then really can join forces and actually stronger lean into that market without actually dragging down our balance sheet too much. And so one of the key reasons, of course, you see also that our CapEx goes down year-over-year by $130 million is, well, we will benefit from the growth in the LNG market, but we are not as heavy exposed anymore in this segment. So two very, very different strategies. So Sea Farm is core to us and Avenir is an opportunity for us to capture a nice market together with a strategic partner. Alex Ng: And then the final questions we have on the -- for now relate to the CapEx that you talked about and the expansions, Udo. First question is related to Stolthaven. How should we quantify the investments in terminals in relation to added capacity and how it evolves over the year? Udo Lange: Jens, why don't you take the Stolthaven? Jens Grüner-Hegge: Yes. So we talked a bit about the different investments that we have ongoing in Stolthaven. We have the terminal in Taiwan, which is about to become operational, and that will have a positive impact as we go into 2026. We have the expansions that are ongoing in Houston and New Orleans, where we're adding about 170,000 cubic meters combined, and that will start coming on as we get into the third and fourth quarter of 2026. So you probably won't see much of an impact in this year, but it will come and be fully operational and have a full impact as we get into 2027. The other projects that we have sort of like the Turkey project, that's a long-term investment that will come in later years. It's a joint venture structure. So you will see that not necessarily in consolidated fashion, but more in an equity income from a joint venture in future years. Alex Ng: Thank you, Jens. And then the final question is, if we could share the delivery schedule for the new-builds in Tankers. Maybe I can just add a comment there. So we expect the first vessel to be delivered towards the end of this year. It's kind of on the edge of this year or next year, but it gives you an idea on that delivery. And then during the course of 2027, there will be a further additional 9 ships. And then in '28, there will be approximately 3 ships, and then the final one is due for delivery in 2029. So hopefully, good for your models. That concludes all of the questions. So thank you very much. We'll post a recording of this call on the website tomorrow. Udo, back to you. Udo Lange: Thank you very much for joining us today, and I look forward to talking to you again when we present our results in the first quarter of 2026 in April. We continue to be very excited about the business. We launched our strategy 2.5 years ago. We are executing nicely on the strategy. And I think you can see the benefits for our shareholders, our customers and our people as well. So thanks for all your support, and wish you a nice day.
Operator: Hello, and welcome to the Teva Pharmaceuticals Industries Limited Q4 2025 Earnings Conference Call. My name is Alex, and I'll be coordinating today's call. [Operator Instructions] I'll now hand over to Chris Stevo, SVP, Investor Relations. Please go ahead. Christopher Stevo: Thank you, Alex. Good morning, and good afternoon, everyone. Thank you for joining us on our fourth quarter call. Before I turn it over to our CEO, Richard Francis, I just want to remind everyone that we will be making forward-looking statements on this call. Any statements we make are only as of today, and we undertake no obligation to update those statements subsequently. And if you have any questions about our forward-looking statements, feel free to see the appropriate sections in our SEC Forms 10-K and 10-Q. With that, Richard Francis. Richard Francis: Thank you, Chris. Good morning, good afternoon, everybody. Great to have you on the call. Also on the call with me today will be Dr. Eric Hughes, Head of R&D and Chief Medical Officer, who will be walking you through some exciting developments in our pipeline. And then Eli Kalif, my CFO, who will go through the Q4 and the full year results. So starting with, as I always do, the Pivot to Growth strategy and the progress we've made over the last 3 years. As you know, the foundation is the 4 pillars: deliver on our growth engines, I think you'll see in the results that we continue to have great momentum around our innovative portfolio of AUSTEDO, UZEDY and AJOVY and some great progress on our innovation, so step-up innovation. You'll see that we filed olanzapine last year, completed the recruitment of the DARI study, dual-action rescue inhaler and started our Phase III study for duvakitug in UC and CD. And then sustained generics powerhouse, good progress. Our aim is to get this business back to stability, and we have done that. And now we see some exciting growth emerging from our biosimilars portfolio, and I'll talk a bit about that. And then focus the business. This is all about making sure we allocate capital to the correct areas to give the best return. And we'll walk you through a bit of the progress we've had on our transformation program, which is the aim is to have $700 million of net savings by 2027. We made excellent progress in '25, and we're on track to hit the 2/3 by the end of this year 2026. So now moving on to the actual results. So I'm pleased with these results. Now just to orientate you on this slide, the numbers on the left include the Sanofi milestones and the numbers on the right do not. So starting with the revenues. So a 5% increase in revenues at $17.3 billion. EBITDA grew 12% up to $5.3 billion. EPS grew 19% to $2.93 and free cash flow was up 16% to $2.4 billion. And our net debt to EBITDA is now at 2.5x, which is, as you know, our goal for 2027 is to 2x. So we're well on our way to do that. Now a slide that I've shown over the last 12 quarters actually, to show that our return to growth, which was our strategy, part of the Pivot to Growth strategy when we launched it in 2023. And as you see, we've consecutively done this. And we did that in Q4, where the growth was up 11%. Now that did include the milestone from Sanofi. If you take that away, we were slightly down at 1%. But let's look at it over a 3-year period. So over a 3-year period, these are impressive results, once again, reminding you that we had multiple years of sales decline. And so in 2023, we actually grew the business 4%, in '24, 11% and then last year, 2%. So we're well on track for our CAGR of mid-single digit, as you can see from the slide there. Now let's get into a bit of detail as to what's driving these good results. So on the next slide, you'll see the innovative performance is one of the key areas of growth for us. And AUSTEDO, UZEDY and AJOVY hit $3.1 billion for the year. This is up about 35%. So excellent results there. And I'm really pleased to tell you that in Q4, we surpassed $1 billion for our innovative portfolio that you see on the screen here. But in a bit more detail, AUSTEDO grew at 34% at $2.26 billion. UZEDY was up 63% at $191 million, and AJOVY continues to perform, was up 30% at $673 million. Our generics business was flat, worth noting this excludes Japan from these numbers. Now I've talked a lot about moving from a pure-play generics company to a biopharma company. I think these results show we clearly have done that. And now it's a question of just how much we can keep driving this innovative portfolio and the pipeline that comes through. Now moving on to a bit more detail. I wanted to talk to you a bit about AUSTEDO. So AUSTEDO had a really strong quarter in quarter 4, as you can see, $725 million, up 40% for the quarter. And for the full year, $2.2 billion, up 35%. And this was delivered with good underlying growth. As you can see, TRx is 10%, and there's a 19% rise in milligram volume. This is driven by both new patients and better adherence. It's worth noting that AUSTEDO XR now accounts for 60% of new patients. Now -- very impressive results here. Now we did have in Q4, these numbers did reflect some year-end inventory stocking and some favorable gross to net. And Eli will talk a bit more detail about that. But if you actually take that out, then we still grew at 20% in Q4. So once again, the underlying growth of this product is very strong. And because of that, we're giving the guidance of $2.4 billion to $2.55 billion for 2025 (sic) [ 2026 ]. I think it's worth noting that if we do hit the upper end of that, then that means we've hit the $2.5 billion a year ahead of schedule. But we'll talk in a bit more detail of the puts and takes to that range. Now moving on to UZEDY. UZEDY also had another strong quarter, $55 million, up 28% and for the full year, up an impressive 63% to $191 million. TRx volume grew an impressive 123% year-over-year. And it's worth noting that more than 83% of the NBRx generated -- was generated by patients transitioning from oral therapies or treatment naive, which confirms that UZEDY is expanding the long-acting injectable market, not just taking share. Now another impressive fact on UZEDY is it's the fastest-growing long-acting injectable in its category. And because of this momentum, our guidance reflects this. And as you see, we have a guidance of $250 million to $280 million for 2026. Now moving on to AJOVY. AJOVY had a strong quarter as well, up 43% year-on-year at $211 million. And for the full year, it's $673 million, up 30%. So once again, for a product that's fairly mature, really strong growth. AJOVY continues to be #1 preventative anti-CGRP injectable in the top U.S. headache centers, and it leads in 30 markets across Europe and international. And this continued growth is driven by, I think, our commercial excellence, our ability to continue to take market share to manage the pricing and the payer environment in the U.S. and to continue to expand in new geographies. And because of this strength, we're giving a guidance of $750 million to $790 million. Now moving on to the pipeline. So we talked about the products we have in the market and the excellent progress we made on those, but the pipeline is really exciting here. And I do want to mention this, even though I know Eric will talk a bit about it. The things I always remind people about this slide is every product we're going to launch has a potential of over $1 billion. The size of the markets we're entering into are significant and our entry points into these markets are in the short term. And if you look at the total, the total of the portfolio can be over $10 billion of peak sales. There's an addition to this slide that some of you may not have seen, which is we will be announcing 2 new indications for duvakitug later this year, once again, highlighting that is a pipeline in a product. Now moving on to our generics business. Our generics business, our aim was to get this back to stability, and we've done that. And the generics business was flat in 2025 versus 2024. Now one of the things that I do always highlight is you need to look at the generics business over a multiyear period because of the fact that some years, you have more launches than others. That's just part of the business. And as you see here, our 2-year CAGR is 6%. But for 2025, the U.S. grew at 2%, international markets, 1% and Europe declined 2%. Now we continue to see good performance from our biosimilars business, and I think I'll move on to that now to talk you through that. And where we started with biosimilars over the last 3 years, we've made tremendous progress. It's worth noting that we now have 10 assets in the market globally, and we're going to launch 6 additional between now and the end of 2027. Then we have another 10 assets that are going to start launching from '28 and beyond. So some impressive numbers here. So the aim was to build a world-leading portfolio, and we've done that. In fact, I think we have the second largest portfolio of biosimilars now in the industry, and we've launched the most biosimilars since 2020. And because of this, we're well on track to grow our biosimilars business by $400 million by 2027. Now to close out, as you've seen by some of the numbers we've talked about, we're well on track to hit our 2027 guidance. The CAGR, I talked about, we currently stand at 6%. The operating margin will go into a bit more detail, but with the success of our innovative portfolio, we're very confident about 30%. Net debt to EBITDA at 2x, we're already at 2.5x and cash to earnings is 80%, Eli will walk you through a bit more detail on that. But with that, I'll hand you over to Eric to talk about our exciting pipeline. Eric Hughes: Thank you, Richard. Starting with the slide that Richard went over briefly. One of the things about this pipeline is there's 3 Phase III programs and 2 burgeoning Phase II programs. And the market potential is big, like Richard mentioned. But more importantly, it's the unmet medical need that we take pride in and what we're potentially going to address. And finally, I'd like to say that we planned over 5 years for submissions. So we're very proud of the fact that we've turned around this innovative pipeline and moved it forward so quickly. But I first want to highlight olanzapine LAI. We got the submission in on December 9, and we're looking forward to the EU submission in the second quarter of this year. We've shown that this olanzapine LAI that can address an unmet medical need in schizophrenia has great safety and efficacy, and we want to discuss that with the health authorities and hopefully get that approval at the end of this year. So something very exciting to look forward to. Next, on our DARI program, our dual-action rescue inhaler, we're very proud of the fact that we finished the targeted enrollment of this study at the end of 2025. And in fact, we're going to continue enrolling it to accelerate the back end of the study. And the most important thing about that enrollment, one of the things that's most difficult is the fact it has pediatrics, adolescents and adult patients. So I think that the opportunity here for a differentiated product of a dry powder inhaler and the fact that we have the potential to have adolescents and pediatrics in the label is a true differentiator for this program, addressing a large unmet medical need in asthma. And then moving on to duvakitug, a very exciting brand-new biologic class that's in development. A year ago, we showed really exciting Phase II data in both ulcerative colitis and Crohn's disease, posting very good numbers in both with a nice dose response. But now we're excited to be looking forward to the maintenance data in the first half of this year. And the important thing about the maintenance data is that we will show hopefully the durability of response. And that's really what people need in ulcerative colitis and Crohn's disease. These are chronic diseases that people frequently fail on their advanced therapies and need more. So durability in the long term is most important. And just a review, this represents 58 weeks of exposure, looking at 2 different doses given subcutaneously every 4 weeks. And Richard also mentioned that we started our Phase III programs with our partner, Sanofi, the SUNSCAPE and STARSCAPE, started right on time, and we're accelerating those programs and executing very well, and we'll be looking forward to new indications this year. And then moving on to anti-IL-15. We had a very exciting announcement at JPMorgan that Royalty Pharma provided funding for our program in vitiligo for a Phase II/III program. This is really great external validation of our program, what we will -- what we believe is a very differentiated product to address a number of unmet medical needs. First, in vitiligo, this is something that systemic therapies are needed for, and that results will be available in the first half of this year. But also celiac disease, we're running our second proof-of-concept study with a biopsy endpoint that will be available in the second half of this year. But in addition to that, alopecia areata, atopic dermatitis and eosinophilic esophagitis are all possible targets for this very important cytokine. And then on to emrusolmin. One of the things I've been very impressed with is the rate at which we've been enrolling this study. This is a Phase II study looking at critical endpoints of an important unmet medical need. I always like to remind people the mean survival in this disease after diagnosis is 6 to 10 years. So this is a very important unmet medical need. We are working hard to make sure that this study not only enrolls quickly, but we will over-enroll to make sure that this Phase II program is as pristine as powerful as possible, really potentially capitalizing on the ability to accelerate this approval. And before I get on to my last slide, I just wanted to do a shout out for the AJOVY team at Teva. They've done a great job in generating data in migraine, and it's very satisfying to see our innovation is recognized by the New England Journal of Medicine with a publication this month. This is great work by the team and really got that sort of the approval for the only and first CGRP antagonist to be approved for pediatrics with episodic migraine. So very proud and great work and kudos to the team. But finally, I just want to go over something that we take with great pride. We have a very exciting 2026 coming up with many different milestones in the R&D organization. The duvakitug data, as I mentioned, will come out in the first half. For anti-IL-15, vitiligo data in the first half and celiac data in the second half of 2026. We'll be looking for that final event in the asthma exacerbation study of DARI by the end of the year, which would be completing the Phase III study. The emrusolmin will be targeting a futility analysis at the end of this year, even in the face of accelerating and increasing the enrollment in that Phase II study. And obviously, we're looking for the anticipated approval of olanzapine LAI at the end of the year, and we'll be talking about our first human data for our anti-PD-1 IL-2. So a really exciting year full of catalysts. We're looking forward to all these milestones. And with that, I'm going to pass it off to Eli Kalif. Eliyahu Kalif: Thank you, Eric, and good morning and good afternoon to everyone. I will review our 2025 financial results, focusing on our fourth quarter performance, followed by our outlook for 2026. I would like to start with the following key messages that highlight our consistent execution throughout 2025. First, we delivered solid Q4 and full year results, driven once again by our fast-growing innovative portfolio, which is also driving a meaningful shift in our margin profile. This was our third consecutive year of growth since we launched our Pivot to Growth strategy. Second, we continue to strengthen our balance sheet with a net debt reduced to approximately $13 billion and a net debt-to-EBITDA ratio of 2.5x, well on track to achieve our target of 2x and our journey to investment-grade ratings. Third, we made significant progress on our transformation programs, achieving $70 million of our planned savings in 2025, staying on track to deliver approximately $700 million savings by 2027, achieving our 30% non-GAAP operating margin targets. And lastly, with our performance in 2025 and outlook for 2026, we are well positioned to achieve our long-term financial targets for 2030. Now moving to Slide 28. Before I start with the results, I would like to remind everyone that in the fourth quarter of 2025, Teva initiated a Phase III of UC and Crohn's indication for our duvakitug program. As per the collaboration agreement with Sanofi, we received $500 million in Q4 of 2025 for this development milestone. This payment positively contributed $500 million to both our revenue and free cash flow and had a positive contribution to our adjusted EBITDA of approximately $410 million. During this presentation, I will be discussing our results for the quarter and for the full year of 2025, excluding the impact of these milestone payments. In addition to these payments, I will also be excluding any contribution from the Japan business venture, which we divested on March 31, 2025, to help to provide you with a like-to-like comparison of our financial results. Now starting with our Q4 GAAP performance. Our Q4 revenue were approximately $4.2 billion, up 2% in U.S. dollars or down 1% in local currency year-over-year. Our key innovative products, AUSTEDO, AJOVY and UZEDY continued strong momentum, all meeting or exceeding our guidance for the full year. This strong growth in our innovative portfolio and stable generics was offset by lower proceeds from the sale of certain product rights compared to Q4 2024. GAAP net income and EPS were $480 million and $0.41, respectively, including the payments for the development milestones. Now looking to our non-GAAP performance. Our non-GAAP gross margin increased by 80 basis points year-over-year to 56.2% and resulted in our full year gross margin at 54.7%, well above the top end of our guidance range. This increase was mainly driven by a stronger-than-expected growth in our key innovative products, mainly AUSTEDO. Non-GAAP operating margin decreased by approximately 120 basis points year-over-year to 26.7%, mainly because of the higher planned investment in OpEx to support our innovative growth. Overall, we ended the quarter with a non-GAAP earnings per share of $0.68 compared to $0.70 in Q4 2024. Total non-GAAP adjustments in Q4 were $649 million. This included impairment charge of $77.3 million, mainly related to a manufacturing facility in Europe. Our free cash flow in Q4 was approximately $800 million and $1.9 billion for the full year, coming at the higher end of our guidance range, excluding the development milestones related to duvakitug. Moving to Slide 29. We are making significant progress in our Teva transformation programs to deliver targeted savings of approximately $700 million by 2027 through a well-defined and planned efforts. During 2025, we achieved $70 million of initial savings, demonstrating solid momentum and execution and continue to expect roughly 2/3 of our total savings target to be realized by the end of 2026. These transformation efforts, along with the ongoing portfolio shift towards high-growth and high-margin innovative products provide a clear path to achieving our 30% operating margin target by 2027, even as we continue to invest in our business for long-term growth. Now let me turn to our 2026 outlook. As I mentioned earlier, 2025 was a year of a strong progress on our Pivot to Growth strategy. We delivered revenue growth, expanded profits and margin, invested in our innovative products and pipeline and made significant progress towards our journey to investment-grade ratings. In 2026, we remain focused on continuing this momentum and executing on accelerate growth path to our strategy. Starting with our revenue guidance for 2026. We expect full year revenue of $16.4 billion to $16.8 billion. This represents a range of approximately 1% growth to 2% decline compared to 2025 on a normal base, excluding the $500 million development milestone payments and $75 million contribution in 2025 for the Japan business venture. This revenue guidance is consistent with our previous communication and reflects continued strong momentum in our innovative portfolio, including AUSTEDO, AJOVY and UZEDY combined with a low single-digit growth in global generics business. It's expected to largely offset revenue headwinds of approximately $1.1 billion from generic Revlimid in 2026. We expect non-GAAP gross margin in 2026 to be in the range of 54.5% to 55.5%, showing a further improvement over a strong 2025, driven again by the ongoing positive shift in our portfolio mix and the cost savings from our ongoing transformation programs. As a result, and as previously communicated, we expected our non-GAAP operating income and adjusted EBITDA to both growth in absolute dollars and as a percentage of revenue compared to 2025. Our operating expenses are expected to be in the range of 27% to 28% of revenue with a higher impact of the transformation program cost savings in the second half of the year. We expect finance expenses to be approximately $800 million in 2026, lower than 2025, reflecting the reduced debt levels and ongoing deleveraging. Our non-GAAP tax rate is expected to be in the range of 16% to 19%, slightly higher than 2025, which benefited partially from IP-related integration plans and the recognition of certain U.S. tax attributes. This brings us to expected non-GAAP earnings per share range of $2.57 to $2.77. Our 2026 free cash flow is expected to be in the range of $2 billion to $2.4 billion, representing a strong ongoing improvement in our cash conversion profile and consistent with our long-term targets. Now lastly, let me provide you with some directions on how we think about quarterly progression in 2026. We expect revenue to gradually increase over the course of the year with the revenue in the second half of 2026 slightly higher than the first half. Q1 is expected to be light, mainly due to the following: First, a year-over-year decline in our U.S. generics revenue, mainly because of approximately $300 million in generic Revlimid revenue from Q1 of 2025 that is going away. Second, on AUSTEDO, during Q4 of 2025, on top of AUSTEDO's strong underlying performance, we had the benefit of a year-end inventory build and a onetime gross to net of approximately $100 million. While we expect a strong year-over-year growth for AUSTEDO in Q1 2026, we expect Q1 revenue to reflect the sequential impact of these onetime benefits. We also expect AUSTEDO revenue in Q4 '26 to be potentially down year-over-year due to a different purchasing patterns and pricing environment ahead of the IRA implementation in January 2027. Our non-GAAP margins are also expected to be gradually ramped up over the course of the year, in line with the revenue trajectory as well as savings from the ongoing transformation programs. The onetime revenue dynamics that I just talked about will also impact gross margin in Q1 beyond the normal seasonality we see going from Q4 to Q1. Free cash flow is also expected to ramp up over the course of the year. Now on the next slide, I would like to highlight the strong free cash flow trajectory that we are on. There are 3 main elements that are going to continue to drive incremental free cash flow, going from approximately $1.9 billion in 2025, excluding duvakitug milestone payments to more than $3.5 billion by 2030. First, our innovative portfolio is uniquely positioned to continue to grow strongly, driving higher margins and free cash flow. In addition, we are on track to achieve $700 million savings from transformation programs by 2027. We don't stop here, and we'll continue to drive modernization of Teva beyond 2027. Second, we continue to strengthen our balance sheet through working capital and CapEx optimization. And lastly, we continue to deleverage, reduction in our debt expected to result in lower finance expenses by approximately 50% by 2030, and we expect to see a reduction in our legal payments over time. Now turning to the next slide on capital allocation. Our capital allocation strategy is focused on driving our Pivot to Growth strategy. This means keep investing in our key growth drivers and our world-class innovative pipeline. We are also making significant progress towards our target of 2x net debt-to-EBITDA and an investment-grade credit ratings. This progress is recognized consistently by the major credit rating agencies, including the recent upgrade by S&P and an improved outlook by Moody's. With the progress we have been making, I expect to see us achieving these goals in not-too-distant future, which also position us very well to thoughtfully evaluate additional ways of returning capital to our shareholders. Finally, before I conclude my review of our 2025 performance, I would like to reiterate our long-term targets. We are clearly on the journey to be a leading innovative biopharma company. With our growing innovative mix, a number of key pipeline developments this year and our free cash flow trajectory, we are confident about the directions we are on to achieve our 2027 and 2030 financial targets. With that, I will now hand it back to Richard for his closing remarks. Richard Francis: Thank you, Eli, and thank you, Eric. So the next slide I'm going to go on to here is the one Eric showed, but I think it's one that's worthy of being repeated. A really exciting year here for Teva with regards to milestones on our innovative portfolio. We have 7 milestones here on this slide. So very proud of that, very proud of what the team has achieved. Obviously, we have some exciting data around vitiligo and anti-IL-15 and celiac disease. We have the olanzapine launch later this year. We have the duvakitug maintenance data, the futility analysis, which could accelerate our ability to get to market with emrusolmin treating this very serious disease. So lots of opportunity here to continue this transition to a world-class biopharma company. Congratulations once again to the R&D team for moving this through so quickly. In just 3 years, we progressed this pipeline at record speed. Now it's because of this pipeline, it's because of the continued strong performance we have in our innovative portfolio that I mentioned earlier and Eli also mentioned, is why we're confident about the opportunity to continue to grow Teva top and bottom line and why we think it's an attractive investment opportunity. Because as you can see here, not only do we have significant headroom for AUSTEDO, AJOVY, we have the LAI franchise with UZEDY performing well, but olanzapine about to join it this year. I highlighted the amount of biosimilars that will be launched over the next few years. And then as we look forward, that pipeline, the readouts I just mentioned will start to come to fruition. So we'll be able to continue this momentum going forward. To move on to my final slide, just to conclude. Our growth journey continues. We have 3 years of consecutive growth. We have a 6% CAGR. Our innovative brands are growing at double digit, and they have headroom to keep growing. We have near-term milestone readouts, 7 in '26. And we have a stable outlook for our generics business, and we continue to focus on accelerating our Pivot to Growth journey. And with that, I'll open the floor to questions. Thank you. Christopher Stevo: Thanks, Richard. Alex, before you line up the question queue, I just want to remind callers, please limit yourself to one question and one follow-up. And if time permits, we will be more than happy to answer additional questions from you if you get back in the queue. Thank you. Operator: [Operator Instructions] Our first question for today comes from David Amsellem of Piper Sandler. David Amsellem: So I have one question on AUSTEDO and one on UZEDY. So helpful color on the guide, but I wanted to dig more deeply into the various pushes and pulls regarding AUSTEDO in 2026. Can you talk about net pricing dynamics and what's baked into your assumptions ex the gross to net favorability in 4Q and ex stocking? How should we be thinking about what your assumptions are regarding net pricing as we move through the year? And then how should we be thinking about what your assumptions are regarding volume growth, particularly on a per milligram basis. So that's number one. And on UZEDY, kind of a similar question. There's a lot of volume growth, obviously, but there's obviously significant government exposure, particularly Medicaid. So how should we be thinking about net pricing there? And what kind of assumptions you baked into your UZEDY guidance? Richard Francis: David, thanks for the questions. So let me start with AUSTEDO. I think the main point to highlight first here is we're really pleased with the momentum we have with the TRx growth we have, with the adoption of XR and the continued growth of the milligrams, as you saw there at 19%. So the fundamentals are really strong. We see a huge opportunity to continue to grow this from a TRx point of view with the amount of patients who are still untreated. So that fundamental is really strong. I think when it comes to the pricing, I think as we communicated last year, our aim has always been to make sure we get value and access. And so we've been very diligent about that for this year. And so obviously, it has got more competitive, but we've taken a very disciplined approach to that. And so I think we've maintained that value and access. So I don't think you could think of that as anything that's -- anything of any significance there. And I think the thing to think about with AUSTEDO is what we've finished 2025 with some really strong growth, both on our top line as well as on our milligrams and TRx. And as I said, if you back out that inventory build and the gross to net is still very strong performance. And so if you look at how we're performing across this range, I think we have a very strong range here. It does take into account some expectation that there may be some destocking in Q4 in 2026, but we'll see how that plays out. But probably the final thing I'll say on AUSTEDO, just to help give some clarity. If you do look at the range we've got and you back out the inventory build that we had in Q4, the growth of the brand is about -- the range is from 11% to 18%. So very strong growth on what is a lot bigger base. So I think that helps answer your question on AUSTEDO. On UZEDY, then as you've seen, very strong growth on UZEDY, really strong growth on TRx and continued really good change in the dynamics of this market that shows the quality of the product. But to your question, I think it's always important to understand that we have Medicaid and Medicare. And so we have that mix. And obviously, we know one is more profitable than the other. And how that mix plays out we've taken into account with our guidance and our range. But we see this product continued momentum, particularly as you look at the TRx being so high. So I think this product, we have a lot of enthusiasm around, but that's the fundamentals around the pricing. We factored them in, and it really comes down to those 2 channels. Thanks for the question, David. Operator: Our next question comes from Louise Chen of Scotiabank. Louise Chen: Congrats on the quarter. So my first question was, I wanted to ask you where you see the greatest disconnect between what you're excited about in your pipeline and what the Street is really missing on those products? And then second one, just a follow-up on AUSTEDO, I wanted to ask you how we should think about modeling 2027 in light of IRA and any other pushes and pulls you see here? Richard Francis: Okay. Thanks for the questions there. So the pipeline, I'll probably tag team this a bit with Eric. What -- look, I'll never say anybody is missing anything because everybody is very experienced in this business. I do think that our pipeline has come along very fast, think of fast side, maybe that's caught people unaware. But I think the quality of our antibodies, the quality of anti-TL1, the quality of duvakitug, I think, will show out in the data. So I think probably what's going to happen, I'd anticipate is as we turn over these cards and we see the data, then I think Teva will get recognized for what is a world-class pipeline. But it's probably a bit surprising for people to see just the quality of the pipeline that's emerged in such a short space of time. But maybe I'll hand it to Eric to give his view on that. Eric Hughes: Yes. Thank you, Richard, and thank you, Louise, for the question. I would emphasize something Richard said. I think the speed at which we turn around the innovative portfolio is quite honestly caught people by surprise. We've turned on a brand-new biologic for duvakitug, which is probably the best-in-class product for TL1A. We've launched or we will launch, hopefully, olanzapine LAI this year. But don't take our word for it. We've had external validation on 4 of these 5 programs. Olanzapine LAI got Royalty Pharma funding. Duvakitug was partnered with Sanofi, who saw the value. The DARI program was acknowledged by Abingworth. The anti-IL-15 program was recently acknowledged again by Royalty Pharma. And even emrusolmin, we've received Fast Track designation and an orphan designation. So across the entire innovative pipeline, we've accelerated them, I think, a little bit to the surprise of investors. But just look at the external validation that we've had in the pipeline and take that into consideration of your valuation. Richard Francis: Thank you, Eric. And then moving on to your final question about -- I think it was sort of asking for guidance on AUSTEDO in 2027, which I'm not going to give. Obviously, we've said we're going to do $2.5 billion for AUSTEDO in 2027. We remain very committed to that. As you see in our range that we have announced today, there's a potential that we will hit $2.5 billion in 2026. So we'll have to see how this plays out. I think the most important thing for AUSTEDO is to keep reminding everybody that 85% of people who suffer from tardive dyskinesia are still not treated. And so the opportunity to keep helping these patients to bring these patients in and give them therapy, I think, is a significant growth driver for AUSTEDO. So we also have the work we're doing on making sure that people can benefit from AUSTEDO XR. And as you can see there, 60% of new patients go on to AUSTEDO XR, and we know that helps with compliance and adherence, which obviously also in turn increases value. So I think we have a lot of value drivers for AUSTEDO, but I really don't want to get drawn into 2027 guidance at this moment. I think what I'm hoping people would see is what we have great momentum from '25. We're carrying that into '26, and we'll talk about '27 maybe this time next year. Operator: Our next question comes from Ash Verma of UBS. Ashwani Verma: Congrats on all the progress. So maybe just first one, how are you thinking about funding the R&D? So increasingly seeing more royalties and/or profit share. Just when you think about it strategically, how do you balance not giving away attractive economics to your partner versus seeing a meaningful increase in your internal R&D spend as you fund the growing pipeline? And then secondly, on the TL1A upcoming maintenance data, we've seen some competitors that the maintenance data versus the induction sort of went up on efficacy measures by high single digit to mid-teens in terms of percentage points. Is that a fair expectation to have as you look towards your upcoming results? Richard Francis: Ash, thanks for the question. I'll tag team this with Eric again. But on the R&D funding, I think the question was, how are you going to fund this? Are you going to be giving away value if you keep doing these partnerships? So I think the way we think about it is we have a big late-stage pipeline. We have a lot of opportunities to drive significant value creation. And when you have a good pipeline, in my experience and my belief is it's about moving it faster to the market to have patients benefit from it and to get revenue. And so we're moving a big pipeline really quickly here. Now how does it impact the economics? It really doesn't impact the economics in any meaningful way for a couple of reasons. One is these -- all these brands will be above $1 billion. Some of them will be multiple billion brands. The second thing is, which is an interesting fact that I think people miss on Teva is we're starting with a company with a very different gross margin than many other biopharma companies. So every time we launch an innovative product, it transforms our gross margin, which transforms our ability to drive EBITDA to drive EPS and cash flow. So as I said, the fact that these are not in any way giving away value in the broadest sense. But even with regard to Teva, they don't because of where we actually start this journey. The other thing I'd also like to highlight on this, we are launching so many products over such a short period of time that, that is the focus we're on. And we're going to have a potential to launch 4 products in 5 years, and we're going to actually announce more and more indications. So I think the pipeline is about making sure we move it quickly to the market. But in no way are we giving away value. I'd say we're accelerating value because of the speed we're moving. And then with regard to the key to the TL1A maintenance data, what are our expectations? I'll hand it over to Eric to answer, and then I'll conclude. Eric Hughes: Sure. Yes. Thanks, Ash, for the question regarding what we anticipate from the maintenance data of TL1A. So I'd start off by saying what's the history we've been telling with regard to duvakitug at Teva. We started by saying that we found in our in vitro work that we had the most potent antibody, the most selective antibody and the one that probably has the lowest antidrug antibodies. I think it's about 3% to 5% we saw in our Phase II study. So with that, we went into our Phase II program that we executed very well at speed. And then we came up with the highest reported numbers for both ulcerative colitis in Crohn's disease in 2 very well-controlled and run studies. So the in vitro translated into a very good result in Phase II. So if you translate that into what we anticipate in the maintenance, if you think that we have the most potent, the most selective, the lowest antidrug antibodies and that we can execute the study well, I would hope that when we lock the database, we see great results. So I'm bullish on it. Hopefully, that comes true, but we'll see what the data shows. Richard Francis: Thanks, Eric. We stand by the fact that we have and we believe we have the best TL1A. Operator: Our next question comes from Jason Gerberry of Bank of America. Jason Gerberry: One for Eli, just I didn't catch this, but can you talk about in 2026 guide, sort of what's the gross margin outlook versus the OpEx spend ratio? I think the latter would be in that 27% to 28% range you guys have talked about historically, but I just wanted to make sure that, that was confirmed from a modeling perspective. And then just for my follow-up, on vitiligo, I was trying to maybe understand kind of what we're going to get with this upcoming Phase Ib. Will we get VASI75 scores through the full evaluable period? Are you expecting most of these 30-plus patients to make it through the full evaluable period? Just kind of wondering how robust that data will be. Richard Francis: Thanks, Jason. Thanks for the question. So over to you, Eli, on the gross margin. Eliyahu Kalif: Jason, thanks for the question. So on gross margin, we end up the year, if we exclude the 2 milestone payments at a 54.7% gross margin. We are looking to be in the range of 54.5% to 55.5% in 2026. In terms of the OpEx, there are kind of mainly 2 dynamics there. First of all, -- and as I mentioned in my prepared remarks, we're going to see a bit higher OpEx, still in the range between 27% to 28% in the first half versus the second half just because of the revenue dynamics during the year. But there is also another element inside the OpEx, we're going to see more reduction in our G&A and actually shifting that reduction in between R&D and sales and marketing and able to stabilize it at the range of 27% to 28%. So this one didn't change versus our prior communication. Richard Francis: Yes. And the thing I'd add on to that, Jason, is gross margin is a really exciting story for us because as you see, as we continue to grow our innovative portfolio, we continue to launch products, that gross margin will just keep going up. It's just going to be a question of how much, but it will keep going up because of the fact that we're changing our portfolio so dramatically. Now with regard to the vitiligo data, I'll hand over to Eric. Eric Hughes: Yes. Thank you, Jason, for the question. So the data that we're going to be presenting in the first half of 2026 is a single-arm study for patients with vitiligo. It's about 38 patients in total. It will have the traditional and known endpoints for this field, which is facial VASI and total VASI. So it will be easily comparable to other treatments out there. And that reminds me the important thing here is that there are limited treatments for vitiligo today. There's one approved, which is a topical that only covers 10% of your body. And ones that are in development are the ones that what we need, things that are systemic in treatment, not only the face, but the entire body, more than just 10%. So one of the exciting things we think about when we talk about our anti-IL-15 program in vitiligo is this has the potential to be a once subcutaneous shot every 3 months. So a quarterly shot potentially to treat a systemic disease. So we're looking forward to that. You'll -- I think you'll get data that we'll be able to compare it to other treatments out there in development and approved. Operator: Our next question comes from Chris Schott of JPMorgan. Christopher Schott: Just sticking on IL-15. On the development time lines in vitiligo, can you just elaborate what exactly you need for that 2031 pathway versus '34? And I guess, is there a similar opportunity in celiac there as well? And if I can just do a really quick one, just coming back to AUSTEDO. I think you were talking about roughly $100 million benefit in 4Q, and it sounds like that's between rebate and inventory. Just when we think about destocking in 1Q, can you just clarify how much of that was inventory and how much was kind of this reversal of rebates? Richard Francis: Thanks for the question, Chris. Eric, do you want to start with the anti-IL-15, vitiligo and celiac? Eric Hughes: Sure. So thank you for the question on IL-15. So just to start off with IL-15 is it's a key cytokine in a number of different indications I mentioned before. We're working on vitiligo and celiac. I'm excited by both the potential for alopecia areata, atopic dermatitis or eosinophilic esophagitis. They're all interesting and important for this cytokine. For vitiligo, we're particularly excited because this is a program that we can move quickly. It has precedents for the regulatory endpoint. It's an endpoint that you can easily measure. You see the results. So that makes it a little bit more easy. And there's an unmet medical need here. We need systemic therapies, as I mentioned before. So we're thinking out of the box at Teva, we are accelerating this program in a clever pathway of a Phase II and Phase III study that we can work very quickly with the regulators. So the potential for a once quarterly dose subcutaneous shot is very exciting for us. Richard Francis: Thanks, Eric. And then on the AUSTEDO question, Chris, the way to think about that $100 million is the vast majority, the vast majority pretty much was the inventory. So that's why, obviously, we have a lot of confidence about 2026 in our numbers. So hopefully, that helps, Chris. Operator: Our next question comes from Umer Raffat of Evercore ISI . Umer Raffat: If I look at the delta versus consensus this quarter, it looks like it's driven by sales and marketing when I take out the one-timer impact of the milestone. And coincidentally, I feel like this is probably the highest sales and marketing spend quarter we've seen in the last 3 years or so. So I'm curious why that is, especially because it's happening in the middle of the transformation that's underway, number one. Secondly, for '26 guidance, is it fair to say that the Royalty Pharma $75 million payment for Phase IIb is embedded within the EBITDA? And is there any other milestones that are baked into the EBITDA guidance as well from TL1A or anything else? And then finally, on vitiligo, OPZELURA obviously has not necessarily done too well, but as Eric pointed out, has limited coverage. But is it fair to say that on the scores like OPZELURA showing about 30% facial VASI75 score, you would want to be tracking meaningfully north considering Royalty Pharma is all excited and they're not funding celiac only doing vitiligo. I'm just curious about your overall take on expectations. Richard Francis: Umer, thanks for the questions. You got a few into that one question there. So thanks for that. On the sales and marketing and the OpEx, I'll hand that to Eli to talk about. Eliyahu Kalif: Okay. Umer. So first of all, about the question about Royalty Pharma, out of the $75 million, the way that we're viewing, it's actually going to spread over '26 and '27 with 1/3 out of the $75 million going to happen in '26. It's more kind of backloaded for '26 year. And that's the only thing that's embedded there. We don't have any other, I would say, assumptions in our EBITDA related to TL1A milestones or anything like that. As far as related to the sales and marketing, if you actually back out the higher revenue due to the milestone, you get to kind of a 15.4% on sales and marketing. But going forward, next year, we're going to see that one actually 16%, and why? Because we are keeping investing in our growth engine, which is AUSTEDO and actually heading to next year, building kind of investment into our olanzapine launch. So we're going to see that one increasing. But all in all, the whole bucket going to be, from a dollar perspective, really kind of flat, but also from a percentage perspective due to the fact that you will see our transformation program going to impact the G&A, as I mentioned to Jason, and that's kind of a reduction in G&A going to split in between the R&D investment and into the sales and marketing. Richard Francis: Thanks, Eli. And look, one thing I'll just add on to the back of that before I hand it over to Eric. If you think about the guidance for this year, the EBITDA range, I think, is showing the value of the programs we put in place, the value of driving our innovative portfolio, the fact that when we talk about our transformation program, it was $700 million of net savings after investing in our growth drivers. And so we've allowed ourselves to make sure that we can drive this innovative portfolio, which helps drive that EBITDA, but at the same time, our efficiency programs help also drive the EBITDA. So I think we're very pleased and proud of the fact that our EBITDA starts with a 5 in front of it, which I think is important. But we're very mindful of how we spend our money and where we allocate our capital. When it comes to vitiligo, I'll hand that over to Eric. Eric Hughes: Thank you, Umer, for the question. So when it comes to what data we've seen with the topical out there today and what's in development, I always want to be competitive on any endpoint what you talk about. So hopefully, when we lock the database and get that results, we can show that we're competitive against what's available. But again, let's focus again what patients need. They need systemic therapy that's conveniently given. So it's almost inappropriate to compare it to a topical on 10% of your body. But certainly, we hope to be competitive. Operator: Our next question comes from Les Sulewski of Truist. Leszek Sulewski: Congrats on the progress. I just wanted to focus on the biosimilars side. So what's the launch cadence and expected profitability profile, particularly given the U.S. channel and PBM dynamics? And then what are the prerequisites for targeting the 10 new products beyond 2028? And you've previously evaluated or mentioned reevaluating BD within the space. So what type of, whether it's in-licensing, co-development or tuck-ins fits your leverage and margin profile today? And has that bar changed given the latest policy dynamics? Richard Francis: Thanks for the questions. So talking about biosimilars, yes, it's an exciting time. And I think the fact that we built the second largest portfolio and continue to add to it in such a short space of time is a testament to the prioritization we put behind it. But to sort of give you a bit of specifics and -- when we talk about -- we have 10 in the market now, we have 6 to launch between now and '27. Those 6 -- majority of those will be across both U.S. and Europe, which is important because we haven't actually had a presence in Europe of any significance. And we know that market is a market with quicker uptake, more predictability and some very clear returns. So excited about that. And to name just a few, we have biosimilar Prolia, biosimilar Xgeva, biosimilar Simponi, biosimilar Eylea and biosimilar Xolair. So we have a lot coming through of those markets and most of those are in both. I think it's Simponi that's just in the U.S. Now you highlighted the 10. And you sort of -- in your question, it sounded like we had targeted 10. No, we have 10. They are in our pipeline. But we're just going to add to that. So we have 10, which is why I said we can start launching '28 onwards, but we are continually adding to that. And the final part of your question is doing this through partnerships, how does that work out in gross margin. So we are going to continue doing it through partnerships, and it still is attractive from a gross margin point of view with the right partnership. It's still accretive to our business, our generics business significantly. So that's how we do it. And you'll probably start to see some deals coming through already in the first half of this year as we already build out this portfolio beyond the '26. So -- and then the final thing I'll add on that, this biosimilar portfolio is coming through thick and fast, and that's going to really help us drive the generics business going forward, both in Europe and in the U.S. But thanks for your question. Christopher Stevo: Les, could you repeat your BD question, please? Leszek Sulewski: Essentially, I just wanted to get a sense of if there's a potential for you to kind of dive a little bit deeper via BD within the space, if there's anything available out there via partnerships that you've previously had and essentially what's your strategy for that space? Christopher Stevo: Sorry, are you asking about biosimilars? Richard Francis: Yes. So that's what I thought. So that's -- I think I answered that question, Les. We'll continue to do the partnerships. Some of those we already have good, big partnerships with companies that we think we can have the potential to expand those, whether that's mAbxience, whether that's Samsung. So I think we're looking at expanding. But also we have other companies that have approached us to be their partner because obviously, the performance we've had in the U.S. has been impressive. We have the fastest-growing biosimilar Humira. We have a very fast-growing business now in the U.S. So I think people are seeing that. But yes, it will be through partnerships, the majority of it. Operator: Our next question comes from Dennis Ding of Jefferies. Yuchen Ding: I had 2, if I may. Number one, sort of a big picture question on R&D. What is your R&D philosophy at Teva? And I guess how much derisking do you think we'll get around the R&D platform from the data readouts this year? I'm also curious what else could be planned for 2027 as you advance some of these newer drugs forward? And then number two, just a question around BD. I'm curious as you transition to a novel biopharma company, if your BD philosophy has changed at all and if Teva might be interested in doing acquisitions in, let's say, the classic biotech space rather than what's historically been spec pharma. Richard Francis: Thanks, Dennis. Thanks for the question. I'll tag team that with Eric and maybe start on the philosophy of R&D or maybe we call it the strategy. Eric Hughes: Yes. No, thank you for the question, Dennis. And this is a very important question. And I think that the philosophy in the way that we operate at Teva is we are ruthlessly driven by data. We have, first and foremost, a pipeline in Phase III and Phase II that's relatively derisked. I think emrusolmin is probably the lowest on the probability of success. But when you think about our programs, we use known science, we combine it in a way that will execute well and quickly with regulatory approvals. And that's based and driven solely on data. One of the things I've noticed and been able to achieve here at Teva is when we see data, we pivot and we move forward with it. That's something I hadn't been able to do in my career in other places. So speed and execution driven by data with this philosophy of known science and derisked assets is how we will move forward. I think that's baked into every one of our programs at this point. Richard Francis: Thanks, Eric. And then to move on to your next question, you said what about BD and as we pivot into a biopharma company. So firstly, thank you for the recognition that we are pivoting. And I think we pivoted. But anyway, we'll keep showing that with the pipeline as it comes out. But yes, we are actively looking at BD. We think we have a commercial powerhouse of the team. I think you've seen that with the results of AUSTEDO, UZEDY and AJOVY. And so we want to add to that team. Now that said, we have, as Eric highlighted, a really exciting pipeline. So the organic growth we have coming through is impressive. So we're not desperate to do BD. We don't have to. At the same time, it fits into our TA areas of CNS neurology and immunology, then I think it's very synergistic, and it makes a lot of sense. So we are very active in that. What is interesting, I think, within the last year to 18 months, the amount of approaches we've had has significantly increased. And I think that's because they see Teva as a partner both from an R&D perspective, the speed which we move things through the clinic is exciting, but also primarily because of the commercial capability and muscle we have and the focus we give assets when we have an asset, whether it's in development, we focus and we move it quickly, whether it's in the market, we focus and we actually drive sales. So I think we'll hopefully be able to talk about some things going forward, but we are very disciplined in our capital allocation, and we think it's the right asset at the right time at the right price, we'll definitely do it. But because of the pipeline we have that's coming through, we can stick to that in a very disciplined way, and we will because going back to that fourth pillar of the Pivot to Growth strategy, it's about focused capital allocation, making sure we give a good return on that in the short, medium and long term and create value for shareholders. So thanks for your question, Dennis. And I think with that, I think that is the final question. We went over a bit, but I think we did start a couple of minutes late. So thank you for your questions and your interest in Teva, and I look forward to following this up later with our Q1 results. Thank you. Operator: Thank you all for joining today's call. You may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Central Pacific Financial Corp. Fourth Quarter 2025 Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. As a reminder, this call is being recorded and will be available for replay shortly after its completion on the company's website at www.cpb.bank. I would like to turn the call over to Mr. Jayrald Rabago, Senior Strategic Financial Officer. Please go ahead. Jayrald Rabago: Thank you, and thank you all for joining us as we review the financial results of the 2025 for Central Pacific Financial Corp. With me this morning are Arnold Martines, Chairman, President, and Chief Executive Officer; David Morimoto, Vice Chairman and Chief Operating Officer; Ralph Mesick, Senior Executive Vice President and Chief Risk Officer; Dayna Matsumoto, Executive Vice President and Chief Financial Officer; and Anna Hu, Executive Vice President and Chief Credit Officer. We have prepared a supplemental slide presentation that provides additional details on our earnings release and is available in the Investor Relations section of our website at ir.cpb.bank. During the course of today's call, management may make forward-looking statements. While we believe these statements are based on reasonable assumptions, they involve risks that may cause actual results to differ materially from those projected. For a complete discussion of the risks related to our forward-looking statements, please refer to slide two of our presentation. And now I'll turn the call over to our Chairman, President, and CEO, Arnold Martines. Arnold? Arnold Martines: Thank you, Jayrald, and aloha to everyone joining us today. I want to start by sharing that Central Pacific Bank was recently named to Newsweek's list of America's Best Regional Banks for 2026. This recognition reflects the strength of our franchise and the trust our customers place in us every day. It's also a testament to our team's commitment to deliver exceptional service and build lasting relationships across the communities we serve, which is foundational to delivering long-term value to our shareholders. Central Pacific closed the year with strong momentum in the fourth quarter and solid overall performance in 2025. The Q4 results were driven by disciplined execution across our core franchise. Our profitability strengthened as we grew revenue and expanded our margin while proactively managing expenses. As we enter 2026, Central Pacific Bank is ultra-focused on our core business, which includes a disciplined approach to organic growth, thoughtful diversification, and operational excellence. We are well-positioned to achieve consistent earnings growth, enhance shareholder returns, and strengthen our competitive advantage. Over the past three years, our total shareholder return was 77%, reflecting both solid share price appreciation and dividends. Additionally, our core earnings per share increased 24% from the prior year, underscoring the strong operating momentum across our franchise. Hawaii's economy continues to be resilient despite macroeconomic uncertainty leading to lower visitor counts and softer job growth. Offsetting such factors, Hawaii's key strength continues to come from strong construction activity at both the public and private levels, as well as the military sector. Total core deposits grew by $78 million during the quarter, with meaningful gains in interest-bearing demand, savings, and money market balances. At the same time, the average rate paid on total deposits declined to 94 basis points from 102 basis points. Noninterest-bearing demand deposits remained healthy, continuing to represent a sizable 29% of total deposits. In the fourth quarter, our total loan portfolio declined by $78 million from the prior quarter. During the quarter, we experienced several large construction and commercial mortgage loan payoffs, combined with a delay of certain new loan fundings. For the full 2025 year, total loans declined by $44 million. The full-year decline was driven by an aggregate $190 million decrease in residential mortgage, home equity, and consumer portfolios, which was partially offset by strong growth in commercial mortgage and construction. Average loan yields in the fourth quarter remained relatively stable at 4.99% as the impact from Fed rate cuts was mitigated by back book loan repricing. As we enter 2026, our revenue growth strategy will be further enhanced with sales management technology tools and consistent discipline to drive results. We continue to build our loan pipeline with a focus on our core Hawaii market, supplemented by select Mainland markets for diversification. Our deposit growth will be driven by a focus on deepening relationships in Hawaii and strategic partnerships in Japan and Korea. For 2026, we are conservatively guiding to full-year net loan and deposit growth in the low single-digit percentage range. With that, I'll turn the call over to Dayna. Thanks, David. Dayna Matsumoto: For the fourth quarter, we reported net income of $22.9 million or 85¢ per diluted share, compared to $18.6 million or 69¢ per diluted share in the prior quarter. Our return on average assets was 1.25%, and return on average equity was 15.41%, underscoring continued profitability improvement in a dynamic environment. For the full 2025 year, net income was $77.5 million or $2.86 per diluted share. Excluding $1.5 million in one-time pretax office consolidation costs in the prior quarter, adjusted non-GAAP net income was $78.6 million, representing a meaningful 24% increase over 2024 non-GAAP net income of $63.4 million, which excludes non-core items. Fourth-quarter net interest income rose by 1.3% from the prior quarter to $62.1 million, and net interest margin expanded seven basis points to 3.56%. We were successful in lowering our deposit cost by eight basis points to 0.94%, while our total loan yields declined by only two basis points to 4.99%. There was approximately $250 million in loan runoff in the fourth quarter. Our weighted average new loan yield this quarter was 6.8%, as compared to our weighted average portfolio yield of 4.99%. For the full year 2026, we are guiding to approximately a 4 to 6% increase in net interest income. We expect the NIM to expand, albeit at a slower pace than what we experienced in 2025. Our expectation for first-quarter NIM is an expansion of approximately two to five basis points. Total other operating income was $14.2 million, up $700,000 from last quarter, primarily driven by a $900,000 increase in bank-owned life insurance income. During the quarter, we recognized BOLI death benefit income of $1.4 million. Going forward, we anticipate total other operating income to grow by 1 to 2% in 2026 over 2025 normalized. Total other operating expenses were $45.7 million, down $1.3 million from the previous quarter, which included a one-time expense related to the consolidation of our operations center. We repurchased 788,000 shares at a total cost of $23.3 million. The board declared a first-quarter cash dividend of 29¢ per share, an increase of 3.6% from the prior quarter. Additionally, our board approved a new share repurchase authorization for up to $55 million in 2026. The increase in the dividend and share repurchase authorization reflects our strong earnings, capital, and liquidity position and outlook. Our current target capital ratios and priorities remain the same. We plan to continue to use capital for organic loan growth, dividends, and share repurchases to move towards our CET1 target of 11 to 12% to optimize our position. We enter 2026 with a strong balance sheet, improved profitability metrics, and a clear focus on delivering sustainable value for our shareholders. I'll now turn the call over to Ralph. Ralph Mesick: Thank you, Dayna. Our credit risk appetite continues to be informed by our strategic goals, emphasizing portfolio design, underwriting discipline, and risk-based pricing to achieve optimal returns, balance, and diversification. In the fourth quarter, we maintained strong credit performance. Asset quality indicators were stable, as credit costs stayed within an expected range, and the level of NPAs, past due loans, and criticized assets remain near cycle low. Net charge-offs were $2.5 million or 18 basis points annualized on average loans, with consumer book losses continuing to stabilize. Nonperforming assets were $14.4 million or 19 basis points of total assets. Past due loans over ninety days totaled $1.6 million, representing just three basis points of total loans. Criticized loans declined to 135 basis points of total loans, maintaining low levels. Provision expense for the quarter was $2.4 million, including $1.7 million added to the allowance, and $700,000 to the reserve for unfunded commitments. The decrease in provision expense was primarily driven by a decline in loan balances as well as improvements in our asset quality and macroeconomic forecast. We hold a strong capital position to support the bank through the credit cycle and against unexpected outcomes. At quarter-end, our total risk-based capital was 14.8%. Looking ahead, we'll continue to take a prudent approach to growing our loan portfolio to build durable earnings. Let me now turn the call back to Arnold. Thank you, Ralph. Arnold Martines: In closing, our fourth-quarter results reflect strategic execution and prudent risk management. We delivered improved operating efficiency, margin expansion, and execution of strategic initiatives that position Central Pacific for sustainable growth. As we look ahead, we remain focused on creating an exceptional experience for our customers and long-term value for our shareholders. I'm very proud of our team's accomplishments in 2025 and look forward to continuing the momentum in 2026. We are now happy to take your questions. Operator: Ladies and gentlemen, we will now begin the question and answer session. At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your questions, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, pick up your handset and ensure that your phone is not on mute when asking your question. We will pause for a moment to compile the Q&A roster. Our first question comes from the line of Matthew Clark with Piper Sandler. Please go ahead. Matthew Clark: Morning, Matthew. I just want to start on the delay in new loan fundings this quarter. Somewhat expected. And it sounded like they're gonna fund here in the first half. And I believe a couple of them are construction projects that require higher reserves. I'm just trying to get the timing down. And what that means for your provisioning in the first half. David Morimoto: Hey, Matt. It's David. And, yeah, you're right. We did have some delayed closings that pushed into the first half of this year. I would say that the closings are probably a little more weighted to the second quarter versus the first quarter. And you are correct that some of it is funded deals. Some of it is construction. So it's gonna be a combination of the two. But probably a little more weighted to the second quarter versus the first quarter. Matthew Clark: Okay. Great. And then, Dayna, did you have the spot rate at the end of the year on deposits? Costs? Dayna Matsumoto: Sure, Matthew. Yes. Our deposit spot rate at December 31 was 89 basis points. Matthew Clark: Okay. And then you had a 30% deposit beta this quarter. Seems like that's what you're trying to manage to. Is that fair or has there been any change in deposit competition that might put that at risk? Dayna Matsumoto: Yeah. Matthew, that's correct. You know, the current cycle thus far, our interest-bearing deposit beta is about 30%. And with the outlook for two rate cuts this year, we anticipate that our cycle-to-date beta to remain roughly in the 25 to 30% range. We do still have some room to lower our deposit cost to offset our floating rate assets. Matthew Clark: Okay. Great. And then last one for me. Just on the buyback, I know it's for 2026, but just want to confirm the plan is to complete that buyback this year. Dayna Matsumoto: Yeah. Matthew, on the capital side, I want to start with, you know, just sharing that our strong earnings have built up our capital to a really solid level. And given this, our board approved a larger share repurchase authorization for this year. You know, that gives us flexibility. You can expect that we will be active on the buyback as we return capital that can't be used to organically grow our business. But the amount that we buy back each quarter, it's really gonna be dynamic. Matthew Clark: Yep. Understood. Thank you. Our next question comes from the line Kelly Motta with KBW. Please go ahead. Kelly Motta: Maybe kicking it off with the loan growth. I know you here over by the Hawaiian report test up in the last release. So wondering, incrementally, as you look to the year ahead, how you feel about the outlook for growth specifically in Hawaii and with that low single-digit loan growth, the mix of that from the islands the mainland? Thank you. David Morimoto: Hey. Hey, Kelly. It's David. Yeah. You're right. Uhiro did upgrade their forecast but it was an upgrade from a deeper downturn to a lighter downturn. So it's moving in the right direction. But it's you know, as far as Hawaii growth opportunities, we do have a nice pipeline of some growth opportunities there primarily focused in the commercial area. So it's C&I, commercial mortgage, and construction. And as we stated before, the growth between the Hawaii and Mainland will it'll fluctuate from quarter to quarter. But we are expecting 2026 to be a stronger growth year than 2025. And the balance between the Hawaii and Mainland will be a function of you know, risk-return opportunities as they arise. I did want to just point out one thing on 2025. Loan growth. You know, while growth was muted in 2025 for the full year, I did want to point out that we did see strong growth in the areas that we were targeting specifically construction and commercial mortgage. In the aggregate, those two portfolios grew by 10% year over year. And then the overall decline in loan growth was a result in drawdowns on the in the residential mortgage, home equity, and consumer portfolios. So that was sort of that was by design. You know, we did we are trying to shift our portfolio mix more to commercial. From consumer. And then another thing to note is on the consumer drawdowns, that somewhat within management's control. You know? We portfolioed only about a third of our resi mortgage production last year. And so that's a management decision that's within our control. So I think the loan growth in 2026, the reason we're more cautiously optimistic on 2026 is that we're expecting stronger growth in the commercial portfolios and less drawdown on the consumer portfolios. Kelly Motta: Got it. That's helpful. And then putting together the pieces of your guide, it seems to suggest some positive operating leverage as we head into 2026. I know expenses have been a focus for you guys. You've done a nice job managing them. As you look ahead, you know, if growth comes in weaker or there's more challenging margin expansion, is there additional room? Or conversely, if growth picks up, are there areas that you might be able to look to add to as you think about the overall platform? Thank you. Dayna Matsumoto: Hi, Kelly. Yeah. Definitely. You know, we continue to be very focused on managing our expenses and maintaining strong expense discipline while continuing to invest for growth. We have some flexibility. You know, if revenue is more or less, we can adjust. But overall, this year, we plan to continue to invest in technology to drive returns and efficiency. We do have a couple of projects planned for sales management systems and tools as well as some data platform enhancements. But those investments will have some offsets with savings coming from our continued automation and process improvements as well as optimizing our resources. Kelly Motta: Great. Thanks so much for the color. I'll step back. David Morimoto: Thanks, Kelly. Operator: Our next question comes from the line of David Pfister with Raymond James. Please go ahead. David Pfister: Hey. Good morning, everybody. David Morimoto: Hi, David. David Pfister: Maybe just following up kind of you know, on the loan growth side, you know, just with the focus on optimizing your loan portfolio towards more commercial, you know, and some of the commentary on a delay in some fundings, would you maybe expect growth like, again, this low single-digit growth, maybe a bit slower in the first part of the year? And would you expect continued declines maybe the back half of the year you know, accelerate as you work through that optimization? Just kind of curious how you think about the trajectory. David Morimoto: Hey, David. Yeah. I think what you described is the base case. Right? I think the first quarter is you know, a seasonally slower quarter for loan growth, and I think that's what we're expecting. You know, we're hoping we can still get some net loan growth in the first quarter, but it probably will be it'll probably start off slower, and then growth will, like, accelerate as we roll through the year. David Pfister: Okay. Okay. And then maybe just touching on you know, I'm just kind of curious how originations are trending and kind of how the pipeline's looking at this point. And if you could give any a bit more color on what's driving the elevated payoffs and paydowns, you know, whether it's, you know, asset sales or again, you talked about some strategic. You know, versus competition. Just kind of curious, you know, again, the origination side and then how some of the drivers behind payoffs and paydowns. David Morimoto: Yeah. David, the loan pipeline remains consistent with past levels and originations. Fourth-quarter originations were in the $300 million range. And, you know, that's where we likely need to be to keep the portfolio relatively flat to slightly down. So we need to get originations higher than that to see net loan growth. And again, we're forecasting cautiously optimistic that we'll see low single-digit growth and, we can outperform that. And then the second part of your question, David, was the drivers behind it, the payoffs and paydowns. Oh, I'm, yeah, I'm sorry. Yeah. I think I would chalk that up to just the construction portfolio has been on the smaller side. And, you know, when you have a small construction portfolio, and you do encounter payoff, you know, it really impacts loan growth. What we're trying to do now is we're obviously focused on building the construction portfolio, getting it a little more critical mass. And then when you do that, you know, the paydowns are somewhat offset by new construction draws. And so we got to get to that critical mass on the construction portfolio side. And we are working towards it. Last year, we did have a good year for construction originations that we'll be funding in the quarters ahead. David Pfister: Okay. Okay. And then maybe just touching on the switching gears to the deposit side. Just kind of curious how you know, the competitive landscape is from your perspective on the island. You guys have done a great job, you know, reducing deposit costs. But just kind of curious, you know, the competitive landscape, and then the core deposit growth that you saw, you know, was great to see. Curious how much of that is new clients versus gaining share with, you know, existing clients. So just kind of curious what you're seeing on the deposit side. David Morimoto: David, it's been a little bit of a combination of both. You know? Core deposit growth is you know, it's basic banking. Right? Blocking and tackling. It's calling on new customer prospects, and it's deepening our relationships, what we refer to as primacy, customer primacy, you know, improving primacy with our existing customers. So it's been a combination of both and I think we're optimistic on core deposit growth for 2026 as some of the initiatives that we put in place, you know, with calling efforts, being more disciplined on calling efforts, sales culture, and a focus on customer we think all of those will lead to stronger core deposit growth in 2026. David Pfister: Okay. Is that also kind of what's driving your confidence in accelerating originations due to that kind of cultural shift? David Morimoto: Yes. Yes. Exactly. It's just a stronger focus on deepening relationships with the existing customers, which we believe there's good opportunity there. But it's also customer prospecting. Right? You know, we have about 13% of the banking market, and there's a lot of opportunity to grow that. David Pfister: That's great. Thanks, everybody. David Morimoto: Thanks, David. Operator: Once again, if you would like to ask a question, please press star followed by the number one on your telephone keypad. At this time, we have no further questions. I will now turn the call back over to Jayrald Rabago for closing remarks. Jayrald Rabago: Thank you for joining our fourth-quarter 2025 earnings call. We appreciate your continued engagement and look forward to updating you on our progress next quarter. Operator: This concludes today's conference call. You may now disconnect your lines. Have a pleasant day.
Tony Sheehan: I'm Tony Sheehan and I'm joined by Tom Russell, Executive Director. So similar to our webinar format Tom and I will run through a presentation. And then take Q&A at the end. As a reminder, if you have any questions, please submit them through the chat function on the webinar. So what do we do at Change Financial? Many of you who have been on our webinars before will have seen this slide, so we will keep it pretty brief. But for those of you who are new to our webinars or new investors, I'll go through it pretty quickly here. So what do we do? We provide innovative and scalable payment solutions for over 150 clients across more than 40 countries. We are a B2B business with 2 core products. The first 1 is Vertexon, which is our payments as a service or PaaS offering, which provides card issuing, card management and transaction processing. Vertexon supports prepaid debit and credit card issuing and there are 2 main models under Vertexon. The first 1 is processing only under this model Change provides the technology, which is a card management system to clients to run their card programs, so the clients hold the necessary scheme, typically Visa or all Mastercard and regulatory licenses to issue cards. Processing only is available globally and supports all the major schemes and we have clients using Vertexon in Southeast Data and Latin America, including 2 of the largest banks in the Philippines running over 45 million cards on the platform. The second model is processing and issuing. So this is only available in Australia and New Zealand. And under this model, clients utilize Vertexon for processing capabilities and also leverage Change's regulatory. So we have an AFSL in Australia, and we are a financial service provider in New Zealand and scheme licenses. So we're a MasterCard principal issuer, and they leverage our issuing capabilities for the card. So under this model changed the card issuer of record, and we provide treasury, fraud and compliance services. Vertexon has generated 85% of the group's revenue year-to-date. Our other core product is PaySim, which is software, which enables end-to-end testing of payment platforms processes and scheme rule compliance. The PaySim software is based on global messaging standards and can be sold globally. You do not need any licenses to sell PaySim. So PaySim is the default testing standard for FPOS in Australia and has a blue chip client base, including 5 of the top 10 global digital payments companies globally. PaySim contributed 15% of the group's revenue year-to-date. Importantly, both Vertexon and PaySim are proprietary payments technology platform. So they are owned and developed in-house by Change. So it's really important from a value and control perspective for the company that we own our technology. In terms of key highlights for Q2. So another really strong financial performance in the quarter. So with Q2 delivered record quarterly revenue result of USD 4.7 million. That's up 34% on prior year. Year-to-date revenue is up 29% on prior year with 70% of revenue derived from recurring sources. That provides a really solid base of revenue to grow from. Our one-off revenue being licenses and professional services are still really important drivers of overall financial performance, and they have been key contributors to the strong financial performance during the half. Our rolling 3-year revenue CAGR of 31 December is now 25%, and we are on track to have doubled the size of changes in revenue over the last 3 years by the end of FY '26. Underlying EBITDA for the quarter was $900,000, so taking total underlying EBITDA for H1 to USD 1.8 million. So as a reminder, and for context in FY '25, we delivered our maiden positive underlying EBITDA result for the whole year, which was $200,000. So you can see the operating leverage pull through that we've been talking about, and that's the combination of revenue growth and a stable fixed cost base driving materially improved bottom line performance. The cost out from the U.S. exit are also making a material difference. So as a business, and we've talked about this before, we are scaling, we're not at scale. So we want to continue to drive operating leverage moving forward to generate that bottom line margin expansion. PaaS is a key driver of our growth, and we have seen strong growth in the PaaS metrics across the board, which I'll talk more about on the following slide here. So on our PaaS metrics, we now have more than 110,000 cards active in Australia and New Zealand. So the increase in cards was driven by the Sharesies debit card program in New Zealand, which launched in October. And also significant growth in 1 of our existing fintech clients in the prepaid card space. It's just worth noting prepaid cards as a portion of our active cards has increased from 20% at June 2025 to 41% at December 2025. And why is that important? It's well, generally, debit cards drive higher transaction activity, enhance revenue as they are often used for everyday purchases. So there is a different sort of profile, revenue profile, usage profile between prepaid cards and debit cards. We will continue to drive revenue growth through new clients already signed. We're currently onboarding 2 clients and further client wins. As a business, we are laser-focused on growing the PaaS platform to drive scale benefits. So we have the product and team in place to add significantly more clients and volume without having to increase our fixed cost base. I won't go through the PaaS revenue source in detail. We have covered this 1 previously, but happy to take any questions if there are any at the end. On our PaaS time line, so looking at the time line, you can see that steady cadence of new client wins and a significant shortening of time frames between signing clients and launching programs we've been signing clients. Before we had the platform fully live and operational, and we continue to sign clients. You can see on the top right of the slide, Sharesies launch in early Q2, which has started to contribute monthly revenue during the quarter. We also have those 2 more PaaS clients that are currently onboarding and they will contribute monthly revenue once the program's launch. As I mentioned on the previous slide, a key focus for the business is new client wins and particularly in Australia, given the size of the market. So we want to increase the number of new client wins, onboard them quickly and get them transacting to drive volumes and revenue across the business. Thanks, Tom. I'll hand over to you. Thomas Russell: Thanks, Tony. So again, we've had another great revenue quarter, which Tony touched on USD 4.7 million or USD 7 million for the quarter, which is up 34% on Q2, FY '25. PaaS revenues from our Australian and New Zealand clients are up 19% on a quarter 12 months ago, so that's good to see. We've had Sharesies going live, which we're getting a lot of questions about as we come to those at the end, and we can answer them specifically. But these programs when they go live, they can take a little while to build to a meaningful revenue and transaction volume. So Sharesies without giving out too much specific information about the client. They had about 40,000 people on their wait list. I believe that was public information. They've sent cards now to the people. They've fully released that wait list. They only did that a couple of weeks before Christmas. And they've sent physical cards out to the people of that wait list that wanted them. They've got a little bit over sort of 10,000 active cards now. A lot of those have gone active very recently or very late in the quarter. So it takes time for those cards to actually get into people's hands and then for them to start transacting. So that's why there's a bit of this -- the lead indicator is the active cards, but the transactional revenue is transactional volumes, sorry, and therefore, the revenue is not literally aligned to the active cards. The other part, which Tony also mentioned was the prepaid card amount has increased, and it's a different revenue model, if we can talk about all at the end. We're also currently ongoing 2 additional already contracted PaaS clients. One of which will go live in the next month or so and has an existing program. So that's the embedded finance client, and we'll talk more about that maybe in the next quarter once they've gone live. We also continue to see the benefits of our recurring revenue base, which we've been building, our PaaS and support and maintenance revenue -- for the quarter, our recurring revenues totaled USD 3.3 million, which is approximately 70% of our revenue. In terms of the nonrecurring revenue, we continue to generate from professional services and licenses. During the quarter, we delivered $1.4 million in one-off revenue -- over the last couple of quarters, we've flagged, we've had a very strong focus on this revenue and a significantly -- a significant growing pipeline of those opportunities. And again, we've seen those efforts from the sales team where those deals are dropping through our teams delivering them and then we're also refilling the pipeline. So we've had our best half in the history of the business in H1, which we'll talk about in a second as well in terms of one-off revenue, and we still maintain a strong pipeline into H2, but we do need to unlock that revenue as we go into timing and that can be a little bit difficult. That does help us build confidence in our guidance we've provided by the way. In terms of EBITDA, very pleasingly after delivering a main positive result last year of a $200,000. We've now delivered 2 consecutive quarters of USD 900,000. So $1.8 million for the first half. So we're at a key inflection point as we've been flagging for EBITDA and profitability in the business. Cash receipts for the quarter are up -- up 4% to $3.9 million versus the prior corresponding period. That cash payments operating activities were broadly in line with Q2 last year, up only 5%, which was driven by an increase in COGS from increased transactional activity and revenue and payment of bonuses attributable to FY '25 performance. As we say every update, we have the key roles and staff in place to add significant revenue without a lot of new hires. CapEx has also remained steady as expected, and capitalized software development is tracking in line with FY '25. We have a healthy cash position of $2.6 million and hold an additional $1.4 million in cash -- in cash back security deposits. We also have a very healthy accounts receivable look at the end of the quarter, so USD 3 million, which is about $900,000 higher than it was the same time last year. And that's due to a number of client payments that were collected like the days before Christmas and New Year 12 months ago have fallen into January this year around the festive season. This half is the first time in the history of the company that we've been cash flow neutral in H1. And as we see in previous years, H2 from a cash flow perspective, given the billing cycle of some of our larger on-premise Vertexon clients and PaySim clients. Cash flow is typically significantly improved in H2, let alone any other growth, and we expect that to be the case in FY '26 as well. Back to you, Tony. Tony Sheehan: Thanks, Tom. So just looking at our outlook. So on the back of the strong H1, we have upgraded our guidance for FY '26 earlier this week. So revenue now expected to come in between $17.5 million and USD 18.5 million. So the increased quantum of recurring revenue provides a very solid base for the business. We talked around that the 70% of our revenue coming from recurring sources. We want to continue to increase that. But as we've mentioned, we also had a very strong one-off revenue half as well. So that's also important to continue to drive our revenue. Underlying EBITDA now expected to come in between USD 3.1 million to $3.8 million. So that's a 15% increase at the midpoint compared to our previous guidance. Tom mentioned before, we've maintained around our cash. We've maintained our guidance of being cash flow positive for the year. Historically, that sort of stronger cash flow in the second half of the year, we expect that to be the case in FY '26 as well. Overall, a really great start to FY '26. We're really pleased as a team as to where the business is. Our focus which I'll reiterate, which is what we've been really drilling in across the business here is on growing the business and executing on our operating plan to deliver on our targets for the year. Tom, I think that's the end of our sort of formal presentation. There are some questions that have come in, so we might open that up now for Q&A. Thomas Russell: Yes, I'll start reading those out, Tony. So as I said before, we -- and I'll touch on it just again because we've had a few questions here around the difference in active cards and volumes and why aren't transactions scaling with new cards -- can you explain the large difference between the card growth and transaction volumes? Is this related to Sharesies and when they were delivered, how many Sharesies cards went out. So yes, it is. So again, prepaid cards, just to reiterate, less transactional activity, a slightly different revenue model and usage case to our debit cards. Sharesies is a debit card. They're trying to drive their customer base to not use whatever bank they might be using and come over and use their Sharesies cards their everyday card -- that will take time. Again, a lot of those cards went out late in the quarter. They were physical cards because Sharesies rolling out the digital pays, Apple and Google Pay as well this quarter, I believe, is their plan. So those sort of things will help give access to that particularly millennial and sort of more tech-driven client base as well. So that's probably answers that, I think. And next question here. Customer receipts of $3.9 million, up 4% versus revenue up 34%, any issue of collecting those receivables? No, no issues collecting it. It's just a lot of those payments. So November and December are very, very large invoicing months for us relative -- and you can see that throughout the history of the business. What happened last year, there's a few clients actually paid earlier than they usually paid. So it made last year's quarter 2, sort of a high cash collection quarter than usual, and you can see that in the trend. Have you seen slowing of growth from existing card issuers? No, we haven't. Our financial institutions are -- they're a lower growth profile. They've got a very sort of stable base of cardholders that use their cards religiously every day. But Credit Unions and sort of building societies, as you would know, are not fast-growing organizations, the fintechs, such as Sharesies and the embedded finance company that will be going live in the next couple of weeks, they're fast-growing fintechs that can really add volume and we can scale with them. Does the new fintech client have an existing card program? Yes, it does, and we'll relate some more details on that when we can. Tony Sheehan: And Tom, just on that as well, those -- that those existing card programs are across Australia and New Zealand as well. Thomas Russell: They are. Yes, good point. So there's a lot of questions here in 1 go. The company also entered into an additional BIN sponsorship, strategic partnership with the global processor payment. Can you provide a little more detail and explain a little further what this means. Tony I'll throw that 1 to you. Tony Sheehan: I'll take that. Thanks, Tom. So we provide in sponsorship services as part of our offering. So we can be the processor and issuers. So we provide the technology. We provide the card issuing capabilities. There are some instances where you've got clients that are based overseas entering into Australia, they might use a processor that is a global processor from overseas that needs card issuing capability. So what we decided to do was to offer the BIN sponsorship capabilities where we are the card issuer of record, but they are using another process technology. So for us, it's actually broadening or expanding the pie of opportunities that we can actually provide card issuing capability. So we always talk around that scale game in payment. So it's more volume for us. Our preference where we really generally target as a business is to be a processor and issuer, but we are also more than happy to provide BIN sponsorship capabilities to clients entering the market as well. So those partnerships are important to us to sort of expand our reach in market. Thomas Russell: Thanks, Tony. There's another question from this person around transaction volumes in cards. I think we've answered that one, so I'll leave that. Can you please describe the client regions of the license and professional services contribution. Tony, do you want to take that 1 as well? Tony Sheehan: Yes. So most of that, I would say, and Tom keep me -- correct me, if you've got a different view on that, I would say that probably 75% of that would come from -- would have come from Southeast Asia during the quarter. We picked up some licenses and professional services from Latin America as well and a little bit in the Oceania region, but the vast majority of that has come from clients in Southeast Asia. A lot of that is on the Vertexon side. And then we've got some PaySim clients as well. Thomas Russell: Which can be global, but not a material as the Vitexon thing, obviously. Thank you. I'll hook first 1 to you as well. Can you expand on what the pipeline looks like in each of Australia and New Zealand for PaaS? Tony Sheehan: Yes. So look, we often get a lot of questions around the sales pipeline. I'll tie that in with another question that has -- that I've seen that's come in around when can you expect to -- I think it was when can you expect to sign another large client to move the share price. So I think as a business, we've demonstrated over the last few years that we continue to sign PaaS clients. I think we've signed probably 12-plus PaaS clients, since launching the platform and going live. We've got a pipeline of opportunities there. Do we want to accelerate the sort of velocity of how many clients we're in? Absolutely. That's a key focus. I mentioned that in the presentation there is to sign more clients and get more volume onto the platform. What we are seeing is in terms of our sales pipeline, the Australian pipeline is continuing to build given our focus with our new BDMs in that region. So there's some really good deals that are progressing through that pipeline and moving down to the bottom of the funnel. They're still going to go through to get finalized, obviously, which is so still a way to go before they sign. But the top of the pipeline has continued to expand. That is progressing through the pipeline. We're very pleased with where that is at the moment. New Zealand is going well as well. We've seen that with the launch of Sharesies, which is a great program, late last year in October. And we also have that fintech client that has their existing programs. that are moving over to us in Australia and New Zealand as well. So some really good clients and some great volumes coming across to us. In terms of that pipeline, we're comfortable, we're very happy with where it is. We just want to be signing more of those clients. There is some lead time as a B2B business. There is sort of quite a lengthy sales cycle as well. So with those changes that we've made in the sales team as well, we're seeing those deals progress through the funnel. Thomas Russell: And it is a bit of a snowball just to add to that. You've seen it in New Zealand where we signed those first clients and then we sign in other Credit Union, another Credit Union and then we signed a large a fintech, large Sharesies. People are starting to come to us in New Zealand as the top of mind option for card issuing. We're probably not quite there yet in Australia, but we've signed a couple of deals now, the client that's going live this quarter, when we're able to say who that is they're a meaningful client from a brand perspective with big growth aspirations. And I think that, that reputation that settling every day, that goes a long way to just building the momentum. And as Tony said, B2B sales are lumpy, and this business has the ability now and always has to sign big clients like we signed Credit Union a couple of years ago now, but that was a big deal for a small business and the business can sign those kind of deals at any point. We just can't -- we're not going to sit here and tell you they're coming next week or whatever else that take time to come through. Another question, Tony. What about potential customers switching from Visa to MasterCard. Does it take longer to onboard them? Tony Sheehan: Yes. So good question. Generally, the market is -- it doesn't really matter whether you're a Visa or a Mastercard. And I think most of the people on this webinar kind of probably got a Visa and Mastercard card in their wallet. I think in terms of switching where we've switched 1 of our major Credit Union clients in New Zealand over to Mastercard a couple of years ago. So that sort of -- they were on a different scheme moved over to Mastercard. That went smoothly. There's generally that people fairly open in terms of the different schemes. We have it down, we have the process down pat pretty well. We'll have another client that we can swap them over quite easily between the different schemes. I think part of the sales cycle in terms of talking to financial institutions as well as they are with the alternate scheme being Visa, and we want to try and swap them to Mastercard. There's obviously more conversations because they're more familiar with that certain scheme as opposed to Mastercard, even though a lot of the functionality is very similar between the 2. So -- it doesn't really take any longer to onboard them. Sometimes, particularly in the financial institution space, there's probably more conversation that needs to be had, if there is a scheme switch involved. Thomas Russell: Okay. I have -- I'm not -- the end of the question that I've seen here, Tony. Tony Sheehan: That's right. I'm just checking another screen time. I've not seen any other -- I think we've answered most of those. I think we've answered them all actually that have come through. Thomas Russell: Perfect. All right. Well, thank you, everyone, for joining again. We really appreciate you taking your time to jump on the results webinar for the quarter, and we will have our half year out as well at the end of February. So we hope to see you all again when we do the webinar for the half year. Tony Sheehan: Thanks, everyone. Thanks for taking the time.
Operator: Good afternoon. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's Fourth Quarter and Full Year 2025 Conference Call. The slides accompanying today's call are available at investor.cpkcr.com. [Operator Instructions] I would now like to introduce Chris de Bruyn, Vice President, Capital Markets, to begin the conference call. Chris de Bruyn: Thank you, Angela. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ. The risks, uncertainties and other factors that could influence actual results are described on Slide 2 in the earnings release filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on Slide 3. With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; John Brooks, our Executive Vice President and Chief Marketing Officer; and Mark Redd, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q&A. [Operator Instructions] It is now my pleasure to introduce our President and CEO, Mr. Keith Creel. Keith Creel: Thanks, Chris, and good afternoon. We thank everyone for joining us to review our fourth quarter results as well as full-year results and to allow our team to share how we see an exciting 2026 playing out. Now let me start by expressing gratitude and thanks to the 20,000 strong CPKC family, who, through their dedication, hard work and sacrifice allow us to create the results that we're honored to share today. I can tell you this past week, railroading is a demanding way of life, in fact, a consuming way of life. Times like we have navigated through this past week and in fact, navigate on the daily in Canada. Operating in the winter operation reminds me of just how much sacrifice that takes, which I have the deepest amount of respect and appreciation for. So on to the results, for the fourth quarter, revenue of $3.9 billion, which is up 1% versus last year, an industry best operating ratio of 55.9%, 120 basis points of improvement and earnings per share of $1.33, up 3% versus last year. I'm particularly proud of the job the team did in the quarter, in the face of a demanding -- demand softening in a number of areas and how they honored our mantra of controlling what we can control in our cost structure. The team demonstrated exceptional execution that allowed us to produce the results we produced on the operating ratio side, and we are set up and carrying momentum well into 2026. As Mark is going to speak to, I also want to applaud the operating team for producing record results across several of our key operating metrics in the quarter. Most importantly, we produced another year of record safety performance. Our network is running well. It's in a great position to execute on the growth opportunities that we have lying ahead of us. Now let's turn our attention to full-year results. Revenue of $15.1 billion, which is up 4%; volume growth of 4% as well. Operating ratio at industry best at 59.9%, a clear industry best improvement of 140 basis points for the year. Core EPS of $4.61, which is up 8%. On '26 outlook, as we look forward in 2026, the way we see it unfolding, we fully expect to deliver another year of mid-single-digit volume growth enabled by the strength in our bulk business and particularly, the unique growth drivers the franchise has, which John will speak to. We expect to continue improving margins and ultimately deliver low double-digit earnings growth. For clarity, this outlook does not assume that we get much out of the macro. Our growth drivers are unique to CPKC and record grain harvest in Canada and the U.S. provides strong and a differentiating base of business. Our story is about continuing to do what we do best, controlling what we can control and executing our PSR model, which remains key to setting CPKC apart and allows us to shine in times of uncertainty. You saw that in the results in the last quarter, and you'll continue to see that in 2026. On the growth outlook, there are a lot of things to get excited about, uniquely enabled by this network. John will talk about them in more detail, but I'll highlight a few. Grain harvest, an all-time record in Canada, 85 million metric tons versus the previous record of 78 million metric tons, a significant amount of grain to move that's carried into the full year of 2026. That's a record harvest, both in Canada and the U.S. The grain is starting to move now, ingest. And again, we're going to be busy through the balance of this year, moving grain. Continued growth in intermodal, our MMX-180, 181, the fastest and most reliable service in the industry between the Midwest and deep into Mexico, continues to grow and do extremely well. And we're bringing that same model to Mexico and the U.S. Southeast in partnership with CSX and our Southeast Mexico Express service. That business is just getting started to moving with our partners, we see a ton of opportunity for growth over that corridor is we've created an industry best transit time in partnership with CSX from Atlanta to Dallas over the Meridian Speedway and from Atlanta to Monterrey, truck-competitive to Dallas and superior to truck into Mexico. It can't be replicated about truck into Mexico. We're also excited about the Americold business, that's ramping up this year along with the continued growth on the international intermodal side with Gemini and also continued growth in our automotive franchise. On the capital side, we're going to continue to invest to support the growth. Last week, we announced continued investment with our locomotives, 100 new locomotives joining the fleet in 2026 in addition to the 100 that we added in 2025. So with the combination of our strong top line growth, disciplined investment and our continued cost and efficiency improvements, it's put us in an advantageous position to return cash to shareholders, which you just witnessed as we announced a 5% share buyback program for 2026. So in closing, I'm extremely proud of what we produced amidst a ton of volatility in 2025 and we're super excited about the opportunities ahead. I'll remind you that over the past 2 years, this franchise has outperformed the industry in revenue growth, outperformed the industry in earnings growth. We've got an exciting setup to continue to generate industry-leading performance in 2026 as well. So with that, I'm going to turn it over to Mark for some color on the operations. John will give you a little insight on the markets, Nadeem on the financial details, and then we'll open it up for Q&A. Mark, over to you. Mark Redd: Thank you, Keith, and good afternoon. I want to begin by recognizing the operating employees whose commitment to safe, reliable, efficient service continues to drive the strong performance of this network. The operating team did a tremendous job this quarter in delivering these results. Turning to the quarter, our network performed exceptionally well. We achieved record results across a number of key metrics, including train weight, train speed, locomotive productivity and car velocity. These improvements can translate to faster cycle times, greater network capacity and faster, more reliable customer service. One thing I'm most proud of is -- proud to announce that 10 years in a row, CPKC has earned Amtrak's Best Carrier designation with an A+ performance. We're the only railroad with this distinction, and we appreciate the recognition from our valued partner. Taking a step back on progress, we have made substantial operating gains since the merger. When comparing our 2025 operational performance versus the time of merger of 2023, our combined network is 13% faster, locomotive is 13% more product -- productive, our car velocity is nearly 14% stronger. The improvement south of Kansas City is even more pronounced. Looking at 2025 speeds as being over 25% better, locomotive productivity improved roughly 20%. Looking forward, our operating systems, processes aligned across Canada and the U.S., we expect to deliver additional improvement in 2026. The foundation that we have built positions us for consistent execution and reliable service as volumes continue to grow. Now turning to safety for the quarter. FRA train accident frequency was 0.91, which is 12% better. FRA personal injuries of 1.05, a 22% increase. When I look at full year 2025, our FRA train accident was 0.85, 16% better; personal injuries was 0.92, was 3% better. I continue to be encouraged by the industry-leading performance. For the third year in a row, CPKC has led lowest FRA reportable train accident frequency across the Class 1 railroads, building upon CP's legacy of 17 consecutive years, so all in all, it's 2 decades of best-in-class. These results reflect the strength that we have in our Home Safe culture, our investments in technology, which helps prevent failures before they occur. Now turning to labor, we continue to make progress in this space. Earlier this month, we announced 16 5-year collective bargaining agreements in the U.S. were ratified, covering 700 CPKC employees across the 11 states. These agreements reflect constructive collaboration with our unions and provide service with confidence, provide customers with service and reliability for our network. Now turning to resources and capital, we remain well aligned with our growth outlook. In 2025, we supported 4% growth with 1% lower average head count, expect continued strong operating leverage in 2026. From a capital perspective, we did receive the 100 Tier IV locomotives in 2025. We have additional 100 scheduled for delivery this year. These locomotives are improving the efficiency and reliability of our fleet and positioning us for continued profitable growth. In 2026, we will continue our merger-related expansion commitments to the STB. This work includes CTC, additional sidings, Kansas City to Chicago corridor, but this also includes towards Shreveport. These upgrades are improving velocity on the North-South route, which is strengthening our customer service. In closing, the network is performing at record levels. We are properly resourced to handle grain harvest in Canada and U.S. Our investments in capacity, safety and power are driving sustained meaningful performance gains. We're well positioned to execute our operating plan, support our customers and deliver on our commitments throughout 2026. And with that, I'll turn it to John. John Brooks: All right. Thank you, Mark, and good afternoon, everyone. So this quarter showed the resilience of our book of business with growth across key segments and traction from new wins offsetting areas of deepening softness. Despite macro and tariff pressures, we delivered to our customers, we captured synergies, we maintained disciplined pricing and advanced initiatives that will support our growth in 2026. Now looking at our Q4 results. This quarter, we delivered record revenue up 1% on flat RTMs. Cents per RTM was up 1%. Our pricing remained strong with renewals exceeding our long-term 3% to 4% outlook. Mix partially offset the pricing as longer length of haul and higher bulk traffic lowered our cents per RTM. Now taking a closer look at our fourth quarter revenue performance, I'll speak to an FX-adjusted results. Starting with bulk. Record grain revenues were up 4% on 2% volume growth. Our Canadian grain volumes were up 2% on a record harvest. Export volumes, however, lagged expectations as rain impacted the loading of vessels in Vancouver and farmers chose to store grain volumes, tempering the pace of shipments through the quarter. U.S. grain volumes were also up 2%, with growth led by higher shipments to the P&W and down to Mexico. Our network continues to uncover new markets and this is especially visible with record-setting Q4 and full-year grain shipments into Mexico. Turning to the first half of 2026. The North American crop is shaping up to be a record both in Canada and the U.S. As Keith said, estimates points to an 85 million metric ton Canadian harvest, up 20% from last year. We also have a record U.S. corn crop and solid bean production that has recently started to move the market. Finally, we are encouraged by the recent canola trade settlements and new crush capacity coming online in the first half of the year that are going to further support our positive outlook for grain. Potash revenues were down 2% on 2% volume growth driven by higher export volumes through Vancouver. With solid demand fundamentals and Canpotex fully committed through the first quarter, we expect potash to remain a solid contributor to our overall base this year. To round out both, coal revenue increased 2% on a 1% decline in volumes. Canadian coal volumes were lower, largely due to mix impact of lapping last year's work stoppage and maintenance at Westshore which ran from August into November. These declines were partially offset by higher volumes of U.S. thermal coal. Moving to our merchandise franchise. Energy, chemicals and plastics revenue was down 3% on a 5% volume decline. Decline was driven by lower crude and refined fuel volumes to Mexico along with a softer base demand that primarily impacted our plastic shipments. This was partially offset by growth in LPG shipments from Canada to Mexico as we continue to capitalize and grow our land bridge opportunities. Looking ahead, we expect ECP volumes to stabilize as we move through 2026, although the base business in this industrial segment continues to be impacted by the softer macro environment. Forest Products revenue declined 13% on a 12% decrease in volumes. Volumes were pressured by tariffs on Canadian lumber exports to the U.S., along with ongoing macro softness impacting our pulp and paper business. The team remains laser-focused on project development to continue to try to offset base demand softness and also through extending our length of haul. Metals, minerals and consumer products revenues and volumes were up 1%. Growth in this space was driven by industrial development and synergies with new business coming on in cement and other aggregates supporting construction projects across our network. This strength was partially offset by continued impact of tariffs on our cross-border steel business. Looking ahead, we remain focused on a number of industrial development opportunities as we continue to navigate the tariff and macro headwinds. Moving to automotive, revenue was down 3% on 1% volume growth. Our auto franchise delivered volume growth again this quarter despite the impact of production slowdowns along with aluminum supply challenges and a chip shortage, all which contributed a $30 million revenue headwind in the quarter. Looking ahead, despite ongoing certainty with production and auto sales projections, we expect to continue to outperform supported by business secured in 2025 that will benefit us in 2026. Now closing with intermodal. Revenue was up 3% on 4% volume growth. International intermodal volumes were up 5% on growth with our key ocean carrier partners and lapping the impact of last year's work stoppage at the Port of Vancouver. We remain encouraged by the strong performance of the Gemini alliance and the growth opportunities it is creating across our entire network. Comparisons will be more challenging in the first half of the year. However, the team is focused on the development of new product offerings at the Port Saint John and also down in Lazaro to enable share gains and volume growth to our network. Domestic intermodal volumes was up 3% in the quarter. We continue to deliver strong growth on our MMX train, which is up approximately 40% year-over-year. As Keith said, our new Americold business is also gaining traction with good visibility for a strong ramp-up as we continue to move through 2026. I'm also extremely excited about the new SMX product with CSX, connecting Dallas and Mexico to the U.S. Southeast. Like our Midwest Mexico product, the SMX train pairs will formally launch in the coming months and will offer the fastest, most reliable service product in these lanes. In closing, with record grain crops, our self-help initiatives, industrial development projects all coming online, we are well positioned to again offset tariffs and macro headwinds and deliver another year of mid-single-digit RTM growth. We remain focused on execution, disciplined pricing and continuing to capture the full value of our capacity network. With that, I'll pass it on to Nadeem. Nadeem Velani: All right. Thanks, John, and good afternoon. I'm extremely pleased with the team's strong execution in the quarter. While we did deal with temporary demand softness in some areas, the team responded decisively with strong cost control and operational performance, demonstrating the strength and resiliency of our PSR-driven operating model. The ability to optimize assets, control costs and deliver operationally is embedded in our DNA as precision scheduled railroading at CPKC. Now turning to our fourth quarter on Slide 12, CPKC's reported operating ratio was 58.9%. Our core agenda operating ratio improved 120 basis points year-over-year to a CPKC record, 55.9%. Diluted earnings per share was $1.20, and core adjusted diluted EPS was $1.33, up 3% versus last year. Turning to our full year results on Slide 13, CPKC's reported operating ratio was 62.8%, and the core adjusted operating ratio improved 140 basis points to 59.9%. Diluted earnings per share was $4.51 and core adjusted diluted earnings per share was $4.61, up 8% year-over-year. Taking a closer look at our expenses on Slide 14, I will speak to the year-over-year variances on an FX-adjusted basis. Comp and benefits expense, excluding adjustments, was $626 million, flat versus prior year. During the quarter, productivity gains from improved train weights, efficient resource planning and workforce optimization were offset by wage inflation. We expect continued strong labor productivity in 2026 with head count up slightly on mid-single-digit volume growth. Fuel expense was $430 million, down 8% year-over-year. The decline was driven primarily by the elimination of the Canadian federal carbon tax on April 1 along with improved efficiency from increased train rates. Materials expense was $112 million. The year-over-year decline was primarily driven by an increased focus on capital works in the quarter. Equipment rents were $97 million, up 4% year-over-year. The increase was driven by higher intermodal car hire payments, reflecting the ramp-up of Gemini volumes and lapping the prior year's labor disruption at the Port of Vancouver. This increase was partially offset by efficiency gains driven by improved network velocity and car cycle times across the network. Depreciation and amortization was up 7%, resulting from a larger asset base. Purchased services and other expenses, including -- excluding adjustments, was $514 million. The year-over-year decline was driven by productivity and in-sourcing initiatives, partially offset by cost inflation and higher casualty. Moving below the line on Slide 15. Other components of net periodic benefit recovery were $94 million or $103 million, excluding acquisition-related costs. Net interest expense was $230 million or $225 million, excluding purchase accounting. The increase was driven by interest on new debt issued earlier in the year. Income tax expense was $400 million or $407 million adjusted for significant items of purchase accounting. The core adjusted effective tax rate in the quarter came in at approximately 25%, which is a $40 million headwind versus our Q4 2024 rate. In 2026, we expect a core adjusted effective tax rate of approximately 24.75%. Turning to Slide 16 and cash flow. 2025 net cash provided by operating activities increased 1% to $5.3 billion, while net cash used in financing activities was up 40%, driven by the share repurchase program. CapEx was $3.1 billion, above our $2.9 billion outlook, largely due to a pull-forward of maintenance capital projects during the fourth quarter to take advantage of work of weather and network conditions. In 2026, we are reducing our capital outlook by 15% to $2.65 billion. Now turning to share repurchases. Throughout last year, we took advantage of market volatility to reward shareholders, completing our $37 million share repurchase program in late October. Given the strong value that we continue to see in our share price, I'm pleased to announce that our Board has approved a new 5% share repurchase program, allowing us to continue returning cash to shareholders through disciplined and opportunistic capital allocation. Looking ahead, while macroeconomic conditions and trade policy remain uncertain, we are focused on what we can control, operating a safe, efficient and disciplined PSR railroad while capitalizing on our unique growth opportunities. We expect to deliver low double-digit earnings growth supported by another year of mid-single-digit RTM growth. With industry-leading execution, a compelling growth pipeline and strong free cash growth, the future is extremely bright. With that, let me turn it over back over to Keith. Keith Creel: Thanks, gentlemen. Operator, we'll open it up for questions. Operator: [Operator Instructions] Our first question comes from Walter Spracklin with RBC Capital Markets. Walter Spracklin: I'd like to double-click on your volume growth assumption -- or guidance here of mid-single digit. Obviously, last year ended a little weaker, and it hasn't started off well this year. We've got some weather that is going to create perhaps a little bit of leakage. Given that headwind, perhaps, obviously, mid-single digit is industry leading. Can you double-click a little bit on what sectors give you the confidence that you can achieve mid-single digit? And how much of that is the carryover of integration -- or a carryover of some of the wins that you got from last year? And how much is new wins that you're expecting this year? John Brooks: Thanks, Walter. A couple of comments. So really up until last Friday, January was kind of playing out how we expected it to play out. Certainly, we realize we've got tougher comps. We had pull-ahead volumes in international and automotive and such. And frankly, we knew Q1 was going to be a little bit more of a challenge on that front, Walter. Certainly, this weather event was a little bit of a setback. But I'm also pretty optimistic on sort of what we had in our base plan for grain in February and March. And my gut sense and what our customers are telling us is there's a pretty good opportunity for us to exceed and claw back maybe some of that, that we gave away here the last week during that time period. There's no doubt, though, I do believe Q2, Q3, the balance of the year is where we'll see the momentum build. Specifically, I think grain is, as we've talked about, both sides of the border continues to be an opportunity. We've got a strong export potash plan. So our bulks, kind of a similar story to 2025, I think presents a really good opportunity for us. And then we kind of shift to the synergies and self-help initiatives, and that's where we've got to lean in and create our own luck. But I think that's something we've proved we've been able to do. I look at intermodal. We still got a fair amount of growth on our MMX train that we'll be targeting. We're going to be launching the new SMX with CSX here in the coming months. And I can tell you, we're looking at transit times out of Central Mexico into markets of Atlanta, Charlotte, Jacksonville in roughly 4 days or less. This is going to be really fast. As Keith said, better than truck-like service. And the early bidding prognosis, we're looking at current bids of about 80,000 loads a year with one particular client that we're working on. So I'm pretty optimistic around those opportunities. We haven't scratched the surface on really our launch of the Americold building in Kansas City. And in that business, that reefer business, that is just starting to ramp up. And I'll remind you, up in Canada at Port Saint John, Americold will open their second building on us that will open up around the July time frame. So just in the intermodal sector, Walter, there's no doubt there's going to be headwinds and ongoing challenges, but I think we've created enough unique products in the marketplace that I think allow us to go out and sell and do things maybe a little differently than what our competitors do out there. And that gives me some confidence, particularly on those areas. Keith Creel: I think one other point -- Walter, one other point of reference, I think it's important to remember we're going to lap that period of time in the second quarter, first part of third quarter, we implemented the cutover and I think someone classified as our CP [indiscernible] time. When we integrated our IT system. So there obviously were some increased costs responding to that and some lost revenue, we'll lap that period given that the railroads humming and our systems are humming, and we've grown stronger as a result of that. So that's going to be a benefit for us in our '26 results. Operator: Your next question comes from Brian Ossenbeck with JPMorgan. Brian Ossenbeck: So Keith, I wanted to see if you could weigh in on reciprocal switching as it's been proposed right now. Obviously, yourselves and others have kind of grown up with that in Canada. Do you think that's really applicable to the U.S.? Would you be concerned if that were to be extended to the U.S. in terms of how it's proposed right now? And I guess, ultimately, do you expect the industry to have to deal with this, whether or not there is M&A? Keith Creel: Yes, number one, if you do your job and you provide good service, you don't have to worry about it. You don't have to worry about somebody coming in your backyard and being able to do better than you are. That said, what's being proposed now versus what's in Canada, there's still a unique difference. With the inter switch in Canada, you've got the other carrier handling the switch to the interchange location and then you take the line haul to the next destination. What they're proposing is literally what I started with that somebody else coming in and providing service. So again, that said, if it were to happen, we'd respond to it. I don't see it as a threat to us at all. But ultimately, if a customer can't get their service, I agree they should have an alternative. They shouldn't be captive to terrible deteriorating service. I just think that, again, it needs to be fair. It needs to be balanced, and we need to think about the unintended consequences. It's not so complex that kind of what we go through ends up doing more damage to the customer than good. Operator: Your next question comes from Chris Wetherbee with Wells Fargo. Christian Wetherbee: I guess as you're thinking about 2026, I mean obviously, you finished '25 on a very strong note from an operating perspective, sub-56% OR. I guess how do you think about sort of the algorithm? When you're at a mid-single-digit RTM growth, I think pre sort of merger, we thought about the potential for that type of RTM to maybe drive decent OR improvement, potentially very high incremental margins and obviously, earnings power, and you're guiding to that. Kind of curious, how do you think about the OR potential as you move forward here? Obviously, for 2026, but maybe also bigger picture, are you kind of hitting stride? It seems like the network is running well. Just kind of get your thoughts on how you think about it as we move forward. Nadeem Velani: Yes, Chris. I mean, a year ago, we sat here, we talked about sub-60%, first we wanted to get to that level, which we've accomplished now. And beyond that, obviously, the goal isn't to just lower operating ratio but generate earnings and generate long-term return on invested capital. And so our earnings algorithm is kind of in that mid-single-digit RTM growth, layer on strong price and price to the value of our service. And then generate additional kind of value through free cash that's going to help bring it to the bottom line and get kind of that double-digit EPS growth over time. So the operating leverage that I think we're going to get given the strong bulk opportunity we have in front of us, we're coming in, as you said, with a very solid footing as far as Q4 with our cost structure. We've done some things on the workforce side to help us get to a better spot. From a resourcing point of view, we've got new locomotives coming in. I think there's opportunities on the fuel efficiency side and overall efficiency. So I do think kind of getting back into that 100 basis point type of operating ratio improvements per year if you're doing things right, if you are generating strong volumes and strong pricing, that should be how it plays out. So I think over time and kind of our long-term guidance of 100 basis point improvement in the OR is what you should expect from us if we're delivering and executing the way we should. Operator: Your next question comes from Fadi Chamoun with BMO Capital Markets. Fadi Chamoun: Just a couple of things. So on the revenue side, can you help us kind of bridge the volume to revenue? I think last year, you had a lot of mix issues and RTM revenues were kind of aligned. But as we think about this year, what does kind of -- mid-single-digit RTM mean to revenue, what's kind of the mix like as you look at the book of business that you're talking about? And maybe a quick one for Mark. Is the network set up to handle this book of business that John is talking about with current head count level? What are you envisioning on that front from a head count perspective? John Brooks: Yes, Fadi. So I think probably the Q1, Q2, we're probably going to see some of those challenges that you described, yes, given the strong bulk business in those quarters that we're projecting that maybe is a little less natural than what we would normally see, probably does create some of that mix headwind during that time period. Plus I would tell you, we had tariff impacts of north of $200 million, 1%, 1.5% of our revenue in RTMs. And a lot of those tariff impacts were on really profitable, positive cents per RTM business that just is not available to us under this tariff environment. So I expect to see kind of some headwinds earlier in the year and then see that stabilize. I think there's probably a couple of points, if RTMs and revenue matched up even in '25, there's probably a couple of points of upside on the revenue as we're looking towards 2026, if that helps you out. Nadeem Velani: Yes, I would just add, in Q1, we'll lap the initial -- first, the carbon tax. So we got one more quarter of that or a couple more months here from where we are today. So that will be a bit of a headwind to mix. And then the Canadian dollar just continues to appreciate. So I think we're at about $1.35 today at Bank of Canada held. And a year ago, we were closer to $1.43. So that's going to be a headwind. Now it's going to help us on our leverage. It's going to help us overall as far as you think about our balance sheet from that perspective and interest payments and things like that. So there is a net benefit elsewhere, but it will hurt our cents per RTM. Mark Redd: Yes. On the head count, I would say some of my comments on -- the prepared comments was head count will be flat, slightly up. We'll have strong operating leverage as a result. And again, we're going to be focused on train size again. We've got some agreements that we're working through with some of our labor unions that will vest with that as far as head count. So we'll be working through that piece. Nadeem Velani: Yes. And Fadi, like nonemployee head count, contractors and so forth are kind of, for the most part, off the property as well in Q4 as part of our cost focus. So I think overall, I'm going to push Mark as well on keeping that low single digit or keep it closer to flat. So I think we can accommodate it. Operator: Your next question comes from Jonathan Chappell with Evercore ISI. Jonathan Chappell: Nadeem, I hate to be so short-term focused, but you know how it is in this seat. So John pointed out a lot of headwinds in 1Q. We had the weather and now you're talking -- carbon tax is still there, exchange a little bit. So as we think about the path to both the mid-single-digit RTMs, but most -- especially the double-digit EPS, are you thinking about a slower start to 1Q and then kind of a ramp as we go through the year? So not quite a hockey stick, but it does appear that we need to kind of make it up in the second half of the year, back half loaded? Nadeem Velani: Yes. No, Q1 is going to be the toughest quarter of the year, and that's full-on expectation when you think about Liberation Day a year ago, everyone was moving traffic. Some tough compares. But to Keith's point earlier, we going to have some very easy compares in Q2, Q3 and so forth. So yes, it's going to be a tougher start to the year as far as the earnings algorithm. But no, I'm not concerned about that. And the carbon tax, that's net neutral to earnings. So I'm not -- that doesn't create a headwind at all, just it creates a bit of a headwind on cents per RTM, but it actually helps us in our margins overall. Jonathan Chappell: But it won't be a... Nadeem Velani: It will be a natural increase, yes. Operator: Your next question comes from Ravi Shanker with Morgan Stanley. Ravi Shanker: So there's talk of the harbor maintenance tax exemption kind of potentially going away and kind of potential implications there. So I would love to know if you guys have any views on what impact there might be on cross-border volumes if it happens or not. John Brooks: Frankly, Ravi, the cross-border volume business is so small in our book today specific to that. I really don't give it much credence or that much of a concern right now in our book, maybe 4, 5, 6 years ago, where certainly, we saw that volume much stronger. But at this point, I really don't see that being much of an impact if they change some of those fees or regulations. Operator: Your next question comes from Brandon Oglenski with Barclays. Brandon Oglenski: Keith, I'm kind of shot that hasn't come up yet, but I think everyone respects your view on M&A. And obviously, the application was rejected on some maybe technical grounds, maybe not. But nonetheless, maybe get your updated thoughts there and especially in regards to the development that you have with CSX going from Dallas and Texas and Mexico into the Southeast. Really appreciate it. Keith Creel: Okay. Well, I think we say everyone respects that might be true, but I don't think everyone agrees with my views. That said, they remain to be the same. I think that rejection by the STB said loudly what I believe to be true in the first place, the facts are going to matter. This is not a fate to complete. This is a complex merger that has tremendous impact on the U.S. rail network as well as Canadian and Mexico. It's all ultimately one network, but obviously, the STB is seized with making sure they do what's right to protect the strength of the U.S. rail network, which supports the strength and obvious vitality of commerce and the economy in the United States of America. So again, it's not going to matter. I think this is what they're saying about how the applicants may feel, just tell them what the facts are. That's what that said. And that application was short on facts. It had a lot of positives, a lot of aspirational growth projections in there. And I'm not saying they can't be achieved. I'm saying that's a big bar to meet. And given that we're headquartered in Missouri now, I'd say it's the show-me stake. That's what we want. We want to see the facts. We want all the facts to be revealed so we all can opine on those facts and how they impact each of us, and that's railroads, that's customers, that's communities. There's a public interest test that has to be solved to, which includes strongly defined by enhanced competition. Those rules were written after the brakes were put on consolidation. Linda Morgan, who was chairing the STB back in 2001 when that moratorium was issued, she didn't just pump the brakes. She slammed the brakes on. And she went back and looked at what the nation needed going forward from a rail network standpoint. And a lot of people would benefit if they would actually go back and read and study not just what's written in the regulations, but the perspective on that. And if you go back and turn the page to the hearings, the Senate Commerce Committee hearings, it's great waiting on a plane, print them out, it's pretty thick. But you know what, you can get her perspective and how those rules were shaped. And I'm telling you, when you read the regulations, they're not always clearly prescriptive. Sometimes they are, sometimes they're black and white like one of the issues that UP's application got rejected on. But a lot of times, it's the words that are used, it's the comments, it's the context. And if you go back and do your homework, which I think is critically important to do, the perspective, she said it in her own words and testimony. And I'll just give it to you. The new rules encourage enhancement of competition. The old rules actually encourage railroad mergers. The new rules substantially increased the burden of proof for the applicant to demonstrate that the proposed transaction will be in the public interest. It must demonstrate the transaction with enhance competition where necessary to offset the negative effects of the merger. So you can't understand if that's true unless you understand what all the adverse effects are as well. And another comment she made that I think is extremely telling when she was pressed to explain what enhanced competition means. She said Senator simply said this way, the benefits box must be fuller than the harm box. So how can you determine if that's true or not true unless you know the facts that are contained in both boxes. And I tell you, this is a forever decision. This regulatory body, Chairman Fuchs and the members that serve the Chairman Fuchs are going to take this responsibility seriously. Again, it's not going to matter what the applicants think or feel as good as it may be to them, and I believe UP. I believe the Board, I believe Jim Bennett, they believe it's good for the nation. They believe it's good for their shareholders. They believe it's good for their employees. And that can be true. But does that also mean it's true for all the other concerned parties. Is that true for the industry? Does that represent the risk of additional consolidation and something that large being created and the integration risk that it creates for the nation? Because if it fails, we're in trouble. The nation could be brought to its needs with something that large affecting our entire rail transportation system in North America and it affect every shipper, affect every railroad, affect commerce. So they have to get it right. It has to be a fulsome process. Jim, I heard Jim yesterday, he wants all the facts to be heard and known, then let's make them heard and known because that's the only way to get the decision. And in the end, I believe this regulatory body, the regulations require, and I believe they're committed to if their application could demonstrate that the benefits outweigh the harms, then they've got a good chance of approval. That said, for that to be true, in my mind, based on the regulations and based on that definition of enhanced competition, it's going to have to come with concessions -- considerable concessions. To suggest that you're meeting a definition of enhanced competition because you introduce the [ CGP ] proposition, this mechanism that they introduced, if that's the definition, then why does it have an expiry date? And if that meets the definition of a forever decision beyond the expiry date, how can you exclude railroads, I think they deemed it Canadian railroads that originate traffic west of Mississippi and ship to destinations east and vice versa. Those are American-generated shipments going to American locations. That's part of making America great again. And I guarantee President Trump means what he says, he wants what's best for the nation. The STB wants what's best for the nation. CPKC wants what's best for the nation. It's critically important to us and every other concerned stakeholder that's impacted by this decision that the facts prove that, all the facts, not just the ones that support the applicant's view of what's best for the nation. So that's a lot said, but that's the gravity of this. And again, I would encourage people. I know it's very seducing to get wrapped up and drinking this merger cool aid and they wanted to see all these wonderful gains and all these dollars printed that perhaps some are suggesting would be printed in all this amazing shareholder value created, but at what cost? It can't be at the cost of our U.S. rail network. So again, you got to go back and educate yourselves. Listen, I've had lawyers tell me. I've had lawyers disagree with me. I've had other CEOs. I got a little bit of experience in this, one that I think the world of. Pat saw this differently. when they were going through their process trying to get their trust approved in their agreement with Canadian National. He and I had some very active debates. He was influenced by what his regulatory lawyers told him. And he was wrong. I think the [indiscernible] had we were stacked 90% against us, and they were wrong. Again, don't get tied up in emotion, don't get tied up in spin, focus on the facts, read the regulations, get the perspective, go back and read the hearings, and you're going to get right back to where I am today. The facts must prove and show that this is ultimately in the public's interest. That benefit box is going to have to be loaded up heavier than that harm box because, again, this decision cannot be undone. And if it's approved with concessions, it will likely trigger additional consolidation in this industry to create railroads to be in a position to best defend itself and compete against a [indiscernible] that would be created in the UP-NS combination. And I'll say this one last thing. It's not competition that CPKC is concerned about. I'm an advocate for competition. I'm an advocate for single-line service. But again, what I'm not an advocate for is anticompetitive behavior. What I'm not an advocate for is a railroad that has so much size and scale as they have historically, and I would suggest history says a lot about what the future might look like, how they've imposed their will on other railroads, I think that's a dangerous and slippery slope. I think it's critically important that whatever concessions that the STB agrees to and that UP-NS would agree to if they accept the decision, if it's favorable, that they have teeth to them as well. It has to be enforceable to be able to protect the public interest and enhance competition. It can't be something that can just be conveniently ignored because they see it a different way. It's got to be clear and concise and there has to be a mechanism that we can quickly seek relief in that's not the standard go wait in line for 2 years until the STB has time to get through the litany of other complaints and concerns that something of this magnitude likely would create before they could opine and give you a decision like we had to navigate after our merger and that South in rights agreement. Do your homework on that one. Read what was said on that one, read the case of that. That was pure anticompetitive behavior. We said it when UP took the position to try to shut off our Southend rights that were granted to us from previous consolidations to protect competition. We said it then and the STB agreed with us 2 years later. But in the meantime, I guarantee you the customers' interest were not served that were shut out from competing into those marketplaces during record grain harvest. That was in the harm box. That certainly was not in the benefit box. So thanks for the question, probably a bit more than we anticipated, but I hope I cleared some of that up. So we'll wait and see. Let's just let all these facts be developed and heard, and we'll see where this thing comes out. Brandon Oglenski: Love the passion, Keith, and everyone focused on positive outcomes here. Operator: Your next question comes from Tom Wadewitz with UBS. Thomas Wadewitz: Keith, I wanted to get your sense on just high level, how you're thinking about USMCA and kind of risk associated with, I guess, I don't know, renegotiation, whatever you want to call it. You guys have been pretty helpful in kind of defining what you think you've lost from tariffs and Liberation Day. So I don't know -- I mean, it's obviously tough to have a lot of conviction on where tariff-related things come out. But high level, do you think there is significant risk? Where do you think the timing is? Is this something where you've already incurred a lot of the kind of the headwind already from Liberation Day? So yes. Keith Creel: Yes. Let me start with kind of the last question. We've already absorbed a pretty significant hit from all the uncertainty. I think about $200 million of revenue impact, maybe higher. So we felt it on the balance sheet already. I don't have the crystal ball to tell you exactly where the need is going to land. I believe, and I've said from the beginning, President Trump is going to adjust the balance of trade between our 3 nations. He is going to make decisions in that renegotiation, which to his satisfaction and to his view, benefits the United States of America. That said, I think that can be true and a positive renewal on USMCA can be true at the same time because trade between these 3 nations, even if it gets rebalanced a bit is critically important to all 3 nations success. We depend upon each other. That's undeniable. When USMCA was created, trade grew after the fact. After the pandemic, even more critical important about cross-border trade between these 3 nations. So sitting in the seat we're in, we've gone through some choppy waters. They may get more choppier. But at the end of the day, we'll get through the storm. These 3 nations will trade together, and we uniquely because of our network enables it, we connect with hard infrastructure, the rail network that allows that trade to flow Canada to the U.S., U.S. to Canada, Mexico to the U.S., U.S. to Mexico and now because of these trade tribulations, even more so than before, Canada to Mexico and Mexico to Canada. We are the only network that can do that. We truly are a success enabler for North America. We are North America's railroad, heavily committed to the United States, heavily committed to Canada, heavily committed to Mexico. We're going to enable success across these 3 great nations in a trilateral way that allows everyone to succeed, including CPKC. Thomas Wadewitz: Do you have any sense on what the most likely timing might be? Or is it just tough to say as well? Keith Creel: Yes. I'm reading the same things you're hearing. My guess is it's going to really get active this summer. So that's my view. I think in the summer, it's going to get renewed maybe hopefully, I would think before the midterm. Again, that's just me speculating based on the way I'm reading the tea leaves. I don't control the agenda, but that to me would be a possible and a probable outcome. Operator: Your next question comes from Konark Gupta with Scotia Capital. Konark Gupta: Just on the free cash, just wondering a couple of things real quick here. The free cash conversion you guys talked about at the Investor Day, 90% in that context, where do you see things shake out this year? And then for the CapEx, even if we adjust the pull forward of maintenance projects, the CapEx is seemingly down in '26. Where are you cutting CapEx on? And is there some flex? Nadeem Velani: So free cash conversion in the 75% range. I think long term, we talked about 90% part of our guide in 2028 and beyond. And I think the current level of the [ $2.6 billion, $2.7 billion ] CapEx range is something that we can continue to do over the next foreseeable future. So in fact, with a weaker Canadian dollar, that could go -- with the stronger Canadian dollar, that can go even lower. So the CapEx is a bit of a shift in terms of timing of investment. So we pulled forward some of the infrastructure investment. We did a lot of the synergy or the integration-related capital investment the last 3 years, as you can imagine, with the Laredo Bridge, with some of the siding extensions and siding investments that we did to support the integration as well as some of the growth investments, Americold, for example, and Transload investments. So there's just basically a bit of a shift in the spend of CapEx. So we don't have the day in our systems integration anymore. So there'll be some reduced capital there. We don't have as many railcar investments that we have, but we have announced that locomotive investment with Wabtec in progress. So it's a shift in capital overall and that reduction of about 15%, somewhat due to timing, but mainly out of the, I'd say, siding extension, infrastructure investments and to an extent, IS investments overall. Operator: Your next question comes from Benoit Poirier with Desjardins Capital Markets. Benoit Poirier: My question back in November, the Canadian government announced new measure to help the Canadian steel and lumber companies. One of this measure was the government would work with the rail to subsidize freight rates by 50% beginning in spring of 2026. I was wondering if you could give an update on this and whether it could be kind of a volume tailwind in the back half this year. John Brooks: Yes. Thanks, Benoit. Certainly, we've got our GA folks working through still the mechanics of how all this will be accounted for sort of between all the parties, the customer, the government and ourselves. Our analysis says, yes, maybe there is some opportunity, particularly in maybe some long-haul transload type movements across the country. But I'm not looking at sort of needle-moving type numbers there, Benoit. So we'll see. As I said, there's still a fair amount that has to be sorted out. And then we'll see how it sort of ripples through the marketplace. And we're keeping our hands on the pulse of that if there's an opportunity, we'll be right there to try to capture it, but I'm not looking at big numbers. Operator: Your next question comes from Scott Group with Wolfe Research. Scott Group: So one of the other rails was talking about pickup in inflation. How are you feeling about price and just overall price cost this year? And then maybe just along those lines, just given some of the Q1 commentary on, any thoughts about how to think about operating ratio in Q1? Nadeem Velani: We'll stop through a [indiscernible] . I think year-over-year, we'll see a potential for improvement in the operating ratio. I'll keep it at that. From an inflation point of view, we're not seeing that same sort of issue. And again, Canadian dollar does help us in terms of some of our costs and capital investments in U.S. dollar conversion. But overall, our true inflation, like which is locked in with labor, we signed some very unique deals and favorable deals for labor and for management. And those are in that 2.5% to 3% range. So as far as our inflation, you should expect that level of inflation overall, and we're pricing above that. So that spread should be positive and will be part of our benefit to our margins overall. Operator: Your next question comes from Ken Hoexter with Bank of America. Ken Hoexter: Nadeem, just to clarify that 1Q -- I'm sorry, the year-over-year improvement, was that a 1Q specific comment? Or is that a year-over-year comment on the OR? And then just your thoughts on synergy targets, how -- where you think you are and what you still think can add this year and next? Nadeem Velani: Yes. So we'll see year-over-year improvement in Q1 in the operating ratio, and I expect to see year-over-year improvement annually in the operating ratio as well. We talked about Q1 being a little bit more challenging just given volume won't be as strong in Q1, but I still see outside of a major winter event or disruption that we'll see some improvement in the operating ratio given the low cost structure we entered January with. And remind your second part of your question. Keith Creel: Synergy question, yes. So Ken, we exited 2025 at about a $1.2 billion run rate, $1.2 billion. We see an opportunity for another $200 million plus about $1.4 billion as we close out 2026. So well on our way of meeting the commitments we made relative to this integration opportunity. Operator: Your next question comes from Ariel Rosa with Citigroup. Ariel Rosa: So I wanted to ask maybe a little bit longer term. It's been interesting to see there's been quite a bit of convergence here between kind of valuations across the Class I rails. Keith, as we think about the growth prospects for CP over the long term, maybe speak about your level of confidence that CP can continue to outgrow the industry and kind of what are the drivers behind that as we think about 3, 5 years out and particularly how potentially a UP-NS situation could alter that? Keith Creel: Let me start with the last part first. UP-NS, if that comes together with the puts and takes and the concessions we believe that will be required to satisfy enhanced competition, I see that as a net positive as long as we have a fair playing field and we don't have anticompetitive behavior. So that's a qualifier there. And I'm going to take -- I'm going to expect that Jim will commit that that's not going to be true. That said, when it comes to the synergies and our growth algorithm we look forward, think about this. Think about what we're doing today with no macro help. So that's a single-digit RTM growth with the macro working against us. So if you go forward, we're going to continue to have synergies. We're going to continue to create new and unique opportunities. This SMX product that was never contemplated in those initial targets that we put out. You get back to a place where you got a little bit of tailwind with a normalized economy, a little bit of GDP growth and normal shipments. Synergies can come off a little, you maintain price and you still kind of echo the same repeated behavior over the next several years. So again, I think that's a sweet spot. What we do is hard work, it's not easy. It's not a layup, but we've got the network to be able to create these customer solutions that have never been able to be created before, benefit from trade between the 3 nations, benefit from these unique networks, north-south, the Southeast to Dallas, the Southeast of Mexico that, again, a UP-NS can't replicate. And I think that gives us a nice recipe for having confidence in meeting that guidance that we've laid out on the growth algorithm. Operator: Your next question comes from Steve Hansen with Raymond James. Steven Hansen: Just a question on the grain harvest given its size. I think you've already described it as a tailwind for the year. I was a bit surprised you didn't move more in the fourth quarter on the back of the weak harvest. And just curious whether or not you think the normal pattern will evolve this year in the sense we'll move the bulk of the harvest in the first 1.5 quarters or 2 quarters? Or would you think that pattern will extend into the third quarter as well, just given, again, the size of the carryover this year? John Brooks: Yes, Steve. You and I both were surprised. Certainly, the wet weather out there in Vancouver didn't help. And I know we talked about it on the Q3 call, like we were excited about the level of freight that we had sold with the grain companies and gearing up for that. It does feel like maybe there is a little bit of a shift. We'll see if this is unique or not as we get towards harvest next year. I'm not really sure yet. I do believe it sets us up for a very ratable, which we like as a railroad shipment profile of grain. And frankly, with the soybeans not moving very much in the U.S., we're kind of excited about what that might bring as we move through the mid part of the year. So I met with one of our very largest grain customers last week. And they told me they fully expect to be kind of sold out to busy levels right through August in new crop. We got pretty good snow levels up across Canada right now. We exited with pretty decent moisture. And I know we're really in early innings right now, but I can tell you there's already a little bit of bullishness around could there be a repeat. And certainly, the Canadian farmer has built a lot of storage. So they've been able to put this crop away, but I think there's a pretty big confidence that this is going to have to move and move throughout the year. And then we'll see what happens next fall. Operator: Your next question comes from David Vernon with Bernstein. David Vernon: So John, maybe can you talk a little bit about how you're thinking about the tariff environment in terms of building out the mid-single-digit RTM guide? Like are you expecting things to kind of stay volatile, stay the same, get a little better, get a little worse? And then how are you guys thinking about the next iteration of the USMCA and how that might sort of impact some of the opportunities for you guys in the next 3 years? John Brooks: Well, David, we've assumed that this isn't really going to change. So we've planned to sort of build in this headwind into 2026. Now look, we were able to backfill it. I'll give you an example. We -- our land bridge volume that we've talked about really both directions grew by about $140 million year-over-year in those types of opportunities. We see opportunity there to add on to that pretty significantly. So look, it's no doubt, it's frustrating. It was a pretty significant headwind. If we get a break in it positively, certainly, we're going to embrace bringing a lot of that traffic back on, but it certainly hasn't been planned. As I -- what the future holds, I can tell you one thing. We're going to really amp up our sales activity on our Mexico franchise. I think there is a heck of a lot more opportunity down there to sort of feed this broader network. And again, whether it would be land bridge opportunities up into Canada or continuing to feed the American economy. And really, we've really never done it to the extent that you've become accustomed to seeing our sales team across Canada and the U.S. do it. So more to come on that, but I'm looking for a lot bigger things in terms of growth out of our Mexico franchise in the coming years. David Vernon: And anything that Carney and the team are doing to kind of promote trade with other partners that might have an impact on the outlook? I know there's been talk about the Chinese EVs, that kind of stuff. John Brooks: Well, I think certainly, there's a fair amount of work. And actually, we've got some of our ag folks down there in the coming weeks to promote better ag shipments between the 2, eliminate some of the red tape and bureaucracy in terms of the customs movements of those products. I think we're making some headway on those fronts. I can tell you also, as we think about products intermodally moving all the way between Canada and Mexico, David, also, there is an effort to try to streamline some of those customs processes related to those products early. So I do believe there's some momentum there, but we're kind of in the early innings on some of that stuff. Operator: We have reached our allotted time for Q&A. I would now like to turn the call back over to Mr. Keith Creel. Keith Creel: Okay. Thank you, everyone, again for spending your time with us some really good questions. I think some active discussions, certainly a very topical time of change for our industry. We're going to stay close to that as we have stayed close to that, again, to make sure that our facts are heard and understood as well as the industries and as well as our customers, our joint customers. And we'll see how it all shakes out. More to come on that. These next several months will be very telling once that application is resubmitted, and we all have a chance to digest it and comment on that. In the meantime, we're going to focus on our core competencies, which is running a safe and efficient railroad for the benefit of our customers and for the benefit of commerce, which is going to produce a very solid and we think unique value-creating financial outcome for those that choose to invest in our company. We take that responsibility seriously. We appreciate your trust. We look forward to sharing results on the next call. Stay safe, stay warm, and we'll see you out on the rail. Operator: This concludes today's conference call. You may now disconnect.
Simon Hinsley: Good morning, and welcome to ikeGPS quarterly update, where we have the CFO, Paul Cardosi, on the line. We'll have Glenn Milnes, the CEO, join shortly. [Operator Instructions] But Glenn is going to run us through most of the financials as a part of the quarterly first, and then we expect to Glenn to join shortly. Thanks very much, Paul. Paul Cardosi: Thanks, Simon, and good morning and good afternoon to everyone. Thank you for joining our third quarter performance update. We published our results earlier today. So hopefully, you've had a chance to look at the document. We're not presenting slides today. I was actually going to talk you through the handout that's been published on our website as well as the NZX and ASX. Overall, we've had a very strong third quarter, continuing on from the strength that you saw in the second quarter. At a very high level, our subscription revenues continue to grow at a 35% growth pace. You'll see that in some of the slides that we have. We're also seeing continued improvement in gross margins, which creates operating leverage for us as a business. And we do that with a healthy balance sheet that we're investing into new products, which are on track for release later in our calendar year. I'm going to jump to the financial part of the presentation. And it's the section that's titled Performance Summary. I'm going to start with what we call our exit run rate or annual recurring revenue trend. You can see that through the 9 months year-to-date, we finished at NZD 21.1 million, that's an increase 35%. It's actually 36% in constant currency. We had a little bit of an impact from the U.S. dollar, New Zealand exchange rate, that represents about a 39% 3-year annual -- compound annual growth rate. So, subscriptions is where the business is predominantly focused, and you can see that as we continue on that growth trend. One thing of note, we launched a product called IKE PoleForeman in literally 2 years ago, and that product exceeded $10 million of that exit run rate ARR. So really pleased to see the strength of PoleForeman in our numbers continue as we report today. If I go to the next chart, we look at subscription revenue. So this is our recognized subscription revenues, again, 9 months year-to-date. We finished year-to-date at $14.1 million. That's a 38% growth rate over the year-to-date period from the prior year. What's not on this slide is we actually did about $5.3 million in subscription revenue in the third -- our third quarter, which is actually a 43% year-over-year growth rate. So you can see from those 2 slides, subscription revenues continue to grow and the pace is picking up. In the third quarter, we added about $2 million of ARR. A lot of that comes from new logos. We continue to win engineering and utility new logos. We're also expanding significantly the portfolio into our existing customers. So that trend in that business model continues for us. If I go to the third slide, which is the seat license trend, the majority of our sales are sold on an annual per seat basis, an annual per user basis. Seats grew at 30% year-over-year. We're also seeing an increase in our average revenue per unit, and a lot of that has been helped by a recent release of our AI-based PolePilot that sells as part of our IKE Office Pro product line. So, seat growth continues well. The pricing continues well underlying those seats. So continued growth there. If I go to the next slide, it's our transaction or services business. And you can see that we had some weakness there in our services revenue. If you remember from prior calls, a lot of our services customers are broadband communication companies. The U.S. government had a reset on funding for some of those companies. So, a lot of the funding is there, but it's being delayed just through legislation changes, and we're seeing that in some of our service business. So, you can see that in our year-to-date numbers, we're down year-over-year, both on the number of Poles that we count in our transactions. as well as the services revenue. We have made moves to restructure the team that supports this business. We've offshored a lot of the work. So, we are seeing improved gross margins in services, which adds to operating leverage across the company. I'll jump next to the segment revenue. So, you can see the NZD 19.8 million of revenue that we're at year-to-date and how that is broken out. The recurring piece, which is our subscriptions and the reoccurring piece, which is the transaction revenue sits around 90% of our total revenue today. And you can see that for the year-to-date, we grew revenues around 7%. And year-over-year for the quarter, revenues were up around 11%. So continued growth across the revenue. But clearly, the mix is the subscription piece of the business. I'm going to -- before we get into questions or if Glenn joins, I'll just finish with the metrics chart and just make some comments on it. This is the last -- the table at the back. Gross margins continue to improve. You can see 79% versus 68%. The subscription mix helps that. The restructuring we've done in the transaction services business helps that. That creates leverage, leverage that we're using to invest in some new products as well as on our path to EBITDA positive. So that table gives you a sense of not just the overall margin of the business, but how the margins of our product lines stack up. You can also get a sense of our customer counts as well as revenue and margin by segment. So, I'm going to close there with just comments that it's a solid quarter. We see a similar early signs in our fourth quarter, which started in January, and we continue to book business, and we're off to a relatively strong start as we embark on the fourth quarter and the final quarter of our FY 2026. And with that, Simon, I'll hand it back to you. Simon Hinsley: Our first question is from James Lindsay at Forsyth Barr. James Lindsay: Congrats, Paul. And I just wonder if I could just ask a few questions. Firstly, just with regards to, I suppose, the more disappointing performance on the transactional side of things, if there's anything in there with regard to sort of when that could turn around? Paul Cardosi: It's a good question, James. From a macro standpoint, we are hearing that a lot of the companies that got funded had to reapply and are starting to see funding coming through. And also from a sales pipeline perspective, we're starting to get line of sight to some large projects. Timing is unsure at this point. We're thinking March, April time frame. But certainly, we're seeing more deal activity in our pipeline, I would say, in the last couple of months than we've seen maybe in the earlier parts of this year. So early signs that it could start to happen in first quarter. James Lindsay: Okay. And then obviously, the gross margin in that side -- that transactional side of the business has actually been relatively volatile. But for this quarter, it looked to be up a reasonable amount. Is there -- can you give us any sort of headway about why it is so volatile? Paul Cardosi: Part of the volatility is we took some onetime restructuring in the second quarter. So, you would have seen, I would say, relatively low margins tied to some restructuring that we did with the team. And then the third quarter was our first full quarter where the majority of the work in this business has been offshore. So, we had an offshore model for some of the work that we do in services, but the third quarter was really the first quarter that we saw a full quarter of work being done offshore. And it's not just lower cost, it's also more of a variable model in that we only incur costs when we incur the work. So, we have less fixed costs in that model as well. So, you're really seeing the effect of the offshore move that we've made. James Lindsay: Okay. And that's that Mexican team that you're talking about? Paul Cardosi: That's correct, yes. James Lindsay: Yes. Okay. Great. And just with regard, obviously, the balance sheet in a really strong position post the capital raise. And just with regard to the spend that's going on in R&D, can you talk about sort of the mix of what's going on in spend and sort of full year? Will that start to accelerate in the next quarter or so? Paul Cardosi: It will definitely start to accelerate. We've started to onboard some new employees tied to our PoleOS initiative. So, part of what we're driving, I think you know is a fairly significant platform strategy. And we started to onboard some resources engineers, both here in the U.S. and in New Zealand starting in January, and then we've got some additional hires coming in February. So, you'll see the spend tick up, but it's not reflected yet in our third quarter because the headcount came in -- is starting to come in this quarter. James Lindsay: And obviously, well done. I think it looks -- if I look at the numbers right, it might be your third best quarter ever as far as that 25 net customer growth. Just interested in the mix of that and what do you think has driven it? Is that sort of more PoleForeman? Or is it just in core product? Where is that mostly come in? Paul Cardosi: Two areas that I've seen in the third quarter, James. One is the ecosystem of companies that use PoleForeman continues to expand. So, think about a utility not just rolling out PoleForeman in more departments, but also the engineering firms that support those large utilities. So, we're seeing, I would say, kind of a flywheel effect on that in terms of both subsegments, the engineers and the utilities buying more PoleForeman. I would also say that we saw an uptick in Office Pro, IKE Office Pro in the third quarter. PolePilot has helped. We're starting to have customers take the new version with the AI-enabled PolePilot. And we're also seeing -- we run a hardware trade-in program where customers could trade in old hardware and trade up to newer hardware with IKE Office Pro licenses. And so, we're seeing a lot of the benefits from that on the IKE Office Pro side as well. James Lindsay: Right. And you mentioned just PolePilot. Maybe just while you're on that, as far as sort of the customer feedback on that and if there's been any sort of fight back on the increase in price that you're putting into customers for that product? Paul Cardosi: So far, we've had about 30 customers license it with no pushback on the price. And overall, the feedback has been super positive in terms of time savings they're seeing by being able to use that functionality. James Lindsay: And is there anything else in market that's sort of comparable to that? Paul Cardosi: Maybe a Glenn question, but certainly, we haven't seen anything crop up just yet now that we've launched PolePilot in the market. James Lindsay: And just the other thing I was going to ask about the customer base. I know that there's always a very big mix of size potentially there. And maybe when you're saying about the network effect, if it's sort of associated companies to the utilities, it's possible that the size of this, the 25 net new customers is maybe smaller than the average that you've got today. Would that be fair to say? Paul Cardosi: I would run an 80-20 on it, James, and say that 20% of those net new give us, I would say, material size of deal, meaning high 5-figure, high 6-figure kind of ACV, annual contract value deal size. And then the other 80% quantity is maybe smaller -- more of the smaller engineering firms that maybe take a smaller amount of licenses and then expand over time. James Lindsay: Great. And then last one for me. It might be more of a Glenn question as well. Thanks again for the heads up on that sort of 9 months for that Module 1. How long do you think that sort of pilot testing? Have you got any indication about how long pilot testing would take before sort of a market introduction? Paul Cardosi: I know that basing on what we did with PolePilot and the Module 1 is, I would say, it's an adjacency to what PoleForeman does, but it's a different subsegment. I would say that if I follow what we did with PolePilot, it's likely to be a 60- to 90-day beta that we'll put in customers' hands and get feedback on very quickly. So typically, 2 to 3 months is what our beta period is, but we have more development work to do before we get to that. James Lindsay: Great. And you mentioned -- sorry, to carry on, I'll pass it back to Simon shortly. I think in the raising presentation, you talked about around about $11 million, I think, if I recall, for the 2 modules. Is that still on track? Or is there any sort of change in the view about what would need to be spent? Paul Cardosi: The only change that I would say that's material is we're, I would say, fast following in terms of our adoption of artificial intelligence. And I would say that, that is improving the way that we develop and leading to a faster development cycle. We haven't quantified the impact yet, James. But certainly, we're leaning into, I would say, faster AI adoption that could help accelerate the development, which ultimately would lead to lower cost. But I don't have a number that I can give you at the moment. Simon Hinsley: Our next question is from James Bisinella at Unified Capital Partners. James Bisinella: Congrats on the result. Lots of ground covered there. I might just ask a couple. Just on sort of the pipe, you mentioned some strength coming through there. Just keen to hear a bit more color kind of in the potential makeup of that. Obviously, some large deals signed in the past. You do have 8 of the 10 largest IO users at the moment. So, is this a makeup of sort of large deals, a combination of smaller ones? Or just any further color there would be helpful. Paul Cardosi: And just to clarify, James, are you asking for results to date or more of the pipeline that we're seeing as we move forward? James Bisinella: More so the go forward, yes. Paul Cardosi: Yes. I mean, we look at the pipeline constantly. And I would say that, we have very good coverage of the bookings that we need to close to hit that 35% guidance. So we're laser-focused in on the pipeline that we have, the deals that we have in that pipeline. And I would say, we have between 8 to 10 material deals of significant size that make up, I would say, maybe about half the pipeline. So we don't need to close all those deals to hit our 35% run rate. But my point is the deal flow is still -- potential deal flow is still very healthy. And it's -- I would say it's a mix of large 5-, 6-figure deals in the 8 to 10 category and then the rest is smaller deals. James Bisinella: That's great. That sounds very supportive. And then just another one for me, just last one, just on kind of the ARPUs of the new product line that's 9 months away. I think kind of blended ARPUs at around the NZD 2,000 mark. So just looking for any color on ARPUs of this new product and what we could see out of that? Paul Cardosi: We haven't priced it yet. But to give perspective, our PoleForeman ARPU runs around rounded up USD 2,000 is our PoleForeman ARPU. And our feeling is that, the new product has significantly more of a value proposition than PoleForeman. So we haven't priced it, but I would think that it would be well north of the USD 2,000 we have today for PoleForeman. Simon Hinsley: Thanks, James. Next question, congrats on PoleForeman reaching $10 million ARR. How much approximately is the total achievable ARR for PoleForeman just from your existing client base? Is the customer take-up of PoleForeman still accelerating? Paul Cardosi: It's still accelerating through -- I would say that, the revenue potential is still significantly higher. I know that in prior calls, we've shared market penetration and penetration within our accounts. And so, the short answer is in the next 6 to 12 months, I think the potential for PoleForeman is still there. We're not seeing a slowdown. And the pipeline that we have suggests there's still not a slowdown. So, without throwing a number out, Simon, I would say the potential and the upside is still significant for PoleForeman. Simon Hinsley: Thanks, Glenn. Just a question on what circumstances do you envisage that the company might raise more capital in the next few years? Paul Cardosi: I would say, it's based on a strategic direction more than financial need, if that makes sense. So today, we're tracking to get the business to EBITDA positive. And the increased gross margins give us more and more leverage as we grow that margin, we've got more to invest further the strategy. But to me, it would be strategic reasons that would lead to potential capital raise, meaning is there subsegments we could get into through an acquisition as an example. But today, I would say we're heads down executing on the strategy we have, and it would be something strategic that would lead to the need for a capital raise. Simon Hinsley: Thanks, Paul. That concludes the Q&A segment. Thanks so much for stepping in again. And if there's any further questions, details are at the bottom of the ASX and NZX announcement, but I hope you all have a good day. Thanks, Paul. Paul Cardosi: Thank you. Bye.
Operator: Good morning and good evening. Thank you all for joining the conference call for the LG Display earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on LG Display's Fourth Quarter of Fiscal Year 2025 Earnings results. Suk Heo: Good afternoon. This is This is Heo Suk, Leader of the LG Display IR team. Thank you for joining our fourth quarter 2025 earnings conference call. Joining us today are CFO, Kim Sung-Hyun; Vice President, Choi Hyun-Chul, in charge of Business Control and Management; Vice President, Kim Kyu Dong, in charge of Finance and Risk Management; Lee Ki-Yong, in charge of Business Intelligence; Vice President, Kim Yong Duck, in charge of Large Display Planning and Management; and Ahn Yoo-shin, in charge of Medium Display Planning and Management, Park Sang-woo, in charge of Small Display Planning and Management and Son Ki Hwan, Head of Auto Marketing. Today's conference call will be conducted in both Korean and English. For detailed performance-related materials, please refer to our disclosure or the Investor Relations section in the company website. Please refer to the disclaimer before we begin the presentation. Please be informed that the financial figures presented in today's earnings release are consolidated figures prepared in accordance with International Financial Reporting Standards. These figures have not yet been audited by an external auditor and are provided for the convenience of our investors. I will now report on the company's business performance in Q4 2025. Shipment of panels for TVs and notebook PCs in Q4 remained solid, but there were some changes to the mix in some small and medium OLED products that lessen the usual seasonality. As a result, revenue rose slightly Q-o-Q to KRW 7.2008 trillion. Operating profit declined Q-o-Q to KRW 168.5 billion. It is owed to lower shipments of certain small and medium OLED models Q-o-Q together with one-off costs related to strengthening the company's profit structure and future competitiveness. As noted in last quarter's earnings call, for the purpose of raising the efficiency of manpower structure, costs associated with voluntary retirement program for domestic and overseas employees exceeded KRW 90 billion. In addition, fourth quarter included incentive payments as rewards to employees for achieving the company's first annual turnaround in 4 years and as motivation to further bolster the company's competitiveness. Cost for activities such as reducing low-margin products and inventory rationalization were also included in Q4 results, which were part of the initiative to adjust the company's business and product portfolio. It was intended to strengthen our profit structure and operational efficiency. Operating performance in Q4, excluding these one-off costs, expanded both Q-o-Q and Y-o-Y, demonstrating continued improvement in our business fundamentals and profitability. There was net loss of KRW 351.2 billion down Q-o-Q, primarily due to foreign currency translation loss stemming from the higher year-end exchange rate. EBITDA in Q4 was KRW 1.162 trillion, with an EBITDA margin of 16%. Next is shipment area and ASP trends. What we are seeing recently is that panel shipments by product have diverged from traditional seasonality, reflecting instead the downstream conditions, customers' inventory levels and strategic panel buying trends as well as differences in customer and/or product strategies among panel suppliers, particularly for the company, as we maintain profitability-focused product portfolio, shipment of low-margin midsized LCD models continue to shrink. Specifically in Q4, shipment area for TV and notebook PC panels grew quarter-on-quarter, while shipment for monitor and tablet panels declined. As a result, despite the strong seasonality, total shipment area rose modestly Q-o-Q to 4.0 million square meters. ASP per square meter was $1,297, down 5% quarter-on-quarter largely because shipment of certain small and midsized OLED models were concentrated in Q3. Although it fell Q-o-Q, it is up 49% year-on-year, reflecting continued progress in upgrading the business structure toward OLED and supporting expectations at the high level will be maintained going forward. Next is revenue share by product group. Overall revenue share remained largely unchanged from Q3. First, mobile and others accounted for 40% of revenue, up 1 percentage point Q-o-Q, mainly due to shifts in the product mix. IT revenue share remained almost unchanged at 36%, down 1 percentage point Q-o-Q, reflecting the deferring shipments across product categories, as described earlier. TV share out of revenue rose slightly by 1 percentage point as shipments of white OLED panels for TV and monitor increased. Auto revenue share rose to 7%, down 1 percentage point Q-o-Q. OLED products accounted for 65% of total revenue in Q4, unchanged Q-o-Q and up 5 percentage points Y-o-Y. Year-to-date, OLED share rose to 61% from 55% last year, up 6 percentage points. The continued upgrade toward OLED center business structure is steadily broadening and strengthening our growth and profitability base. Next is our financial position and key indicators. Cash and cash equivalents at quarter end were KRW 1.573 trillion, largely unchanged Q-o-Q. As we wind down nonstrategic businesses such as LCD TV and improve operating efficiency, the level of required operating capital has remained lower than in the past. Inventory at quarter end declined Y-o-Y to KRW 2.546 trillion, reflecting progress from our efficiency improvement efforts. Total debt decreased by KRW 1.886 trillion from the end of 2024 to KRW 12.664 trillion. And net debt fell by KRW 1.437 trillion Y-o-Y to KRW 11.0910 trillion. Debt-to-equity ratio improved to 243% and net debt-to-equity ratio to 141%, lower by 20 percentage points and 10 percentage points, respectively, Q-o-Q and lower by 64 percentage points and 14 percentage points Y-o-Y, further strengthening our financial soundness. I will now move on to guidance for Q1. Shipment area is expected to fall across all categories in Q1 due to seasonality. While ASP per square meter is also expected to fall slightly Q-o-Q, it will be tempered compared to the same quarters in the past due to the strong and sustained upgrade to OLED-centric business structure. Total shipment area is projected to decrease by low 20% level from the previous quarter and ASP per square meter to decline by mid-single-digit percent. Notably, ASP per square meter is expected to remain above the $1,200 line even through the seasonality of Q1 up by more than 50% Y-o-Y. I will now hand over to our CFO, Kim Sung-Hyun. Sung-Hyun Kim: Good afternoon and evening to everyone. I am Kim Sung-Hyun, the CFO. Thank you very much for joining today's conference call. Looking back to last year's performance, our most significant achievement was delivering a meaningful scale of turnaround after 4 years, improving profitability by more than KRW 1 trillion Y-o-Y, thanks to the hard work and dedication of all our members. Despite elevated external uncertainty and volatility in global markets, we continue to expand OLED revenue share and persisted with intensive structural improvements. As a result, we reduced our loss by roughly KRW 2 trillion in 2024 versus '23 and further improved results by about KRW 1 trillion in 2025. OLED share out of revenue reached a record high of 61% for the year. It was only 32% when we began business structure upgrade in 2020 and rose to 44% in 2022, then again to 55% in 2024. We believe that we are moving much closer to the complete solidification of our OLED-centric business structure, having terminated the large LCD business with the sell-off of Guangzhou LCD plants in 2025. Allow me to explain the one-off cost in Q4. There were explanation and guidance for costs related to voluntary retirement program provided at last year's October earnings call. And the actual cost incurred roughly KRW 90 billion is largely in line with the guidance. These costs include besides workforce rationalization to strengthen our business fundamentals, local workforce adjustment costs that were incurred while trying to improve our overseas production strategies to proactively address changes in trade and tariff environment, as well as customers' production strategies. Financial impact from the voluntary retirement cost is unchanged from what we described at last quarter. The one-off costs will be offset from about 18 months after implementation and will contribute positively to future results. In addition, as mentioned as part of the Q4 performance briefing, incentive payments tied to last year's business performance were also reflected. It is to recognize our members' role in achieving the first annual turnaround in 4 years and to motivate them further going forward. The incentive is intended to further support our ability to shift towards a technology-centric company by focusing more on improving our fundamentals, build a sustainable profit structure and better achieve our future goals. Last item is the cost associated with the strengthening profitability and improving operating efficiency. It will enable the company to boost future profitability and broader push to improve operational efficiency, such as reducing low-margin products or consolidating inventory and is expected to strengthen business performance overall. Total nonrecurring cost impact in Q4 was in the high KRW 300 billion range, which is the result of the company's activities and work to strengthen our profit structure and future competitiveness. Excluding these items, Q4 operating profit was roughly mid KRW 500 billion, exceeding market expectations. It is an improvement Q-o-Q and Y-o-Y underscoring continued improvement in our business fundamentals and profit structure. Looking ahead, we expect external uncertainty and product level volatility in the downstream market to persist this year. While numerous factors persist in our business environment like macroeconomic-driven real demand, changes in the trade environment and supply chain stability, we will remain focused on stabilizing our business performance by growing our OLED business and driving cost innovation and operational efficiency activities. Next, let me briefly remark on our plan and strategy by business. For small mobile we will expand panel shipment, leveraging differentiated technological leadership and strengthened customer partnerships to enhance business performance and stability. At the same time, we will systematically execute R&D and new technology investments to grow our future opportunities. For medium-sized OLED, we will respond to high-end market demand across product segments by leveraging our technological leadership and mass production experience. We will also respond proactively to shifting market demand and customer requests by more efficiently utilizing existing infrastructure. As to the demand for OLED conversion by product, which is expected to grow, we will carefully assess market size and conversion pace to enhance competitiveness in ways that will differentiate us. For IT LCD, as reflected in recent quarterly shipment trends and results, we are keeping our focus on B2B and differentiated high-end LCD while continuing to reduce low-margin products. It is leading to meaningful profitability improvement every year. We will intensify execution of what is already underway to achieve possibility for a turnaround this year. For large panels, we will solidify our leadership in the premium market through our differentiated and diversified TV and gaming OLED panel lineup on the back of growing recognition of white OLED's competitiveness and close collaboration with strategic customers. We will expand business results and pursue rigorous cost improvement to maintain stable operations. And for automotive, we will sustain our competitive advantage and create customer value based on our market leadership and differentiated product and technology portfolio. Finally, on investment. We maintained a CapEx policy focused on investments in our future readiness and structural upgrade. After investment optimization activities, CapEx in 2025 was completed at mid KRW 1 trillion. In 2026, CapEx is expected at KRW 2 trillion level, up Y-o-Y. This includes execution of the planned investment to enhance OLED technological competitiveness and investment to strengthen OLED business and future readiness. For any new investment decision, we will communicate with the market without delay. This completes our report on Q4 business performance and review of 2025. Thank you very much. Suk Heo: This completes our presentation of business highlights for Q4 2025. We will now take your questions. Operator, please commence the Q&A session. Operator: [Operator Instructions] The first question will be provided by Kangho Park from Daishin Securities. John Park: First of all, congratulations on achieving a turnaround for the first time in 4 years. Now I would like to ask 2 questions broadly about the company overall. The first is, in 2025, the company sold off its LCD company in China and continue with the business upgrade, and it has also increased the share of OLED out of the total revenue. It has also -- which has then improved the business performance as well as the profitability. So looking ahead to this year, then it appears that the share of OLED appears to be set to keep growing, which is likely, hopefully, to keep driving up the revenue. So then my question is, what is the company's outlook for each business? And also what is the expected business performance for the year? And also for the short term, I believe what the company needs in order to quell the negative perception about LG Display is to sever the trend of entering into loss in the first half of the year. So can we expect a better trend in the first half of this year? And the second question is, the company for the past few years has been focused on improving financial soundness, for example, improving the cost efficiency and also lowering the facilities and lowering the inventory level and also improving the overall operational efficiency. Now then again, looking ahead to 2026 and also from a more mid- to long-term perspective, what is going to be the company's new strategic priorities or strategic tasks down the road? And especially for the CFO personally, what would be your priorities or what would be the important part of your action plan? Sung-Hyun Kim: Thank you very much for the question, which was quite specific and also appear to have the answers embedded in them already. I would just like to provide my response at once based on my own interpretation of the questions. Now, of course, so far, there have been work to upgrade our business structure and also improve our operational efficiency and the results or the performance out of that is, I believe, meeting up to the -- to our commitment to the market perhaps not 100% satisfactorily, but we have done the job. But that does not mean that we can put an end to the process or the efforts that we have carried on for the past few years. Rather, they need to continue with new tasks in new phases. Now for the mid to long term, what is important and fundamental to the company is that, first of all, we need to keep growing; and second, we need to be steadfastly profitable every quarter. Now, that would be my short answer to questions #1 and 2. But then now in order to enable the points that I have just made, then there are some points that we also need to reach and allow me to explain a bit more. Now today, an important theme for the company is to turn into a technology-centric company. But then looking around to our external environment, then again in 2026, as you would all know, the environment is still full of uncertainties and also unpredictable elements. So then what should be the end goal for the company is -- so what I envision is that we need to become a normalized and competitive company. And this is because as we went through some tough times in the past few years, I see that the company has become perhaps a bit not typical and also perhaps that has eroded our competitiveness somewhat. Well, as you would know, there were losses to our capital, which made it impossible for us to pay out dividends. And we were seeing large losses up until 2 years ago. Our financial position was quite bad so much so that we had to turn to our shareholders to go into a paid-in capital increase. Now looking at last year's performance, yes, we were profitable, but not in all businesses. And what we need to do now is complete a business structure where we will be profitable in each and every one of our businesses, and so that we can also revive trust from the market. So this means that we also need to reestablish our operations inside the company and across the company. And there is no other choice but for us to continue with our business structure upgrade and operational efficiency improvement. But although the work and the efforts have to continue, I would say that the purpose has slightly become different, whereas in the past, it was more for survival. Now it is more about improving our competitiveness. Competitiveness in our technology, competitiveness in our cost, competitiveness in our products and also competitiveness in our efficient operation. So once we hit all these targets, then I believe we can once again become the market leader. So once we finish that process, then we will once again become a normalized company, win back market trust and also win back the love from our shareholders. So I have been a little bit long winded, but I would say that this is a homework that I have assigned upon myself. Operator: The following question will be presented by [ John Hou Yoon ] from UBS Securities. Unknown Analyst: My questions are also twofold. Now first is about the mobile OLED. Now the number for the smartphone panel shipment for last year and also the target for this year. So could you share the information regarding these numbers? And also depending -- so there were some changes in the product launch cycle by the customers and also looking at the technological preparedness by competitors, what are some of the opportunity factors that the company can expect? And another question. The following question is with regards to the company overall. So following tariffs last year, this year, it appears as if the memory semiconductors trends are going to be the major factor that could affect the business performance of each business segment. So what is the company's perspective and intended response to this trend? Unknown Executive: This is [ Park Sang Yoon ], in charge of a Smart Size Panel. Now looking back to smartphone business performance in 2025. The first half saw meaningful growth in panel shipments, largely reducing the seasonal variation between the first and second halves. In the second half, while the actual demand varied by model, the diversified product portfolio enabled our annual panel shipment target of around the mid-70 million units as planned. And typically, panel shipment jump from the third quarter to the fourth quarter, but last year stood out in that panel shipments were relatively concentrated in the third quarter. Our smartphone business is generating stable results based on enhanced capabilities across our technology, production and operations. This year, we aim to further close the gap between the first and second half while outpacing last year's growth in panel shipment. Now please understand that I am not in the position to comment on details about our customers. But what is certain is that our smartphone panel development and production capabilities are proven and recognized, and we have accumulated sufficient know-how to fully address diverse technical need. And we believe that by efficiently utilizing our existing production infrastructure, we can address swiftly and flexibly both the increasing demand and new technology readiness and grow our achievements. Now I would like to respond to the question about the impact from the memory semiconductors. Largely, there are 2 types of impact. The first is with the increase in the memory price, then there would also be a pressure on the display pricing that it could also go up. And then this could also increase the -- and for the IT, it could also increase the set price, which could a dampen demand. And also the component price could also go up, meaning that there could also be pressure from customers to lower the panel price. Having said that, the impact on the company currently remains limited, but the volatility is quite high. So we are carefully monitoring any changes in the demand as well as the trend and we'll also try to address any impact that might arise. Thank you. Operator: The following question will be presented by Won Suk Chung from iM Securities. Won Suk Chung: They are also twofold. First, as was mentioned earlier, the rise in the memory semiconductor price could also bring some questions about the company's profitability. And so my question regarding the company's profitability is that now about the IT set, now it appears that the outlook for the downstream market for the IT set demand appears to be conservative. So what is the company's outlook for the IT business? And also what would be the possibility of seeing a turnaround? And a related second question is, now the competition appears to be investing or going into mass production with the 8.6 gen plant, but the company at this time appears to have no such plans. Then wouldn't that place the company at a disadvantage when it comes to customers' allocation? And also, what is the outlook for the IT PC OLED for this year. Unknown Executive: For this year, the company's midsized business focused on upgrading our customer structure around global high-end clients throughout 2025, while actively reducing low-margin products. At the same time, we sustained rigorous cost innovation activities, generating meaningful improvement in profitability Y-o-Y. We anticipate this trend to continue into 2026. Now given the rising component prices driven by semiconductors, supply chain disruptions and lingering uncertainties in the broader external environment, full recovery in the market remains uncertain even in 2026, but we will strive to achieve differentiated results and profitability and future proofing. We will stick to our 2-track strategy with LCD focusing on profitability with high-end LCD and with OLED responding to new demand and preparing for new markets with Tandem OLED-based differentiated products. We are closely monitoring the potential for OLED market expansion in IT. So we are closely monitoring the OLED market expansion in IT, but there is still insufficient visibility into demand to justify an 8.6 gen investment decision and external uncertainties remain high, that could also affect demand. So for now, the company intends to monitor market conditions before making investment decisions. In the tablet OLED market that is -- that continues to open up, we have solidified our leading position based on the differentiated competitiveness of Tandem OLED technology at our 6 gen OLED fab. Monitor OLED is actively responding to the growing demand for high-end applications like gaming by leveraging our 8th Gen OLED fab. For notebook PC OLED, we are monitoring the OLED market size and the pace of demand shifting from LCD to OLED, maximizing existing infrastructure while developing future-ready technologies and mass production capabilities to retain a cost advantage even in competitive situation. Operator: We will take one last question. The last question will be presented by [ Sung Kim ] from Kiwoom Securities. Unknown Analyst: My question is with regards to the large OLED. Now thanks to the cost improvement as well as lower depreciation and amortization cost, it appears as if the profitability has been improving since the second half of the year. So then what is going to be the outlook for the TV and monitor OLED this year? And so based on the higher demand for the TV and monitor OLED as well as the lower depreciation and appreciation -- depreciation and amortization, does the company expect the profitability to continue to improve this year? And then also, the next question is now for the TV set companies, they are continuing to see sluggish differentiation and also worsening profitability. So there may also be some pressure to lower the price, but then what would be the company's response and also what would be the company's strategy down the road to continue to secure profitability in the large panel business? Duck Yong Kim: This is Kim Yong Duck, in charge of Large Display Planning and Management. Now our large panel business, despite the external uncertainties and market volatility, achieved the intended panel shipment of approximately mid-6 million level in 2025, growing nearly 8% Y-o-Y. Now the white OLED for both TVs and monitors is recognized by the market and customers for their differentiated value compared to LCD. And that is why I believe that we were able to maintain such business. Now coming into this year, we see that the uncertainty remains and also the market growth potential still remains a bit limited, but the high-end market that we are targeting with OLED maintains a 10% share of the overall market. So then in 2026, based on this projection, we plan to continue strengthening our W OLED, the white OLED lineup for TV and monitors based on partnerships with global strategic partners. And on the back of such partnership. The target for panel shipment in 2026 is set at just over 7 million to grow by around 10% Y-o-Y. And for the mid to long term, OLED TV is expected to maintain unwavering leadership in the market while expanding our performance. And for -- especially for OLED monitors, it is also expected to see continued steep growth compared to other businesses. So we will continue to effectively respond to market trends and also reach an optimal production share between TVs and monitors to continue to expand our business performance. And again, for the short term, this year, there is some positivity expected from some sporting events. But at the same time, some side effects are also expected, especially coming from the supply-demand situation of components, especially semiconductor. So for the company, as we look ahead to continued market growth, our priority lies in securing stability in our production as well as supply. Now for our large panel business, we expect the competition to continue to intensify and it is incumbent upon us to continue to strengthen our technology and also differentiate our products so that we can keep expanding our business performance. So to that end, we will continue to work closely with our customers in close partnership to make sure that we can bring about win-win to all the companies involved with improved profitability. So we will continue to discuss our strategy to that end with our customers. Suk Heo: Thank you very much, and that concludes LG Display's Q4 2025 Earnings Conference Call. We thank everyone for joining us today. Should you have any additional questions, please contact the IR team. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to the Tele2 Q4 and Full Year Report 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jean-Marc Harion, President and Group CEO. Please go ahead. Jean-Marc Harion: Thank you, Sandra, and good morning to all, and welcome to Tele2's report call for the fourth quarter and full year 2025. With me, I have Peter Landgren, our Group CFO; Nicholas Hogberg, our new Chief B2C Officer and Deputy CEO; and Stefan Trampus, our Chief B2B Officer. Please turn to Slide 2 for some operational highlights from the fourth quarter. We had quite an intense last quarter of the year. We successfully secured and expanded our 1,800 megahertz spectrum position during the Swedish spectrum auction in November. In early December, we shut down both our 2G and 3G networks in Sweden, marking a milestone in our company history. Combined, these achievements will support our efforts to further improve our 5G network which already covers 99% of the population and was recently recognized by OpenSignal as the fastest 5G network in Sweden. We have delivered on our ambitious transformation and cost reduction targets, including for the reduction of our workforce. At the end of the year, we had canceled around 650 position at group level. We have so far as well addressed and renegotiated close to 350 supplier contracts, and this will continue during 2026. Moreover our tireless work on sustainability continues. And during the quarter, we were ranked #1 in Europe and second globally by Global Child Forum for our work on integrating child rights into the business. We were also recognized by CDP with an A score for climate change efforts for the fourth consecutive year. Please move to Page 3 for financial highlights. Our deep transformation executed in record time has borne fruit and translated into not only a spectacular improvement of Tele2 profitability, but also into an accelerated growth of our top line. Our end-user service revenue growth has progressively improved throughout the year to reach a good 4% in Q4. Once again, underlying EBITDAaL grew strongly with 13% in Q4, marking the third consecutive quarter of double-digit growth. On a full year basis, we exceeded most of our 2025 guidance KPIs. Tele2 full year equity free cash flow grew by a massive 42%, leaving our balance sheet very healthy. This was mainly driven by our operating cash flow plus working capital, which we have improved by 1/3 compared to 2024. Consequently, our Board of Directors proposes a dividend of SEK 10.50 per share, an increase of 65% from last year and to be paid in 2 tranches in May and October. We have also updated our financial policy and set guidance for 2026, which will soon be discussed. Please move to Page 4 for more details on our results. Our 4% end user service revenue growth in Q4 has been driven across all our operations and core services. In addition to continued strong performance by Sweden business and the Baltics, especially positive this time is the return to growth in Sweden Consumer. The 13% growth in underlying EBITDAaL was driven by both transformation and revenue growth. Our Q4 equity free cash flow was impacted by a spectrum payment, which offset higher underlying EBITDAaL. Full year, Tele2 delivered SEK 6.2 billion equity free cash flow. CapEx to sales picked up seasonally in Q4, but remained at low levels, around 11%, both in Q4 and for the full year. In Sweden Consumer, end user service revenue grew by 2% as growth in core services exceeded declines in Boxer TV and legacy services. In Sweden business, end user service revenue growth accelerated further to 7%, thanks to good growth in mobile, including IoT and solutions. The Baltic grew end-user service revenue by 6% and underlying EBITDAaL by 16%. But let's move to Slide 6 for more details on Swedish Consumer. As mentioned in my CEO later, we have successfully leveraged our strengthened brand and new offers to drive significant traffic to our own channel, which now contribute to 2/3 of our sales. Our continued investment in stores and online capability have started paying off, and we are confident in the efficiency of our commercial model. Mobile postpaid end-user service revenue grew by 5%, up from 4% in Q3. Total mobile revenue grew by 4%, partly offset by continued decline in prepaid. Fixed broadband grew end-user service revenue by 2%, mainly due to ASPU growth. Digital TV showed strong sequential improvement driven by healthy mid-single-digit growth in Tele2 TV, end-user service revenue growth, which now offset the continued, albeit smaller drag from Boxer TV. Following up on Boxer TV, the full year ended very close to our communicated estimate of around SEK 225 million revenue decline compared to 2024. Total consumer end-user service revenue grew by 3% in the quarter, excluding the Boxer impact. Let's look at consumer KPIs on Slide 7. Mobile postpaid added a solid 16,000 RGUs in Q4, net of 14,000 one-off contribution relating to recognition of previously uncounted low ASPU RGUs. Mobile ASPU growth improved to 3% year-on-year, which is -- while it was still negatively impacted by IFRS 15 fair value adjustment in Tele2 customer base, Q4 also included a positive one-off. Adjusted for both underlying ASPU growth was still 3%. Fixed broadband RGUs remained unchanged in Q4, whereas ASPU grew by 1%. Just like in previous quarter, we observed aggressive competition and escalating wholesale access fees, which hampered volume growth. TV returned to positive net intake with 3,000 RGUs added in Q4 as growth in Tele2 exceeded continued decline in Boxer. ASPU grew by 4% year-on-year, supported by more sports revenue. Please move to Slide 8 for Sweden business. Sweden business continued to deliver strong end-user service revenue growth, this time reaching 7% driven by growth across operations. Mobile grew by 7%, driven by our IoT business, including some temporary project revenue of around SEK 15 million in the quarter. Mobile RGUs remained stable in Q4, while up by a solid 4% year-on-year, ASPU continued to be impacted by change in customer mix. Solutions grew by a strong 10%, driven by finalization of larger network and cloud modernization projects. Please move to Slide 9 for Sweden financials. In total, Sweden end-user service revenue accelerated to 3% growth in Q4, driven by both business and consumer. Underlying EBITDAaL grew by 12%, driven by the end-user service revenue, workforce reduction, stricter prioritization and cost control. The cash conversion has improved to 69% over the last 12 months. Let's move to Baltic financials on Slide 11. Baltics have maintained operational momentum with continued strong top and bottom line growth in Q4. Total end-user service revenue grew at 6%, supported by price adjustment during first half year. Q4 was the fourth consecutive quarter in which all markets delivered double-digit growth in underlying EBITDAaL, delivering a total growth of 16%, led by Estonia at 41%. Cash conversion increased to a strong 81% during the last 12 months, reflecting increasing EBITDAaL margin. Let's move to Slide 12 for Baltic operating KPIs. The total postpaid base in the Baltics increased by 23,000 RGUs in Q4, driven by Latvia and Lithuania. Prepaid declined by 68,000 RGUs, largely due to regulation and migration to postpaid. Blended organic ASPU grew by a strong 11%, driven by price adjustment and continued prepaid to postpaid migration. With that, I hand over to Peter, who will go through the financial overview. Peter Landgren: Thank you, Jean-Marc, and good morning, everyone. Please turn to Page 14. First, a couple of comments on the group P&L for the quarter. Total revenue grew by 4% organically, driven by service revenue growth of 4% with contribution from all operations and equipment revenue growth of 7%. Both underlying EBITDA and underlying EBITDA after lease grew by 13% organically, thanks to sharp cost control across the group, and the service revenue contribution. Then over to the full year P&L. Both underlying EBITDA and underlying EBITDA after lease grew by 11% organically. The group reached a full year underlying EBITDAaL margin above 39%, which implies an increase of 3.4 percentage points compared to 2024. Items affecting comparability ended at SEK 600 million, of which SEK 500 million were restructuring costs related to the transformation, fully in line with our expectations. Net financial items decreased year-on-year, thanks to both lower interest rates and reduced debt levels. By the year-end, our average interest rate was 2.8%, with a debt mix of 68% fixed rates and 32% floating rates. And income tax finally, sorry, increased year-on-year due to higher taxable profits. And let's move to the cash flow on Slide 15. In Q4, equity free cash flow of SEK 777 million was generated, broadly in line with last year. The final payment of the Swedish spectrum secured in 2023 was absorbed by strong growth in underlying EBITDAaL and lower CapEx. But let's focus a bit more on the strong full year cash flow. CapEx paid, excluding spectrum, decreased by around SEK 630 million. This was mainly thanks to successful prioritization and partly due to some investments being postponed to 2026. Changes in working capital contributed almost SEK 300 million to the cash flow, supported by optimized inventory levels, but also increased redundancy provisions. Taxes paid decreased by around SEK 155 million, thanks to a tax refund earlier in the year. Net-net, full year equity free cash flow reached SEK 6.2 billion, which means a 42% growth compared to last year. This translates to almost SEK 9 per share. Please turn to Slide 16 and our capital structure. By year-end, economic net debt amounted to SEK 24.3 billion, a reduction of SEK 1.9 billion compared to 2024. This was enabled by the cash generated in the business, exceeding the dividend distribution. Today, we also announced that the Board has updated the financial policy. With this policy, the aim is to provide attractive shareholder remuneration, while preserving a strong balance sheet and financial flexibility. The proposed dividend demonstrates a sizable distribution, while our leverage of 2.1x underlying EBITDAaL after lease will comfortably stay within the desired investment-grade range. And with that, I hand over to Jean-Marc for a follow-up on our 2025 guidance and then some comments on our 2026 guidance. Jean-Marc Harion: Thank you, Peter. Please turn to Slide 17 for some comments regarding our performance relative to our 2025 guidance. Overall, we delivered clearly ahead of our initial full year 2025 guidance. While end-user service revenue growth was in line with guidance, as you probably remember, in Q2, we raised guidance on underlying EBITDAaL from initially mid- to high single-digit growth to slightly above 10%. We can now conclude that we even exceeded that target by the massive full year growth of 11.4%. In Q3, we also reduced our CapEx guidance from around 13% to around 12%. We ended the year at 10.8% due to the successful prioritization and the deferral of some planned investment to 2026. Please turn to Slide 18 for our 2026 guidance. As we leave 2025 behind and look ahead, our strong performance during last year has obviously raised the bar and established a new reference point for Tele2 profitability. Our ambition for 2026 is to consolidate the transformation of the company, continue improving our profitability and secure our revenue growth despite the uncertainties of the geopolitical landscape. We have, therefore, decided on the following full year guidance for 2026, low single-digit organic growth of end-user service revenue, low to mid-single-digit organic growth of underlying EBITDAaL, CapEx to sales in the range of 10% to 11%. It is important to note that the organic growth rate for underlying EBITDAaL excludes the impact of the Baltic Tower transaction that we expect to close in Q1. I hand back to Peter for some additional comments regarding 2026 before we open up for Q&A. Peter Landgren: Thanks. I would like to start with then a reminder about the Baltic Tower transaction, which is still expected to be finalized in Q1. Upon closing, we expect cash proceeds of around EUR 430 million after transaction costs. And as previously stated, the transaction is expected to have a negative impact on underlying EBITDAaL of around EUR 35 million on a full year basis. Finally, the CapEx avoidance is limited to passive equipment, and that's already reflected in our 10% to 11% CapEx to sales guidance for the group. And then a few additional comments on the cash flow for the full year 2026. In Q1, we'll pay SEK 117 million for the Swedish 1,800 megahertz spectrum secured in November 2025. The other half will be paid later in 2028. Also worth mentioning that there might be spectrum auctions in the Baltics during 2026. On financial items, excluding leasing, we estimate full year net payments of around SEK 650 million. Finally, on taxes, we estimate full year payments of around SEK 1.4 billion. With that, I hand over to the operator for Q&A. Operator: [Operator Instructions] We will now take the first question coming from the line of Andrew Lee from Goldman Sachs. Andrew Lee: I had 2 questions, both -- or one around the growth guidance or one around capital allocation. So just on the growth guidance, could you just talk through the scenarios you see that would support a low single-digit EBITDA growth guide for 2026. Obviously, Q1 has pretty easy comps. And that means that your low single-digit growth guidance would imply basically no EBITDA growth, I think, for the remainder of the year. Are you missing something in terms of what's happening in the cost base? Or something else that didn't really transpire in 4Q? Any help there would be really useful. And then secondly, just on the capital allocation. The SEK 10.5 dividend is obviously a meaningful increase. You haven't split it by extraordinary and ordinary dividends. Should we see that SEK 10.5 DPS as a floor now for shareholder returns going forward, given I think that leaves you below or notably below 2x net debt to EBITDA by the end of the year? Jean-Marc Harion: Yes, Peter will take the 2 questions. Yes. Peter Landgren: Okay. If we start with the second question around the floor, it's correct that the dividend, there is no distinguished between ordinary or extraordinary dividend. That's a conscious decision. And I think we're pleased that we are able to distribute such a sizable dividend, thanks both to the strong cash generation in 2025 and also the strong balance sheet that we have. Looking forward, we're not communicating in the sense of that this is the floor. We have 2 things that enables dividends going forward, and that's obviously the continuation of cash generation. And secondly, we still have a very healthy balance sheet to enable us to have attractive shareholder remuneration also going forward. But I wouldn't see this as a floor. That's not what we're communicating today. We're communicating a sizable dividend of 118% of equity free cash flow, and we communicate a policy, which enables both a solid rating and good distributions going forward, but not more than that. Jean-Marc Harion: Regarding the growth guidance, I would say that when you look around, it's -- of course, it's important to remain cautious about the commitment we take to our investors. That's -- as a reminder, and we insisted on that point, we have raised the bar for profitability. So the starting point is much higher this time. So we continue -- we will continue improving the EBITDAaL and the EBITDAaL margin over the time, thanks to the continuation of the cost discipline and the strict prioritization that we have implemented in 2025. This will not change. But in the meantime, we are observing how the market will evolve and the possible impact on the customer behaviors. So we have made the company today much leaner and much more agile than it was 1 year ago. So the adaptation, the capacity of Tele2 to adapt to any circumstances to deliver anyhow or targets for margin and cash will not be impacted by or cannot be impacted by the evolution of the landscape. So that's why we remain a little bit careful when looking forward in 2026, and we will see how the situation develops. Andrew Lee: Just a quick follow-up. Just -- so am I to interpret Jean-Marc, your comments as in you've built in kind of uncertainty around the kind of the macro environment to that EBITDA growth guide rather than implicitly reflecting an increase in costs, marketing costs, which went up at 1 point during 2025 or some incremental costs around stepping away from third-party retailers or something that... Jean-Marc Harion: No, no. If this was the reason for you to ask the question, no, it's not the case. So we remain quite scarce in terms of all kind of expenses, including marketing expenses. We, of course, keep our ambition and confirm our ambition to develop our own channels and reduce progressively the dependency on the third-party channels because of the behaviors and the quality of the sales that we generate through these third-party channels. But definitely, the reason for us to come with this guidance is, of course, the observation of the context. We will secure the cost base of Tele2 as a continuation of the discipline that we have implemented in '25. Of course, we see the top line continue growing, but depending on the evolution of the context, we may need to adapt. That's the only rationale. But definitely, no increase, no major change in the cost base if this was your question. Operator: We will now take the next question from the line of Ondrej Cabejšek from UBS. Ondrej Cabejšek: I've got 2 questions as well. One is on CapEx. So Peter, you said that some CapEx is spilling over into 2026 from 2025, but the 2026 CapEx guidance is already, I would think, a positive surprise. So my question would be, does that signal to us that Tele2 can be quite firmly at around 10% CapEx to sales from 2027 onwards? That's the first question. And then the second question would be maybe asking a different way about the dividend. So in terms of the leverage policy that is now just to remain investment grade. So I was thinking, first of all, is there a soft steady-state target around, say, 2x that you wish to be on? And then implicitly also, what is the -- or in addition, what is the limit under the new definition of remaining investment grade, taking into consideration the impact from the Tower deal? Like what is the headroom basically for you to remain investment grade? What is the maximum ratio is the question? Peter Landgren: Okay. Ondrej, thanks for the questions. If we're starting with the CapEx guidance, good that you're positively surprised. That's always nice. 10% to 11% is what we call out now. We know that we have things moving in different directions in one way we -- one movement is, of course, that the rollout in Net4Mobility is slowing down, which is helping our CapEx ratio. On the other hand, we have other investments that we need to take care of, for instance, making sure that we have the rollout complete in the Baltics, and we landed on the 10% to 11% is a reasonable range from that perspective. What that means for 2027 is nothing we announced today, but we think that this level, which we talk about now is quite representative to where Tele2 stands today. When it comes to the dividend or the financial policy and the range, it's true that, as you call out, that the Tower transaction will have implications on how we look at leverage going forward in 2 ways. One is the obvious one that the leverages will else equal decline by the Tower transaction. So we'll see lower leverage once that's concluded. On the other hand, as you point out, the acceptance from the rating firms will also be reduced due to commitments we have in the new tower arrangement. And I would say right now, I think that the route for leverage after the Tower transaction will probably be somewhere between 2.6 and 2.7. That might evolve over time, but to give some kind of engagement right now, how we look at the limit for where we can be in the new environment. Hopefully, that's covering your question. Ondrej Cabejšek: It does. If I may, one quick follow-up. Regardless of what the dividend will be next time around, if it's SEK 10.5 or there's a bit of a reset. Is there an ambition that you can kind of share -- and I know this is the Board, et cetera, but is there an ambition to have maybe like a mid-single-digit growth in the dividend, just like many of your peers do as an example? Peter Landgren: No, the ambition is to have attractive shareholder remuneration and stick to this policy. In the end, as you point out, it's ultimately the Board that decides what is the right level every year. I think our focus here is to generate as much cash as possible because that's fundamentally what enables dividend going forward, but nothing more than that for now. Operator: We will now take the next question from the line of Owen McGiveron from Bank of America. Owen McGiveron: It's Owen McGiveron at Bank of America here. So mentions of releveraging and distributing and share buybacks have been emitted from the new financial policy. My question is if these remain in your toolkit? Or should we now expect capital return announcements to be a once-a-year kind of event at full year? Peter Landgren: Thanks for the question. I think for now, the route is, as you also see from the announcement today, is dividends, and that's what you can expect for now going forward. We're not ruling out share buybacks at some point. But right now, that's not what we see coming. And on the announcement, I think we -- of course, you can expect dividend announcements along with the Q4 report every year going forward as well. If there will be something in between at some point, it's a bit speculative and might happen, but nothing will -- we'll not rule it out, but we don't have a firm decision on when to announce dividends. For now, this is a dividend we call out now in Q4 to be fair. Operator: We will now take the next question from the line of Andreas Joelsson from DNB Carnegie. Andreas Joelsson: I had a question on the KPIs actually. Looking at Sweden and your growth initiatives that you have for 2026, we can see that mobile ARPU is trending quite positively, while ARPU within broadband is at a somewhat slower pace. So it would be interesting to hear your plans to continue growing ARPU in both areas in Sweden going forward? Jean-Marc Harion: Nicholas is going to answer your question. Nicholas Hogberg: Thank you for your question, Andreas. Well, so I think we are ready to capture both long-term and short-term growth. And especially during 2026, we will unleash the potential on our existing customer base and increase the value of the base through cross-sell and upsell, which will be prioritized. And we will do that through many initiatives, working with customer intelligence as the main driver, and we will make sure that we maximize our customer interactions and sales through own channels as said before. And we now have our own -- sales through our own channels is now representing approximately 2/3 of the total sales, which is important going forward to establish a strong relationship with our customers. So we will optimize that through sophisticated data analysis and AI tools, and that's an ongoing work to be able to maximize cross-sell and upsell. So also with that said and what Jean-Marc said earlier, we are now increasing our physical footprint and opening up new stores, also in areas where we have historically been underrepresented. So this will help us. We now have the fastest 5G network covering 99% of the population. So given that, that gives an excellent customer experience, it allows us to break new ground and develop our market share in areas where we historically haven't had a very strong market share. So I think we see a potential of growing during 2026 in our customer base. When it comes to broadband, we have our network, and we're focusing on delivering excellent mobile broadband to our customers, but also we're happy to having our own network, broadband network, and we are now strengthening our coax network, and we are going to launch 2,500 megabit per second service to our customers to increase our strength in that area. Andreas Joelsson: Perfect. And just one follow-up on the dividend. Would you be happy to continue to pay out more than 100% of equity free cash flow for the dividend if needed, so to say? Peter Landgren: Yes. I think there's nothing in the policy that stops us from doing that. And as you can see as a demonstration on that today, the proposal is 118% of equity free cash flow. So that might -- it's a bit speculative, but that might, of course, happen depending on the context and the financial outlook and our abilities. The limit is -- what's committed is at least 80% of equity free cash flow as ordinary dividend. That's what we keep stating. Operator: We will now take the next question from the line of Fredrik Lithell from Handelsbanken. Fredrik Lithell: I'm going to stay with one question. And maybe Stefan, if you could put some color on how you see the business-to-business market developing? What you see in front of you? And if you can sort of split that up in discussions around sort of the large enterprises, the public sectors and the small company segments and how they develop would be interesting. Stefan Trampus: Thank you, Fredrik. Well, if we start with the different segments then on the micro SME segment, I mean 2025 was a challenging year in terms of bankruptcies. It's the highest level in many, many years. At the end of the year, we saw a slowdown of the bankruptcies, which, of course, also is seen in our customer base. So it has been stabilizing in the smaller segments. I think the demand is still there from SMEs. And if you look at on a year-on-year growth. I mean, we had good growth and demand in SMEs and the public sector. If we talk about the larger segments, I would say that the public sector must have been a little bit squeezed from a budget perspective coming into the end of the year, it has been visible in some of our product lines. And in the larger segment, I would say that the larger customers have been a bit cautious. I mean, of course, it's not the same thing for all customers, but I would say that we have seen some cautiousness in investments from larger segments. So that is how we see the development of the different segments. And of course, going into 2026, we hope for a better macro, better demand in general. I mean, we've been hoping that the macro will turn for many times now. But let's see how it develops. Of course, it will help us. From a competitive situation, I would say that we've seen high competition aggressiveness in the micro and SME segments, especially from Telia and Telenor, where they have, I think been very high on commissions to external partners and also on below-the-line pricing. So that's what we've seen. But on the larger segments, we've also seen that both Telenor and Telia have been keen on keeping their customers and finding new ones looking at how they have acted on different deals. So that's a little bit color on both the competitive side and the segment side. I hope that gives some color, Fredrik, to the situation. Jean-Marc Harion: Let me add one comment on what Stefan commented. It's important to remind us that in 2025, we've been through a very deep transformation of our B2B business because the observation we made at beginning of last year was that not all the segments for B2B were, I would say, delivering the same profitability. So thanks to the transformation driven by Stefan, the prioritization of our portfolio, the focus on future-proof technology, a lot of automation in the process. We are now comfortable to grow all the segments, of course, with the preference for the core business but not only the solutions as well. And that gives us the flexibility to push some segments depending on the evolution of the market. So this is super important. We now have, I would say, a fully profitable activity on the B2B side, and we can accelerate the revenue when we see the opportunity in every segment. Operator: We will now take the next question from the line of Erik Lindholm-Rojestal from SEB. Erik Lindholm-Rojestal: Two questions from me, if I may. So I just wanted to follow up on the Baltic Tower Co transaction. You've spoken about this already, but sort of when you are seeing the completion of this and given what you said about leverage, could this be a trigger for announcing further dividends? And then the second question, just on Sweden B2B. I mean, IoT was really strong. Anything to call out there in terms of the drivers to this strength? And also solutions looked really solid, and you said there were completion of some projects. But do you see this strength continuing ahead? Jean-Marc Harion: Peter, on the Tower Co. Peter Landgren: Thanks for the questions, Erik. I don't think you should expect more dividends just because of the closure of this transaction. What we announced today is what we announced today, and let's see what will be concluded by the Board going forward, but not -- no explicit expectations just because of that. It's -- as we have discussed, we will see a sizable decline in our leverage by the transaction. But at the same time, the commitment in the Tower agreement in the 20 years agreement will lead to that the acceptance for high leverage is declining, is also going down accordingly. So that's what I would say at this point. Jean-Marc Harion: And we expect to close the transaction in Q1. On the B2B, IoT? Stefan Trampus: Yes. Thanks, Erik, for the question on both the IoT and the solutions part. Jean-Marc was alluding to it a little bit in his speech in the beginning that we have a healthy growth mix from all parts, I would say, of the business. It's driven both by mobile, cloud PBX, networking solutions. In the networking solutions area, the growth is coming from managed services and service agreements, both from new and existing customers. And then we also have the IoT part. And the solutions business is very much driven by customers needing to do network and cloud modernization. And I think that will continue. At what pace? I mean, it differs a little bit about how our customers can make investments in different areas. But for sure, it will continue. It can go up and down between quarters, and we talked about that before that we can have large rollouts for some quarters and then we have a buildup of revenues, et cetera. So that can differ over quarters. On the IoT side, we have a bit of an elevated increase this quarter, as Jean-Marc was alluding to, with SEK 15 million due to some larger projects. Let's see how the customer demand is there for specific projects. So that's something we are continuously in discussions with our customers. But in general, the IoT growth, we expect that to continue. The underlying growth in that business is really good. And let's not forget that, I mean, excluding this SEK 15 million, I mean, we are on a high level, actually picking up a little bit from Q3 to 5.4% growth, excluding this, what we would call project rollouts then or one-off revenues. So overall, a solid quarter in regards to the growth and looking forward to 2026. But I wouldn't say that you should take Q4 as the base for the growth going forward. As I said, it's a bit -- it can swing between quarters. I think the profile that we had looking forward, more looking like 2025 in full year, so to say, that's what we look at. Operator: We will now take the next question from the line of Nick Lyall from Berenberg. Nicholas Lyall: Can I just come back to the growth point, please, on service revenues in particular. I mean you've just done 3.7% in Q4 for the group or 2.6% in Sweden... Jean-Marc Harion: Nick, can you speak louder because we are struggling a little bit to hear you. Nicholas Lyall: Sorry, can you hear me better now? Jean-Marc Harion: Yes, a little bit better. Nicholas Lyall: A bit better. You've just done low single digit -- so you said low single-digit revenue guidance or service revenue guidance for '26, but you've done 3.7% in Q4 and especially with the Boxer effect and the accounting effects falling away, why not more aggressive into 2026, please? And I do realize you've talked a little bit about conservatism and macro. But could you give us more guidance why particularly after the comments you've just made on consumer where you've talked about boosting the value of the subs base. Why is that not coming through more aggressively in 2026, please? Jean-Marc Harion: Peter? Peter Landgren: Yes. Thanks for the question, Nick. I would say first on maybe building on what Stefan said about Q4 and full year. We are, of course, very happy with the sequential improvement in Q4, but I think we should be -- avoid to be too carried away of taking that as a single data point for looking at the full year 2026. We had some -- we benefited from some tailwind from one-offs in both B2B and B2C. Going forward then, as Stefan said, we're positive about the B2B development, albeit not at the level as in Q4. On the B2C side, you're perfectly right that we don't have the Boxer headwind. Boxer will obviously continue to be presumably a decline, but not at the elevated levels as we saw in 2025. And we're positive to our core services, but still coming back to what we said in the beginning, a bit humble around the development around us and how things will progress going forward. And then I think we should also keep in mind that we have support from a fantastic growth in the Baltics. We, of course, expect Baltics to continue to grow, but you might not be able to expect such a growth the Baltics going forward. So we expect support from all 3 business lines, but altogether, we find this a good guidance for now. Jean-Marc Harion: Yes. I believe that a general note about our 2026 guidance is, as we stated in -- earlier in the presentation is that we are not starting from the same starting point. So we have raised the bar, and we will continue, of course, developing, but from a higher starting point. Operator: We will now take the next question from the line of Felix Henriksson from Nordea. Felix Henriksson: I wanted to revisit your thoughts regarding M&A in light of your new updated financial policy. Do you see sort of any opportunities for M&A, for example, in the fixed business in Sweden or somewhere else? Or should we sort of conclude that the use for excess cash will be basically to distribute that back to the shareholders? Jean-Marc Harion: I will take this one. Of course, we are scanning the market, and we'll continue doing so. It's part of our role and part of the mission that the Board of Directors is asking us to do. For the time being, there is no deal on the table, and I believe that one of the reason for that, especially considering what the sector that you are referring to, the fixed business is that we are waiting for the regulation of the single dwelling units, which should materialize this year before observing the consequences on the new landscape. But on a general note, we continue scanning for the opportunities. But so far, we don't have any project on the table. Operator: We will now take the next question from the line of Ulrich Rathe from Bernstein. Ulrich Rathe: I have 2 questions, please. The first one is on working capital. That was a major contributor in 2005 to -- 2025 to free cash flow. So I was wondering how much further you can drive that? Working capital is at some point, structurally listed in terms of what it can provide, but we're not quite sure from the outside how much further you can drive your optimization efforts. Second question is on the terms of the Tower Co. I mean so far, we know cash impact on you, the general structure of the deal with Manulife and then also the EBITDA impact, but we don't know much about what the structure of the underlying agreements are. Now you're highlighting here that the agencies are taking a view. Presumably, they know a little bit more about it, but their focus is on creditor protection, which is not necessarily aligned with what equity investors are considering when they look at such deals and what they do to the value creation. So I was just wondering what further color you can provide on what this Tower Co will do to the Tele2 case? In particular, 2 aspects here would be the EBITDA impact in further outer years. The second one is how we are supposed to value your 50% stake in this Tower Co, if we don't really know what you've agreed there in terms of terms? Jean-Marc Harion: Peter, you can... Peter Landgren: Yes, I can start with the working capital... Jean-Marc Harion: Yes. And continue with Baltic Tower Co. Peter Landgren: Yes. On working capital, first of all, of course, we're very pleased with the contribution of close to SEK 300 million in 2025 based on a continuous work and persistency on optimizing the asset side and the main driver is then optimized inventories. That can obviously not -- as you point out, not continue forever. It will continue to be top of our agenda to make sure it's as optimized as possible in 2026. But we also know that, for instance, we have some severance provisions that we need to settle, and we're also dependent a bit on the commercial activities and what will happen around both Hans funding and other things around the business. So exactly where it will land going forward is unclear, but I don't think you should expect it to be repeated again as this swings back and forth. We continue to work on it, but 2025 was an extraordinary good year. So that's on that. On the Tower Co, the information we provide right now is the things we have called out, the annual EBITDAaL impact of negative EUR 35 million and that's what you should expect in the near term. Then of course, we -- it will evolve, and we will learn more, but that's what you should expect for now and also the upfront cash proceeds and the size in terms of number of towers and rooftops has been called out. And also there is a 20 years agreement around those towers. That's what we call out now. Obviously, in the financial reports going forward, we will own 50% of this company and the contribution from that will, of course, be, to some extent, disclosed in our numbers because it's part of our consolidation in the end, even though not consolidated in our EBITDA numbers, but as a separate line, so you will get visibility there. Otherwise, more strategically, we're doing -- as a reminder, we do this to be the first pan-Baltic Tower company and build a strong company there. And of course, we have, as shareholders, expectations of creating a successful business there as well. But at this point, this is what we call out, and it will, of course, evolve during 2026. Operator: We will now take the next question from the line Siyi He from Citi. Siyi He: I just have a follow-up question on the broadband -- consumer broadband trend. It seems that the broadband has stable for this year. I'm just wondering what are the reasons behind the flattish broadband trends, whether you see some pressure in your cable base, or you have chosen not to expanding into the fiber areas because of the pending change of regulations. And if I can also follow up on the change of regulations, just get your view on what could be the potential changes? And maybe your view on how to benefit from the improvement in regulations, either you think it's fine to benefit through organic growth? Or you think the buying infrastructure assets could be a better option? Jean-Marc Harion: Okay. Well, I will take this one first, and Nicholas will complete, if necessary. But basically, on the broadband, we already commented on that in previous exercises. We see -- we have, of course, to deal with the complexity of the market for the fiber part. So the open fiber networks in Sweden are owned by a variety of different owner and operators, a lot of them being local ones. And what we see is that not only there is an intense competition on these networks, but sometimes, the retail prices are capped by the landlord for instance, and there is a permanent increase of the wholesale prices that squeezes the operator. So this situation is probably not sustainable on the long run. And of course, for the time being, it's a situation that we see in the buildings, mostly because we are waiting for the regulation that will give us access to the single dwelling units, the villas that represents half of the households in habitation in Sweden. Saying that in the waiting for the -- for this regulation, as Nicholas has commented, we are emphasizing the benefits of our DOCSIS infrastructure that we have partly upgraded to Remote PHY in the areas where we were suffering from congestion. And now we are reshuffling the spectrum, and we have started offering up to 2.5 gigabit per second Internet, which is a performance, of course, that is very rarely matched by fiber in Sweden, and we see that as a competitive advantage. So we are capitalizing on our footprint. And of course, we will wait for the new regulation to materialize before taking new positions on the fiber. But for the time being, the situation of the fiber in Sweden is not optimal. Nicholas, do you want -- no? Nicholas Hogberg: No, no further questions or comments. Operator: We will now take the last question from the line of Abhilash Mohapatra from BNP Paribas. Abhilash Mohapatra: I've got 2, please, mostly clarifications. Firstly, on the dividend. You mentioned that the SEK 10.50 is not a flow, but at the same time, the policy does not stop you from paying more than 100% of the equity free cash flow. My question is, what exactly will determine where you end up on the payout on a year-to-year basis? How do you think about it given your strong cost cutting will probably keep growing free cash flow? So how do you decide on the dividend payout on an annual basis? And just related to that, is there a sort of numeric leverage range, which is linked to your investment-grade target? Is there a number that we can think about? And sorry, just one other clarification. Earlier in the prepared remarks, did you mention a cash tax number for 2026 of SEK 1.4 billion? Sorry, if I misheard but just if you could clarify. Peter Landgren: Okay. On the dividend, first of all, just stating the obvious that it's, of course, in the end up to the Board, what they will propose and ultimately, the AGM. What sets the limits for next -- for the future? First of all, this financial policy gives a framework where to land. And that's the framework we need to live with and play based on that or will do so. The fundamental thing for future dividend is the cash generation again. But then exactly how a large portion of the cash generation that will be distributed. That's nothing that we can comment on now, obviously, but we commit in the policies is that it's at least 80% of the equity free cash flow generated that will be distributed. That's the floor we talk about. When it comes to the -- if I understand your leverage question, and then I'm repeating that answer and hopefully it covers your question is that based on the context right now, that might, of course, evolve. But as we see right now, after the Tower transaction, we believe that with the ceiling for BBB is around 2.6 or 2.7 in terms of leverage. But again, it's based on the context and there are also other metrics, but that's what we expect. And yes, on tax payments for 2026, we, at this stage, early in the year, expect SEK 1.4 billion of payments. Operator: Thank you. There are no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.
Johan Bartler: So welcome this morning to the Volvo Group Fourth Quarter Press Conference. Today, we'll do, as we always do, we will listen to the presentation by -- from our CEO, Martin, and then listen to Mats. And then we'll follow up with a Q&A session. So with that short introduction, let me hand over to you, Martin. Martin Lundstedt: Thank you. Thank you, Johan, for that. Also from my side, welcome. It was always special with the full year also report and of course, also in more detail quarter 4. So maybe then to get started. As you know, we are still in a period with uncertainty in our key regions and in particular, for North and South America, where we have seen a continuation of cautious stance among our truck customers. Having said that, lately in the later part of the quarter and also in the beginning of the year, there are signs of stabilization and somewhat a recovery. And while Europe had a positive volume development in the quarter, volumes in both North and South America were lower in the quarter and are expected to be weak also in the first quarter of 2026. And that is, of course, related to the order intake that we had earlier in '25. But however, when it comes to the market forecast for the full year of 2026, we are revising our market forecast upward for North America as we do also for Europe, even if that is more marginal. Despite many moving parameters, the group had a solid performance in the fourth quarter with a flat level of sales if you adjust for currency and the divestment of SDLG, an adjusted operating margin of 10.3% and good cash generation. Operationally, we continue to drive what we can impact ourselves, not at least by utilizing our flexibility toolbox to maintain balance between demand and supply, and very important where we are in the cycle to keep inventories at the right levels. Focus is also on effective cost control, commercial discipline and the service business. And services did have a positive development during the quarter with a strong underlying growth of 5% adjusted for FX and SDLG, showing that our customers around the world continue to utilize their vehicles and machines. And that is, of course, a very important feedback. And it also means that the fleet replacement rate eventually will have to increase. That is a given. While having strict cost control, selling, admin, industrial, our priority in innovation and technology continues. At the same time, also in these areas, we are continuing to gradually adjust and to have a correct time phasing for our project and product portfolios. Having said that, there are segments that are moving quicker than anticipated with good growth prospects, both here and now and moving forward. The huge demand, a little bit surprising also for smart and not at least speedy alternatives for energy and power is driving the demand for Volvo Penta's power and energy solutions, not at least for data centers and AI factories. And with the recent launch in the beginning of this quarter of the gas-powered G17 engine that is building on our existing technology and industrial stack, meaning that we can benefit from scale immediately, that position will strengthen further. The same goes also for mining and defense areas where we will continue to increase focus. So moving forward in these turbulent times for global trade, we focus, and I've already said that, on activities that we can influence ourselves. Apart from what I've said in terms of cost and commercial discipline and services, we continue to build on our strong regional value chains, combined with global capabilities. The world is moving from a more global synchronized system more in steps into a regional platform. And there, Volvo is well positioned. So as we conclude the turbulent '25 with solid sales and group margin supported by underlying resilience, I would like to take the opportunity when we have the full year report to thank customers, business partners and colleagues for great cooperation. With uncertain business conditions, strong and close relations are -- they are always important, but more important than ever. And finally, the world will still need efficient and effective transport and infrastructure and energy solutions, and the group is well positioned to leverage these opportunities moving forward. So if we look then into the fourth quarter, net sales declined to SEK 124 billion on the back of lower truck volumes, but it was flat development when adjusted for currency and divestment of SDLG. We delivered a solid result in these turbulent times, resulting in an operating income of SEK 12.8 billion and a growing operating margin of 10.3%. Cash flow amounted to SEK 19.3 billion, which resulted in a net cash position in Industrial Operations of SEK 63 billion. Return on capital employed in Industrial Operation at 25.3% and EPS SEK 4.73. Moving over to volumes. Truck deliveries declined by 3% in the quarter to 56,700 vehicles with drag in North and South America that I've already said, offset by then growth in Europe. For Construction Equipment, deliveries decreased by 46%. But when adjusting for SDLG, the machine deliveries increased by 9%. And if you want to be even more granular, they increased by 10% for the Volvo brand since Rokbak back then previous Terex didn't increase as much. So 9%, excluding SDLG. Electrification, still with different uncertainties related to the electrification, not at least when it comes to a number of the enabling conditions, underlying demand continues to be rather slow. But orders for fully electric vehicles adjusted for SDLG increased still by 3% and deliveries increased with 20% when adjusting for SDLG. This growth was mainly supported by a 15% growth of electric light commercial vehicles in the Trucks segment. That is not surprising. We are now more and more into the new Master also Renault Master for Renault Truck in that segment. And obviously, that is also a segment that will continue to grow with last mile deliveries, et cetera. Coming over to top line and sales. If we start then with vehicle, machines. Overall sales of vehicle, machines declined 1% adjusted for currency and SDLG. Truck vehicle sales were down 4% on the minus 3% truck volumes, which is showing that price discipline also in this quarter in the softer market environment is working well. Construction Equipment adjusted for SDLG was growing with 13%, which was supported by sales of Volvo-branded machines in mainly Europe. Penta, 18% sales growth, FX adjusted, supported by North American data centers as well as the mining segment, also good demand in Asia. And Buses had a growth of 28% in the quarter, primarily driven by the Prevost brand in North America and by the Volvo brand in South America. Top line for service. Our service business, as I said, continued to develop well, and we grew 5% in quarter 4 adjusted then for currency and SDLG. You will hear that a couple of times with positive development in all business areas. And these developments, as I said, and I think this is very important, are proof points of one part, our push for more extensive service offerings that have been alluded to many times before, not at least when it comes to service, repair and maintenance contracts, et cetera, but also then that our customers continue to utilize their vehicles and machines and that the installed fleet needs to be renewed sooner or later. Buses were particularly strong with growth of 17%, driven by strong sales in Europe, Asia and Mexico. And Penta also continued to be strong with 8% and the same goes for VCE, excluded then SDLG, also had 8% growth. So the group's service business pacing at SEK 124 billion, 12 months rolling represent almost 26% of the group revenues, which is, of course, good in this part of the cycle. On the Trucks side, very proud, of course, and maybe you did see also the press release yesterday, super proud for our Volvo Trucks colleagues here. Second year in a row, Volvo Trucks was the heavy-duty champion in the European heavy-duty market with over 90% market share. And we really see that also on the back of strong customer satisfaction and a very competitive offering. You did see the FH Aero here that has really been doing great strides into the market. So tremendous offer by the Volvo Trucks team and led by Roger and all the colleagues there, but of course, the complete value chain. Volvo Trucks in North America, also important, delivered the first -- or the 125 all-new Volvo VNL to Highlight Motor Corporation, marking the largest order of the next generation of the all-new VNL in Canada to date. So now we are getting in also with this step-by-step with these volumes. And the first all-new Mack Pioneer was delivered to a customer in October, in the beginning of the quarter. And this marks, of course, a significant milestone for Mack Trucks, bringing the rejuvenation of the product range into the market. Also in October, the Volvo Autonomous Solutions team and Waabi, the leader in physical AI, have successfully integrated the Waabi Driver with the Volvo VNL Autonomous redundant truck. With this integration complete, both companies together now are focusing on really deploying this and support broad commercial deployment. Market environment, always very interesting. If I start with North America here, North American freight market, as I said, remains if you look at the figures and also the order intake during the bigger part of the year in recession. And so far into quarter 1, we believe that the North American will continue to be primarily replacement driven on the back of an aging fleet. The EPA '27 emission change will, in our view, only drive, if anything, a modest prebuy effect. So our current assessment of full year '26 is 265,000 heavy-duty trucks in '26. And we have increased then the forecast with 15,000 units versus the guidance provided in quarter 3. And what we can say is that later part of quarter 4 and also in the beginning of this year, we are starting to see somewhat better activity level. If that is a sign that will prevail, maybe too early to say, but of course, there are a number of parameters supporting that. The European registration pace continues to increase, and we have lifted the '26 total market forecast up to 305,000, which is then 10,000 units versus the guidance we had in quarter 3. Brazilian market contracted through '25, and we believe that the total market will continue to decline. We repeat and reiterate our total market of 75,000 for '26, even though that there are some movements in Brazil, not at least related to FINAME and the financing. And all of us that have been part of this for a while, we know that, that has normally a rather big effect. So let's see if that can support on the upside. But we -- for the time being, we reiterate that. And both for India and China, we are reiterating the market forecast as we had it also for quarter 3 or in conjunction with quarter 3, I should say. Book-to-bill, the overall book-to-bill for medium and heavy-duty amounted to 94%, both for the last quarter and for 12 months rolling. We managed our industrial system well in quarter 4 and had a book-to-bill balance both in Europe and North America. And also, as I alluded to with the right levels of inventory, that is super important where we are in the cycle right now. And for North America, we kept the balance by also working with a number of stop days, causing an under-absorption that Mats will talk about. But that is the right thing to do now rather than to take a further structural adjustment downwards. So on the back of the weak U.S. demand during the fall, we will also have some stop weeks for Volvo and Mack in the U.S. in the first quarter. And we take stop weeks, as I said, in quarter 1 rather than to structurally adjust for further -- adjust further downwards. And the reason is that we anticipate also partly supported now by recent order activity, a gradual recovery during the course of the year and in line with our full year guidance that we are increasing then, as I said, to 265,000. In South America, we have been more restrictive with the order slotting in quarter 4, and that is also explaining then the book-to-bill of 80%. We wanted to ensure that we did sell out more retail inventories, and we now have a situation that is in good balance when it comes to the inventories. Africa, Oceania and balance. And in Asia, book-to-bill mainly impacted by, number one, strong deliveries in quarter 4 in combination with lower demand in Middle East and Indonesia in the quarter. On the market share then, Volvo, Renault Trucks continued to deliver strong market shares for the full year. Volvo at 19% and Renault Trucks at 9.4%, giving a total of 28.4%. And Volvo Trucks then ended as a market leader. And on the battery electric side and despite that more OEMs are now delivering BEV solution, by the way, which is good because we need to accelerate that for Europe. Volvo Renault still holds a 39.1% market share combined for the year. North America, Mack Trucks self-help activities, not at least to stabilize the supply chain paid off during the course of the year, and they have step-by-step now regained momentum and their share is now 8% for the full year and later part higher. And Volvo Trucks are back on the right track also after the introduction of the all-new VNL here. So we also did see better market shares during the later part of the year, but 8.5%, I think it was for the full year. Brazil, Volvo remains market leader, market share of 23.2%. And Australia has been transitioning during the year from Euro 5 to Euro 6. We were ready with that rather early, lost market share when market were selling out Euro 5s, but we have seen also a good momentum during the later part of the year. So we expect that to stabilize. VCE selected Eskilstuna. You're all aware of that in Sweden as a location for the crawler excavator factory for the European market. Capacity of 3,500 machines in the 14 to 50 ton classes. And these excavators will be built on a mixed model assembly line for all these models, but also for both electric and internal combustion engine. And the closing of Swecon acquisition, our retail partner and wholesale and retail partner, I should say, in Sweden, bigger part of Germany and Baltics is expected to close this week on January 31. And this acquisition will strengthen Volvo CE's market position further, not at least then in the very important service business. Market forecast, similar picture, you can say, as truck. For North America, we are now guiding a flat market in relation to previous year. That is a 5 percentage point upgrade since the forecast in quarter 3. Same goes for Europe. Now we say 5% as midpoint of the market saw somewhat growth, and that is also an upgrade of 5 percentage points. China, as a matter of fact, same plus 5% as midpoint, 5% percentage growth. And for South America and Asia, flat, and that is no change in relation to what we said in conjunction with quarter 3. Book-to-bill Construction Equipment reached 118% in the quarter, driven by both North America and Europe. North American demand is broad-based from the digital development, data centers, energy sector, onshoring of manufacturing as well as the possibility for customers to write off 100% of the machine value of the first year of operation. In addition, refilling of inventory at dealers given the better outlook now and where also dealers would like to have the right type of capacity to deliver to the market. And the European demand is encouraging with the larger markets such as Germany, U.K., Sweden now gradually coming back as well as the fact that dealer inventories are clearly moved into customers' operations. And also the other markets are supportive with largely then positive book-to-bill. For Buses, the transition towards electric vehicles in city traffic continues in quarter 4. Just to mention one very important example. Volvo Buses secured an order from Vy Buss for 73 electric buses that will operate in the city of Boras, from April '27. The order comprises city and intercity buses, including articulated buses. And just as a small anecdote, they will also be produced in Boras. So even if you are talking about regional value chains, maybe that is a little bit of an expiration of having that full circularity in the same city, but it happens to be there, we are very proud. And book-to-bill, 91% in the quarter, 98% that is more relevant for the bus business, as you know, with rather long lead times. So that is a healthy and good book-to-bill. In the quarter, somewhat lower was on the back of somewhat lower demand in markets such as Brazil and Mexico. Penta, as I said, it's interesting to see the rather high -- or I should say not rather, but high activity level when it comes to the power generation and industrial segment. Launched its first gas engine, both natural and biogas for sure, to strengthen the lower emission power generation offer. This will further strengthen Penta's position to meet the global energy demand across many segments and not at least data centers and AI factories. And again, that I think is interesting now with more and more of the customers in this space wanted to have alternatives for lead time and volumes. And with the control system capabilities that you have today to really bring in more engines with the right type of capabilities is a very efficient way of doing it for lead times, for cost and for efficiency. And the Volvo Penta IPS Professional Platform, the biggest now pod for propulsion systems, the biggest IPS, which was launched in '25 and opted for commercial use, but also for big yachts has made strong inroads in the yacht segment and very, very well received with several OEM now placing orders. And Volvo Penta has a positive demand momentum. Book-to-bill reached 109% in the quarter and 102% 12-month rolling. Financial Services, finally, the portfolio continued to grow with a stable new retail financing. It doesn't look like it's growing here, but that is -- I mean it's growing, adjusted for currency. And the sound portfolio performance was maintained, although increased delinquencies and higher write-offs. But if you see where we are in the cycle, I should argue that we have a stable and good situation well under control here. And the penetration rate full year '25 came in on a solid level of 30%. And also what is positive to see is the focus that we have had also on insurance offer from VFS working together with other business areas and the group brands to enhance the total offer for our customers. So by that, I will leave the word to Mats Backman, our CFO, to present the financial figures. So please, Mats. Mats Backman: Thanks, Martin. So looking into the fourth quarter financials then, and we are starting off with the group net sales. So net sales decreased by 2% on a currency-adjusted basis compared to last year. Vehicle sales dropped by 4%, mainly due to lower volumes on trucks, while service sales increased by 4% currency adjusted with contribution from all business areas. European volumes increased, which led to an increased sales by 10% currency adjusted, driven mainly by Trucks and Construction Equipment. In North America, FX adjusted sales decreased by 8%, driven mainly by Trucks, while sales were higher for both Buses and Penta. In South America, net sales decreased by 18% currency adjusted compared to last year, and this was driven by lower truck volumes. In Asia, net sales decreased by 10% adjusted for currency, driven by Construction Equipment and the divestment of SDLG. Excluding SDLG sales increased with 21% in Asia. Other regions experienced slightly increased sales, mainly driven by Trucks and Buses. Overall, FX effect was negative with SEK 11 billion due to a general appreciation of the Swedish krona. The main driver was the U.S. dollar depreciating 13% versus the SEK. The adjusted operating income for the group was SEK 12.8 billion with an adjusted operating margin of 10.3%. In Q4, earnings were again supported by the positive development of service business, continued lower operational expenses and improvements from our joint venture business. The tariff cost increased during the fourth quarter with a net impact for the group of SEK 800 million, and we expect net impact from tariffs of about SEK 1 billion in the first quarter. In the fourth quarter, we continue to see higher underlying material costs in North and South America, and we had under-absorption costs in the U.S. manufacturing system on the back of lower demand levels. The net R&D capitalization effect in the quarter was positive at SEK 1.5 billion with a year-over-year effect of SEK 800 million. FX had a negative impact of SEK 2.1 billion in the quarter, driven by the strengthening of the SEK. In fourth quarter, cash flow amounted to SEK 19.3 billion. The cash flow contribution in the quarter was driven mainly by strong inventory management, partly hampered by continued high level of investments. Return on capital employed trend declined to 25.3% on a rolling 12-month basis. And the net financial position amounted to SEK 63 billion with support from the cash flow in the fourth quarter. Net sales for Group Trucks decreased by 3% currency adjusted, driven by lower volumes, partly offset by positive development of our service business. Adjusted operating income amounted to SEK 8.1 billion with an operating margin of 9.5%. The lower adjusted operating income and adjusted operating margin were mainly driven by lower volumes in North and South America, higher material and tariff costs, partly offset by lower operational expenses together with good development of the service business and joint venture performance. And currency had a negative impact of SEK 1 billion in the quarter. For Construction Equipment, net sales decreased 8% FX adjusted. Adjusted for FX and the SDLG divestment, net sales increased by 12% in the quarter. Adjusted operating income reached SEK 2.6 billion with an operating margin of 13.9% Product mix with less SDLG from the divestment in the third quarter and more heavy machines together with positive development of our service business were the main drivers behind the improved performance. In the quarter, the tariff continues to building up and had a significant impact on the financial performance. The volumes were lower versus same quarter last year, driven by the SDLG divestment and currency had a negative impact of SEK 700 million in the quarter. For Buses, FX-adjusted net sales increased significantly by 26%, driven by higher deliveries on both buses and services. Buses delivered another strong quarter with adjusted operating income of SEK 683 million and 9% in margin. The result was supported by higher volumes with continued good price realization together with service business performance. In the fourth quarter, the tariff costs were building up and had a negative impact on the financial performance and currency had a negative impact of SEK 113 million in the quarter. Penta net sales increased significantly by 16% adjusted for currency, which was driven by more industrial engines and the service business. Adjusted operating income amounted to SEK 608 million with an operating margin of 11.9%. This was again on the back of strong volume development for both engines and services despite unfavorable market product mix and higher freight costs. Currency had a significant negative impact of SEK 337 million in the quarter. And then looking into Financial Services. The credit portfolio adjusted for currency increased to SEK 256 billion with a rolling 12-month return on equity of 10.4%. Portfolio performance continued to be good with delinquencies and write-offs under control. The adjusted operating income amounted to SEK 889 million, impacted by increased credit provisions, but supported by the portfolio growth. Currency had a negative impact of SEK 84 million compared to same quarter last year. And then finally, looking into a summary of our forward-looking guidances in the quarter and starting with FX. Based on the currency rates and 2025, we expect a negative first quarter effect from transaction and translation of about SEK 2 billion. We expect R&D net capitalization at approximately SEK 3 billion for the full year 2026 with a year-over-year negative effect of about SEK 1 billion. And finally, the tax rate that we estimate to 24% for the full year 2026. So with that, I'm leaving for Martin to summarize 2025. Martin Lundstedt: Thank you, Mats, for that. So let's go to that. We are closing also the full year 2025. Just a few comments on that. We can summarize the year with close to SEK 480 billion sales with vehicle sales declining 5% FX adjusted on -- or vehicles and machine sales declining 5% FX adjusted on 8% less truck and 8% less CE volumes with -- and on top of that, which I think is important with also several production adjustments throughout the year back and forward and across regions. Another important piece of resilience is services that did grow 2% FX adjusted. And as I said, our own activities, but also that customers are continuing to utilize the equipment. Gross income margin was at 25.3% despite volume decline, certain price pressure, even if commercial discipline was good and tariff headwind. And adjusted operating income amounted to SEK 51 billion with a margin of 10.7%. Cash flow at SEK 22 billion for the year and the return then on capital employed came in, as I said, on 25.3%. And the Board of Directors then proposes an ordinary dividend of SEK 8.5 and an extraordinary dividend of SEK 4.5 for approval at the Annual General Meeting in April later this year. So by that, we end the presentation, Johan, and I think you will lead us through the Q&A session. Johan Bartler: Right. Thank you, Martin. Very well. We will do, as always, please concentrate on your most important question. And we have a number of guys on the telephone line, but we'll start in the room, and we'll start with Bjorn from Danske Bank. Björn Enarson: I don't normally say this, but congratulations, solid execution in the quarter. It's about time to say. Yes. On North America, again, you're talking about a replacement-driven market and also a minor EPA-driven prebuy. But I mean, isn't this really about, I mean, increased visibility? I mean, tariff situation is better visibility, EPA, much more better visibility than previously, and we have record high truck age in North America. I mean gut feeling isn't it, this could be a really good year in North America. And with that backdrop, maybe a comment on what to see about the under-absorption of fixed cost in North America throughout the year. Martin Lundstedt: Yes. If we start with your comment and analysis regarding North America, I think it's absolutely correct. If we can continue to see that what has been put on the table now in terms of tariffs from different regions, flows, et cetera. And on top of that, the EPA '27 clarification uncertainty, I think that is very, very important for our customers. The cautious stance among customer has rightly so been what will happen, how does it look like, et cetera. And we see that also a little bit in the volatility in the order intake because, of course, some of the bigger fleets, depending on where they are sourcing, et cetera and said, okay, we place orders, but we will also have a discussion later on, so we give -- so I fully agree. I think this is very, very important if that will continue with a certain level of stability on top of it with average fleet age, not at least that we haven't had an on-road, almost freight recession for a couple of years now. There is fundamentals underlying that is supporting that. Then it's more the time phasing to your point. And as we said, if we look at the order intake during '25, we had more of a hammock situation in quarter 2, quarter 3 that was reflected in quarter 4. We said we will be brutally disciplined on our balance in inventory because we know also in North America, if you don't have that, there is an endless discussion about the inventory. I think we managed well. So we had an under-absorption already in quarter 4. And as we guided for, quarter 1 is still there because that is more reflected later part of quarter 3, beginning of quarter 4. But then we see already now a more positive situation for later part of -- really late part of quarter 1 and beginning into quarter 2. So there we start to see that it's more coming the effects that you're alluding to, Bjorn. And if anything about the under-absorption, I can -- I think it's okay, Mats, give you a guidance that if anything, a little bit higher as we expect right now under-absorption in quarter 1, even if -- I think we managed it well anyhow in North America for quarter 4. But if anything, to be a little bit more granular. But again, right thing to do, muddle through now, keep the eyes on the ball, do what is right because the market will come back in North America. And then you should be on the right level when it comes to capacity and inventory. Mats Backman: No, I think -- and it's like you're saying, when it comes to under-absorption, the effect -- we had an effect in the fourth quarter, and that was visible on the slide I had on the operating income. And given what Martin talked about with the kind of stop weeks in the first quarter. And then, I mean still being dependent on the order intake earlier in the fourth quarter, and then we see a gradual pickup from the other, but still under-absorption in the first quarter, yes. Johan Bartler: We'll take one more question in the room from Agnieszka from Nordea. Agnieszka Vilela: I have a question to Mats. Could you please update us on your CapEx plans for 2026 and also going forward? And maybe if you could provide also the status update for your Mexican factory? And do you still plan to have an in-house battery production or how you feel about these plans? Mats Backman: I can start with kind of the capital expenditures. And if you take a couple of years view on the CapEx, we are on a higher level, and you saw that for 2025 and especially driven then by the investments we are doing in Mexico. And in terms of timing, we will still have some of the investments in Mexico also in 2026, meaning that we will still be on an elevated level when it comes to CapEx, but I would say slightly lower comparing to what we have seen in 2025, and it's starting to normalize then, but still somewhat higher than driven by the bigger projects that is ongoing there. Martin Lundstedt: But I think also, I mean on that note, we have also been leaning into a number of bets now when it comes to the retail business, which I think is super good and interesting. Volvo Trucks did it in Australia. We have done a number of smaller things and then now Swecon, for example, of course, that is also -- but what I like about that is also really continue to drive strong resilience for us, service business. But also competitiveness because at the end of the day, our business to have the total offer close to your hands in a more and more world of hypercompetition, I think, will be crucial and critical. And then battery production, I think both when it comes to technology, time phasing and maybe what are the right levels of scale, a lot of learnings have been done. So if I may a little bit take -- maybe you don't start to build a 72 whole golf course directly, maybe start with 9, even a pay and play, et cetera, et cetera, and then you move along. And a little bit same here with technology development, what is the reasonable scale, et cetera. So 2 things. We will need that for different reasons. I mean it will be -- I mean the battery [ act ] and other things and electrification will come and will be there as a very important part for sure, for many different reasons, not at least for competitiveness, by the way. But it will be a time phasing, both when it comes to when will we start and how will we ramp it up because how you are thinking about cell and module and pack manufacturing today is rather different than only, let's say, 5, 7 years ago, I should argue. So we have learned a lot being close to our partners here. Johan Bartler: Good. I think with that, we move on to the telephone line, and we have Klas Bergelind from Citibank. Can you hear us, Klas? No one on the line there. Then we continue in the room. Hampus from Handelsbanken. Hampus Engellau: Two questions for me. When do you think you will present the EPA 2027 truck given that that's a big decision-making on fleets? And is it the reason for you guys to maybe present it earlier this year with price increases to see how tough we look for the fleets? Second question is related to tariffs. If you could maybe model a bit for the full year given the discount system we're seeing in 232? Mats Backman: I can maybe start with the tariffs then. I mean like we said, about SEK 800 million in the net effect in the fourth quarter. And we are -- what we foresee is about SEK 1 billion in net effect in the first quarter. And then we have the different business areas are kind of going in different directions now then because for -- if you're looking at Buses, for instance, then you have a tariff kicking in with Section 232 then with the business we have going from Canada into U.S. So there, we have an increase then that will kind of gradually -- it will gradually increase. And the same goes to some extent for Construction Equipment as well then with -- I mean the Section 232 is kind of helping the Trucks, but it's not helping the Construction Equipment. When it comes to Trucks, I mean, we are still building up, but what we foresee is kind of a decrease then going in maybe to the second quarter sequentially. But to make any guesses beyond the first quarter in this environment, I find pretty tough then. But with what we know right now, it's the SEK 1 billion in net effect in the first quarter. Martin Lundstedt: But I mean how the play is really there. I mean of course, now -- and coming back to Bjorn's question also about stabilization, I mean, if that is continuing to be stable, as quarters go along, I mean it's an absolute situation with tariffs and it's a relative situation with tariffs, obviously. And eventually, it needs to be compensated, obviously. And there, as we see it on the Trucks side, it is an opportunity basically. Then you can say also that we had already before this in pipeline plans for CE, both when it comes to wheel loaders and excavators for production in the United States. So that is ongoing so we saw basically. And then when it comes to the presentation of -- yes, we will do that, obviously, because it's coming in 1st of January. And it will be -- yes, we will present it during the year here. So we will have a good visibility. I should argue that it's not -- I mean, given now the clarity of this and not at least when it comes to the life length or the life cycle demands, and you can say not relaxation, but clarity on that. I should argue that it's a more reasonable step for the customers also. So that's the reason why we don't judge, so to speak, the prebuys to be significant in relation to previous events when you have had a much bigger step basically. Johan Bartler: Good. Now it seems that we -- still no connection with Citi, all right, then we continue with the DNB Carnegie, Mattias? Mattias Holmberg: I'm interested to hear more about the U.S., which we've already talked a lot about. But given your sort of relative advantage versus some peers in the U.S. market, I would have expected to -- and also adding that you have a very strong lineup now with models, both for Mack and Volvo. I would have expected to see a stronger market share on the order intake in Q4, in particular in light of the big order number we saw for December. So perhaps could you elaborate on, is there anything in particular going on in that quarter competitive perspective that sort of explains the lower relative market share here? Martin Lundstedt: Yes. I think -- I mean if you look at the order intake, I fully agree. I mean December, in particular, was very strong for the industry. I think it was north of 40,000, 42,000 or something like that. And I mean I think it's exactly related without knowing, but it is also a way of securing deals, et cetera, because as we go along, the market will be what the market will be, where are you producing, what do you need to do when it comes to your price realization, et cetera. So -- and so I think it's a little bit distorted by almost like preordering, to be frank. We feel rather good with what we have in order intake in quarter 4 because I think we had 11,500, give and take now, Mattias. And if you think about it, that is the incoming then for later part of quarter 1 and quarter 2. And that is basically supporting a level of like 200,000. If we are talking about stable or somewhat uptick in market share, that is supporting a level of 260,000 to 265,000. And then we are also saying that we are thinking about a gradual recovery. So if we are not completely out of bounds when it comes to how the market will come or develop during the year, I think the order intake that we have had is in balance with what we see. And again, it has been super important for us to have demand, supply inventories in control because if you are starting to get too much of disconnection there, it's also dangerous. But I agree to what you say. I think it's a little bit of, yes, possible preordering. Johan Bartler: Good. We continue in the room, and we have Karl from ABG. Karl Bokvist: On Europe, which seems to be improving a bit. Is it -- you talked about it a little bit during the presentation, but is it due to any kind of asymmetrical country mix or because you actually see the European truck market genuinely improving here? Martin Lundstedt: Very good question. No, I think it's rather broad-based, to be frank. And so I mean we have, of course, a lot of contracts with our European organization that's rather broad-based. It is, so to speak -- and we did see it already. I mean we have alluded to it a little bit already in quarter 3 reporting. We did see it, volumes came in higher in deliveries and in orders for quarter 4. I should argue that it continues now in the beginning of the year. We don't see -- I got that question from -- I get that question from time to time, I mean how much is defense and energy and infrastructure and playing in. And I mean the investment programs, not too much yet, which I think is also another support for Europe for the years to come here. But this is more based on, to your point, Karl, I mean the underlying market as we know it, that a little bit the same dynamic that we are somewhere expecting also for North America, but a little bit earlier here. And I mean we are guiding for 305,000. And I mean it's a rather good market, I mean to be frank, so... Johan Bartler: Yes. Right. Good. There seems to be some disconnection with the telephone lines. So we are free to continue in the room if anyone want to continue. Karl? Martin Lundstedt: Otherwise, they can text it to you. Johan Bartler: Yes, they can. Martin Lundstedt: They can do that. Can send an SMS to you. Sorry, Karl. Karl Bokvist: Yes. No worries. Meanwhile, I'll switch to Buses. I'm not sure about the competitive landscape in the textile city of Boras. But when we think about the electrical transition on Buses, which seems to have gotten going a bit faster than Trucks, how do you think about the competitiveness there? How you position yourself in terms of performance, price points compared to, let's say, non-European competitors, for example? Martin Lundstedt: No. I mean we see that in quite many of the deals around the globe, not only in Europe, not even only in Boras, by the way, but around the globe that in many deals, we are meeting more or less 100% Asian competition, Chinese primarily competition in the tenders and the bigger deals. And as Volvo participating, there are, of course, I mean differences here. But not at least when it comes to fully electric offerings, we have been early out. I think what is promising to see, obviously, we are working, of course, a lot with our competitiveness when it comes to, I mean cost and the right type of execution and everything like that. But even more important is that I feel that -- and that is encouraging for other electrification patterns that we see is that, I mean the city side of buses have been doing this for quite some time now and are more and more mature to really take the full equation into account. The famous TCO, the famous life cycle equation, both when it comes to revenues and cost and uptime, et cetera. And I think that is playing in our direction, not saying that the others are not doing a good job. We have the biggest respect for that. But I have to say that if I look back on '25 on Buses, and maybe when I stood here 1 year ago, I should say that I'm more optimistic today than I was 1 year ago. So I think we have found our place. We know how to -- where we can, so to speak, be successful and where we cannot be. In some of the deals where it's a pure CapEx upfront play, we are not normally successful in that because we have another business model when it comes to uptime, fuel efficiency, safety, not at least and cybersecurity. Johan Bartler: There is a question from [ Jefferies ], texting in here. So the question is on -- first, on the group functions and other, what are moving the lower cost base there? Mats Backman: I would say generally 2 things, I mean given the big picture and the improvements we have seen. So first of all, as you have seen overall on the operating expenses, we have lower costs, and that is going for the group functions, especially. And secondly, as you also probably know, we have some businesses, it's group functions and other. And we have a bus business called Nova Buses that you probably recall, and that has been a turnaround if you're looking at this year where they have done really, really good, meaning that we have been going from loss-making into profit throughout the year. That is also contributing to the group functions and other. So those are the 2 kind of main items looking at the delta on that one. Johan Bartler: Right. And also from [ Jefferies ], they wonder whether the Mexican plant will have any drag on EBIT margin in 2026, given that we are sort of ramping during the year. Martin Lundstedt: No, I mean we have material. Mats Backman: So it's kind of a slow, gradual ramping, so not material. Martin Lundstedt: And we think that will come in handy, by the way, also talking about the recovery because we are anticipating then a gradual ramp-up, rather small volumes to trim in Mexico during the later or you can say, second half. And so... Johan Bartler: Then we will move on with -- from our -- let's see here, one question -- we need to be quicker. Bernstein -- wonders. And we have Harry Martin from Bernstein. He wonders, given the EPA '27, et cetera, and the guidance for North America, how do you think about pricing? Will price on trucks still be tight in 2026? Or will that sort of be possible to push price to some extent in '26? Martin Lundstedt: I mean -- and you can add to this. I think first and foremost, and that you can see also, I mean in top line in relation to volume, et cetera, I think the commercial discipline in the group, but also part in the market as we can judge it has been better than, if I may say, so normal in our industry, which I think is a good thing. I mean better flexibility, generally speaking, in the industrial systems, higher share of service, et cetera. So pricing better. Then there's no secret, obviously, that, I mean supply/demand and normally, when we see a recovery, when it really takes off and you're gaining momentum, there can be a squeeze. And then, of course, in that part of the cycle, there are always opportunities. When will that happen during this recovery, given that we say that we are rather -- we are really anticipating a recovery, but still a gradual one during '26. So let's see. But the dynamic will be there when that starts to happen, obviously. I don't know, will you say something more? Mats Backman: No, well said. Martin Lundstedt: Thank you, Mats. Johan Bartler: Next question is coming from London from Daniela at Goldman Sachs. He wonders some of your peers are talking about autonomous commercial start in 2027. And where are you guys on that? Martin Lundstedt: Yes. I mean as I think it's familiar, we are working -- I mean when it comes to autonomous commercial start, I think in that case, Daniela is meaning, I mean, the hub-to-hub public sort of on-road segment in U.S., right? We are already in commercial operations for confined areas, et cetera. And as we speak now, we are running fully autonomous lanes in U.S. together with our key partners there. We have built up also terminals in order to host this and make it possible. Still, it is with safety drivers, but now we are getting really close to this, maturing the whole system. So this is without being too exact, but this is not too far away. And even to say to Daniela, that I think you are in the right neighborhood, which I think is a significant opportunity for the industry on that happening. Because if you think about it with automation and robotization, as an old production engineer or it was a long time ago, not old, but I remember that during the '80s, in particular, in the '90s, it was an over automization of the factories, and an over-believe in things. And then you really found, so to speak, the right type of balance on where should you have robots, where should you have CNC machines, where should you have different type of place and pick and smart, so to speak, control towers, et cetera. And where should you have a human interaction. I think for the hub-to-hub concept, it's a very good way of looking at the same journey that if you can really do it for hub to hub with terminals along the road, you will take out a rather big part of the equation that are bottlenecking, so to speak, logistics today. And that's the reason why I'm very -- I mean very optimistic about that development. Johan Bartler: There was also a follow-up from Daniela regarding the fleet mix. We spoke about having more fleets into the mix in 2025. Do we see that, that continues also into 2026? Martin Lundstedt: Do you want to say something? Mats Backman: No. You can start. Martin Lundstedt: No. I mean if you look at where we are in the cycle, I should always argue that when you're getting -- start with Europe, when you're getting a little bit more of a broad-based recovery, then all actors are coming into the market. Because obviously, if you are -- I should say, in that respect, I mean a smaller midsized fleet, you are even more cautious about, okay, how should I think about my replacement, et cetera. So I should argue if we continue to see that more broad-based recovery that we talked about in [indiscernible], the mix will be more evenly distributed and not leaning because it's more in the down cycle where we normally have an overrepresentation of fleets. Mats Backman: And maybe to add, and I know that Daniela is normally on top of the kind of the revenues per truck as well and looking at the kind of the development over time. And I think if you're looking at specifically at the fourth quarter, it's also a question of mix if you are looking at the revenue per truck now with a higher share of LCVs, light commercial vehicles as well as a geographical mix with less North America. So I think that is also important to say. Johan Bartler: Then Klas Bergelind from Citi, who was first on the line here, but he has a question here. He asks, in Q1 2026, will you get any benefits from the Section 232 MSRP credit? Mats Backman: No. We see it probably gradually into the second quarter rather than the first quarter. Johan Bartler: Right. And also in Europe, you talked about better demand in U.K., Sweden and Germany in Construction Equipment. But how about improving demand for Trucks, at a country level, what countries are you seeing any improvements? Martin Lundstedt: No, Mats -- I mean -- and partly, we got that question here. I mean rather broad-based and also certain signs that more of Central Europe is moving that has been a little bit slow, not at least Germany, et cetera. So rather broad-based, which I think is good. And it's also related to where we are in the replacement cycle, et cetera. Johan Bartler: Right. I think we are ready to close unless there are any further -- Mattias? Mattias Holmberg: Maybe a bit premature, but you alluded to already have thought about adding capacity for construction equipment in the U.S. before the tariffs. Could you give us an indication of if this could sort of fit within the current CapEx program for construction equipment or sort of the potential timing? Are we talking a year, 5 years and potential magnitude of investment? Martin Lundstedt: Great question. I mean you can say that it's in the current because, I mean one of the advantages we have is that we have rather big from [ SA ] or real estate facilities in Shippensburg that came along with Ingersoll Rand acquisition back in the days. And then we have reshuffled and the industrial footprint, but we see clearly that we need that for wheel loaders and excavators to start with. And thereby, we have a good starting point because they are made for that type of equipment, and we can utilize, so to speak, the real estate. And we were there actually during the fall, looking at that. So I think it's well incorporated, and we will start at the -- during the later part of this year for wheel loaders and then gradually move in, so to speak. So I think that is an advantage that we have, that we have, so to speak, rather good facilities, both for powertrain and on the Trucks side and also then on the Construction Equipment side that, if anything, has been underutilized from a square feet in that case standpoint. Johan Bartler: I'll take one final one from UBS. So we made sure that we covered all the lines here. We guided for SEK 1 billion headwind from tariffs at the time of Q3 for Q4. We came at SEK 800 million. What was the difference versus what we saw in Q3? Mats Backman: We said about SEK 1 billion. So I don't think it's not a huge difference on that one. But I mean to a certain extent, timing. I mean it's difficult to see if you see the accounting effects when you are building up inventories and having a positive impact from that. So I would say more kind of a timing. Johan Bartler: Timing through the balance. Martin Lundstedt: Yes. And you can always say exactly, I mean exactly where do you have all the inventories when you start and now we are getting more and more a steady-state situation. On the other hand, we will work on the other side of the net effect also with commercial conditions as well. Mats Backman: Absolutely. Right. Johan Bartler: We covered all the banks. We're on time. So thank you for coming. We'll see you in a quarter. Martin Lundstedt: Thanks a lot, everyone. Mats Backman: Thank you.
Simon Pitaro: Good morning, everyone, and thank you for joining us today. On behalf of Hazer Group, I'd like to welcome you to this December quarter investor webinar. [Operator Instructions] Presenting today is Hazer Group CEO, Glenn Corrie; and Tom Coolican, who will take you through the December quarterly report and provide an update on recent operational and commercial progress. I'll now hand over to Glenn and the team to run through the presentation. Glenn Corrie: Thanks, Simon. Sorry for being a few minutes late, a few technical issues this side. Good morning, everyone. Belated Happy New Year to all of our shareholders, and welcome to our Q2 webinar. Thanks for joining today. As Simon said, I'm joined on the call by Tom Coolican, our Chief Operating Officer. Tom has been with us for 18 months. I'll let him introduce himself shortly, but he's been at the forefront of a lot of our strategic projects, been managing a lot of the graphite monetization work that we continue to share. But importantly, he's also been at the interface with KBR, and he'll share some of those insights with us all shortly. Together, we'll present the results from the quarter. Our quarterly results or at least our report was out last week. We'll also share some other highlights. We've received quite a few questions in the last few days, so we'll try and get through most of those this morning. If we don't, we'll endeavor to get back to you as soon as possible. So Tom, over to you for a very quick introduction before we get stuck in. Tom Coolican: No worries. Thanks very much, Glenn. Good morning, everyone. My name is Tom Coolican, I'm Chief Operating Officer here at Hazer. And as Glenn said, I've been here now for 18 months. So I've spent more than 25 years in upstream energy across major oil and gas companies and also mid-caps as well as start-ups as well. So previously, I've held roles with Woodside Energy, with ENI, the Italian operator, also Jadestone Energy and then more recently with GR Production Services as their Executive General Manager. So what drew me to Hazer? Just as a quick side note, I guess, look, I think it's still -- having been here for 18 months, I think it's still the most promising decarbonization technology for the energy industry. I think that what stands it apart is really its scalability and the ability to actually deliver clean energy where it's needed. So yes, nothing's really changed since I first sort of came across the company, and I still feel very confident that this technology is on the right track. So I'm very happy to be here today, and I'm looking forward to sharing the results with you. Glenn Corrie: Great. Thanks, Tom. All right. If we can just move, Simon, on to the third slide. Great. Well, look, I know everyone is familiar with our vision and mission. Just to recap on our technology for those that are not necessarily that familiar with it. We transform methane emissions. Methane is 25x more harmful than CO2. We convert those emissions into clean energy in the form of clean hydrogen and critical minerals in the form of a very high purity form of graphite. I like to talk about the technology as one technology that serves 3 markets: the hydrogen market, the graphite market or the critical mineral market as well as overall industry decarbonization. So we're at the forefront of the energy transition, if you like. But the really important aspects of our tech that are, I guess, the differentiators and the competitive advantages is that we're low cost. We're a pragmatic, practical, scalable solution, as you will see again today. that integrates into existing facilities and is available to decarbonize a very, very dirty industry today. And you'll see again the size of the industry, the size of the problem and the size of the opportunity for Hazer and our advancing technology. In terms of our agenda, which is the next slide, we're going to effectively just recap on our highlights for the quarter. We will then do a brief update on the hydrogen market, touch a little bit on graphite. Tom will talk to the technology scale up and our go-to-market strategy. We'll come back and talk about steel, that Whyalla opportunity that we've talked about in December last year, the POSCO extension. So there's been a lot going on in steel. Hazer Graphite, of course, the other part of our technology, a corporate update, the catalyst for the next 12 or 18 months and then open up the call for our Q&A. So just jumping straight into our highlights. Thank you, Simon. We posted a solid quarter of performance. We continue to build on those foundations, those important foundations of commercialization and set that stage for a pivotal calendar year ahead. Firstly, we're making really good traction with KBR. Not forgetting, we only signed this deal back in May last year. We got working in earnest in June and July of 2025. We've made excellent progress on the design package and the commercial scale up, not forgetting that we are designing and developing large-scale commercial facilities that are capable of decarbonizing one of the world's dirtiest industries. So -- it's a massive piece of work. We could not be doing it without KBR in terms of the design package. It is on track for this quarter to at least get in front of customers and give them the dimensions of what they're faced with in terms of integrating our tech into their facilities. And in parallel, the global marketing campaign with KBR is also in flight, and Tom will talk to that shortly. Secondly, we cut our first Hazer, KBR transaction with Energy Pathways. So good to get out of the blocks with our alliance with Energy Pathways. It did gain U.K. government recognition during the quarter, which gives it access to some good fast-track approvals. And that project has now progressed through to revenue-generating project, which is the second for the company, but the first for the alliance. So big things in front of us there. It was a pretty big quarter as well for steel. So there's a bit of a deep dive in the pack on steel and how Hazer fits into the overall process. We joined forces with a group called M Resources. We're very excited about this partnership, and we are really strengthening their bid for Whyalla. So we'll talk about that a little bit shortly to the extent we can. And in addition to that, we also signed an extension to our strategic partnership with POSCO after some very positive graphite testing results that they've been undertaking over the past 6 to 12 months. In terms of graphite, we continue to product development, market development progress is still going on. Hazer Graphite is now being confirmed suitable in a number of industries, cement, steel, of course, and we're looking very closely now at asphalt and bitumen. So really big markets, really big opportunities there for our graphite as well as other industries. And then finally, we continue to engage constructively with governments at the federal level, at the state level. And we continue to see improving policy framework at the federal level, which is very important, starting to recognize methane pyrolysis and what Hazer does as a viable clean hydrogen pathway. So we'll talk more about that as well. In terms of numbers, we ended the quarter or in fact, we start the year with over $17 million funding position or cash position. That was bolstered during the quarter by over $5.5 million of inflows that came from the R&D rebate. That came from $1 million and a bit that came out of the capital raise proceeds that was approved at the AGM. Thank you to shareholders for approving that. Our cash burn, you'll see is down substantially quarter-on-quarter, about 30%. And year-on-year, for the same quarter, is down 40%. So we continue to strip out CapEx, strip out any residual OpEx out of the business, and that gives us that extended runway through what we consider to be some fairly significant milestones ahead of us. Looking ahead, we continue to maintain that strong liquidity. We've got more grant funds in the pipeline. We've got revenues flowing from Canada and now the U.K. I'd expect that trend to continue and, in fact, increase as we mature those projects. And not forgetting that we don't have that $4 million to $5 million that KBR are contributing in that $17.2 million either. So that's additional to the work, but that's offsetting a lot of the work that Hazer is doing on the ground. Our pipeline, I'll talk about shortly, but that's increased to $51 million. It's more about quality over quantity. But again, just illustrating that we continue to see strong demand for the tech, and I'll give a bit of insight into that very shortly. Just moving to the hydrogen market. Look, it's a big market, a big problem with a big prize, okay? We -- and this is the problem that we're trying to solve, which is it's -- currently, the addressable market for Hazer is about 100 million tons and that you'll see that on the bar on the left. To put that in context, people often ask, how big is that? Well, actually, it's valued at $206 million -- sorry, $206 billion on order of magnitude out there. But that in context is effectively equivalent to the global iron ore market. So you can give some scale to this. And all of that is produced with steam methane reforming, an incredibly carbon-intensive process, 1 ton of hydrogen, 10 tons of CO2. And it's responsible as a total industry for 920 million tons. Again, in context, -- that is 2x Australia's total CO2 emissions today. So it's a massive industry with a massive problem that Hazer has the opportunity to disrupt. The growth you'll see on the right, ammonia, 3x in the next 25 years, but steel 10x between now and 2050. And we're starting to see that. The deal flow is increasing in steel. We've been public on 2 opportunities. We're very well placed with ammonia with KBR. They're the world's leader in ammonia technology as well as methanol, and we've got the deal flow now coming through steel. So we're well placed on those growth industries. And we've got a very exciting period ahead in terms of our ability to disrupt today's industry, not the future industries, but today's industry. A few words on graphite. It's still a very hot market. It's a critical mineral of the highest order. The U.S., the U.K., EU, Australia of course, have got it at the top of the list. It's a major component of the energy transition, and it's a major sovereign risk as China continues to control the supply side, and Tom will talk about the opportunities we've got on graphite very shortly. In terms of how the industry is playing out, we continue to see methane pyrolysis coming of age. Some of you have picked up the news flow. We're witnessing a shift. There's growing industry support, government investor support for the technology is a viable hydrogen pathway on the back of the challenges that green hydrogen faced over the last 2 or 3 years. ExxonMobil has now come into this space. They are one of the world's largest publicly listed companies. They are $0.5 trillion. They've teamed up with BASF to develop a technology. So that's a really big signpost for the industry as well as the technology. And I'm very confident that's going to spur demand from others in this space like Shell and Chevron and ConocoPhillips and others that see this as a viable technology. KBR, of course, it's a growth pillar for them. We teamed up with them exclusively to get ahead of the game last year. And we're also seeing a big shift with government policy and changes. The U.K., the U.S., Japan all recognize methane pyrolysis now as a viable pathway. And I'll talk shortly to how Australia is now gauging this through the Guarantee of Origin scheme, which is now seeking consultation on methane pyrolysis. So in summary, the industry, the government, the investor support is all starting to gain momentum, and that's very exciting for our company and our technology this year. Tom, good time to talk to, I think, technology scale up and the go-to-market strategy. Thank you. Tom Coolican: Yes. Thanks, Glenn. Okay. So just a quick recap. KBR, one of the world's largest engineering companies, and we signed up with them about 9 months ago now. So it's been a heck of a well within 9 months. Getting up to speed with a playbook of a major multinational that scales up technologies has been a big challenge for us. And I think that getting these early days out of the way, getting the first run on the board, I think, has been a real game changer for us. And it sort of puts us in a position where we are confident that this model works, and we're seeing the first paid study starting to come through. So that's the line of sight that we see to real growth. We've got basically an 11-year term with KBR, and that's backed by a USD 3 million contribution from them. So engineering services and support, in-kind marketing, all sorts of, I guess, growth tools that we need are being provided and supported by KBR for us. KBR's engineering is sort of world-class and world known, and many people will know KBR as the company that delivers some of the largest mega projects in the world in the billions of dollars. But KBR's technology division is a completely separate division that licenses into a lot of those projects. And we are one of 80 technologies that's licensed by KBR into those projects. So there's a lot of new and emerging technologies that KBR continues to incubate and grow and help sort of turn the corner. But there's also the real traditional KBR technologies like the ammonia licensing that just very briefly, ammonia licensing for the ammonia plants that produce a fertilizer around the world, KBR licenses about 50% of those. So they have a very traditional playbook on how to make these really large-scale technology licenses and then also a growth playbook as well, which we are really locked into. So we're firmly in execution mode at the moment with KBR. We're following the bouncing ball. We're following the standard process that they use for developing and growing a technology. We've secured our first revenue-generating study, and we are part of the net zero portfolio. So the big thing now that we're working with KBR is those larger trains and larger projects so that we can engage with the biggest companies in the world for industrial decarbonization and making sure that our large-scale single train capacities are really solid. Just one last thing to mention on that. The cultural fit between KBR and us. We feel pretty lucky actually. We've got similar values and cultures. They're a real creative and inquisitive type engineering organization, and we get a lot of that really good feedback between us that we seem to work pretty well together. We -- scaling up their technologies or scaling up technologies is what KBR's DNA is all about. That's how they've built their company to the scale that it is today. And then following the scale up to deployment and multi sort of industry and multi-global technology deployments are what they're really good at. So yes, we do feel like we found a very high-quality partner in KBR, and we're working as closely as we can with them to really scale up with them. Next slide, please, Simon. So marketing-wise, they started off sort of extracting all of our information and all our existing marketing information to develop all of the package of marketing tools that they have. They need tools that they can actually deploy through their website. And if you go on to their website, you'll see that we're in the clean ammonia and decarbonization section of their website today. They're also fantastic on LinkedIn and marketing and promotion and just getting out there at conferences all around the world. They're at the major global conferences, everything from the ADIPEC conference in Abu Dhabi recently to, I believe they'll be in Barcelona in 2 weeks, again, promoting the technology and really pushing the -- this is a new solution for industrial decarb. So it fits into the industrial decarb toolkit that they use when they talk to their major clients. One thing we like about the way that they do their marketing is that they're actually quite responsive to market forces and market changes. So one month, we'll be talking about how do we make sure we've got clean hydrogen in the best markets in the world. And the next month, we're talking about structural infrastructure projects and how we can actually make sure we've got a solution that works with steel or works with concrete. So they do move pretty quickly. Next slide, please. If we can go on to how we're going. So run #1 on the board. So the Marum Energy Storage Hub project that Energy Pathways have developed and are developing in the west of the U.K. near the Lake District is a complex integrated energy project. And for KBR and Hazer together, this is our first paid concept level, so concept engineering study. So it's great. We're working really closely with KBR, but we actually really like the way Energy Pathways does their business as well. They're integrated really well with the local community, the local government and also their national government as well. So the U.K. government has actually designated this project as a project of national significance. So it's actually a national energy significance project. It covers everything that Hazer has wanted to do. So we've got the hydrogen conversion project and the technology there from methane. We've also got the integration to KBR's ammonia technology as well. And EPP is able to get to fast tracking the government approvals. They've got government support from the ministerial level. So they've got focal points so they can work with to make sure that we don't have any of the usual large-scale robots when we're doing the engagement. But at the same time, they seem to be very connected on the ground as well. So for us, it's a 20,000 ton per annum Hazer facility. So it's right in that sweet spot for size for economics. The study will be ongoing for the next couple of months. Feasibility scope progress is for hydrogen, ammonia and graphite production and EPP are actually actively looking for ways to deploy graphite at both that industrial large-scale supply, but also at the high-end supply as well, which we think is very exciting. And we are leveraging the KBR Alliance for that ammonia integration with their traditional ammonia technology. So from a COO's perspective, just operationally, I'd just like to say that with the commercialization strategy that Hazer has been on, this is the operationalization of it, if that's a word. We're actually now doing what we say we do on the box. We're actually doing those concept studies. We're moving them towards FEED-ready, and this is actually the actual pathway that we see the company is best suited for to actually grow to the next stage. I'll hand back to Glenn here to talk a bit about the sales pipeline. Glenn Corrie: All right. Thanks, Tom. And yes, Ben and the team at Energy Pathways are doing great things on the ground. They're also really exploring that graphite market as well, Tom, in the U.K., which is also getting a lot of momentum. So we're excited about that project. The pipeline is here. We've updated a little bit. You'll see we've added the live projects that we've got. We've got that first-mover advantage, we think, importantly, in Asia, Europe and a bit of North America. You will have seen in the last quarter, we were sitting at around 45 active global customer leads. That's sort of risen to over 50 now. To give you a bit of color on what's come in, we've actually had 3 new steel opportunities on the back of our announcements of POSCO and Whyalla. So the steel industry, as we'll talk about shortly, is really getting a lot of momentum. We have EV company out of Europe that is exploring and looking at the -- not just the hydrogen side, but also the graphite side and one large gas and power utility out of Asia Pac and also carbon trading group in the U.S. So we continue to see big demand for the tech. Asia Pac is starting to really get a lot of pace as they have limited opportunities to decarbonize and methane pyrolysis fits just beautifully into the supply chains in those areas that have limited access to carbon capture and renewables. So we continue to explore opportunities there. If you club all of those opportunities and those blobs together, our pipeline adds up to about 1.5 million tons per annum. And as you remember from the first slide or one of the earlier slides, -- that's over 1.5% of the global demand today. So it's a big pipeline. Of course, we work through it systematically. We've also had some shareholders and observers reach out and offer up some opportunities, which we love. One that I will call out is an RFP in the U.S. called MACH2, which is the Mid-Atlantic Clean Hydrogen Hub that is out there at the moment seeking proposals from hydrogen suppliers for $1 a kilogram. And on the back of that, with ability to secure hydrogen offtake in 2030, and it fits a lot of the opportunities that we've got, and it ticks a lot of boxes for Hazer. So we continue to be active on the ground globally with our pipeline. Just shifting gears to steelmaking. We had a lot going on in the quarter with steel, and Tom will talk to some of the opportunities very shortly. But just so that everybody is aware of how our technology fits into steel. This was in our Whyalla announcement, but just a little bit of an explanation. Steel, of course, is a massive industry with a massive problem. It's 8% of the world's CO2. Our tech is actually a very perfect fit for steelmaking, very strong synergies and where really everything ties together for us as depicted in that illustration. There's clean hydrogen that's used in the direct reduction process of iron ore into iron, and it's got a built-in graphite offtake because graphite is used extensively in the production of carbon steelmaking, in particular, in the use of a recarburizer in the electric arc furnace. So it really is where both prongs of our technology fit wonderfully into one application and that built-in graphite offtake is just so valuable for us. There's other synergies. Of course, we use an iron ore catalyst, and that's consistent with steelmaking. We produce and can produce hot hydrogen that integrates into the DRP process that minimizes energy intensity of the overall process. And importantly, the economies of scale. It's a large industry that needs a large solution. And of course, with Hazer's fluidized bed reactor, we're capable of getting up to very, very large scales that fit nicely into steelmaking. So it's a lot where everything comes together for Hazer, and that's really an extension of several opportunities that Tom will talk to now in terms of Whyalla. Thanks, Tom. Tom Coolican: Thanks, Glenn. Yes. So the Whyalla Clean Steel bid, I'll just give a quick update there. The process for the sale of the Whyalla Steel Works is a government-led and highly confidential process. So there are limits on what we can share. As publicly announced, Hazer has entered into a binding MOU with M Resources, recognizing Hazer's ability to decarbonize steel. M Resources have submitted their bid as part of the process to acquire the Whyalla Steelworks. Hazer technology was a key component of their bid and provides the decarb component. KBR is also supporting the M Resources bid. KBR has a long history of supporting large infrastructure projects in South Australia, including at Whyalla itself. So KBR knows the lay of the land and the ground really well. And look, we're genuinely excited about Hazer's ability to decarbonize the Whyalla opportunity. But also more broadly, it's just another recognition that the Hazer technology aligns with steelmaking very, very well. So it's something that we feel is probably one of the best fits that there is going around for how you can deploy Hazer. Glenn Corrie: So just on POSCO, thanks, Tom. On POSCO, you will have seen we extended our strategic partnership with POSCO. They are the sixth largest steelmaker. In fact, they're the largest outside of China. We're very privileged to be partnering with POSCO in integrating and deploying our tech into clean steel, particularly in South Korea. And on the back of a lot of successful graphite testing over the last quarter, that extension has been signed. Again, big industry, big player. The HyREX process is very advanced. Again, it's a DRP electric arc furnace process. We're now focused having gone through that stage gate of graphite testing. We're now developing the next steps for the project. So that's something to look out for over the course of the next year or so. So a really important partnership for us as we continue to highlight the importance of our technology and its fit into steelmaking. That's probably a natural transition into graphite. Perhaps, Tom, if you wouldn't mind talking to sort of where we are with application testing and the next phase of our graphite monetization plan. Tom Coolican: Absolutely. Thanks very much, Glenn. Just to call out, I guess, this is probably one of the most integrated team efforts that Hazer has done over many years. The graphite has been studied by the universities. It has been developed in all sorts of different applications. And I think now it's sort of coming to a natural business case development. So it's really come out of the research and study. And something to call out, we'll move on very quickly from this slide, but something to call out is that this is -- the Hazer Graphite is an absolutely unique product. It is not standard graphite. It has its own unique properties. It's not carbon black, and it's not other products as well. So the research has given us the insight into what this product is. And now the application development uses that research to actually be able to deliver it to the largest global markets. So just moving on to the next slide there, please, Simon. So the Hazer Graphite being this versatile and valuable product, what we've gone and done basically is we've assessed our graphite across a number of different industries, and it continues to be very encouraging from the results. Where you can see from the strategy that we're looking is for the world's largest markets where we have the largest consumption of carbon-based product that is around the world. And if you think about concrete, concrete is the most significant man-made product in the world in terms of volume. Our strategy, I think that over the last year, especially, we've really refined this strategy to target very specifically the response to market movements, but also the focus on these large volume markets with a genuine direct drop-in application. So what I mean by that is that out of the back of the reactor with no post processing. This product can be dropped straight into these applications, and that's where we've been really looking. And the key for this, obviously, is that the attractive price point, we have a minimum price that we're targeting. And what we're seeing is that at the moment, typically above USD 500 a ton is where we're aiming to deploy our graphite. The work completed so far from the work priority markets that are emerging for us. Iron and steel manufacturing is definitely really high on the priorities just because of what we talked about before with the synergies in using the hydrogen as well as the graphite. Concrete additives is another one where you actually see pretty promising results so far and more to come and also asphalt binders. Now customers there are seeking lower emissions carbon products. They're trying to get away from either the high CO2 products that are post generated or from the mined products as well. And so these are sort of the largest addressable markets that we've been able to identify in the world where we get that price point that we're really chasing. At the same time, and Glenn mentioned it before, we continue to receive strong inbound interest from critical minerals applications. So EV manufacturers, battery manufacturers, defense applications, high-value sectors. These are much more longer-term qualification processes, and they will require post processing. So we've set up our strategy to be short-term large-scale addressable drop in market and medium- and long-term post-processing market so that we can continue to address those inbounds as they come to us. Ultimately, they're not going away, and we need to be able to support that critical minerals view. Finally, our recent MOU with Kemira sort of really strengthens that view with that and the work we're already doing through our Veolia partnership that this particular type of graphite with its properties has some promising opportunities in water treatment as well. And that just shows sort of the breadth of capability of the specific Hazer graphite and its unique properties. Back to you, Glenn. Glenn Corrie: Yes. Thanks, Tom. And I was on a call with the DOE last night, actually in the U.S. and graphite is an absolute priority for the U.S. at the moment and arguably over and above hydrogen. So it's quite a nice fit for us that we can effectively take a gas feedstock and effectively convert that into hydrogen, but also a critical mineral that is so desperately in need in some of these developing nations or developed nations. Just wrapping up, in terms of the corporate side. We just included a bit of an update on government policy just because we see things changing. We've actually had the Arena Board and management at site, which was an excellent engagement. We've come a long way since they backed us back in 2020 or thereabouts. The CDP, of course, operated very successfully. The tech is going to market. So it's a success story in that respect. The pipeline has grown enormously. So I think they were pleased to see the progress that we've made. We talked a lot about emissions. We talked a lot about cost positioning of Hazer relative to green hydrogen and all the other hydrogen pathways. And I genuinely believe that these engagements are super critical for Hazer as policy continues to evolve. And we're starting to see that shift. Some of you may have seen, but the Guarantee of Origin scheme is now out for formal consultation on an amendment that we expect to include methane pyrolysis. So that's strong recognition of Hazer and strong recognition of this extremely viable pathway. I also spent time in Canberra. I met with -- had a privilege of meeting with Minister Ed, the Minister for Industry Science and Innovation, excellent conversation, keeping Hazer relevant in Canberra, but also at the policy level. I met with the Climate Change Authority, the Critical Minerals Office, of course, just to position Hazer and how we fit into the sort of the ecosystem of decarbonization technologies that are available. And so really good feedback on the tech, the progress, but also the funding programs that are available and the grants that are out there now. It's much broader than it ever was. There's industry programs around clean steel, green iron, Whyalla specifically, there's over, I think, at least $1 billion being allocated to Whyalla from the federal government as liquid fuels, critical minerals, they're all open, and we're all exploring all of those at the state level as well, WA, South Australia has earmarked $400 million for -- specifically for Whyalla technology. So we're hunting down and exploring all of these opportunities, and we're very well positioned where we are as a company and an advanced technology. I think that's pretty close to the end. I think if we just move to the next slide and then open up the call for Q&A, I've seen a bunch of questions come through already. So we're keen to get on to those. In terms of our next 12 months, we're going to continue to come out with updates of what the time line and the milestones look like. This year is really all about converting pipeline into licenses, and that's a strategic imperative for us. I hope you can see the signposts are there, the partnerships, the early runs on the board, the design package is there. The pipeline is growing. The funding position is strong. So we're in a very, very good position to execute on those projects and opportunities that give us that pathway into licenses. And we're going to leverage KBR. We're going to leverage all of the work that we're doing with graphite. And just a reminder that one deal here, one sizable deal at 50,000 tons per annum is in our economic model worth about $80 million to $100 million of license revenue. So you can see the size of the prize is there, and that's what we're focused on effectively realizing. We've got to advance our key projects through FEED and contracts. We've had a few questions on Fortis, and we'll talk to that as well throughout the quarter. We're building momentum again there, and we're moving forward very positively. We lost a little bit as we went into Christmas, but we're fully aligned with Fortis, and we've got a plan of attack there, and we'll come out with more information on that shortly. Whyalla is a real game changer, as Tom identified for us. It could be a very transformational project and strategic, not just for Hazer, but for Whyalla as well as for Australia. So that's -- we're really excited about being in the mix there, and we know our technology is differentiated. Graphite monetization strategy is coming together. Look out for near-term updates on that, our strategic partnerships, our offtake signposts -- and then finally, unlocking new growth, new strategic partners, new investors, new deals, new markets. That's the focus of the company at the moment. Those 4 pillars of our strategy. Of course, that's underpinned by a robust financial strategy and a can-do attitude from the team. 2026 is really shaping up to be an exciting year for Hazer, strong tech tailwinds of the market, the government tailwinds, the deep pipeline, the partnerships and the funding position, and we're really excited about delivering. Simon, should we just turn to the Q&A? I just noticed we've 35 minutes or so I'm keen to get some questions going. Simon Pitaro: Yes. And we had probably 12 come in before we started already. So let's just start with those. So Kapil Seth e-mailed earlier about a KBR selecting a biomethanol project in the Middle East. Did you -- and given the KBR Hazer alliance and the overlap work with the demonstration plant, are there active discussions ongoing with KBR to use the Hazer Tech for this plant? Glenn Corrie: Yes. No, that's a good question, Phil. Yes, look, I can't comment on specific announcements that we're going to make or will or may make. But KBR, in particular, has an extensive and strong relationship with many players in the Middle East. There's a number of big Middle East projects that are available or open at the moment, as you've identified. We are throwing those into the pipeline. They're all under consideration. The Middle East continues to be a very strategic market for us. It's got low gas prices. It's a big ammonia, probably one of the largest ammonia markets in the world, along with methanol, big capital, big players. They're not necessarily the fastest out of the blocks, but they are slower burners but big -- but potentially very big projects and too big to ignore. So definitely a strategic market that we'll continue to look into with the right partners. Simon Pitaro: There's been a couple on M Resources, so I'll try and put these together. So Atosha asked, how did the M Resources partnership come about and why were they considered to be a good partner? And I guess if they don't be selected, do you think there's an option for you to still be used in whoever is selected? Glenn Corrie: Very good. Okay. So you might have picked up Atosha in the announcement that we're partly a free agent. Of course, that if -- and we've had this discussion, of course, with M Resources in terms of their ability to win and if they don't, what happens. Look, we've known a lot of the M Resources team separately for quite some time. So there's an established relationship there. It was a natural discussion as they moved into the process. We got to know what they were doing and how they were sort of thinking about the decarbonization aspects of Whyalla. They've made an assessment of Hazer, but also other tech methane pyrolysis technologies. They chose us as well as electrolyzers. They know there's a massive difference between us and electrolyzers. It's literally night and day. So it was clear from the get-go that Hazer could be a very strong fit for that project and the whole decarbonization plans for that region. It moved fast as we got into the back end of last year. And so we got talking about how we sort of would bring this together. We got involved with them. We sort of papered it all up. And from what I've seen, I know Tom has said that we're obviously under confidentiality, strict confidentiality, it's a government process. But what I can say is from what I've seen of the bid and how Hazer fits into it, techno-economically, I'm very confident that their bid is a very, very strong one. And so we are going into this very positively. It's a process that will take a bit of time, but it's a very strategic project for everybody involved. So we're, again, excited about the opportunity with them. Simon Pitaro: Excellent. Let's just move straight into Fortis. Has the site been identified? I know you sort of touched on it briefly, and there's a few other questions about Fortis. So can you just give a quick update on that? Glenn Corrie: Yes, I've seen those, Simon. Yes. So good questions. Look, more broadly, the project is going well. We would have liked to have provided an update at the back end of last year. I think Christmas and New Year got in the way and holidays and the like. But we're back at it. I know feeder under the desk. It's a large project. It's advancing well in strong collaboration with FortisBC. We engage frequently. I know Tom is dealing with the team in Canada weekly, if not daily at the moment on aspects of the project. Our focus is on project maturation. Site FEED, completing FEED with the right partner and getting the project to a development FID. They do take time. We're making good progress, and we're exploring ways to continue to accelerate -- how do we accelerate this project. I know from Nick and Joe and the team in Canada, it's a priority project for Fortis. It's got government backing government support. They've chucked CAD 11 million behind it. And again, just keep an eye out, we expect to make an update on that project in the near term. Simon Pitaro: All right. Can you elaborate on the status of the larger reactors? Glenn Corrie: Do you mind taking that one?? Tom Coolican: Take that one, if you like, Glenn. Yes. Thanks. Yes. Look, the design package we're working on at the moment is a design package, which is fundamentally built around our proprietary reactor hardware design. Where we've targeted the base design is 30,000 tons per annum of production, which is already significantly large in terms of hydrogen production. The design that we have developed has the ability to be scaled up or down from that point. So one of the key elements of our design was we didn't want to go with something which was sort of scale up, scale up, scale up to the point where we hit a limit. What we decided to do is go for actually quite a big reactor design and then be able to scale it both ways down and up, so we can go all the way down to prototyping and all the way up to 50,000, maybe 100,000 tons per annum single-train capacity, but I don't want to push our CTO too hard on what the maximum size would be. The concept of fluidized bed reactors has been around for a really long time. It's a well-trodden path. And so we work with the world's experts in fluidization in process design and in these reactors so that we are confident that we're not going to sort of invent anything brand new here. We're just using the best in the industry to get it exactly right. Some of the principal challenges that we have that are the areas that we feel we've actually had the most opportunity to succeed is in optimization of heat, the conversion basis and the quality of the product. So if we're comfortable that these are actually under control at this 30,000 ton design. This gives us the capacity to be able to move up and down from there. And yes, it's something that we know is a huge challenge for the industry and having those ones really under control, I think, is actually key for us. Simon Pitaro: Thanks, Tom. I think let's probably move to graphite because there's quite a few on the graphite. And so Dave sent this one in, but it covers quite a few of the others there as well. Are there applications for Hazer graphite that are now good to go? No further testing needed? Glenn Corrie: Yes. So Tom, I'll let you jump in. I think, look, with the graphite work that we've been doing is extensive, as Tom explained. We've got -- we're working it internally. We work with all of these strategic partners, Kemira the latest. I get often asked about why an MOU. MOUs in my -- in our view, are value creating because we have partners that actually do work and contribute to the overall strategy of the company. And often it comes as part of the collaboration. But in Kemira's example, we're doing work with water treatment alongside some of the work that we're doing with Veolia out of France. So there's a lot of work going on. We've identified, as Tom said, some strategic markets in asphalt, cement, asphalt, bitumen, steelmaking as priority markets, what we call drop in. limited or no post-processing or preprocessing before they go into the particular application, but they're large markets that have got what we call high confidence to them. And their pricing ranges can be anywhere between USD 300, USD 400 a ton and over $600 or $700 a ton. And that's consistent with our economic model. And of course, that adds great value to the technology and the techno-economics, but also the overall cost of supply of both the graphite and the hydrogen product. So lots of markets. We're prioritizing them. Tom, anything to add on that? Tom Coolican: Yes. I probably just add one thing. No further testing required. Ultimately, your end user, say, for example, it's a concrete manufacturer will do their own testing as well. So we can go with a product, which we say is good to go, and that end user will actually conduct their own tests because they're going to have to demonstrate to the infrastructure project or the government or whoever that it is actually as good as what we say. So there will always be that end user component to the testing, but that shouldn't stop us from actually having everything certified and ready to go so that end user can actually do their final testing. Glenn Corrie: Yes. And steel is built in and is a built-in offtake. That's a beautiful way of thinking about it. The carbon actually goes into the production of carbon steelmaking. So it's a pure sequestration of CO2 as well. So there's a lot of benefits. We don't often call out our graphite as low emissions, and we should more frequently, frankly. But the -- effectively, the emissions associated with our graphite and the way policy is shifting is a very valuable product, not just from an application perspective, but also from an emissions perspective and a pricing point as well. Simon Pitaro: I think we've probably got time for 2 more. David Sell sent this one earlier. Is there any outstanding ARENA grant money due for the operation of the CDP... Glenn Corrie: Thank you, David. Yes, there is. In fact, there's other grant funding available to us as well. I think it's around $1 million, and some of that's going to be released this year. So that's another form of nondilutive. On top of that, I think we've got $2 and a bit million from Mitsui, the Western Australian government, which has got some milestones coming up as well. So these are very valuable funding inflows for us because they're nondilutive, and they contribute to the growth strategy of the firm. There's other grants in the pipeline as well. There's industry growth program and some of those other grants that I mentioned. So we're going to lob in bids on some of those as well. Simon Pitaro: All right. And a final one here. Does Hazer have any analyst coverage? And if so, has that had a positive effect on the register? Glenn Corrie: Yes, we do -- it's a good time to perhaps call out an analyst actually. We've got on coverage, Declan Bonnick from Euroz. Declan initiated, I think, last year or maybe the year before, but very good initiation report. Declan has -- he does updates frequently. I think his target price is sitting at somewhere between $0.70 and $0.80. We've also got Philip Pepe from Shaw and Partners, who covers us. I think his target price is also in the -- in that same sort of range over the next 12 months, $0.70 to $0.80. I think if you'd like to get hold of their research reports, then either reach out to us or reach out to the brokers directly, and I'm sure they can get you a copy. They're excellent analysts. They've been across energy, tech, in the space for a long time. We're privileged to have both of them on board. And I'm also confident that we're going to probably pick up a few more analysts this year and see what we can do with getting them to site and across the -- closer to the technology. Simon Pitaro: All right. Thanks, everyone, who joined us today. Thank you to Glenn and Tom for the presentation. Look, Glenn, I might just hand back to you for a closing comment before I hit the end button. Glenn Corrie: Yes. Look, I don't have anything more to say other than thank you for supporting us. Look, we're in a really good position. We did a lot of work last year to set the foundations of -- for calendar year 2026. I feel like we're in a very good position. I know sometimes some of these things don't go as fast as we'd like. You probably don't appreciate that I'm the most impatient person in the world. So join the club. But we've got a very good tech. It's a very, very strong tech. We've got a strong partner in KBR. We have got, I think, the turning tailwinds now of government support worldwide, including in Australia. We've got that deep pipeline of opportunities that's growing also in Australia that's getting momentum. And we've got that extended runway, that funding runway of over $17 million to enable us to effectively kick some important goals for the company and the technology. So again, thank you for joining the call today, and we'll endeavor to get back to you all with answers to the questions that we weren't able to cover today. Thank you. Tom Coolican: Thank you.