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Operator: Good afternoon, and welcome to the Hargreaves Services plc Interim Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Gordon Banham. Good afternoon to you, sir. Gordon Frank Banham: Yes. Good afternoon. Good afternoon, everyone. Pleased to have such a high attendance. Thank you for taking the time to listen on how the story is developing at Hargreaves. Quite a lot to tell you about today. I think most of you know me after the last 20 years. I think, again, some of you have known Stephen as Group FD. And obviously, we've got Simon, my successor, who has been with us nearly 12 months now, just under. So we'll talk about that in a bit more detail through the presentation. So I'd just like to hand over to Stephen, who will just talk through the financial highlights in the last 6 months. Stephen Craigen: Thanks, Gordon. First slide here really talks through the key highlights of the last 6 months, and it's been a really busy and exciting period of time at Hargreaves. First thing to pick out on here is we sold the first tranche of Renewables back in October. This is something we've trailed for quite a while. We highlighted -- we realized value of these Renewable energy assets, and we've done so. First tranche sold for upfront cash of just under GBP 9 million with a trail of additional payments coming out through September 2029 of up to -- anywhere up to GBP 5 million. This is in line with the valuation we got from Jones Lang LaSalle and that Renewables tranche sale has helped us to end the period with high cash, GBP 37 million in the bank as at the end of November. I would highlight that number is somewhat swelled by some beneficial working capital movements and that is not our normal cash levels. That high level of cash and the Renewable sales led us -- led the Board to make the decision to return up to GBP 15 million back to shareholders by means of a tender offer that will be tendered at between 12% and 15% premium to share price, and we expect to make that transaction in April. So doing what we said we would do, returning capital back to shareholders once we complete these sales of Renewable assets. Elsewhere in the group, the services business has traded exceptionally well, 41% growth in revenue, improvement in PBT. We've seen good growth across our work at HS2 and Sizewell and other major infrastructure projects and tellingly also AMP8 is starting to ramp up, which has seen increased revenues across our water services businesses. That's collectively led us to improve our forecast for FY '26, the current year we're in and next year, which are reflected in broker notes. This improvement in profitability and cash flow has led the Board to increase the dividend over and above what we had out in the market. So 5.5% increase to the dividend, getting it up to 19.5p for the half year, an intention for that to be 39p for the full year. So beating inflation on our progressive dividend. And last but by no means least, we announced the succession of the CEO. So Gordon, who you'll hear from later and have already heard from and many of you know very well, has been with the business over 20 years, led the business, been integral to this story thus far and is stepping away from his role as CEO and stepping off the Board, leaving the business in good health for Simon Hicks to take over. Simon is our current Chief Operating Officer, and he will take over from Gordon on the 1st of August this year. The great part of this news, though, is Gordon is not leaving the business. He remains employed by the group, and it will lead the German joint venture and importantly, the group's new zinc processing plant investment, and Gordon will talk about that in a lot more detail in a future slide. The next slide is just a reminder really of what the group's strategy is. So the group is organized into 3 main pillars: services, Land and our investment in HRMS. So the focus on services is growth, growth into our investment into the infrastructure market more generally, particularly within the U.K., focusing on high-quality contracts that are inflation-resistant with blue-chip clients. That's seen us be successful over the last 5 to 6 years of growth. And in the current year, we've seen revenues growing by over 41%, maintaining margins at 7%. This is really the engine of what we do. This is where everyone is employed, delivering the dividend for shareholders. In terms of the Land pillar, we've got GBP 80 million of cash tied up in Land, all in at historic book costs. And the strategy behind this is to realize particularly the larger schemes and deliver off cash of between GBP 60 million and GBP 80 million, run that business to a smaller, leaner strategic land and specific Land Development Business, delivering between GBP 3 million and GBP 4 million of PBT per annum for that GBP 20 million cash remaining. And then in terms of HRMS, the focus is to repatriate cash up from Germany for that business. In the current year, we've received a GBP 4 million dividend from them thus far. That's a partial payment, and we expect that to be up to GBP 7 million by the year-end. And that business continues to trade reasonably well and Gordon will focus on the exciting opportunity in zinc in a future slide, as I've said before. So if we focus on the specifics of the numbers for the last few years, I think certainly, with the news of Gordon stepping away, it's quite a nice time to reflect on where the business has been and where it's come to because you can often lose sight of that. And whilst that doesn't look forward, it's important to see the trajectory. So all of these graphs are moving in the right direction. We're going upwards. Dividend per share, as I said, has increased by 5.5% in this period. And when I wrote this slide, it was a 6% yield. We've had a good result for the share price thus far. So that will come down somewhat. But nevertheless, an improving and progressive dividend beating inflationary growth. Our return on capital employed is up at 7.5% currently. The services business on its own is higher than that, but the group in general still has high capital in the Land business and HRMS, which suppresses the overall group's return on capital. But nevertheless, over the last 5 years, significant improvement on that front. And then for services revenue and services profitability, we've seen growth year-on-year for the last 5 years, revenue growth of 25% per annum and profit growing at nearly 40% per annum. So not only are we growing our volume, we're also improving our margins within that services business over that time which takes me now to the current year. What have we seen in the first half? Well, we've seen an increase in services revenue from GBP 121 million to GBP 171 million, 41% growth. What's driven that? Several things. First of all, increased presence on major infrastructure projects, but particularly at Sizewell, but not just delivering earthmoving, which we've done on HS2, we're also bringing other skills to that project, particularly aggregate sourcing, low-carbon aggregate sourcing and civil engineering, which is a subcontracted service. Additionally, I mentioned previously the water services business has improved as AMP8 has come on stream. So that's all led to that revenue growth. In terms of the margin for the services business, we were at 7.3%, we're now at 6.8%. So broadly in line. The reason why it's ever slightly down is because the aggregates work and the subcontracted civils has a lower margin, just the risk profile of that operation. So we're still very happy those margins are above or certainly in upper quartile for the sectors in which we operate in. In terms of Hargreaves Land, the revenue has gone from GBP 4 million to GBP 12 million. That's reflective of the first sale we made at Blindwells this financial year. Those of you who were tracking our sale of the Renewable energy assets might wonder why the revenue is not higher. And that's because the sale of the renewable assets was a fixed asset disposal and doesn't affect revenue, but it does affect profit. And if you look further down there, you'll see profit from Hargreaves Land of GBP 4 million compared to a loss of GBP 1.4 million last year. Last year, we didn't have any major sales in the first half. This year, we've had 2 major sales, one at Blindwells, plus the sale of the Renewable energy assets, which yielded a profit of GBP 3 million on its own. Moving down, profit after tax for HRMS, which is our German joint venture, has improved from what was a breakeven position to a nice little GBP 1 million profit in the first half. I'll touch on how that breaks down between the trading side and the DK Recycling side in a moment. Corporate costs are slightly increased, but broadly in line, brings us to a profit before tax of GBP 14 million. After tax, that's a profit for the year of GBP 11 million and an EPS of 33p. The dividend I've already touched on, but one thing I would highlight is the EBITDA has increased by 23%, demonstrating the cash generative nature of this business. Just over the page, quick review of the balance sheet. If I take it from left to right, just to show where the cash is allocated. The services business overall, equity invested there is only GBP 0.5 million. I would stress this is not a normal level. The working capital, as I mentioned earlier, we received a payment just before the half year, which really suppressed that. A more normal level is somewhere between GBP 10 million and GBP 15 million in terms of total capital employed. If you compare that balance sheet, though, to the equivalent balance sheet from the year-end or the prior half year, you'll notice that the fixed assets, this is plant and machinery increased up to GBP 62 million and the leasing debt, finance lease debt has also increased up to GBP 43 million. That investment is what has driven the growth in the revenue and therefore, the growth in the profit within that services business. In terms of Hargreaves Land, the capital employed is GBP 84 million, just under, and it's laid out there as to where that's sitting. The top line relates to our renewables assets and another long-term investment we have up in Scotland. That renewables asset value has come down because of the first sale of the Tranche 1 renewables. Elsewhere in the balance sheet, the other big number is the inventory, which includes GBP 45 million in relation to the Blindwells site. Blindwells site, we sold a plot earlier this year, and we have another plot that we expect to sell in the second half, all built into broker numbers. So the scheme is where we want it to be, and we'll see cash realizations coming from that scheme over the next 3 to 4 years as we run that down to a GBP 15 million to GBP 20 million capital employed business, delivering GBP 3 million to GBP 4 million of PBT from strategic land and specific developments. In terms of HRMS, total capital employed has increased from GBP 68 million to GBP 72 million. That's just a reflection of the profitability that's been made in that business plus a bit of a movement on FX. The reason why it hasn't come down is because the dividend they paid us, they didn't pay until January 2026. So whilst we received the cash, it wasn't in time for the half year. So it's merely a timing thing, and we've got the money in the bank now. On the unallocated column, not really anything to pick up other than to just remind everybody, the group has no bad debt. We have no debentures and that GBP 37 million worth of cash was in the bank at the half year. Moving onwards. Just a quick reminder for those who are fairly new to the story of Hargreaves around some things to look at when considering valuation. So a sum of the parts feels appropriate given the different nature of the 3 strands of the business. Services business on the left there, high contract bank, contract selectivity, good visibility, good pipeline, some sort of multiple is a sensible place to start, and we've listed revenue, EBITDA there as in line with broker forecasts. So take your choice out of those. In terms of Lands, as I said earlier, GBP 80 million in the balance sheet is historic cost. There's no profit built into that number whatsoever. As we realize that value over time, there will no doubt be a profit that comes out of those assets. And then we've also flagged previously the renewables uplift. So the renewable assets of which we've sold, the first tranche has a hidden profit in there of around about GBP 20 million, some of which we've realized already and have yet to return to shareholders, but we will do in April. And then on HRMS joint venture, book value is GBP 70 million. I think historically, we've said just treat that as book value, although Gordon will give you reasons to think why we could get better, the zinc project being one of those reasons. However, in the meantime, we're getting paid a dividend of between GBP 6 million and GBP 7 million per annum, all of which paid from the trading entity, and we've received GBP 4 million thus far this year. If I move on to the cash flow, this is the simplest one that I've ever had to present in terms of the cash flow. We started the year with GBP 23 million in the bank. We had an EBITDA of GBP 18 million, which was on the previous slide, fairly straightforward. Working capital, slight movement inflow of GBP 2.2 million, negligible movement on interest and taxation. And then we've got net CapEx, which is an inflow of GBP 9.3 million, and this is because of the sale of the first tranche of the renewable energy assets which brought in just under GBP 9 million and a few other small modest sales. All CapEx has been funded by leasing debt, which doesn't affect our cash position. The lease payments of GBP 10.4 million neatly match off with the GBP 10.6 million depreciation, which is exactly what you'd expect if we're depreciating in line with the term of the finance lease, which is what we should be doing. So that nets off. And then we've got the dividends paid, which reflects the final dividend from FY '25 of GBP 6.2 million, which brings us to the closing position of GBP 37 million. And then the final slide for me, just we've had this a few years in a row now relating to a bit more detail on HRMS because it's a joint venture, you don't get that visibility necessarily from the statement. So the dark blue line highlights the revenue in the HRMS trading business. Revenues in there are down GBP 20 million. This is predominantly due to volume reductions as Germany continues to be a bit of a difficult trading environment. But despite that, they will be able to obtain positive commodity pricing and in general, has put an extra EUR 1 per tonne on to their margin, which has meant that in the lighter green box, you can see HRMS has maintained its PBT despite the reduced revenue. So margins on that have increased as a percentage. Turning to DK, which is the steel waste recycling facility. Revenue is broadly in line, but what we're seeing is the loss before tax has actually improved by GBP 2 million -- apologies, EUR 2 million. That has improved as a result of an improvement in zinc pricing and also securing good quality and lower prices of input materials such as coke, which we've seen previously. You might ask what is made a loss in the first half. Why is that a positive thing? Well, DK would typically make a loss in the first half of the year due to the seasonality of it. Within the summer months, we have a shutdown where it's nonproductive and therefore, loss-making during that period. It's profitable in the second half of the year. So we expect DK to come back full year to be a small profit for the full year, which would be an improvement on the breakeven position it had last year. And with that, I will hand over to Simon to talk you through services. Simon Hicks: Thank you, Stephen. If we can just flip to the next one for me, Hargreaves Services, a business providing contracted services into infrastructure and industrial assets. What's key, and this is a quick reminder of our operating model that we introduced into the Capital Markets Day back end of last year, November, for me, it's about getting the right people in the right place, doing the right things at the right time. So we've got it under 3 pillars: inspire our people, which means getting more people and investing in our own people and developing that talented pipeline of skilled individuals are going to deliver for our customers. Back end of last year, I think it was in October, we brought Rachel Ovington into the business as our Chief People Officer. She's going to be driving that work stream forward so that we make sure we've got the right folk in the business, and we're investing in our folk. Shaun Hager, who you met at the Capital Markets Day, he's going to be driving the excellence stream that it's getting the right standards, enhancing our reputation, which is already very good in the marketplace, starting to innovate and develop different services and different solutions for our customers. And that positions us right square and center into the market where we'd like to win, which is in connecting people, delivering clean energy for the country and the environment. If we flip over to the next slide. Let's not forget that we're building off a very firm strong base here. We've got a base of 70-plus relationships and contracts that we've built up over the last 15, 20 years, some really long-term relationships with some blue-chip customers. What does that mean? It means we can be selective in how we enter into new contracts. We can make sure that we're not taking unnecessary risks. We can make sure the business and contracts we pick are inflation resistant. They give us limited credit exposures and that top line revenue, which is the driver of the EBITDA is resistant, and that gives us that opportunity to grow. In the first half, we're very pleased to see the margin is holding up 7% in the services business, really strong free cash flows and an excellent return on capital employed. The markets we're focused on connectivity, as I said, connecting people, which is ports, airports, rail, roads and indeed data centers. Across our footprint, we're active in many places in Asia where we're moving into operating on projects potentially in the airport, connecting people there. In the East Coast, we're operating ports and terminals, really good presence there. And in the infrastructure space, HS2 still there. We keep saying another 2 seasons. That keeps moving forward. You'll notice I'm going to come on and talk about a little bit about Lower Thames Crossing and our position there and Heathrow coming towards us and the government's recent announcements for Northern Powerhouse Rail. So connectivity, we still see a build there. In the clean energy space, we're building the temporary construction area supporting Sizewell in that construction with our earthmoving business. We can see SMRs and nuclear fusion coming towards us as we clear the ash fields at West Burton. And we've got a very strong presence supporting the energy from waste operators, not only supporting them in operating their existing assets, but also moving the waste into the plants using our logistics business and our environmental business, which supports in sourcing waste and diverting waste and blending that waste to make sure it's suitable to go into energy waste assets. So Renewables, we'll talk about in the Land business and energy storage, we'll talk about in the Land business and things like carbon capture and the great grid coming to waters. And of course, since we last spoke, the government announced Wylfa and Hartlepool as investments. Environmental space, Lincs and Fens reservoirs, we've already done some trial pits on the Lincs reservoir, and we'll be doing the other one in the spring. AMP8, we're now starting to see that move. It's taken a little bit of time to get that moving for the water companies, but we're starting to see that move, and we're having good conversations over the strategic reservoir for Thames talks about our waste management services, really strong land remediation business up in Scotland, where we're taking biosolids, and Sean talked you through this at the Capital Markets Day, how we're taking waste biosolids up to Scotland to remediate our land bank. And our minerals business has seen some good progress in finding secondary aggregate projects to take into some of these infrastructure projects. What we thought we'd do now is show you how that flows out in terms of time. At the left-hand side, the projects we're active in. We're active in the AMP8 cycle. Our land remediation process is moving forward and will continue for a number of years, and we're actively looking for -- to increase that land bank to extend that project there. As I said, we've started some trial digs for reservoirs, and we've been on the enabling works at Sizewell for some time now. Carbon capture coming towards us, great grid upgrade coming towards us. Lower Thames Crossing, I'll talk about on the next slide. Heathrow and Luton a bit further ahead and HS2, we're on and continue to see those volumes moving forward. And beyond that, of course, Northern Powerhouse Rail. So I think for me, if you look at where we are now, 2025, 2026, move forward to the late 2020s, 2030s, real strong pipeline of opportunities in infrastructure for us to take advantage of. Lower Thames Crossing, the roads north of the Thames in the Southeast of England. We've been working with main client there since 2024 on some of the advisory services. We believe the first works will commence very shortly into quarter 2 2026, and we are in agreed terms. We haven't signed a contract yet, but we're in an agreed position with Balfour Beatty on those enabling works. The future of that project moves forward. We'll see potentially if we're successful in this space, 150 items of our plant deployed and up to 200 personnel from Blackwell, our earthmoving business. So a really exciting project for us to be part of. It suits us in terms of timing, really works well as we come off HS2 and move down to lower terms crossing. So we're really well placed for that and really enthusiastic. And really importantly for us is the credentials on ESG for this project. It's our first scale deployment of battery electric heavy earthmoving equipment, which is driving us in that direction towards carbon-free earthworks. By 2040, and we're sourcing low-carbon primary aggregates to support that project. So really positive direction in ensuring that we're delivering against that pipeline of opportunities. In the next slide, what we've tried to do here was demonstrate to shareholders the strength and depth of our customer base. So if you look at this, we've got really a strong base of customers. Our customer concentration, as you would expect with those scale infrastructure projects is a top 5 of our customers account for 65% of those top line revenues contracted in long-term contracts with high-quality customers. If you move across to the top 20, that covers 80% coverage, and that's delivering around about 70% of our revenues, but a long, strong tail of customers underneath that, delivering that core business. So a good long tail of 30 customers delivering the balance of those revenues, those 30% revenues. Another interesting thing to look at, especially proud of for us is the length of the relationship we have with customers. So if you look at those that we've known for 3 years or more, 2/3 of our business is long-term relationships with customers that we've known for 3 years or more, and they typically award contracts an average duration of 4 years, 3.9 years. So we're seeing strong secured customer base from which we will build. And looking into FY 2026, we've got a 90% order coverage on what we have on our books and into 2027, FY '27, 55% coverage. And really importantly, as we've mentioned before, we've said this a few times, we thought we'd put a number to it, 94% of those contracts provide us with inflation protection. So a really strong base of customers and a good outlook for this business, which is testament to all the hard work that our teams are putting in across the land. So on that, I'll hand back to Gordon. Gordon Frank Banham: Thank you very much, Simon. So as everyone knows, Simon is coming to drive the Services Business I think, to be honest with all of you, as shareholders, I think he'll do a much better job than I do. That's what he's good at. I've transitioned us from coal to this point in time. And therefore, I think it's right that it will take, and it will be really fascinating to see how he develops the business from this platform. But in the meantime, the two other areas of the business I want to focus on are Hargreaves Land and Germany. Both have very clear strategies, very clearly measured deliverables. So remember, the first one is Hargreaves Land. So let's talk about that. So Hargreaves Land effectively has 2 parts -- well, 3 parts actually, if you can Renewables. So there's -- we've been this master developer, tied up a lot of capital. We've done bespoke commercial development. And that's where you can see in the balance sheet that Stephen mentioned earlier, about GBP 80 million of cash tied up. We've said to people though, the plan is to move that to much more your planning promotional work. Now that will have about GBP 20 million of capital employed, making about a 20% return on capital. So we're moving to that. What does that mean? Well, that means that you've got GBP 20 million left in, let's say, 5 years' time. So we're going to throw off GBP 60 million of cash from the land business plus the profits because remember, all that land is just held at cost. So as shareholders, you'll see GBP 60 million of cash is our plan over the next 5 years coming to you plus the profits. And then we'll be to a planning promotion business with about GBP 20 million tied up, delivering about 20% ROCE. Alongside that sits the renewables, and I have a separate slide to talk about that, and I'll pick that up in a second. So this next slide, these key events. So we did sell that first renewables tranche. Important point, we sold it at the value that was in Jones Lang LaSalle, so that should reassure you. We got upfront the nearly GBP 9 million, GBP 5 million deferred out to 2029. So we did what we said we were going to do. We are in negotiations to look at selling the next tranche, and we're hoping to deliver something to shareholders in the current calendar year. Blindwells, this is a big site now, over 450 people living there. It's a place where people want to live. It's just on the outskirts of Edinburgh. And again, as it builds out, you'll get your cash coming back, and that's part of this flow of GBP 60 million. Now this is the project pipeline. And this is really just a KPI for you to understand that, yes, it's easy to see how you're releasing all that cash, but are you getting that pipeline of GBP 20 million tied up that's giving you a return of about 20%. And this shows that, that pipeline has grown by 17%. So hopefully, it reassures you that not only will we harvest all the cash from the business that we promised to do, but then we'll be able to deliver this GBP 20 million of cash tied up, delivering about a 20% ROCE. People have said to me, God, why did you do Blindwells? Why did you do that master development? Why did you tie up capital? Well, if you think about it, we had to prove concept that we were good at this. It's now very credible to talk to people about developing their own land banks, having done the exemplar projects we've done. For instance, when we talk about Blindwells, it's the first new town in Scotland since 1966. So our skill sets are there. They're very credible. And we're now very much an established property developer. So that's really pleased to see. So Renewables, remember, Renewables is a finite resource. So when we talked this time last year, we'd have said GBP 28 million was the valuation. We've got that GBP 13 million for you, so tick, okay, some of it's deferred. And there's GBP 15 million left to go at. And we're having a go at getting that turned into cash for you over the next few years. We hope to announce something in this calendar year. But below that sits another 800 megawatts of assets that are being built on our sites if they get planning. So they're in the process, they're probably 5 or 6 years away. Their book value is negligible now because we've taken all the book value out on the previous assets. So some people are attributing a value of -- but remember, it's 6 or 7 years away of about GBP 15 million or further. Look, they've got to get planning. So let's be clear. But if they do and they get developed, then there's another potential upside, which isn't in the books. So when you add all of land together, you're going to end up with a GBP 20 million business delivering a ROCE of about 20% and then you're going to get cash of GBP 60 million plus the profits plus the renewables realizations. So I think that's quite exciting, and that's the business you'll end up with a much smaller land business, and it's a land services business. So I'm very confident that it will integrate very well into the business that Simon has. So Germany, so I think most of you know us, but again, we're getting followed by a lot of people who haven't seen us before, two businesses, DK Recycling and the Trading business. They work in combination. So we trade lots of material and we trade around that asset, but I'll talk about each individually. So the first one is the Trading business. Fantastic team that I've worked with over 15 years. Now I have been told, will this carry on forever. The trading team I've known personally, I trust them very much. But when they retire, my suggestion to the Board is we then close the business down, liquidate the balance sheet. Now they haven't told me when they want to retire. Simon jokingly said, if you're over there in Germany a lot, they'll probably want to retire earlier. But the plan is that I will work alongside that team, keep the checks and balances. They're a great team. When they decide to close, as I said on the Capital Markets Day, they usually have about 3 months inventory in flight. So let's say, we decided on the 1st of January to close it down. There'll be 3 months of inventory, which isn't in the books. That has, as you can see, about EUR 1 million a month profit that would deal with all of the closure cost redundancy. And then you just liquidate the stock in that process. So you can see very easily that you get your money back from that business. So the next side of it is DK Recycling. So most of you again know this, but for new people, we take coal and coke, iron ore. We combine it with steel dust. Now steel dust is getting less over time because as they close the blast furnaces in Europe, there'll be less and less dust. So that's one driver. We're okay at the moment. But longer term, it's a pressure. The opposite side was pig iron, zinc and energy. So energy means we produce our own energy from our own power station. So we're insulated from spikes in energy. Zinc prices are very good. We hedge it, very happy with the proceeds we get for our zinc concentrate. But pig iron has been on the floor, all to do with Trump and tariffs, et cetera. But we believe it's reached the bottom. And actually, we said to everyone, we'll start to see prices move on, driven by 2 things, which I explained at the Capital Markets Day about CBAM and the embargo on Russian imports. We're now starting to see the prices move up. For every -- so today, let's say, pig iron has a price of EUR 450. For every EUR 10 increase, you add EUR 2.5 million to the bottom line. So we're now starting to see the uptick. So this business is getting back to where it should be. Key issue, of course, is always a blast furnace. So you always got to manage that correctly. So there's operational challenges, but the markets we work in have reached the dip and now they're moving back up. So we think the outlook is quite positive, except for the slight caveat of there will be less and less dust over time, which takes us over the page. So really fascinating this area, and this is the reason that I decided to step down to spend the time in Germany because my job is to deliver value. As I said earlier, Simon is much better at running the services business than I am delivering a lot of value. So I will step down, but I will report to Simon. So my job is to commercialize this Zinc Recycling. Now the Zinc Recycling Project is going to cost us as shareholders about EUR 18 million. But fortunately, German government has already given us a EUR 2 million free grant. They've also agreed to give us a state guarantee, which we're just negotiating, which is another EUR 4 million. So as shareholders, the maximum risk is if this all blows up in our face, it's going to be EUR 12 million is going to cost us. And that's it. Nobody is going to put any more in. We're not going to run the risk. It's -- that's the number that I've agreed with the Board that we will get to. So we spend that money. When do we start spending it? We start spending it in March when we start building the building. And we've made it very transparent. So this is consolidated into the group's numbers. It's 86% owned by the PLC, 14% by local management. And Stephen and Simon, after July, we will keep reporting on this every 6 months to tell you on progress. This is a very exciting opportunity. So the risk of the downside, you know, it's EUR 12 million. There is no recourse to the rest of the PLC on the state loans or anything else. So that's your downside. Your upside, if it works, is that this plant takes zinc from electric arc furnaces, blends it with well, chemicals, the leaching process that's patent pending and you get out zinc oxide and waste dust. Now it's very fortunate because the low barrier to entries, we're building it on the DK site, so we've got all the permits, et cetera, et cetera. With the decarbonization of steel, there's some huge electric arc furnaces being built, which I did explain in the Capital Markets Day. And there they're producing a dust, which is 8% zinc, too high for DK, which runs on typically 3%, but too low for the technology for existing electric arcs, which are called voltaic kilns. So this sits in the sweet spot. And if it works when we turn it on, and I can guarantee you the first day we turn on, it won't work because these things never do. But if it does work and we make a success of it, we can not only deal with the new electric arcs of which we have a queue of customers want to fill our capacity but also I can deal with existing ones. And that gives us a business which conservatively, we're saying a 20% ROCE. So you do the math and you go, okay, you're spending EUR 18 million. So it's going to make EUR 3 million to EUR 4 million is what we think once it's running, subject to it working. We've been working on this project for 3 years. So we've had it stress tested by Imperial. We've had it stress tested by professors. We've had it stress tested. We run it through a pilot plant. It's now all about -- so the chemistry works, will it work at scale? I've now recruited the guys who are going to run the plant. I trust them very much. I'm going to be working very closely with them. It's going to be a lot of late nights and spanners and fixing things when we start it. But if we can prove concept, we will then have to very quickly build 2 more plants because we have a pile of customers, and then this can be taken to other parts of the world as well. So it's a really exciting opportunity. And to be honest, and I've always prided myself, I've been honest with you as shareholders, this is a moment for you to think about, if it goes wrong, and it might do, I disappear with the damp squib and it costs you EUR 12 million, cost me personally 8% of that number. If it succeeds, people have given indicative valuations of GBP 100 million or significantly higher of that. So that's your risk profile. I believe it's the greatest opportunity to in front of the group in the short term. So that's why I made the decision to step down our focus. So my focus will be here where I think I can deliver best value and Simon will do a much better job than I do in the U.K. So just let's tell us what we're doing. So next, Stephen, thank you, outlook. So hopefully, and I always welcome the opportunity to engage with retail shareholders, please, you're just as important as the people we meet in the city. So you can always contact Stephen, Simon and myself for any feedback even outside of this. So please don't sit there and wonder about something, ask us and if we're allowed to tell you, we will. So group outlook, I think I jokingly say at the start of this presentation, you saw 3 smiley faces. I think you understand why there was 3 smiley faces at the start. We have a very strong outlook. This is the start of the cash repatriation. It's GBP 15 million of cash. But if you do the math on what I've said, if everything executes as planned, there's about GBP 150 million to come over the next 5 years. So significant opportunity to repatriate cash to the shareholders. Dividend is important to some of you. So remember, when we do this tender offer, that will reduce the number of shares in issue, which will concentrate up the dividend. But as Stephen has already said, we've got this progressive dividend where we plan to beat inflation for you as we deliver that, hopefully, GBP 150 million of cash. Services, every faith in Simon, I'm backing in with my own money. Land, remember, as I said, you've got the GBP 80 million turning into GBP 20 million. You've got the renewables profit, you've got the profit on the sale of the land, easy. And it's on a 5-year time horizon, we've set a target. In Germany itself, we think the moving up of pig iron prices will help the U.K. the really interesting thing is DK zinc. One of the things I didn't mention earlier is it then produces a waste product, which can go into DK. So it helps replace some of the steel dust that may disappear in the next few years. So I think that's a great opportunity and exciting. So finally, again, for new people really, you have an experienced Board. You will still have me as a shareholder, and I will still maintain my 8% share because I believe in this business. So that's a strong message to you. I will be reporting to Simon, but I'll still be here. So I'm not running away. And one of the joking things I do say to shareholders down here is, if I appoint -- if I appoint Stephen as the CEO, you'd have many problems as he jokingly said. But Simon has come in and looked at the business and said he's happy with what's there. So again, you're not going to have that transition when the new CEO comes in and goes, oh, it's a part of rubbish and we have a reset. We've unfortunate -- or I have unfortunately put him in a position where he's had the opportunity to cry wolf. He hasn't found anything hidden anywhere. So I think that should reassure you that everything is clean in our balance sheet. And on that note, I would close and hand over for questions, which will come through Stephen. So Stephen, if you could pass the questions to us. Thank you. Stephen Craigen: Thanks, Gordon. We've got a handful in. There's one pre-submitted one, which I think we answered in the statement, but I'm going to read out anyway for completeness. What's the plan for the return to shareholders of the proceeds from the recent renewables disposal? That was sent through to us yesterday before the announcement went out this morning. So I hope we've cleared that up. In the announcement. But for completeness, GBP 15 million tender offer back to shareholders in April is what we are doing to deal with that one. Next question is from Peter. He's asking about the Unity scheme. Given that Unity is one of the largest infrastructure schemes in the U.K., why has there been so little mention of it by Hargreaves in the last 12 to 18 months of announcements? Gordon Frank Banham: [indiscernible] you take that do you want to take it? Stephen Craigen: I'm happy to take it. Gordon Frank Banham: Yes, of course. Stephen Craigen: I think on Unity, the reason we haven't announced too much is because we haven't completed too many sales in there, to be honest with you. And Gordon talked about in his slide, although you saw of skipped over a bit on the market outlook. Whilst the market for real estate has improved somewhat. It's not back to where it was. We've seen success in Blindwells in particular on sales, but Unity has been a little bit quieter. But in terms of what's happening at Unity, we have a website and LinkedIn feed, so you can see progress there. We've recently seen the opening of a McDonald's, a new McDonald's has opened there. There's construction starting on Starbucks, both of which were sales made by the joint venture. And we made a sale 3 or 4 years ago to TJ Morris, who are currently building out a large distribution warehouse there. So if you do drive fast, you'll see that going on there. So in terms of RNS and market adjusting announcements, we haven't made many. But in terms of the website and updates the general productivity we have done. So focus on the future is around getting residential interest in the site. We've seen an element of that, but it hasn't hotted up in the same way as we've seen at Blindwells. Positive thing about Unity is it's not going anywhere. The land is still there. It's on our books, net book value is around about GBP 5 million or GBP 6 million. So scalability, it's not the same scale as Blindwells, but it is still sizable and something that we're looking to realize. No concerns from the Board over realization. It's just a little bit slower than maybe it had been, and it's indicative of the market more generally, I would say. Gordon Frank Banham: And I think my comment to yourself would be one of -- you know how big that site is, and it's only on -- half of it's on our books at GBP 5 million to GBP 6 million. So I think you know that there's some problem coming when it moves. We're not in distress. We have cash. So we're not going to give it away. We're going to harvest the money when it's appropriate, yes. Stephen Craigen: So the next question is from Christopher, which I'll take this one. Thanks for the results for the foreseeable future. Are you committed to the AI market? The short answer to that is, yes, we are. There's no discussions currently, no ideas to shift marketplacing at all. AI has been good to us. It's allowed the business to grow, transition, as Gordon has outlined, from where we were to where we are now and giving us a really solid platform for growth in the future. So the Board sees no reason to move at the moment and remains committed to the market. Next question, I think, Simon, it's probably one for you from David. Can you comment on how landfill tax and the government's habit of increasing landfill taxes at intervals impact upon the business? How do we try and manage this? Simon Hicks: So landfill tax, of course, is the government and regulator trying to avoid putting stuff to landfill, which for me, having been involved in this sector for many years is the right direction of travel. What does it mean for us? We do quite a lot of movement of waste. We do movement of sewage sludges. We do movement of hazardous waste. We do movement of materials that are difficult to deal with unless they go to landfill. And the more increasing landfill taxation becomes, the more it pushes customers, our customers to solve those problems and more it pushes us as Hargreaves to help and support them find solutions. We're already on that journey. We're investing in pieces of equipment, particularly in the central belt of the country where we can provide things like a bail and wrap service or a shredding service or blending service where we can use material that's pushed out of landfill and blend it in and make sure that it goes to the right home, it's disposed of in the right way, some will go to incineration or indeed driven up in terms of recycling. And some of the co-products we're getting into our aggregates work stream is material that's being recovered from those lines of waste that would have ordinarily gone to landfill. So I think personally, it's the right direction of travel for the industry and Hargreaves are there to support and provide solutions in the long term for the customers that are impacted by that. Stephen Craigen: The next two questions are from Ilvana, both sort of related. I think you joined the session a little bit late, which is why you've asked the questions, but they're quite long. First one is around about the Renewables in terms of the price that we achieved. So you've asked what price did we get versus what the independent valuation is and what do we expect future valuation to be. So if I can just quickly cover because we have already done that. We received valuation -- the cash we received is in line with what the third-party valuation is, albeit some of it is deferred over the next 4 years. And then in terms of future valuation of the remaining near-term Renewable schemes. We've got an independent valuation of GBP 15 million on that, which is in a previous slide. Given our past experience, no reason to believe we won't achieve at least that, not in a position to say we'll do better than that at the moment. And then you're also asking around timing. We will time it when we're able to maximize or optimize the value. I'd expect the next tranche, as Gordon mentioned previously, to occur within the next 12 months or so, but we'll maximize value for shareholders rather than grabbing the cash as quickly as possible. And then Eldar has also asked where -- what the source of the GBP 150 million cash is. So again, some of it is the land sales. I think Gordon outlined GBP 60 million to GBP 80 million coming out of the Land business. And then the remainder of the, I guess, the other GBP 70 million to GBP 80 million is coming out of the German business. So effectively realizing the land assets and then realizing the HRMS investment, which is either through an organized wind down or a disposal of some sort in the future would be what generates that return of cash. So next question is possibly for you, Simon, from Brian. Good to see sustainability piece at place in the current business. What are the plans of the management team to move into the next phases having North Sea Wind, Alliance, biofuels, green methane, ammonia, hydrogen, et cetera? Simon Hicks: I guess we provide -- particularly in our services, we provide the service to our customers who are investing in many of those things. It's important for us to be across that providing a service when it's necessary and following ESG of decarbonization of our customers or being ahead of it. For example, we run biofuel vehicles in the Northeast for moving one of the County Council's waste around. We've got renewable assets on our facilities. We're moving petroleum coke around for P66, which goes into batteries and into EV cars. So we're following other people's decarbonization journey. What we're encouraging in the teams is to anticipate that and innovate and provide solutions in advance. So if biofuels for instant biosolids can't continue to go to land as we talk about landfill, it's up to Hargreaves to work with itself and its partners to find solutions for our customers so that they can modify or invest in their assets. Absolutely, lots going on in that space, and we're across lots of it. So that's where we add the value in a sustainable way to our customers. Stephen Craigen: And we've only got one more question left, which is from Jagdish. Why not do share buybacks rather than a tender offer? I'm happy to take. The challenge is we have such a wide shareholder base. Some shareholders want a buyback, some would like a tender offer, some would like a special dividend. So we have to land at some sort of a balance. The benefits -- the challenge of doing a buyback with the shares in Hargreaves, we have a challenge around liquidity, which you may or may not have noticed in the market, getting hands on Hargreaves shares. If we do a buyback, what we risk hoovering up some of those liquid shares and parking them and further damaging liquidity. So the view is the tender offer gives all shareholders the opportunity to equally participate rather than us hoovering up loose shares in the market. So on balance, the Board felt the tender offer was the fairest approach, but we're not doing that in isolation. Don't forget, we've also increased the dividend by more than inflation and more than brokers had in their forecasts. So we're trying to treat shareholders as equally and fairly as possible whilst acknowledging we have quite a wide base of shareholders. So that's the main reason we kept that decision. Operator: That's great, Stephen, Gordon, Simon, if I may just jump back in there as you have addressed all those questions from investors today. So thank you very much indeed for that. And of course, the company can view all questions submitted today, and we will publish those responses on the Investor Meet Company platform. But Gordon, before we redirect investors to provide you with their feedback, which is particularly important to the company, could I please just come back to you for some final comments? Gordon Frank Banham: I'd just like to say, look, thank you to all the people that have supported me and the company over the years. We've had an interesting journey, I think, for those that have been with us long term. I welcome new people to the story because obviously, that's important. We are a very approachable management team. We see the value in retail investors. So please feel free to contact us any time. In terms of -- I think it's really exciting. I think with Simon's leadership, we've got some great opportunities to take forward. I will still be here at the full year because I'm responsible for this year, we're delivering the numbers. So I hope to go out on a high and hand over in a good place to Simon, but then I also hope to come back some time and go out on a high for you with the zinc project. But I'm sure everyone will keep you aware of progress on that over the next couple of years because in a couple of years, it will either be going or it won't. So it's going to be a big focus for me. But look, thank you for taking the time to listen to us, and have a good evening. Operator: Fantastic. Thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the Board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Hargreaves Services plc, we would like to thank you for attending today's presentation, and good afternoon to you all.
Operator: Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the First Commonwealth Financial Corporation Fourth Quarter 2025 Earnings Release Conference Call. [Operator Instructions] Thank you. I'd now like to turn the call over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead. Ryan Thomas: Thank you, Jordan, and good afternoon, everyone. Thanks for joining us today to discuss First Commonwealth Financial Corporation's fourth quarter financial results. Participating on today's call will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; Jane Grebenc, Bank President and Chief Revenue Officer; Brian Sohocki, Chief Credit Officer; and Mike McCuen, Chief Lending Officer. As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We have also included a slide presentation on our Investor Relations website with supplemental information that will be referenced during today's call. Before we begin, I need to caution listeners that this call will contain forward-looking statements. Please refer to our forward-looking statements disclaimer on Page 3 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation. With that, I will turn the call over to Mike. Thomas Michael Price: Thank you, Ryan, and welcome, everyone. Headline performance numbers for the fourth quarter include core EPS of $0.43 per share, which beat consensus earnings estimates alongside a net interest margin that expanded to 3.98%, a core ROA of 1.45% and a core efficiency ratio of 52.8%. During the fourth quarter, average deposits and total loans grew modestly at 2.8% and 1.2%, respectively, due to seasonal headwinds and several larger commercial loan payoffs. Net interest income grew as the margin expanded on the heels of healthy new commercial loan volume at good rates. Deposit costs fell 1 basis point to 1.83%. Fee income was flat, as gains in SBA were offset by seasonal declines in wealth and mortgage. Our fee income at 18% of total revenue compares favorably to peers, and we have a concerted effort and long-term focus on growing fee income through our regional banking model. Wages and incentives remained pressured due to market conditions. The provision for credit losses decreased by $4.3 million compared to last quarter to $7 million. The elevated prior quarter provision was reflective of the continued resolution of a previously disclosed dealer floor plan credit. The credit required no further reserve in the fourth quarter. While NPLs increased 4 basis points to 94 basis points versus the prior quarter, we are appropriately reserved for these loans and did not experience a provision impact like the third quarter. Nonperforming loans include both the unguaranteed portion of SBA loans and the government-guaranteed portion of any SBA loan, which is owned by the bank. As of December 31, 2025, $98 million of nonperforming loans included $39.2 million of total SBA loans, of which $31.2 million was government guaranteed. As a result of our 94 basis points of NPLs, 32 basis points is guaranteed. In the fourth quarter, we repurchased $23.1 million of our stock or 1.4 million shares at $15.94 per share. We repurchased 2.1 million shares in total in 2025, which incidentally is roughly 2/3 of the 3 million shares we issued in the Center Bank acquisition. For the year, core EPS of $1.53 compares favorably to the consensus earnings estimates of $1.40 that was in place in December of 2024 as well as the highest revised midyear consensus estimate of $1.54. Net interest income of $427.5 million in 2025 was up an impressive $47.2 million year-over-year, while net interest income benefited in general from higher for longer interest rates, more specifically, net interest income was driven by better loan yields, good loan volumes, lower deposit costs and a better commercial business mix. All this mixed together drove the NIM markedly higher over last year. Loan growth was 8.2% annualized and 5% without the Center Bank acquisition as commercial banking, equipment finance and indirect led the way. Average deposit growth of 6.1% for the year largely kept pace with loan growth and was approximately 4.2% without Center Bank. Here, money market and CDs accounted for over $534 million in growth, while noninterest-bearing DDA added another $116 million to a now $10.3 billion depository. For the year, noninterest income fell only $3 million year-over-year, despite another $6.3 million in Durbin amendment debit card headwinds that resulted from crossing $10 billion in assets. In short, our fee businesses are filling the gap. In sum, 2025 was a year in which strong growth in spread and fee income more than offset the impact of higher expenses and lost Durbin interchange income, resulting in year-over-year improvements in PPNR, core EPS, core ROA and efficiency. During the year, and oh, by the way, the team completed the acquisition of Center Bank and grew deposits 3% annually for the year. Before I turn the call over to Jim, I wanted to take a moment to recognize Jane Grebenc, who will be retiring at the end of March. Jane has been a friend and a mentor to me and many other leaders throughout her distinguished career, and she has left an indelible mark on First Commonwealth. Jane's dedication, leadership and wisdom have played a pivotal role in the strategic transformations that have helped position First Commonwealth as a top quartile performer. Thank you, Jane. And with that, I will turn it over to Jim Reske, our CFO. James Reske: Thanks, Mike. Core operating results for the fourth quarter of 2025 continued the momentum of the third quarter. Core ROA improved 11 basis points to 1.45% and core ROTCE improved 93 basis points to 15.83%. Spread income increased $2.1 million from the previous quarter, primarily due to a 6 basis point increase in the net interest margin. The yield on earning assets increased 3 basis points, while the cost of funds decreased 3 basis points. Looking ahead, our NIM guidance has little changed from last quarter, a near-term dip as our margin to our variable rate loans fully reflects fourth quarter rate cuts, followed by gradual improvement each quarter, ending the year 2026 at around 4%. At year-end, we designated a portfolio of approximately $225 million in commercial loans as held for sale. These loans represent a pool of commercial loans that were originated primarily in our Philadelphia MSA, which the bank had previously decided to exit in order to focus the bank's resources on customers in other areas. Subsequent to that decision and communication to borrowers, a bank approached us with an offer to purchase the portfolio. Since discussions regarding that sale are ongoing, we moved the portfolio to held for sale as of year-end. The ongoing effect in 2026 should the sale be consummated, would be to reinvest the cash proceeds from the sale of $225 million in loans into lower-yielding securities at a rate differential of approximately 1.5%. The sale is consummated, will also have the ancillary benefits of improving our liquidity and our capital ratios. As Mike mentioned, total average deposits increased $72 million or 2.8% annualized over last quarter. Seasonal outflows in public funds were more than offset by growth in consumer checking and time deposits, along with growth in small business and corporate money market deposits. Core noninterest income of $24.3 million decreased $200,000 from the previous quarter. SBA gain on sale income increased by $800,000, but this was more than offset by a $700,000 decrease in wealth advisory fees and a $200,000 decrease in swap fees. In 2026, we expect noninterest income to be relatively flat over 2025. Though longer term, as Mike mentioned, we would expect our regional model to improve fee income results. Core noninterest expense of $74.3 million increased $1.7 million from the previous quarter, mostly due to increases in salaries and benefits as we filled a number of open positions in the fourth quarter. The bank, however, was able to achieve positive operating leverage over last quarter. The core efficiency ratio remained below 53%, and we expect to be able to limit operating cost increases to approximately 3% year-over-year looking ahead. Mike mentioned our buyback activity in the fourth quarter. I would add that remaining repurchase capacity under the current program was $22.7 million as of December 31, 2025. On top of that, an additional $25 million of share repurchase authority was authorized by our Board yesterday. Of course, we only repurchased shares using excess capital generation in any given quarter, which effectively caps repurchase activity at approximately $25 million to $30 million per quarter. And with that, we'll take any questions you may have. Operator: [Operator Instructions] Your first question comes from the line of Daniel Tamayo from Raymond James. Daniel Tamayo: Congratulations to Jane on your retirement. I guess, first on the -- on the credit side, and I apologize, I don't think I heard anything, but if I did, I apologize if I missed it. But just curious, you did, Mike, touch on the impact of the SBA guaranteed in the NPLs. But just thoughts on where the net charge-offs and provision might go in 2026? And then if you have any update on the floor plan loan that had been given you guys some issues where that stands at the end of the quarter as well. Thomas Michael Price: Yes. The charge-off guidance we normally give is 25 to 30 basis points. And the floor plan credit, we have maybe $1.5 million left to resolve. Is that right, Brian? Brian Sohocki: Yes, I'll jump in there. Thanks, Mike. First, I'll just start in the fourth quarter for the dealer floor plan loan. We ended the year with a $2.5 million outstanding balance. So we're nearing resolution with just a number of [ cards ] left in the liquidation process. There was no additional reserve as noted previously, and we have just a small release, about $80,000 in the quarter. Since you mentioned the net charge-offs, there was a $2.1 million charge in the fourth quarter related to the dealer floor plan loan and also within that 47 basis points that was reported on an annualized basis. And I concur with Mike's guidance on the forecast moving forward. Daniel Tamayo: Okay. Great. And as it relates to the provision or reserves, with the reserves coming out over the last couple of quarters, does this feel like a pretty good run rate for stability, just over 130, or do you think that still can trickle down? Brian Sohocki: Yes. I wouldn't say there's any change in our philosophy. Credit costs remain manageable. Reserve levels remain strong, consistent with peers, slightly ahead in some cases at the 132. Where we've seen emerging stress, we've already responded, whether that's through the specific reserves in prior quarters. We've kept our qualitative overlays in place. And overall, comfortable that the reserve is just appropriate, reflecting where the risk is in the portfolio. Daniel Tamayo: Okay. And maybe just changing gears here, but just as it relates to the loan sale that you're expecting here probably near term, is that something you could see happening more in 2026 in terms of additional loans being moved off the balance sheet? Or is this kind of a one-off situation that you don't see recurring? Thomas Michael Price: It's more of a one-off. We really withdrew from that market, our branches and kind of our C&I commercial banking depository ground game. And about 2 years ago, we sent customers letters, and this is kind of really one of the last acts of the play. Mike McCuen is our Chief Banking Officer. He's on the line. Do you want to add anything for Daniel, Michael? Michael McCuen: No, I think you covered it, Mike. Taking those resources that Jim alluded to, investing in the other markets that we have retail locations makes all the sense in the world for our business model. Daniel Tamayo: Okay. Terrific. Appreciate it. Thomas Michael Price: Thank you. Operator: Your next question comes from the line of Karl Shepard from RBC Capital Markets. Karl Shepard: Congrats, Jane. I guess I wanted to start on your loan growth expectations. It looks like you had pretty good production in some of the segments maybe you're targeting, and then you had the payoff headwind. So I guess just kind of what's the buildup for loan growth in '26, and just kind of just talk about maybe health of the pipelines and what you're seeing in your markets? Thomas Michael Price: Yes. I think -- last year, we grew 8%, 5% without Center Bank. And I would expect that kind of loan growth to continue, although we really had elevated payoffs probably in excess of over $200 million from the second half of the year to the first half of the year. So that created some palpable headwinds. We feel like our business banking, mortgage could have a good year, although we'll sell that. And really, we just feel good about our commercial pipelines, commercial real estate and elsewhere. We had really let our construction portfolio attrite, and we feel that is going to build and add probably $20-plus million of drawdowns a month. We feel like we're well positioned. Typically, the first and the fourth quarter are a little slower for us than the second or third, and that's where we get most of our loan growth in a given year. But the payoffs are indeed a little elevated. And -- but I suspect just like we were here last year, I think we probably guided to maybe 5% to 7% and we've got to 5%. And that's, again, without the center bank. And I think we're well positioned. And our teams are maturing, and we're just -- I think we get a little better every year. Karl Shepard: Okay. And then I guess maybe one for Jim. Just on the buyback, quite a bit of authorization out there now and the stock is a little bit higher than maybe where it was in 4Q when you're active. Just how do you want us to think about that? James Reske: Yes. It's really more about capital deployment right now. There is a price sensitivity to it. We always operate on a grid so that we can -- and we use the same words every time. We want to keep a little bit of dry powder available if prices dip. That's kind of why if you look back in calendar year 2025, for a good part of the year, we weren't buying back anything. And then the later part of the year, we stepped up the buyback. So right now, the capital ratios, we're just generating so much capital to easily self-capitalize loan growth at the level we wanted. So if our future guidance is mid-single digits. We're generating far more capital than it takes to capitalize that kind of loan growth. And so we don't want to -- and I'll repeat myself because I know we said this before, but we don't want to accelerate loan growth beyond what we think we can organically do. We do it at the right pace for our region, for our credit appetite, for our demographics based on the rate environment. For all those reasons, the loan growth rate is where we want it to be. And then we still generate a ton of capital. And so we have to do something with that other than just let the capital ratios go up, up, up. So that's why we are doing the buyback, and we'll continue to do more this year. Operator: Your next question comes from the line of Kelly Motta from KBW. Kelly Motta: Congrats, Jane, on your retirement. Just to start off, I'd love to kick it off on margin. It came in quite a bit above where I had been expecting. You guys noted you had some payoffs. I'm just wondering if there was any loan fees in there or if that's a good run rate to go off of. And as we look ahead, I appreciate the commentary about the reinvestment from the HFS portfolio when that closes, but how we should be thinking about these dynamics here? James Reske: Yes. Kelly, it's Jim. Great question. Thanks. Yes, we were really pleased with the margin performance this quarter as well. We -- you recall last quarter, we were giving guidance that we expected a dip. And first thought when we saw the margin coming in so strongly was is the dip actually happening the way we thought it was going to happen. And it did. It did. So the rate cuts hit the variable rate loan portfolio, the SOFR-based loan portfolio took that down. But you nailed it. We had some other things that offset that. And the part you nailed is we had some payoffs; we had some paydowns in loans that were previously on nonaccrual status. And when we did that, some of the previously -- we recognized interest on those loans that have been on nonaccrual. And so that -- and some other factors together work together to offset that hit we took in the variable portfolio and kept the margin performance really strong in the fourth quarter. But looking ahead, we think that the Fed cut rates a couple of times here in the fourth quarter in December. That's not fully reflected yet. We're going to feel that in the variable -- in the SOFR-based loan portfolio, the variable portfolio. So that's going to hit in the first quarter, dip it down a little bit. But then all the other factors that have been working to keep it going strong, the continued upward repricing of the fixed rate loans, the macro swaps coming off the book here, the remainder of that in 2026, including a big chunk in May, that will really help keep the margin up. And so that's why we kind of have this forecast of drifting upward to around the 4% level in 2026. So I hope that gives you some additional color. Kelly Motta: No, that's super helpful. Maybe turning to the expenses. Q4 it was up about $1.5 million, I think. Just wondering if that was just kind of year-end true ups. And then as we think ahead, how you guys are -- it seems like you're calling for pretty strong margin here, solid loan growth. So as we look ahead, your expectation for expenses, any places you're hiring and how we should think about that run rate? Thomas Michael Price: Just the efficiency was certainly on the back of the revenue side. We're normally very, very good at the expense side and maintaining operating leverage, and we have a nice little chart in our investor deck that shows that we're pretty good at putting our shoulder to the wheel. And we'll need to do that in hustle this year, watch our FTE count closely. That being said, we've invested pretty heavily in our commercial bank, our equipment finance group. And we expect more production there, and we expect for those investments to pay off for us. But we can do a little better job on the expense side as well. And we've invested pretty heavily, quite frankly, the last 2 years, I think, yes, $25 million or so... James Reske: Yes. Thomas Michael Price: Up over 2 years. And we were a little higher than we thought we would be, but that's just a matter of discipline, and we're a pretty disciplined group. James Reske: And Kelly, you mentioned the word true ups. There were a couple of things that were one-offs that hit us in the fourth quarter that are not part of our thinking going forward. So we have some contract terminations and some other things in addition to what we said in our prepared remarks about filling open positions that what Mike talked about, about the staffing increases. So a couple of those one-offs are not in our future forecast for operating expense going forward. Operator: Your next question comes from the line of Matthew Breese from Stephens Inc. Matthew Breese: I had a couple of questions. Maybe first starting with the NIM. It sounds like the guidance is calling for around a 4% NIM by the end of the year. And I'm usually just a bit skeptical of the sustainability of 4% NIMs. And one thing we've been hearing a lot about this quarter is spread compression, both on the C&I and CRE front. And so I guess I had a 2-part question, which is, one, how does the pipeline yield look? And what are you getting for spreads on new C&I and commercial real estate business? And then maybe just touch on expectations around deposit costs for 2026? Thomas Michael Price: Yes. I'll hand it over to Mike McCuen in a minute for the loan expectations. But I mean when I look at our commercial variable and the new stuff we're putting on, it's 7.3% in the last quarter and commercial fixed is in the high 6s, even our indirect is in the high 6s. So -- and that's like kind of at that 2.5-year point on the shoulder of the yield curve, and we like that. And so I don't know, replacement rates still look good. Even with rates down this past quarter, our commercial variable, the replacement rate was low, but nevertheless, it was still positive. James Reske: Yes. I think just I'll interject quickly, and then Mike McCuen and turn it over to you for just thoughts on the market and the spread and the spread compression to give that kind of real-time color. But in the fourth quarter, we didn't see a real differential on the rates that were for the variable rate portfolio, the ones that are coming on and coming off. So that said like from -- in the aggregate, there wasn't an evidence of a lot of spread compression in that portfolio. As Mike was talking about is all the fixed rate loans still nicely repricing upward. And because those are all repricing towards the middle of the curve, if the yield curve inflects a little bit, that drop at the short end, won't affect that dynamic a whole lot. And I think, Matt, we talked about that before. So -- but that -- just the variable rate portfolio, the ones that came on, came off, it was like a 1 basis point differential in the fourth quarter. So not a lot of evidence on that macro level of spread compression, but I'll turn it over to Mike for [indiscernible]. Michael McCuen: Yes. Just to answer specifically on the segments. I would start with our business lending to the family-owned owner-operated business. We put a real focus on that about a year ago. And we're seeing healthy growth in that segment. I would say that's a prime, the prime plus based business. I don't see that changing from a spread perspective. Secondly, the equipment finance group, if they're doing mostly fixed rate loans. Their yields are holding up pretty well. And then thirdly, I would say the commercial real estate business, that's a little trickier because as probably you've heard from others, the agency markets, the insurance markets are very aggressive these days. We have a pretty healthy pipeline, and we have a number of construction loans that are converting to permanent markets. The balancing act is those spreads are compressed, and we're trying to maintain our discipline around the real estate business, not just from a rate perspective, but also from a structure, term, recourse, all those things that go into those decisions, as our construction loans roll off, we have every chance to match those rates. We, in many cases, choose not to and let those move on, and then grow the construction loan portfolio, which, by the way, is up around $120 million over the last year, and that will lead to future funding. So that's a quick snapshot of why we're a little more comfortable based on the segments that we play in versus large corporate investment grade, things like that. Matthew Breese: Got it. Okay. So it still sounds like you're putting on loans accretive to where the average yield is, and I'm assuming there's still some room to reprice deposits down. I guess, Jim, as we look to 4Q '26 and beyond, do you feel like there's momentum to carry the NIM above 4% as we get into 2027, all else equal? James Reske: Yes. But -- I'll borrow the phrase everyone says that the crystal ball gets fuzzy that far out. And we usually don't give guidance that far out anyway. But I know we've talked about this before. If we look ahead in the projections, and again, it's really funny. So I'll hedge that again. The NIM would hover in the low 4s in 2027 in the current projection. So it depends on lots of factors and lots of things could change by between here and then. By then, our macro swaps will be fully off, and so we'll have the benefit of that. We think there's room to drop the deposit rates a little more. We've been pretty thoughtful about that, watching the rates in the market that have been around us. We -- in 2025, that was a big issue. We thought it would be very difficult to fund the loan growth with deposit growth and drop rates at the same time. And yet we did it very successfully in 2025. So we kind of think there's -- we think we can continue that in 2026 as well. That will help the margin as well. Matthew Breese: Got it. Okay. And then last one before I'll hop back in the queue. I feel like you laid a few breadcrumbs on the stock buyback front. At least in the very near term, the next 1 or 2 quarters, should we be penciling in $25 million, $30 million in buybacks per quarter? James Reske: It's hard for me to definitively say it in the next 2 quarters because it's not entirely dependent on the stock price, but it's sensitive to the stock price. So if the price shoots up, we'll slow the buyback down and it would not all be in the first half. If the price stays where it goes lower, then it -- a lot of it will be in the first half. Even then, though, it may not all be in the first half. It will be -- we intend to use the authority and be fairly aggressive with it overall, but there's still price sensitivity to it. Operator: [Operator Instructions] Your next question comes from the line of Manuel Navas from Piper Sandler. Manuel Navas: On the NIM, how big of a dip are we looking at this first quarter? Did you discuss how much the -- I might have missed it, how much the NPLs benefited the NIM this quarter, like a dollar amount or basis point in the NIM? Just trying to quantify what's going to come out of the NIM next quarter? James Reske: Yes. The NPLs were uphold was about 3 basis points of total impact on the NIM. It was a little bit bigger. I just say the impact on that one portfolio because we spent a lot of time looking at the variable rate portfolio in the fourth quarter to say why didn't it -- the yield on that portfolio dropped the way we thought it was going to drop. And the answer is what I said before, it did drop for the effect on SOFR, but it was offset, I think, by the nonaccruals and a couple of other factors, too. But the overall effect on the total NIM for the nonaccruals coming back was about 3 basis points for the fourth quarter. [indiscernible] what was the other part of your question? Manuel Navas: And then from there, how big of a dip that we are looking at in the first quarter? James Reske: Yes. The amount of the dip, we think is anywhere from 5 to 10. And I'm hedging that way because we always hedge our forecast because they're always within 5 or 10. I think -- yes, on the model going forward. And then it drifts upward around 5 basis points a quarter. It ends up not quite 5 basis points a quarter, but it drifts upward enough to end the year at around 4%. Manuel Navas: And as those loans are sold, your loan-to-deposit ratio ex those loans is like in the low 90s, you could be a little more aggressive on deposits, right? James Reske: Yes, and yes. Thank you for [indiscernible] that. That's a big part of our thinking actually. We're happy to see that loan-to-deposit ratio. And then these were securities we buy will be current rates; they won't be underwater. So they're perfectly available to sell as liquidity to fund loan growth we wanted to, of course, we have ample borrowing capacity. So it's not -- liquidity is not an issue, but it does give us a little more liquidity, a little more dry powder to fund future loan growth, and then also not be so aggressive at the margin on deposit rates to fund the loan growth. Thomas Michael Price: We're probably 2/3... Manuel Navas: Are there some other -- go ahead. Thomas Michael Price: No, we're probably 2/3 of our peers in terms of the deposit beta over the last year in terms of cost of deposits. So if they're down 33%, we're down about 22%. And we've done that on purpose, and we've really -- probably kept them a little higher than we could because we wanted the growth, and we didn't want the borrowings. And so we achieved both. And that's kind of the balance. But I think there's probably in the long run, if rates go down, more downward opportunity. But we'll keep trying to grow the deposits. The other thing is it also has to be a game of acquiring new accounts, noninterest-bearing, new checking, and we're trying to -- and we have a sales force that under Jane's leadership and Mike's leadership has really delivered that for us. And we'll continue to beat that, [ down ]. Manuel Navas: Are there other impacts from the sale of these loans across OpEx, across -- you're more focused away from the filling area? Are there other impacts in the loan loss reserve? Anything that -- in those areas that we can start to plan for now? James Reske: I'll give a financial answer. The impacts on loan loss reserve that marks, all that was felt in the fourth quarter. That's all reflected in the financials already. Just in terms of operational expenses there's not much. We've already -- we have a couple of physical locations that we exited a while ago. So there's nothing further from a facilities expense standpoint to come. But it does allow management bandwidth to refocus on other areas. And Mike, I'm in the queue, and I don't know if you want to comment on that more, that's more of -- how we run the business of... Michael McCuen: No, we -- I mean, Philadelphia is a great market. It's also very greatly competitive, and we would not be -- the investment to really compete the way we would like be too great, and that money can be used in other markets for producers, physical locations where we already have really good presence, and we want to grow those. So it's just a trade-off we made. And I think we'll see more profitable growth in some of those markets than we otherwise would. But nothing against Philadelphia. It's a great market. It's just there's a lot of competitors there. James Reske: And Manuel.... Manuel Navas: Sorry. Go ahead. Go ahead. James Reske: Yes. Just from a financial effect, these were already in relationships, so we were deciding to exit it. So it was kind of a slow bleed on the loan growth. It was a net against other loan growth. So that will be removed now that we've moved them into held for sale. Manuel Navas: I appreciate some of the extra commentary. James Reske: You bet. Operator: Your next question comes from the line of Matthew Breese from Stephens Inc. Matthew Breese: Again, I just had one more, but I want to be cognizant of everybody. The securities book has been in this kind of 3.50% to 3.65% range, but yields have been down for the last couple of quarters. Jim, you had mentioned buying some at-the-market type securities with the HFS portfolio. So I'm assuming that's like a 4.75% pickup. And then -- so I was hoping for maybe securities yields outlook for the first quarter. And then cash flow estimates for the year, I would think at some point here, either late this year or next year, we start to see a more aggressive pickup in securities yields, but was hoping for some help there. James Reske: Yes. No, it's a great point. The portfolio has a duration of between 4 and 5 years. So that right now, the philosophy is just replace the runoff. And the opportunities we get, the number I gave a moment ago when I talked about reinvestment, the reinvestment of the HFS loans upon a sale of consummated into securities was assuming a repurchase rate of about 4.5%. But you're right, we just looked at the other day, we see some opportunities like more in the high 4s. It depends day to day, but I was using a 4.5% rate just as a rule of thumb right now. But you see some pickup and [indiscernible] some opportunities for some [indiscernible] no investments that are more like 4.75% right now. So that will naturally allow the securities portfolio to drift upward as well. It's -- we're not -- the position it holds in the balance sheet right now is not where we want it. And so we're not really expanding it. We're just replacing it well. Does that help? Matthew Breese: Yes. I'm just curious, is that 4- to 5-year duration, is that good to use for 2026? I haven't quite done the math yet on what that means for quarterly cash flows, but... James Reske: Yes. And I don't -- yes, I don't have any... Matthew Breese: It could be lumpy sometimes. James Reske: Yes. Yes, it can be. And obviously, a lot of those are mortgage-backed securities. So a couple of years ago, rates fell that duration is all extended. Let me see if I have the duration of the securities portfolio right now. Right now, the duration of the securities portfolio is actually only 4.28%, 4.28% in the fourth quarter. So there should be some repricing opportunities as that rolls over. Matthew Breese: Okay. Operator: That concludes the question-and-answer session. I will now turn the call back over to Mike Price, President and CEO, for closing remarks. Thomas Michael Price: Thank you, as always, for your interest in our company. Great questions. I look forward to being with a number of you over the course of the next quarter. And we're excited about the future of our company. We're excited to grow it, maintain operating leverage, add to our fee businesses. That's a big goal. In our regional model, really deliver good low-cost deposit growth in each of our markets to fund. I think our -- we have enough diversity of lending businesses, I think we're less worried about growing the loans long-term than funding them with low-cost core deposits. So thank you for your time today, and stay warm. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may disconnect.
Operator: Good day, and thank you for standing by. Welcome to CONMED Corporation's Fourth Quarter Fiscal 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. Before the conference call begins, let me remind you that during this call, management will be making comments and statements regarding its financial outlook, its plans, and objectives. These statements represent the forward-looking statements that involve risks and uncertainties as those terms are defined under the federal securities laws. Investors are cautioned that any such forward-looking statements are not guarantees of future events, performance, or results. The company's actual results may differ materially from its current expectations. Please refer to the risk and other uncertainties disclosed under the forward-looking information in today's press release as well as the company's SEC filings for more details on the risks and uncertainties that may cause actual results to differ materially. The company disclaims any obligation to update any forward-looking statements that may be discussed during the call, except as may be required by applicable law. You will also hear management refer to non-GAAP or adjusted measurements during this discussion. While these figures are not a substitute for GAAP measurements, management uses these figures to aid in monitoring the company's ongoing financial performance, from quarter to quarter and year to year on a regular basis, and for benchmarking against other medical technology companies. Adjusted net income and adjusted earnings per share measure the income of the company, excluding credits or charges that are considered by the company to be special or outside its normal ongoing operations. These adjusting items are specified in the reconciliation supporting the company's earnings releases posted to the company's website. With these required announcements completed, I will turn the call over to Patrick J. Beyer, president and chief executive officer for opening remarks. Mr. Beyer? Patrick J. Beyer: With me today is Todd W. Garner, our Executive Vice President and Chief Financial Officer. Good afternoon, and thank you for joining us for CONMED Corporation's fourth quarter 2025 Earnings Call. I'll start and provide you with an overview of our fourth quarter and full-year results, and then share updates on our strategic priorities. Todd will then take you through the financials and our 2026 guidance in more detail before we open up the call for your questions. Before I dive into the quarter, I'd like to recognize the continued dedication of our global team. Their commitment to our mission, to our customers, and to one another is evident in every part of our company. I'll start by briefly reviewing our fourth quarter and full-year results. Total sales for the quarter were $373.2 million, representing a year-over-year increase of 7.9% as reported and 7.1% in constant currency. For the full year, sales were $1.375 billion, representing year-over-year growth of 5.2% as reported, and 5.1% in constant currency. Orthopedic sales increased 12.1% in the fourth quarter and 5.5% for the full year on a constant currency basis, and general surgery sales increased 3.8% in the fourth quarter and 4.7% for the full year in constant currency. Fourth quarter adjusted earnings per share of $1.43 grew 6.7% while full-year adjusted EPS of $4.59 grew 10.1%. Earlier this month marked my first anniversary as CEO of CONMED Corporation. Over the past year, through extensive discussions with internal and external stakeholders that culminated in a comprehensive portfolio review, my conviction in where CONMED Corporation can win has only strengthened. We win where innovation and minimally invasive surgery converge in robotic and laparoscopic surgery and smoke evacuation, and in orthopedic soft tissue repair. These are high-growth, high-margin markets, where we are uniquely positioned to lead with our differentiated products and strong commercial teams. As part of that portfolio review, in December, we announced the decision to exit our gastroenterology product lines. While this creates some near-term earnings dilution, the move aligns with our resources tightly to our strongest growth drivers and is expected to improve our long-term consolidated growth margin profile by approximately 80 basis points once complete. This was a thoughtful and strategic decision that positions CONMED Corporation to deploy capital and talent where we create the most value. When I stepped into the CEO role, it was clear that we needed to resolve the chain constraints in sports medicine that had weighed on the growth of our orthopedics portfolio. We put the right focus and resources in place, people, planning, and production. We engaged a top-tier outside consultant, invested in infrastructure, and are building out a strong operations team. We made meaningful progress in 2025, culminating in our strongest growth quarter of the year in the fourth quarter. We ended the year with our backorder value and number of SKUs on backorder at a three-year low. And we continued to make additional progress in the first quarter. We are not yet at our goal of operating a world-class supply chain. But we have made significant progress and are at a point where our sales force can once again be proactive with our growth drivers. Looking forward, we view the work ahead across two primary objectives. The first is to stabilize and scale. Build reliable, repeatable processes that give us sustainable supply resiliency and enable our teams to be on offense. We have made meaningful progress here. The second, longer-term, objective is to build a high-performance supply chain that is agile, data-driven, and capable of supporting sustained innovation. Completing the second objective is what we believe will allow us to deliver sustained above-market growth in our orthopedic portfolio over time. Now turning to our three high-growth platforms. I'll start with AirSeal, our clinical insufflation system, used in robotic and laparoscopic surgery. AirSeal was used in approximately 1.6 million procedures in 2025, reflecting its established role in complex surgical cases with a clinical benefit of stable, low-pressure insufflation are most pronounced. Utilization in robotic surgery remains in line with expectations with consistent engagement from surgeons who value its clinical profile. The expansion of the robotics market outside the US and into lower-cost settings, such as ambulatory surgery centers, represents an additional opportunity for AirSeal. These environments are well aligned with the clinical and economic benefits AirSeal delivers and we expect them to play an increasingly important role in our long-term growth. We continue to see meaningful white space in traditional laparoscopy. In the US alone, there are more than 3 million laparoscopic procedures performed annually and AirSeal today is utilized in only about 6% to 7% of cases. As we scale our commercial efforts and drive greater awareness of the clinical and economic benefits that mirror what we've demonstrated in robotics, we believe that laparoscopy represents a substantial long-term growth lever. Taken together, these dynamics reinforce our confidence that AirSeal can deliver high single digits to low double-digit rate growth over the long term. Which is what we saw in both the fourth quarter and the full year 2025. Next, I'd like to turn to Buffalo Filter which remains one of our most compelling long-term opportunities. Surgical smoke evacuation is now recognized as a billion-dollar plus potential global market, yet is still in the early stages of adoption. Today, 20 US states representing approximately 51% of the population have enacted smoke-free operating room legislation, and we continue to see steady progress internationally. Including early momentum across the Nordic countries and Canada. We are also leading the market with product innovation. Our next-generation PlumeSafe x5 launched in 2025, delivers significantly enhanced performance, quieter operation, and faster, more efficient smoke clearance strengthening our competitive position and expanding the clinical and economic value we bring to customers. Our third high-growth platform is BioBrace. Which has become a signature element of our sports medicine strategy. BioBrace is now used across more than 70 unique procedures demonstrating both the breadth of the surgical adoption and the versatility of the technology. Our BioBrace RC delivery system repair more reproducible, launched last year has further strengthened this momentum by making rotator cuff repair more reproducible and expanding access to a broader set of surgeons. Clinically, the BioBrace platform is backed by a growing body of evidence. Our 268 patient randomized control trial remains on track to complete enrollment in 2026 with publication expected in 2027. And as of 2025, the American Academy of Orthopedic Surgery guidelines recommended augmentation for rotator cuff repair. We are also seeing increasing utilization of BioBrace in foot and ankle procedures where surgeons are recognizing the same benefits in strength, healing, support, and workflow efficiency. Expect this trend to continue as BioBrace becomes further embedded across a wider range of soft tissue repairs reducing revision rates and promoting faster healing. Turning to the balance sheet. Our strong cash engine brought leverage to 2.9 times in the fourth quarter, giving us the flexibility to lean into innovation, growth, and capital returns. As we announced in the third quarter, our Board suspended our dividend and approved a $150 million share repurchase authorization. Historically, the dividend represented roughly $25 million annually and deploying at least that level into repurchases equates to approximately 7¢ of EPS in 2026. Importantly, we view this as a minimum, not a ceiling. Taken together, our financial strength, our operational progress, and the potential of our growth platforms give us confidence in the path forward. Our focus remains clear. Getting CONMED Corporation back to above-market growth, we will do this by leaning into our core strengths, continuing to normalize supply and sports medicine, operating with discipline and focus, and investing in high-growth high-margin platforms. I'm proud of our progress in 2025, and energized by the opportunity ahead. Before I turn the call over to Todd, I want to briefly address the CFO transition we announced earlier this month. Todd and I have been discussing long-term leadership structure and alignment for some time. And together, we concluded this is the right moment for both him and for CONMED Corporation. Todd will remain CFO through the transition, and will then move into an advisory role ensuring continuity while we complete a comprehensive search for our next CFO. He has been instrumental in strengthening CONMED Corporation's financial foundation over the past eight years. And on behalf of our board, and our entire leadership team, I want to thank him for his partnership, contributions, and unwavering commitment to CONMED Corporation. With that, I'll turn the call over to Todd, who will provide a more detailed analysis of our financial performance and discuss our 2026 financial guidance. Todd? Todd W. Garner: Thank you, Pat. It's been an honor to be CONMED Corporation's CFO and working with you focused on delivering for our shareholders. I'm committed to a smooth transition with a continued focus on what is best for CONMED Corporation and our shareholders. All sales growth numbers I reference today will be given in constant currency. The reconciliation to GAAP numbers is included in our press release. As usual, we have included an investor deck on our website that summarizes the results of the quarter, the year, and our financial guidance. For 2025, our total sales increased 7.1%. For Q4, our sales in the US increased 1.4% versus the prior year quarter and our international sales grew 15.4%. Total worldwide orthopedic sales grew 12.1% in the fourth quarter. In the US, orthopedic sales grew 6.6% and internationally, sales increased 15.7%. Total worldwide general surgery sales increased 3.8% in the quarter. US general surgery sales declined 0.4% while internationally general surgery sales increased 14.8%. The decline in the US was driven by our OEM smoke evacuation SKUs, which we've been clear as a nonfocus area for us. The second biggest decline in the US general surgery in Q4 was related to strategic portfolio management within our energy platforms. As you've heard from us, we're increasing focus on our growth drivers, and as Pat said, AirSeal grew globally within our expected range, with positive demand in the US. For the full year 2025, our total sales increased 5.1%. For the full year, our US sales grew 3.5% and international sales grew 7.1% versus the prior year. Total worldwide orthopedic sales increased 5.5% for the full year 2025. In the US, orthopedic sales grew 2.3%, and internationally orthopedic sales increased 7.6%. Total worldwide general surgery sales increased 4.7% for the full year 2025. US general surgery sales grew 4%, while internationally, surgery sales increased 6.4%. Now let's move to the expense side of the income statement. Discuss expenses and profitability in the fourth quarter and the full year, excluding special items, which are detailed in our press release. Adjusted gross margin for the fourth quarter was 56.6%. Down 100 basis points from the prior year period driven by the expected tariff impact. For the full year, adjusted gross margin was 56.4%, an increase of 10 basis points over 2024 despite the new tariffs. Adjusted research and development expense for the fourth quarter was 3.8% of sales, the same as the prior year quarter. For the full year 2025, adjusted R&D expense was 4% of sales, 20 basis points lower than 2024. Fourth quarter adjusted SG&A expenses were 35.6% of sales, the same as the prior year quarter. For the full year, adjusted SG&A expenses were 37.1% of sales also the same as 2024. On an adjusted basis, interest expense was $5.8 million in the fourth quarter, and $25.4 million for the full year. The adjusted effective tax rate in Q4 was 25.7%. For the full year, our adjusted effective tax rate was 24.9%. Fourth quarter GAAP net income was $16.7 million compared to $33.8 million in 2024. GAAP earnings per diluted share in Q4 were $0.54 this quarter compared to $1.00 a year ago. For the full year, GAAP net income was $47.1 million compared to GAAP net income of $132.4 million in 2024. GAAP earnings per diluted share were $1.51 in 2025, compared to $4.25 in 2024. Excluding the impact of special items discussed earlier, our Q4 adjusted diluted net earnings per share were $1.43, an increase of 6.7% compared to the prior year quarter. In the fourth quarter, we reported adjusted net income of $44.4 million, an increase of 6.2% compared to 2024. For the full year of 2025, we reported adjusted net income of $143.1 million, an increase of 10.1% compared to 2024. Our full-year adjusted diluted net earnings per share were $4.59, also an increase of 10.1% compared to the prior year. Turning to the balance sheet. Our cash balance at the end of the year was $40.8 million compared to $38.9 million as of September 30. Accounts receivable days as of December 31 were sixty days, the same as the end of Q3 and two days lower than a year ago. Inventory days at year-end were 207 compared to 191 at September 30 and 211 days a year ago. Long-term debt at the end of the year was $834.2 million versus $853 million as of September 30. Our leverage ratio on December 31 was 2.9 times. Cash flow provided from operations in the quarter was $46.3 million compared to $43.3 million in 2024. Cash flow provided from operations for the full year 2025 was $170.7 million compared to $167 million in 2024. Capital expenditures in the fourth quarter were $5.1 million compared to $4 million a year ago. For the full year, capital expenditures were $19.8 million in 2025, compared to $13.1 million in 2024. Now let's turn to financial guidance. Let's start with revenue. We're guiding the full year reported revenue between $1.345 billion and $1.375 billion, which represents constant currency organic growth between 4.5% and 6% with FX tailwind between zero and fifty basis points. We've provided the detailed assumptions in our investor deck in conjunction with this call. That deck also shows the moving pieces in adjusted gross margin from 2025 to 2026. We're guiding a net improvement of 50 to 100 basis points for the full year. Despite digesting headwinds from incremental tariffs between 100 and 110 basis points. The improvement is driven by our continued strong organic mix tailwind and cost improvements. We expect adjusted SG&A expense as a percentage of sales to be between 38% and 38.5% in 2026. The increase is due to lower sales because of the GI exit, and increased investments to accelerate our key growth drivers. We expect full-year adjusted R&D expense in 2026 to be between 4.5% and 5% of sales. This represents increased investment to support our key growth drivers. Based on current forecasts of interest rates from our banking partners, we expect adjusted interest expense to be between $25 million and $27 million in 2026. This includes room for debt refinancing midway through the year. We expect the adjusted effective tax rate to be in the mid-24% range in 2026. We are guiding adjusted EPS to be between $4.30 and $4.45 in 2026. We've provided the detail of the moving pieces in our investor deck. The significant headwinds are $0.45 to $0.50 from the GI exit, and $0.30 to $0.35 from the incremental tariffs. We estimate currency to be a tailwind of about 10¢. With the initiatives we have underway, we expect full-year operating cash flow in 2026 to be between $145 million and $155 million with capital expenditures in the $20 to $30 million range. Putting free cash flow around $125 million for the year. We project adjusted EBITDA between $255 million and $265 million for 2026. For Q1 specifically, we expect reported revenue between $308 million and $313 million. We expect adjusted SG&A expense in Q1 as a percentage of sales to be the highest quarter of the year and above the range we guided for the full year. We expect adjusted EPS in Q1 to be between $0.80 and $0.83. The 2026 plan is built to strengthen the portfolio by increasing the focus and investments on our key growth drivers. As Pat said, our financial strength, our operational progress, and the potential of our growth platforms give us confidence in the path forward. With that, we'd like to open the call to your questions, and I'll hand it back to the operator. Operator: Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again. You will be limited to one question and one follow-up. Our first question comes from Vikramjeet Chopra with Wells Fargo. You may proceed. Vikramjeet Chopra: Hello. Thanks for taking the questions. Todd, thanks for all your help over the years. Really, I enjoyed working with you. So I appreciate the call you gave on Q1, but perhaps can you talk about how you see the rest of the year playing out from a cadence standpoint? And any selling day differences to highlight for the year? And then I had a quick follow-up. Todd W. Garner: Yeah. No selling day differences. Thankfully. All the quarters were looked the same. You know, of course, we're all around the world. Right? And so there could be some rounding, but they all round to the same number of days for the quarters. And I wouldn't call anything out other than, you know, normal seasonality that we're typical, but as med tech plays out through the quarters. So we called out Q1 and I would say the rest of the year should follow, you know, the normal sequence that the med tech calendar does. Vikramjeet Chopra: Great. And my follow-up question is for Pat. Pat, can you maybe just talk about where you are with the CFO search? I'm sure they're pretty big shoes to fill, and maybe talk about what you're looking for in a new CFO. Thank you. Patrick J. Beyer: Vic, appreciate the question. And, again, it is an important role for the company. We've been blessed to have Todd as our CFO at CONMED Corporation for eight years, and I've been lucky to have him as a teammate. We are actively searching now. I'm looking for a CFO that exhibits the same dynamics that Todd did, which is a CFO that will be focused on shareholder value accretion, will be a great teammate to the leadership team, and will be a steward of the CONMED Corporation shareholders that we have. Thank you. Operator: Our next question comes from Robert Marcus with JPMorgan. You may proceed. Robert Marcus: Oh, great. Thanks for taking the questions. Two for me. Todd, I just wanted to ask on the slides you showed at our Healthcare Conference and the slides you showed today, different organic revenue numbers, same similar growth rates but different organic revenue numbers. Maybe you could just walk through that. And then I had a follow-up. Todd W. Garner: Yeah. Absolutely. Robbie, your conference was, I think, on the fifth business day of the year. So the final 2025 numbers were still rolling up. What we guided was in the neighborhood of 4% to 6% organic constant currency growth at your conference. As the final 2025 numbers come into play and that's now the base, we landed at four and a half to six. Which is just more precise. So I would say at your conference, we were a little wider on the characterization, and now we're a little more precise with the final 2025 numbers and the specific 2026 pieces of how it all lays out. Robert Marcus: Great. Then a follow-up. It looks like versus The Street, you beat pretty handily in ortho and missed in surgery. I was hoping you could just talk through what drove the ups in ortho, what drove the downside, and how you're thinking about the two different businesses throughout 'twenty six? Patrick J. Beyer: Robbie, thanks for the question. Pat here. I'll take that. Again, we feel good about both pieces of our portfolio. Again, soft tissue augmentation and sports medicine repair is a strong platform for us, and robotic and laparoscopic innovation platforms also continue to be a strong platform for us. I'll take the orthopedic side first. We really had four things, Robbie, I would call out on the side. So how did we beat? Number one, I would just level set everybody. The base of our ortho performance is a group of committed sales professionals that have continued to support our clinicians tirelessly through the supply chain challenges we've had. So when you have that, and then you have the benefit of an improving supply chain, continued strength of BioBrace, and we've got a positive benefit of some of the clinical solutions CONMED Corporation has had approved in the United States that we're now getting those approved around the world. And in the fourth quarter, our European business was able to launch our AIM meniscal repair program, that had just been approved on it. So, really, three good things happening on the international on the global side for our orthopedic business. On the general surgery side, you know, Robbie, I want to confirm that our smoke and our AirSeal business performed in line with guidance that we've said it would do. Which is high single digits to low double digits. On the backdrop of that, the USA, GS growth was impacted by our continued execution on portfolio management. And focusing on our growth drivers. During the fourth quarter and during 2025, we've been doing heavy portfolio management. And we exited some minor products in the GS range. And we continue to focus on our direct smoke business. Those things will continue to evolve. But our focus continues to be accretive growth over the long term and continue to factor this approach into our guidance. And so we knew what we were doing in quarter four. We tried to include that in our guidance and, and their overall macro level for CONMED Corporation. Thank you. Operator: Our next question comes from Matthew O'Brien with Piper Sandler. You may proceed. Matthew O'Brien: Afternoon. Thanks for taking the questions. Todd, maybe just a follow-up on Robbie's question. And I'm trying to do this on the fly and get all these numbers correct. With that fax and the GI divestiture, but it just seems like the constant currency full-year number for CONMED Corporation is a little bit lower than what you said at JPM a few weeks ago. Am I doing the math on that wrong? Or is it just is it just a delta in terms of how you did versus the street in '25? That makes things maybe a little skewed in terms of how we're calculating things? Todd W. Garner: Yeah. It really is just the finish of five and then the mix between what's expected in the GI business going, you know, that's the only piece really, there's FX, and then the GI sales. So we got to the total dollar range that we gave at JPMorgan. But the pieces shook out just slightly when you add in the prior year starting point for both the GI business and the organic side of the business. Matthew O'Brien: Okay. But no change in the organic full-year expectation, no slowdown in the core organic number? Todd W. Garner: Yeah. Again, and again, I think we just spoke a little more generally at JPMorgan when we said, you know, the four to six range. And when you put a decimal point on that on the final numbers, including where 2025 ended, it rounds to four and a half to six. So it's just a little more precision in that communication today versus at JPMorgan. Matthew O'Brien: Got it. And then maybe for Pat, just going back to AirSeal. You know, it has decelerated from, you know, the 20% range down to high single digits to low double like you've mentioned. Still good growth there. Is that still a $20,250,000,000 business roughly kinda growing at that rate? And then the confidence in that growth rate going forward I know that traditional lap is underpenetrated. I get that, but, you know, robotic has been so easy, you know, to drive that growth. And then, you know, the ASC setting is a lower-cost setting generally. So and AirSeal is much more expensive than traditional insufflators. So you know, again, putting all that together, why are you so confident in the high single, you know, to low double-digit growth rate going forward? Thanks. Patrick J. Beyer: Matt, fair question and good question. Again, I'm not going to comment on the scale of specifically AirSeal. I will draw your attention to the investor deck which has a pie chart that kinda shows the AirSeal our direct smoke as a pie. So you see that it's a significant portion of the company. We also believe it's a high single-digit, low double-digit grower. Based on what we're seeing in the clinical performance and the clinical acceptance and demands from customers we're seeing globally. And we still feel really strongly about the two lanes that we can swim in there. Being the laparoscopic robotic opportunities we have globally, and the laparoscopic non-robotic procedures that we're seeing as an opportunity globally. And we continue to see those evolve and strengthen as the clinical outcomes that we're seeing with reduction in length of stay and reduction in pain continue to play out there. Thank you. Operator: Our next question comes from Travis Steed with Bank of America. You may proceed. Travis Steed: Hey. Thanks for taking the question. I guess there's still some people confused, Todd, because on the slides, if you look at the organic constant currency dollar number, it's about $100 million lower than it was at JPMorgan. So I just want to understand any way to kind of bridge that $100 million difference I think it was, like, $13.24 on the current slide deck versus $14.23 to $14.50 before? Todd W. Garner: Yeah. So the organic, you know, we communicated with 25 in the base, we were talking about organic from that base, which has GI in that base number. But, you know, as we move to 26 and GI is out of the number, we're now talking about the organic without that number. So that's really just and you'll notice if you go look at the JPMorgan deck, the GI impact was presented as a negative from that number. Right? But now the presentation is GI revenue as a positive number. So instead of taking the GI impact subtracted from that top number, you now have the true organic going forward with 20 in the 26 baseline. And then the GI sales as a positive of what we expect to sell in the GI business. So there is a difference in how it was presented. That's true, Travis. Thanks for that clarification. Yeah. I just want to make sure it was clear. And going forward, how will the GI be reported? Yeah. It'll be reported separately as we're doing it in this deck. Operator: Thank you. Our next question comes from Mike Matson with Needham and Company. You may proceed. Mike Matson: Yeah. Thanks. So I know there was a question on kind of the growth in general surgery versus orthopedics, but the other kind of difference I saw was US versus OUS. So OUS seemed particularly strong, whereas US was a little weaker. You know, taking both businesses into account, so can you maybe talk about what happened there? And then on the international side, was any of that kind of one-off, like stocking orders for distributors or anything like that, or is that just true kind of in demand? Patrick J. Beyer: Two things I'd say. Let's focus on the US general surgery. Again, when I talked about the portfolio management, the two items were the exited one of our small minor product lines that impacted the US more than international. And when I talked about focusing on our direct smoke business, our OEM business is in the United States. So those two items impact the US more than they do internationally. And no. International again, you're right to call out that we do have distributors around the world. But we're not in, you know, we don't stock distributors there. Distributors are managing their business at year-end. And the demands they have with their customers and their supply chains and their, economically around the world. And so it wouldn't have called that. But we did have a strong international fourth quarter. And it does cause us to pause and think about how Q1 will be internationally in that. Mike Matson: Yeah. Okay. You know, just given the supply chain, I didn't know if there were some backorders that you, you know, filled or something like that, but I understand what you're saying. So then I guess the other question would just be, you know, so you did the GI. It sounds like you did kind of a comprehensive review of the entire portfolio. So is there a potential to see any other exits or divestitures from here, or are you happy with what's left at this point? Patrick J. Beyer: Two things. You know, portfolio management is gonna be a continual, you know, operational execution that we will go through. When you that in quarter four in the United States where we exited a small product line. We feel really strongly about our growth platforms and our growth drivers today. That's something our portfolio review showed us. We feel strongly about our sports medicine tissue augmentation and repair market. And feel strongly about our laparoscopy, minimally invasive market. And we'll continue to drive at our growth drivers there. And today, we do not see any major portfolio management that would warrant signaling that like the GI opportunity we saw and was appropriate to do. Thank you. Operator: Our next question comes from Young Li with Jefferies. You may proceed. Young Li: Alright. Great. Thanks for taking our questions. Todd, great working with you and wishing you all the best going forward. I guess first question, just on AirSeal, is it possible to get a little bit more color about maybe OUS growth trends? Because, you know, tied a little bit less to DV5 and intuitive. And then also for the US laparoscopic opportunity, you know, underpenetrated, but how has that share capture or share gain been trending over the past few years? Patrick J. Beyer: Hi, Young. Pat here. You know, as we think of again, macro comments, I would say, AirSeal. It continued to perform in the range that we said. Globally. High single-digit, low double digits. The attachment rate to DV5 continued to be in the range that we said it would be between 10% and 20%. What we're seeing globally is these two opportunities we have laparoscopic and robotic pace itself differently. So we're internationally our business was more tilted towards laparoscopic, we're now seeing more XIs and the robotic opportunity present itself. And so we're expanding into that opportunity. In the United States, we've been more 3 million plus procedures annually in the United States. And the laparoscopic laparoscopy opportunity presents itself and we're moving more into that. We think of those four swim lanes being presented in two geographies. And they're not going to sequence themselves perfectly at the same time in each area, in each geography. But we see those as strong growth opportunities for us. That we're continuing to drive into. Young Li: Alright. Got it. I appreciate the comments. I guess, one on investments. You know, now that your leverage is below three, can you maybe talk about the appetite and interest in M&A again? Thoughts on valuation and the target environment out there. And then I think you also mentioned at JPMorgan a focus on organic investments. Maybe if you can talk about some of the things in the pipeline at a high level, that would be helpful. Patrick J. Beyer: Young, I'll comment some macro comments, and then turn to Todd if he has any other things. Again, we're continuing to look at M&A. And areas that we can, you know, technologies that we can tuck into the segments we're focused on. And so it's important that we continue to do that. We're also continuing to be prudent and pragmatic with internally investing organically. You would see in our in the earnings script, we talk about our investment into R&D. And we're spending more on that in 2026 than we have done historically as we continue to invest in these growth platforms that we feel strongly with. So I think what you're gonna see from us is a continued balanced approach there. You're seeing our leverage go down, which makes it more easier and more appropriate for us to consider and pursue external acquisitions. At the same time, I would remind you we've continued to tell the outside world we have not walked away from any M&A opportunity that we felt was the right technology or the right company to be in CONMED Corporation's hands. And we continue to follow that approach. Todd, anything I missed? Todd W. Garner: No. Think it's well said, Todd. I don't have anything to add. Operator: I would now like to turn the call back over to Patrick J. Beyer for any closing remarks. Patrick J. Beyer: Thanks, Josh. I want to thank everybody for joining us on our quarter four earnings call. We feel good about a strong quarter four for CONMED Corporation. We've had a solid 2025. We move into 2026 smarter and with a strong conviction to deliver on our commitments to our shareholders and the patients we serve in 2025 and 2026. Thank you very much. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions' Fiscal Second Quarter 2026 Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 a second time. Thank you. And at this time, I would like to turn the conference over to Vibhuti Nayar, Head of Investor Relations. Please go ahead. Vibhuti Nayar: Thank you, Abby. Good afternoon, everyone, and welcome to Viavi Solutions fiscal second quarter 2026 earnings call. My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions. With me on today's call is Oleg Khaykin, our President and CEO, and Ilan Daskal, our CFO. Please note this call will include forward-looking statements about the company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including the guidance that we provide during this call, and our expectations regarding the acquired business are valid only as of today. Viavi undertakes no obligation to update these statements. Please also note that unless we state otherwise, all results discussed on this call except revenue, are non-GAAP. Thank you, Vibhuti. Good afternoon, everyone. Ilan Daskal: Now I would like to review the results of the 2026. Net revenue for the quarter was $369.3 million, which is at the high end of our guidance range of $360 million and $370 million. Revenue was up 23.5% sequentially and on a year-over-year basis, was up 36.4%. Operating margin for the second fiscal quarter was 19.3%, above the high end of our guidance range of 17.3% to 18.5%. Operating margin increased 360 basis points from the prior quarter and on a year-over-year basis, was up 440 basis points. EPS at $0.22 was also above the high end of our guidance range of $0.18 to $0.20 and was up $0.07 sequentially. On a year-over-year basis, EPS was up $0.09. Moving on to our Q2 results by business segment. NSE revenue for the second fiscal quarter came in at $291.5 million, which is at the high end of our guidance range of $283 million to $293 million. Revenue from Spirent was $43 million, which was slightly below our expectation of $45 million to $55 million due to timing of certain opportunities. On a year-over-year basis, NSE revenue was up 45.8% as a result of the acquisitions of Inertia Labs and Spirent product lines. We also saw strong demand for lead and production and field products driven by the data center ecosystem. NSE gross margin for the quarter was 64.7%, which is 10 basis points lower on a year-over-year basis. NSE's operating margin for the quarter was 15.6%, compared to 8.7% during the same quarter last year. NSE operating margin was above the high end of our guidance range of 12.9% to 14.3%, primarily driven by higher fall through. OSP revenue for the second fiscal quarter came in at $77.8 million, slightly above our guidance range of about $77 million and was up 9.7% on a year-over-year basis. The increase in revenue for the quarter was primarily a result of strength in anti-counterfeiting and other products. OSP gross margin was 50.8%, up 20 basis points from the same period last year. OSP's operating margin was 33.4%, an increase of 100 basis points on a year-over-year basis. OSB operating margin came in slightly below our guidance range of 33.5% to 34.5%, due to slightly higher variable costs. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q2 were $772.1 million compared to $549.1 million in 2026. Cash flow from operating activities for the quarter was $42.5 million versus $44.7 million in the same period last year, mainly due to timing of working capital. CapEx for the quarter was $5.6 million versus $8.2 million in the same period last year. During the quarter, we successfully exchanged principal amount of about $100 million 1.625% convertible notes due in March 2026, for 7.9 million shares of Viavi's common shares at the price per share of $17.88. We have remaining principal amount of about $50 million on these notes, which will be paid in cash. The associated premium on these convertible notes will be settled in shares. Additionally, we prepaid in January 2026 $100 million of the $600 million term loan B. This is in line with our continued financial discipline. During the quarter, we did not purchase any shares of our stock as we prioritized our capital allocation towards debt management. The fully diluted share count for the quarter was 233.4 million shares, up from 224.8 million shares in the prior year and versus 228.7 million shares in our guidance for the second fiscal quarter. Last week, we approved a restructuring and workforce reduction plan to improve operational efficiencies and better align workforce and resources with our current business needs and strategic priorities. We expect approximately 5% of our global workforce to be impacted and estimate to incur approximately $32 million restructuring charges in connection with this plan. Upon completion of this initiative, we expect annual savings of about $30 million, which will mainly benefit our operating expenses. We intend to reinvest a portion of these savings with higher growth areas of our business. We expect to recognize the majority of these charges by June 2026, with a plan to be substantially completed by December 2026. The savings of about $30 million include previously communicated $16 million of synergies from the acquisition of Spirent's product lines. Moving on to our guidance for 2026. We expect the third fiscal quarter revenue for Viavi to be up sequentially as a result of continued strength in many of our end markets. For NSE, we expect quarter-over-quarter revenue to be higher as a result of continued strong demand for lead and production and field products, which is driven by the data center ecosystem as well as aerospace and defense customers. Our guidance for the third quarter also includes full thirteen weeks of Spirent product lines, versus ten weeks in the prior quarter. For OSB, we expect quarter-over-quarter revenue to be higher in line with seasonality of higher demand for anti-counterfeiting and other products. For 2026, we expect Viavi revenue in the range of $386 million and $400 million. We expect total NSE revenue between $304 million and $316 million. OSP revenue is expected to be in the range of $82 million and $84 million. Operating margin for Viavi is expected to be 19.7% plus or minus 50 basis points. NSE operating margin is expected to be 15.5% plus or minus 50 basis points. OSB operating margin is expected to be We expect other income and expense to reflect a net expense of approximately $12.5 million and the share count is expected to be around 245 million shares. During the third quarter, we expect to pay earn-out liability for Inertia Labs of about $75 million as a result of their strong performance in calendar 2025. With that, I will turn the call over to Oleg. Oleg? Oleg Khaykin: Thank you, Ilan. The 2026 came in at the high end of our guidance driven by strong growth in many of our end markets. The results were significantly up both year on year and quarter on quarter. NSE revenue in Q2 grew approximately 46% year over year, primarily driven by strong demand from the data center ecosystem and aerospace and defense customers. The data center ecosystem, which includes high-performance semis, optical modules, and NAMS, drove strong demand for lead and production products in support of AI data center build-out. In addition, we are now also seeing emerging strong demand for our fiber field instruments by hyperscalers and service providers to build, operate, and optimize the next generation of fiber networks to interconnect the data centers. The Q2 quarter-on-quarter and year-on-year growth was also helped by the acquisition of Spirent's HSE product line, which came in slightly below our expectations due to the timing of several opportunities. Given strong and growing customer demand, we expect the data center ecosystem revenue momentum to continue through the calendar 2026. Our aerospace and defense business also saw another strong quarter of growth driven by continued high demand for our positioning, navigation, and timing products. We expect this trend to continue through the rest of the calendar year. The service providers business was generally stable during the quarter. We are seeing some opportunistic demand from the cable operators as they transition to new DAA architecture and access 4.0 standard. The demand for wireless infrastructure test continues to be weak but stable. We expect NSE revenue to be counter-cyclically up Looking ahead to Q3, quarter on quarter driven by continued strong and growing demand from data center and aerospace and defense customers. Now turning to OSP. OSP saw strong year-on-year growth driven mostly by recovery and anti-counterfeiting and other products. 3D sensing demand was in line with seasonal expectations. We expect From innovation. And execution and thank our customers and shareholders for their continued support. With that, I will turn it back over to the operator for Q&A. Operator: Thank you. And we'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you're called upon to ask your question and are listening Ruben Roy: Thinking about it in terms of data center, I would say, some events in telco. If you could give us an update on what the mix looks like? And then as we think about the guidance, if you could kind of dial in a little bit into the moving parts. On the growth for the March, that would be great. Thank you. Oleg Khaykin: Sure. So, you know, I think, you know, last quarter, we kinda talked 45% service provider, 40% data center, 15% aerospace and defense, I think with the significant growth in data center, right, and the other I think we are now I'd say, closer the other way around 40% service provider, 45% data center, around 15% aerospace and defense. To be more precise, I think we're gonna see you know, service provider to kinda trend a little bit below 40% The aerospace and defense trend up about 15%. And the data center turned up about 45%. And it's not because the service provider is going down. Actually, steady and showing slight recovery. It's just fundamentally the percentage allocation and the growth across different segments is vastly different. So that's kind of the mix. So I think now we are I would say, we are, you know, narrow it we're now only about 40% a little bit under 40% exposed to service provider. Additional telecom service provider, And I'd say 60% is driven by the data center ecosystem and the aerospace and defense. In terms of the guidance on the Q3 that you've seen pretty strong numbers, it's continued, very strong growth in the data center ecosystem that's again, semis, modules, systems, and the NAMS. But also it includes a growing component of our traditional field instruments And it's actually a meaningful pop in that we're you know, we're now seeing the what I call next gen service providers to who are doing interconnect of data centers. And the data center operators themselves investing into our fiber monitoring and fiber measurement systems to monitor and optimize performance of their data centers. And I mean, you know, if I looked at a year ago, you might have been single digits data center for our traditional field instruments. I think we are now looking at about a third of our revenue in the field instruments coming out from data center. So it's been a truly amazing, you know, turnaround and think the recognition is growing that the fiber networks are generally crap. And they need to be significantly improved And we are seeing a lot of pressure from the hyperscalers on service providers to improve the performance. But they're also going further and they're putting a lot of what we call, monitoring and policing on their networks to ensure that they pay for what they they get what they pay for. So it's actually, been another very positive development for us. On the fiber instruments. That's on the NSE. Thanks a lot. Ruben Roy: Yeah. Yeah. I I guess yeah. I I had a follow-up on that, you know, obviously, with, you know, Corning and Meta, you know, sort of, expanding their partnership and, you know, $6 billion commitment on new fiber. I would imagine that, that's something that would play into your longer-term opportunity set for the field instruments. But I guess, if I think about that and I you made a statement, Alec, on your prepared remarks regarding your expectations for DC growth to continue through 'twenty six. I mean, are things like that and like the scale across opportunities that you On demand relative to sort of what the order book might have looked like just mentioned giving you extended visibility? you know, twelve months ago? I mean, are you are you getting a a longer look on on backlog and bookings at this point? Engagements. Oleg Khaykin: And, you know and so when it comes to data center, I would say, for us, traditionally, we only have, like, maybe one, one and a half quarter visibility. We we we have a pretty good view, at least on the base demand from this type of activities up to three quarters ahead. Got it. If I could sneak one in for Ilan, just on the Ruben Roy: restructuring, Ilan. Is that impacting any specific product area or or group? Or, you know, is this just sort of your annual, you know, look at the business and, know, there's a lot going on in D. C. And aerospace and defense that maybe you want to focus more on. It it you know, maybe you could if you could help us out on how to think about that restructuring, that'd be great. That's it. Thank you. Ilan Daskal: Yeah. So, Ruben, thanks for the question. Generally, it's it's across multiple function just to make sure that we operate, you know, under a much higher efficiency. So it's not targeting, you know, specific areas. And and I wanted also to highlight that some of these savings, do plan to reinvest in in those higher growth areas that Oleg just discussed. So some of it could be a trade off. Oleg Khaykin: Yeah. I think, you know, clearly, if we look at, where most of the cost is coming out, it's coming out of the slower or stagnant, product segments. So it's really point here is to free up resources and take some of it as the financial leverage, but others as the ability to invest and grow the could move what be wood behind the arrow on things like data center ecosystem, aerospace and defense, things like that. Ilan Daskal: Right. And and in addition to some support function optimization. Oleg Khaykin: Mhmm. Operator: And our next question comes from the line of Ryan Koontz with Needham. Your line is open. Ryan Koontz: Great. A lot of activity in and aerospace of late. Oleg, I hope you could double click on you know, what you see as exciting, you know, defense programs, aerospace programs that you're involved in with your product lines and how you think about that business going forward? Oleg Khaykin: Sure. I think the the the biggest driver is what we call resilient PNT. Position navigation timing. In in the absence, it's alternative GNSS So everything that allows you to operate in the absence of GPS signal And as you can imagine, it's drones, drones, and more drones. It's very much targeting all autonomous systems like drones above ground, you know, robotic vehicles, you know, surveillance, you know, heavy industrial machinery, undersea, and seaborne drones. So it's pretty much anything that's above ground, underground, you know, underwater, in the air, robotic systems. So that's mainly where a lot of these product products are going to. On the other hand is also our P and C timing. Is, you know, we are seeing emerging opportunities in data centers. Because you we're seeing more and more as you increase the speeds in the data centers, you need accurate timing for synchronization. And if you think about traditional distributed clock model, from one end goes across all the racks, It may be fine when you're a 100 gig data center when you're going to one point six three point two. The latency becomes unbearable. So we are looking we're seeing demand for timing Great. Thank you for that. Ryan Koontz: And in the optical domain, you talked a lot about strength in data center, driving out here. You know, any evidence you can share with us around you know, the cadence of, you know, optical innovation getting to to 1.6 t broadly within the data center, between the data centers, where are you seeing the most demand for your products, and what what are maybe some new areas of growth, some green shoots that you're excited about in the in the optical data center domain? Oleg Khaykin: Well, I'd say every segment, we see growing. I mean, clearly, the semiconductors or memory vendors that they are driven Oh, you're, you know, dozen so companies in Asia making pluggables and, of course, the big leaders in North America for cross points, which is optical switches. And various modules. And then all the NAMS who are providing equipment into these data centers. So I would say there's I would say there's two groups One is the lab. Heavily driven. So let's say one everything to do with 1.6 and PCI Express six point o. And in production, heavily with all of our things making, you know, anything from testing passive and active components to the final product but also including testing fiber as you we're now seeing emergence of hollow core fiber and multiport fiber And this is a whole new thing, and that's why action. But I would say starting last quarter, we are seeing what we normally call field is becoming a I mean, the the the hyperscalers themselves. So it's the actual data center is becoming a huge user of field instrumentation mean, for example, when you would go to the traditional fiber service providers, they never really care about putting in monitoring of the fiber. Well, if you go to one of these AI data centers, you see at the edge they are they want to monitor every incoming you know, wavelength. Right? And would they light up or dark fiber? So they know as they turn on or up the bandwidth, they know exactly characterization and bandwidth and latency they're gonna get out of each fiber strand. And, of course, there is a SLA agreement, service level agreements there. Assigned with the service providers. So they are monitoring that these things are coming in within a very narrow spec. And they maintain the narrow spec of performance in every fiber. And that's a big departure from the old fashioned well, you know, it works. It's good enough. If it's a little bit, you know, lossy or has a higher latency, so what? Well, that's not something that these guys accept. And the beauty of it is they're deploying these things directly. It's using the same fiber tools that which were developed for traditional service providers, they are really finding converts among the hyperscalers. And that usually means when they deployed, there's a leg maybe by a couple quarters before the service providers recognize, oh, wait a second. I'm not being measured, so I better measure myself. Because before I get nailed. For my performance problem. So we see it as a very positive trend to ensure a very high resilient fiber network. Interconnecting the data centers. Ryan Koontz: Okay. That's great. Thank you. Operator: And our next question comes from the line of Andrew Spinola with UBS. Your line is open. Andrew Spinola: Thanks. Oleg, can you expand on that a little and give Oleg Khaykin: It's That's why we don't really break these things down within that category. We just call it generally data center ecosystem. Which includes semis, modules, systems, and field instruments that are used in data centers themselves. Andrew Spinola: Makes sense. I'm I'm thinking about how to model that business into, like, fiscal twenty seven and beyond. And I wanted to ask you this might be wrong based on what you just said, but I I thought we think about lab as being maybe more consistent as the customers continue to invest in the next generation fiber monitoring growing as the number of data centers grow. But maybe production being more cyclical and having some bigger swings up and down as as various generations get introduced, Trying to think about how I should think about production assuming that's a bigger growth driver right now, how to think about how that evolves over a cycle? Oleg Khaykin: So it's a good question. So lab instruments are driven by number of customers and number of projects. Right? And ultimately, it relates best way to look at is the r and d CapEx at semis system vendors, and module vendors. Right? The production is heavily driven by volume that is demanded. Right? And you could see the volume of much pluggables and the racks and all this. I mean, that is a but, you know, I look at the where are you gonna see higher percentage of growth? It's clearly clearly gonna be the production. Because it's, you know, as you increase number of units you build in every generation and and, let's say, every node, And that that's you need to basically for every tranche of volume, you need to increase capacity. So it's heavily linked to the I would say, production run rate. Okay? And the I would say, field instruments is that say linked to the number of data centers being built. Got it. Ilan Daskal: It. Okay. That that's very helpful. We think about the longevity of this cycle is probably Yeah. And that from what I see in terms of the, Oleg Khaykin: you know, pretty much every ounce of capacity that was kinda abandoned by service providers when they cut back about three years ago in investment. It's been totally repurposed into the data center. And it's a fraction of what they need and what they if you take all their announcements, how much they're gonna spend, how much they're gonna invest, what you have in terms of production capacity you're gonna see significant growth over the next two years. Right? And, of course, keep up with it, you need to keep introducing We now see the new each technology notes turning over. Every two years. So no longer, let's say, between between a 100 gig and a 400 gig you have six years. You really now have two years between Ilan Daskal: Right. So your question the dynamic of the higher operating margin? Andrew Spinola: Oh, I I I guess the the guide for the NSC op margin at 15 and past. That's right. Right. Flat. Revenue's up 20,000,000. I was just curious if there are some Right. Mix or anything kind of Ilan Daskal: So there is some, obviously, mix Oleg Khaykin: Joe with Operator: Northland Capital Markets. Your line is open. Tim Savageaux: Congrats on the results and especially the guide. And, I wanted to kinda focus in on that a bit. I guess, I'll let you describe it as countercyclical. You usually see declines, but I guess I'd like to try and parse out you got thirteen weeks of spiron you know, at your Q1 run rate or sorry, at your December quarter, I'll just say, rate that gets you to about, I don't know, 55,000,000, sort of the high end of where you were where you guided last quarter. Is that a reasonable assumption to try and get to Spirent contribution versus organic growth Ilan Daskal: So so, Tim, I can chime in here and and Tim Savageaux: In fiscal Q3? Ilan Daskal: and, you know, in terms of the thinking. So first, for last quarter, in the very first few weeks of the quarter, they actually did not have much revenue. Tim Savageaux: The second aspect to call out Ilan Daskal: and I think, you know, we Oleg Khaykin: last quarter, there were some government orders that got pushed out into this quarter. Between the shutdown and, of course, you know, this one time grant to the government employees of Christmas holidays. I mean, there basically was fewer days between December and the December to get the, orders placed. So some of the volume actually pushed out into the March quarter, As a result, we expect March quarter relatively to be stronger for them. Than it normally would have been, and the December quarter was a bit weaker than it normally would have been. Tim Savageaux: Right. Yeah. That's kinda what I'm trying to get to is, you know, to the continuation of this organic growth. And sounds like I'm a little high with my first pass and you know, I think it was a $200,000,000 run rate you were looking for. And if it's stronger in the first and the second, I'd I'd imagine Ilan Daskal: it's it's below that $50,000,000 level Tim Savageaux: And if that's the case, you know, you're looking at In a normally seasonally down quarter and Mid single digit sequential growth organically for Viavi in Q1. coming off 15% sequential growth in the December So that's pretty extraordinary. Ilan Daskal: What's what's driving all that? And am am I looking at that right, number one? And what's wrong? No. No. You're you're looking exactly right. So remember, Oleg Khaykin: the old I say old Viavi before data center, aerospace, and defense, we were heavily influenced by service provider. Dynamics. And the days one, service providers were over 80% of NSC Remember, first quarter is they don't release their budgets for the year until the February. So as a result, you would have a very weak NFC quarter. By the way, service provider is no different again than it was normally. There's always it is seasonally weaker. But the strength in the data center, aerospace defense, and also, the sparring business is not only offsetting, it's actually more than offsetting. That's why the net net, the quarter is gonna be up for NSE. Tim Savageaux: Okay. Makes sense. And one final piece of that question, is you know, the again, going back historically, you typically see a nice seasonal uptick at least on the service provider side, In your fiscal Q4. Should we assume Oleg Khaykin: that's a genuine directionally true for the business Tim Savageaux: Are there any changes as your mix and exposure becomes more aerospace, you know, defense and and AI data center driven, Oleg Khaykin: Awesome. Tim Savageaux: Thanks again. Congrats. Thank you. Sure. Thanks. Operator: And that concludes our question and answer session. I will now turn the conference back over to Vibhuti Nayar for closing remarks. Vibhuti Nayar: Thank you, Operator: thank you, Abby. This concludes our earnings call for today. Thank you for joining, and have a good afternoon. Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
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: Good day, and welcome to the Nickel Industries Limited December Quarter Activities Webcast. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Justin Werner, Managing Director, Nickel Industries Limited, to begin the conference. Justin, over to you. Justin Werner: Thank you, and thank you, everyone, for attending the Nickel Industries December 2025 quarterly results call. If I could ask the moderator to please move to the next slide. Pleasingly safety for the 12 months work till the end of last year, 17.7 million man hours without a single LTI occurring, so it's a tremendous achievement. The company was awarded the Excellence in Sustainability Leadership award by CNBC Indonesia, highlighting our leadership in ESG implementation and environmental management and our contributions to the development of sustainable nickel in Indonesia. Also, our solar project, which we will be an offtaker of, it achieved financial close and it is on track to be the largest solar project in Indonesia, 262-megawatt peak with 80-megawatt battery energy storage system. And it will allow ENC to reduce its carbon footprint but also, the power offtake agreement is at 25 years at a fixed rate with no inflation escalation. So we think that's a big positive in that we've been able to lock in a big part of our power costs at very attractive rates. If we could just move to the next slide, please. Frustration during the quarter of meeting our RKAB limit of 9 million wet metric tonnes, which did mean that most of our mining operations were halted for majority of the quarter. There was a number of positives during the quarter, which includes record EBITDA margins from HNC, which bodes well for ENC; and the approval of our AMDAL, which will support our current application of moving from 9 million to 19 million wet metric tonnes. Adjusted EBITDA from operations was USD 37.3 million. And RKEF nickel metal production was slightly up, so the RKEF plans continue to perform well. EBITDA was down, driven mostly by higher costs. And with the Hengjaya mine being unable to supply the RKEFs for a majority of the quarter, that resulted in the requirement to buy cost at the third-party ore so that did slightly push our costs up. HPAL HNC continues to operate well above nameplate capacity, delivered USD 17.2 million in EBITDA, which was a 32% increase on the September quarter. Mine sales, we received approval to restate our operations on the 12th of December with an increased RKAB for 2025 to 10.5 million tonnes. And so in the last 19 days, we were able to deliver close to 1 million tonnes. So I think what's pleasing there is the operations despite being out for almost 2.5 months, we're very quickly able to ramp up, and we're currently tracking very well in January looking at delivering 1.4 million tonnes. The standby costs and the lack of any ore sales or mining unfortunately did deliver a loss, USD 14.9 million EBITDA loss for the quarter. But as I said, things are trending very strongly so far for January and this quarter at the mine operations. So if we could just go to the next slide, and then the following slide after that on RKEF operations. RKEF operations increased 1%. As I mentioned, cash costs slightly higher, higher nickel ore costs. However, that was offset by lower electricity costs. The NPI contract pricing of $11,100 broadly in line with the previous quarter. However, the current spot NPI price is around $13,200. So at the moment, currently, almost 20% above the December quarter average. So we've had a very strong start to the year. particularly around nickel pricing. And so that does bode well for this quarter, and we believe for the remainder of the year. If we could just go to the next slide, please. I mentioned real EBITDA, EBITDA per tonne margins at an HNC. You can see they increased from $629 a tonne in Q3 to over $8,000 to $812 a tonne for the December quarter. And MSP contract prices increased by 18% to $17,110 a tonne. Current LME spot is over $18,000 a tonne and obviously compares very favorably to the average LME price for the whole of 2025, which was 15,162. So we've seen a significant increase in the nickel price, as well as cobalt. Current cobalt spot prices are over $55,000 a ton a tonne. The average for 2025 was around $39,967. So again, this bodes extremely well for the imminent ENC commissioning, which if we could just move to the next slide, please. Pleased to give an update on the ENC project. We're starting some unit testing and wet commissioning in anticipation of final commissioning targeting end of this quarter. The installation of crystallizers to produce nickel and cobalt sulfate has been completed and has been integrated with the rest of the circuit. And the refinery, the cathode and nickel sulfate refineries will look to ramp up production once the HPAL smelter commences commissioning. In terms of the HPAL itself, we've begun purchasing sulfur and testing has commenced on the first line of the sulfuric acid plant. Mechanical tests have commenced on the countercurrent decantation, circuit thickness, precipitation tanks, slurry storage tanks, reagent storage tanks. And so really all of the key equipment, we've started all the mechanical tests. And then there's been allocation of additional resources just to ensure that we can complete the slurry pipeline, which will take off from the Hengjaya mine to ENC and also return the tailings to dry stack tailings storage facility. I would encourage people, if you had already seen it. There is a link to a video in the quarterly, and you can really see the size and the scale of ENC and just how advanced it is at the moment. If we could just go to the next slide, please. Mine operations, as I mentioned, unfortunately, impacted by RKAB delays. So as a result, that did result we moved from a $32.8 million EBITDA in the third quarter to USD 14.9 million EBITDA loss. But as I said, January is looking very good. Approval of the AMDAL was a significant milestone, and we do still remain very confident of achieving an increased RKAB to $19 million for this year. I think that was sort of well supported by the fact that at the end of last year, we were able to go from 9 million to 10.5 million. So I think that bodes well, as I said, for the increase this year. If we could just go to the next slide, please. Development of the Sampala project continues to track very well. The ETL feasibility study has been submitted some time ago, and we're hopeful of receiving approval for an RKAB at the end of 2026. The initial target from ETL will be somewhere around sort of 6 million tonnes per annum. At the ANN IUP, we've just completed a feasibility study. That feasibility study will actually incorporate a slurry plant, the same that we have at Hengjaya mine for any future potential sales of limonite ore. And in terms of the haul roads between ETL and ANN, the 72% complete. And during the quarter, we drilled about 18,000 meters of exploration drilling, a mix of exploration and infill drilling to support detailed mine planning. If we could just go to the next slide, please. We're very pleased to announce the acquisition by Sphere Corp of 10% of the ENC project at a valuation of USD 2.4 billion, so at a premium to the USD 2.3 billion that NIC has invested it. Sphere is the South Korean KOSDAQ-listed premium alloy and precision materials manufactured manufacturer for the global aerospace industry. They're one of only 5 global key vendors to SpaceX and they recently announced a 10-year supply contract of significant value, and this is to support SpaceX's rapid growth. Funding of that transaction expected to collect Q1 2026. We see this as a significant endorsement. It represents our entry into Western supply chains and particularly the aerospace and aeronautical sectors, which demand the highest product quality and have the strictest qualification standards. And so we think this is a strong endorsement of the quality of ENC. Not only that, it does access and open up opportunities to supply to additional North American aerospace end users. So we're very happy with the transaction. If we could just go to the next slide, please. That reduces the quarterly results presentation. As I said, despite the frustrations of the a number of positives, including a very strong LME nickel price and NPI price at the moment, which bodes well for a strong quarter. Mining operations are back up to where they were. We remain confident of an increased RKAB. and as I said, with HNC margins over $8,000 a tonne. It bodes extremely well for the commissioning of ENC at the end of this quarter. So with that, I hand over to questions. Operator: [Operator Instructions] And your first question comes from the line of [ CW Mu ] from [ Arken ]. Unknown Analyst: Can you hear me? Justin Werner: Yes. . Unknown Analyst: So I just wanted to get a little bit more clarification on the RKAB I guess, quota, right, so for this year, for '26. So it hasn't been announced, right, this year? And I think in the previous presentations, you've kind of guided to or kind of expecting million tonnes, right, versus kind of 10.5 that you have currently. We've seen headlines and industry news that the RKAB aggregate for Indonesia is actually, I think, down 1/3 year-over-year. So I guess like I'm just trying to figure out what's the risk of you guys not getting to the 19 million tons that you guys are expecting? That's number one. And then number 2 is the 19 million tonnes, I think gets you guys 100% self-sufficient, including ENC. So what is the actual number to get you guys 100% so sufficient completely? Justin Werner: Yes. So look, the first question, the government has announced its intention to reduce the RKAB quota from last year. We've shown that they will be favoring those that have integrated operations, of course, which we do. We have a number of RKEF lines. We have ENC as well. I think the evidence that we were able to go at the end of last year from $9 million to $10.5 million supports the fact that the government is supportive of increasing our RKAB. And looked at there's always risks. But given that we've had an environmental study that's been approved for the 19 million tonnes, we still remain confident of achieving it. Where will the RKAB cuts come from? I think it will -- what we're hearing and seeing is that it will come from a lot of the smaller producers that don't have any integrated RKEF or HPAL operations, of which there is many. And a lot of those smaller producers don't have the best environmental reward. And so again, I think this is just a way of ensuring that those who are operating properly. We believe there shouldn't be too much risk on the RKAB. And then sorry, your second question was? Unknown Analyst: What level of cutoff -- the cutoff level for us achieving self-sufficiency across our operations. Justin Werner: So the 19 million will get us to 100% self-sufficiency of limonite ore for ENC and it will get us very close to 100% or self-sufficiency at our RKEF operations, which is 8 lines within the IMIP. Unknown Analyst: So does that -- so okay, so maybe dig a little bit deeper on this, I'm sorry. So you guys are operating at overall like 25% to 30% above nameplate, right. And so when the government kind of takes into account of kind of your integrated kind of midstream processing capacity. Are they looking at nameplate? Or are they looking at kind of what the run rate that you guys are producing at because that's kind of different by almost 30%, right? So like I think 19 gets your 2 sales are sufficient on the nameplate? Or is that 100% on nameplate plus 30% is kind of my question? Justin Werner: Yes, it's 100% self-sufficiency on nameplate, which is about 11 million to 12 million tonnes. And so obviously, with '19, there's a significant buffer there if we're offering operating significantly above nameplate capacity. Operator: [Operator Instructions] And there are no further questions at this time. So I'd like to hand back to management for closing comments. Thank you. Justin Werner: Thank you, everyone, again and as I said, we look forward to hopefully providing the market and investors with an update on our RKAB in the coming weeks as we continue to work closely with the government to secure it. So thank you, everyone. Operator: That does conclude our conference for today. Thank you for participating. You may now all disconnect.
Tomás Lozano: Good morning, everyone. This is Tomas Lozano, Head of Investor Relations, Corporate Development Financial Planning and ESG. Welcome to Grupo Financiero Banorte's First Quarter Earnings Call for 2026. Our CEO, Marcos Ramirez, will begin today's call by presenting the main results of the quarter and the year, highlighting the positive trends observed across our portfolio and profitability indicators and the main macro expectations that will drive our operations throughout this new year. Then Rafael Arana, our COO, will go over the financial highlights of the group, providing details on the margin evolution and cost of funds provisions. I will mention some reporting highlights related to the accounting of Tarjetas del Futuro and Banorte. He will conclude presenting our 2026 guidance. Please note that today's presentation may include forward-looking statements that are subject to risks and uncertainties, which may cause actual results to differ materially. On Page 2 of our conference call deck, you will find our full disclaimer regarding forward-looking statements. Thank you, Marcos. Please go ahead. José Marcos Ramírez Miguel: Thank you, Tomas. Good morning, everyone. I hope this new year brings you all the best, and thank you for joining us today. As I always say, I consider myself an evidence-based optimist. Despite a challenging operating environment, marked by a sluggish economic growth and a trade and regulatory uncertainties, we closed the year delivering on the commitments we set to the market showing solid and resilient performance across our key structural metrics. After the strong fourth quarter results and overall throughout 2025, I have a constructive view of these New Year's operating momentum and our ability to keep capturing market shares. On the macro front, we expect GDP to end 2025 in line with our initial expectation of 0.5%. Looking ahead, we anticipate a recovery in Mexico economic activity in 2026, reaching 1.8% GDP growth, supported by stronger private consumption. We expect incremental tourism stemming from the FIFA World Cup to up 40 to 50 basis points in GDP growth, together with a rebound in construction and investment. Exports should remain a key driver of growth, particularly due to the fundamental USMCA trade negotiations taking place with the U.S. We expect dialogue to remain constructive, and we believe current global conditions point toward greater integration of value chains between both countries enable the opportunity to strengthen the development hubs under plant Mexico, boost investment and reinforce Mexico role as a strategic North American partner. On monetary policy after the Mexican Central Bank cut of its reference rate by cumulative 300 basis points in 2025, closing the year at 7%, we believe it is now nearing the end of its easing cycle. For 2026, we anticipate inflationary pressures to reach 4.4%. Therefore, we forecast 2 additional 25 basis points cuts in the first half of the year, bringing the policy rate to 6.5%, which we expect to be the eternal rate for the current cycle. On the fiscal side, the government is expected to maintain its consolidation efforts in 2026, in line with the budget approved by the Congress. Finally, we expect the exchange rate to remain stable in 2026, supported by a weaker U.S. dollar, lower risk premiums under global liquidity and favorable macro commissions for the Mexican peso thus expecting a year-end level of MXN 18.1 per dollar. Now starting off with the group's overall financial performance on Slide #3. We closed the year with a fairly strong quarter reported by a solid operating trends with lending and fee activity expanding, driven by healthy private consumption, declining cost of funds and higher seasonal transaction volumes. Margin performance was supported by our continued efforts to minimize our balance sheet sensitivity, the strong risk metrics and optimize funding costs, which fully offset the impact of declining rates of the loan portfolio. Capital generation remains strong and continues to support high-value returns for our shareholders. We closed the year with a 20.1% capital adequacy ratio. Widely surpassing the TLAC requirements of 18.34%, which is now fully implemented after a 4-year ramp-up period and the CET1 of 12.6% aligned with our management target after the distribution of the extraordinary dividend at the end of the last year after delivering an 88% payout ratio in 2025, we still hold close to MXN 11 billion at the holding company available for organic growth alternatives. Before moving into profitability, as you know, from our material event at the end of the year, we finalized the acquisition of Tarjetas del Futuro. Therefore, we have deconsolidated the legal entity from the group's and the bank's financial statements and integrated its operations into Banorte. With this, Tarjetas del Futuro was recognized as a discontinued operation and the reclassification was met retroactively up to 2024 as per the accounting norms. This step enhances our value propositions by building on the scale and operational capabilities that we already have, allowing us to evolve from a single-product business into a multiproduct platform, boosting profitability and creating larger opportunities for growth. Now continuing with profitability on Slide #4. Reported net income for the quarter reached MXN 15.9 billion, up 22% sequentially. This marks a strong recovery of the quarter impacted by isolated Stage 3 loan phase, as you know, showing solid performance across our core businesses, a well-protected balance sheet, healthy risk metrics and the offset of the [indiscernible] expense seasonality. With accumulated figures, net income reached MXN 58.8 billion, fully in line with our guidance and 5% higher than in 2024, driven by the diversification of our revenue streams and disciplined expense management. ROE for the quarter stood at 24.2%, 411 basis points higher compared to the previous quarter. For the full year, ROE stood at 22.8%, up 36 basis points in the year and very close to the upper end of our guidance. Analyzing results by subsidiary in slide 5 the banks reported net income of MXN 12.5 billion in the quarter and MXN 46.5 billion in 2025, with sound core banking operations driven by healthy lending growth especially in the fixed rate portfolio, neutralization of balance sheet sensitivity, optimized cost of funds and a strong fee revenue. Altogether, these results driven a 29% ROE for the bank in 2025, 5 basis points above 2024. Notably, December ROE reached a very strong 36.8% confirming the positive trend where we ended the year and enter 2026. Rafa will provide more details later in the presentation. The insurance business grew 23% compared to 2024, driven by higher premium issuance, mainly in the Life segment and additional business generation related to the bank lending. These factors helped offset higher fees from the bancassurance operation. The annuities business is slightly contracted by 1% versus 2024 and 7% quarter-on-quarter, laterally explained by a base effect from the last period release of technical reserves despite higher business volumes. As for the pension fund businesses, cumulative positive results were driven by higher yields on financial products and increasing fees on larger base assets under management despite growing expenses from commercial efforts aimed at attracting customers from different demographics. Finally, the brokerage sector reported double-digit growth, boosted by larger transaction fees. On Slide #6, loan portfolio growth was in line with guidance, expanding 8% with the year and 9% excluding the government portfolio. Commercial and corporate portfolios grew 5% and 8%, respectively still driven by short-term working capital requirements. As I mentioned before, due to the uncertainty surrounding the USMCA renegotiation, both segments decelerated during the year. However, we remain confident that a positive outcome will lead to a rebound in the second half of 2026. Moreover, these portfolios were also impacted by exchange rate fluctuations in the dollar book which currently represents 14.5% of the total portfolio. On the other hand, our government book rose 1% in the year and 19% quarter-on-quarter. This year acceleration was mainly related to resuming activity with the states and municipalities despite large prerepayments for [indiscernible] during the quarter. We reiterate our appetite for government lending, and we are constructive in the collaboration we can have with the government to develop the country with infrastructure with projects as planned Mexico evolves. Turning to Slide #7. Overall consumer lending remains the main growth driver of the loan expansion, increasing 12% in the year, supported by resilient consumption trends and employment levels and effective cross-sell strategy tailored to each client's needs and the continued scaling of our hyper personalization model. The mortgage book rose 7%. Thanks to an improved origination process, strategic alliances and a disciplined risk approach. We anticipate a reactivation of the sector's demand as the reduction in the reference rate is transferred to customers' pricing. Auto loans posted a strong 32% increase for the year, supported by our commercial alliances for lending car dealerships and higher overall activity in the sector. We continue to grow a robust network that ensures our availability and the competitiveness of our offering with the [indiscernible] brands. Looking ahead, we expect low to moderate into the high teens in 2026 following higher base. Regarding credit cards, this business rose 14% year-over-year, driven mainly by a good promotions, enhanced rewards and loyalty programs for existing clients along with tailored marketing campaigns, allowing us to fully capture the seasonal increase in transactions. Finally, payroll loans also displayed solid growth, up 11% versus 2024. This reflects our fresh product offering designed to meet short-term liquidity needs, combined with process improvements and greater availability to digital channels while also driving additional demand deposits that help optimize funding costs. On Slide #8, we maintained top level asset quality with an NPL ratio of 1.4% at year-end. Despite the nonsystemic case in our commercial portfolio discussed last quarter and continued growth across all portfolios. Cost of risk stood at 1.8%, fully in line with our guidance for the year. It is also worth noting that so far, we see no signs of sectorial or geographical deterioration in our books, and we expect this indicator to continue normalizing throughout 2026 as consumer lending continues to expand. On Slide #9, this grew 20% sequentially and 5% for the full year. The sequential increase reflects higher transaction activity driven by seasonal factors. For the year, stronger volumes in consumer products and mutual funds together with the effect of prioritizing efficiency and profitability to digital and related businesses drove these positive results. However, this was slightly offset by a larger fees pay on credit origination to an external sales force. These results reflect the strength of our operating model supported by the continued evolution of our digital capabilities, disciplined risk approach, process improvement efficiencies and our ability to deliver hyperfunctional offerings tailored to our customers' needs. This combination has strengthened operational efficiency, enhance service quality and customer experience and reinforce our execution consistency. Importantly, these capabilities enable us not only to mitigate the impact of limited economic growth in the country, but also to strengthen customer preference for loyalty. Making Banorte standout and capture opportunities as the competitive landscape evolves. On the ESG front, on Slide #10, I would like to highlight the environmental pillar where we made relevant progress in lowering our energy and weather construction from our operations during the year. In our branch network, we obtained the EDGE sustainable certification for the first 48 branches and we will go for more in 2026. We completed the installation of electric vehicle chargers in all our corporate buildings, supporting sustainable mobility for our employees. And now, more than 30% of the energy that we use consoles. Furthermore, as I mentioned earlier, auto loans had a relevant growth during the year and more than 23% of them were hybrid and electric vehicles. Regarding our commitment to plant 1 million trees by 2030, we not only met but exceeded our 2025 target, planting more than 240,000 trees across Mexico. On this social front, as every year, we participated in Mexico financial innovation with, providing workshops and comprehends to more than 6,000 somen and young professionals as part of our responsibility to help our clients make the best use of the products and services that we provide. Finally, before I pass it over to Rafa, I would like to address some concerns about our competitive landscape. We know we operate in an environment with intense competition for clients, for talent and investor capital. This drives us to constantly review our processes, our technology and value proposition so that will remain the top choice for our customers, the best developer of talent for our people and the most attractive investment for our shareholders. As I mentioned before, looking ahead to 2026, we will keep expanding our digital capabilities and delivering hyper-personalized solutions while maintaining solid fundamentals, disciplined risk management and strong profitability and growth metrics. With these priorities, we are confident but Banorte is well prepared to capture opportunities and navigate challenges in an evolving market competing effectively with both incumbents and digital players aligned. Now I pass the word to Rafa to cover the main financial results as well to discuss our guidance for the year. Rafa, please go ahead. Rafael Victorio Arana de la Garza: Thank you, Marco. Thank you all for attending the conference. The first part that we would like to look at is how the NII really move into the year. But you can see on the table, basically, if we look -- we saw a very strong growth in NII basically on the loan and deposits. We will explain why the funding cost is trending down on a strong growth in the consumer side that allow us to get a better yield on the portfolio. There was also something that needs to be relevant for the comparison about the possibilities and the potential of the bank. When you look at the FX, the FX affected us by MXN 2.1 billion that is really something to consider because we never put that on the budget, and these are really a deduction of the -- it affects several lines that we will see on the next pages. But I think it was a really an unexpected hit MXN 2.1 billion, and we end up delivering the results. On the annuities, you see a very slight FX by the [indiscernible] nothing really relevant. The NII for the total NII for the quarter was 8%, and for the year was 6%, but it's relevant to notice what I mentioned before, how the loans and deposits are really moving forward at a 14% year-on-year basis. The net interest income for the quarter was on the low side, but for the year was 85% year-on-year. Premium income grew 24%, and there was -- I will discuss in a bit the effect that we have on what happened on the claims and the insurance company. Claims went up 8% on a year-to-year basis. But the insurance company, we will see in a moment had a very, very, very strong year. Moving then to the net interest margin. We continue to deliver a very resilient NIM for the bank. It moved to 6.8% for the year. And basically, you see a 13 basis points growth on the year-to-year basis. So net fees also was a very good story. Net fees grew 22% year-on-year. And basically, we continue to see a very, very strong activity on every single one of the channels that we serve the clients. If we move then to the sensitivity, you will see a slight pickup on the sensitivity to MXN 418 million that if you look at the local sensitivity on the NII, it's really less than 0.2%, 0.3% on the dollar and the peso book and the effect that happened in December was that the government book finally pick up in December. As you know, you have a very rapid growth on the lending side but at the same time, the funding side really grew and a very, very fast paid also. So even if you see a movement on sensitivity, you would also see a pickup on the margin because that assets were funded with a very low funding cost, okay? So the balance sheet on the foreign currency, basically, we try to be stable on that. As you know, on the foreign currency, we don't have fixed rate assets that we have on the peso book and we continue to build up the peso group, obviously, to continue our strategy and adaptive to the trending number on the rates. If we go to the profitability of the bank we basically see that net income, but a very good growth in net income for the bank, 16% we have a very strong or very strong fourth quarter because the momentum and the dynamics of the lending funding as fees continue to be very, very aggressive, much better than previous years. The bank return on equity ended up around 31.8%. And I will show you in a minute what was the effect on December and the ROA continues to be a solid 2.7% on the hour. If we move, I would like to move into a graph that shows exactly how we are managing the asset side of the book and the liability side of the book. The graph that you see on the top side, which shows exactly what is the rate that we are charging on the asset side. That's the overall rate for the asset side. Then the next graph is which is like a blue collar line that really shows how it has been a decrease in the official rate for the asset side. And then you see at the bottom of the page, a red line that really shows the funding cost. And you see a very continuous decrease on the pace of growth on the funding cost ended up at 3.8% and the most important graph is the one that is there is the darker one that really shows that we have been continuing to be able to manage the return on the book at 8.3%. So what you -- that means that the spread of the book continue to holds pretty steady even though the decrease in the rates. That is what is really sustaining the margin in a very, very steady pace. On the next slide, you see our continuous effort to continue to go to the levels that we would like to have the funding cost -- the funding cost ended up at 44.1% at the end of the year, basically because as you saw, the noninterest bearing deposits grew 12%. So we continue to grow our noninterest-bearing deposits. The mix has evolved to 70% to 30%. So we continue to be quite attractive to be a bank that basically supports most of the operations in the retail, in the SME and the transaction of banking fees and on the government side. So that allow us to have along with the payables, a continued source of cheap funding that we continue to grow. Basically, if we move next to the cost of risk, you will see that the cost of risk is trending now to a much more normal levels that we used to have based upon the effect that we have on the third quarter. You continue to see also on the graph the write-off that continue to be very disciplined and very, very steady. Credit provisions now are down again to the level that we like to have and that we expect it to have on the budget. And I would like to really guide you to something that is going to confuse you guys booking a bit based upon the integration of Tarjetas del Futuro. And also, as you know, that Tarjetas del Futuro was not part of the overall processes and procedures that we have at the bank even we try to advance the most that we can, but there was obviously not the same [indiscernible] and processes on that. And a very good example of that was exactly how the provision side on the TDF was being built. So when we integrate TDF, obviously, we put all the processes and procedures that we have at the bank. There was a release of provisions on TDF that now seems when you integrate all the numbers at the bank, that was a huge drop in the cost of risk. I would like to ask also Gerardo on that. But to be very clear, the cost of risk that after you do all the numbers and things. It's really much more close to 1.92%. That I think is the number that we feel comfortable after all the integration procedures, [indiscernible] and that. And I would like Gerardo to please continue to explain on this. Gerardo Salazar Viezca: I'm Gerardo Salazar, Chief Risk and Credit Officer of Banorte. Regarding this issue, I will tell you that although Tarjetas del Futuro adopted a regulatory style of framework as a conservative market benchmark given Tarjetas del Futuro monoline business model, limited customer interaction beyond credit and elevated observed annualized net credit losses were approximately 28%. Tarjetas del Futuro management apply a significant management overlay, resulting in an allowance of roughly 30% of the outstanding portfolio to ensure adequate short-term loss absorption. Following the integration of the loan portfolio of Banorte's Group, the portfolio was recognized and subsequently managed under the bank's IFRS9-compliant expected credit losses framework consistent with the methodology applied across the bank retail credit portfolios. This resulted in a removal of TDF's conservative overlays and the recalibration of loss default assumptions based on Banorte's historical performance, recovery experiences and servicing capabilities. And to be more specific, when you take into consideration Banorte managing this portfolio, Banorte has better collections, infrastructure, more effective early warning systems stronger legal recovery processes and broader restructuring tools. That is the probability of default of this portfolio remains the same. That has not changed but loss given the false declines, and that justifies a lower provisioning for in this case. Rafael Victorio Arana de la Garza: Thank you, Gerardo. Now we move to another line that was affected because of the integration, that is the expense growth. As you remember, we committed at the beginning of the year to have a single-digit growth on the expense line. And we achieved that, but it needs some explanation because of also the integration of [ tariff ], TDF and Bineo. Basically what you see on the graph is that let's concentrate on the overall numbers, that is the non-interest expenses, that is MXN 52.2 billion in 2024 that moves to MXN 57.7 million in 2025. That's an 11% growth. And the result for that 11% growth is that based upon the accounting rules, you have to [indiscernible] from the base, the Bineo and the TDF expense line. So it seems that expenses grow in a more important way than in reality, when you put those expenses back again on the base, really, the expense growth was only 9% that is in line but we but we're committed to the market. So that 9% is the one that we -- that is the real number once you put again on the base, the numbers that are basically the same ones that were in 2024. So also, we achieve on that. And you saw that in a much more explanation on the graph. But when you go to the graph that is basically the efficiency ratio that shows what we call the jaws of it continues to expand at a very good pace. Revenue continues to grow nicely. Expenses are much more under control and that will continue to be the case for Bineo and for TDF. Let me be very clear on one thing. On the Bineo side, we currently have an expectation of the around MXN 1 billion of expenses for the year in the case that the sale doesn't get completed in the full year. If the sale gets completed before the full year, then you have reduction of that MXN 1 billion that we see on expense line on that part. And on TDF also, you will see that also our expectation is to reduce the expenses around MXN 500 million, close to MXN 800 million, MXN 900 million that were in the past. So additional efficiencies will come in from those 2, but we have to go from the timing of the activities on the Bineo side and taking very good care of TDF, Tarjetas Del Futuro to be able to really keep the clients that we have been built in the company that are close to 600,000 clients, 60% of those lines profitable brands that have the capability to be cross-sell once we integrate everything in Banorte and if that was going to be the case. So TDF, we will continue to be a very important provider of clients of a segment that was not in the past an objective of Banorte. So once we clear the expense line, I would like to go now to capital and liquidity. There was also some comments about what is the liquidity ratio, the liquidity ratio continues to be hold and efficient. We were at a point in time when the things were not very clear. We have an additional surplus on liquidity. We feel very comfortable with 162 liquidity ratio. And when you go to the capital ratio, it is the first time that you see the -- 12.6% on the core Tier 1. But if you look at the holding company, the holding company still basically is managing MXN 10 billion more that is part of this capital that has not been assigned to the bank. So you will continue to see that based upon the momentum of the bank and the subsidiaries are very, very good growth on the capital base to be again at the 13% in the first quarter. The TLAC that have now been fully adjusted is 18.34%. We are 20.1% so we feel very comfortable with that. With this based upon the momentum of generating capital that we have at the institution. And another thing to be relevant about this is also that our AT1s have been obviously been affected by the FX that we have. Now let's see what was the effect of the commitment for 2025. The loan growth ended 8% inside the guide, ex government 9%. Net interest margin for the group 6.3%. Net interest margin for the bank, 6.6%. Expense growth, as I mentioned to you before is a 9.4% taking into account and putting again the basis to be comparable about the effort that we have on the expense line. The efficiency, 35.8%. Efficiency is a number that we need and we would like to continue to lower down. There will be years that we need to invest more in order to keep the trade with our competitors on this. And this year, it seems to be the case, but we will do a lot of efforts to really grow the revenue base in order to reduce the efficiency ratio. Cost of risk in line, as I mentioned to you, we -- Gerardo explained it, we are not fooling around that about the deconsolidation and consolidation and the effect that we have on the extraordinary situation that we have through TDF. The real cost of risk that we do is around 1.8% and it ranges from 1.8% to 1.84%, that's case. Remember that Tarjetas Del Futuro really became, again, installed at the bank in December '26. And before that was eliminated line by line on the group. When you go into the page of the financial results on page 6, you will see that our discontinued operations have the full effect of that, that is around MXN 2.1 billion. So there's no effect of all these numbers in the net income. I would like to make that very, very clear. All these movements start up because of accounting rules, but no effect on the net income of the bank. You will see that on the consolidation of operations in the financial [indiscernible] that we have on Page 6, okay? The net income, the tax rate, it was at 27%. Net income was in line 58.8%. And I would like to because I don't want to be, let's say, jumping around about this number, but 50.8% is including the effect of Bineo, the effect of TDF, the effect of FX and all that at the same time. So really, the performance of the bank was on the group was really, really very, very strong. Return on equity for the group 22.8%. So that's the number that we would like to have around the 23% on a recurring basis. Return on equity of the bank is at 29.1%. And just an effect that have -- and we don't like to play this game, but based upon the payment of dividends that we have in December and a very strong month that we have in December, the return on equity for the bank at the month of December was 37% return on equity, okay? So return on assets is 2.3% right in the middle of the guidance. Now I would like to move if Marcos and move to the... José Marcos Ramírez Miguel: Yes. Just the guidance. Rafael Victorio Arana de la Garza: The guidance for 2026, as you can see on the loan growth, 8% to 11%, and without the government book 10% to 12%. Net interest margin for the group, 6.2% to 6.5%. Net interest margin of the bank, 6.4% to 6.8%. Let me explain why there's this range on the bank. If we grow the government book, I expect that is expected because it seems that there's now a lot of movement concerning infrastructure and things like that. If that happens, you will see a very accelerated pace of growth on the loan book. But since those loans are very thin on the margin, you will see maybe or to trend more to the mid of the NIM of the bank, that is around 6.5%. If that is not the case, the number will be very close to the 6%. Expenses, and I would like to be clear here on the expense line. And the first time, we are also trying to put a number in pesos in order to try to avoid all the deconsolidation and consolidation for you to be able to really follow the expense growth. The expense growth, as you see on the recurring from 5 to 6 and in addition, organic growth and investment because obviously, we are investing a lot in -- we have been investing for many years in artificial intelligence, but now that part has accelerated a lot, and we have to reinforce the teams on that part. We don't need to buy more technology, but we have to use more of the technology that we have and that's required to really as we create more people on the application... On the non income tax rate, 27% to 29%. Net income is MXN 62 million to 64 million and taking into consideration other things that is included here. As you know, there's a lack of utility impact of the loan book that is affected around MXN 1.2 billion for the year. So that is already included on that part. So the return on equity for the group 22% to 24%. Our return on equity for the bank 28% to 30% return on assets 2.2% to 2.4%. And as you can see, there's a slight pickup on the cost of risk to 1.8% to 2.1% not because the wrong reason because of the right reasons because of the rapid pace of growth on the consumer group that really requires much more provision than at the beginning of the cycle. So we are based upon our economists -- our chief economist, GDP of 1.4% to 1.8%. Inflation rate 4.2% to 4.6% and Mexico reference rate, 6.5 percentage for the year. I will also add that we expect the FX to move much more close to the MXN 18 per dollar at the end of the year, but we think that there will be more strengthening of the peso in the coming months. So that will also not have the full effect that we have last year to MXN 2.1 billion, but still will be something that we have to manage. And let me also tell you about the effect that we have on the FX that was not mentioned before. If you take because of the 14.5% that we wrote on the dollar book, the dollar book was affected by the FX when you convert to pesos. If that was not the case, the commercial and the corporate group was really growing around MXN 20 billion more. That was the effect of the FX. So with that, I end my comments and I pass to... Tomás Lozano: Now we will go to our Q&A session. [Operator Instructions] We'll start with Jorge Kuri from Morgan Stanley. Jorge Kuri: Everyone. Congrats on the numbers, and thanks for the conference call. A quick question on the guidance. Would you mind double-clicking on the credit growth assumptions. What are the different expectations for the compositions of loans, consumers, mortgages, government and commercial, et cetera, and how do you think that sensitivity of your guidance is relative to economic growth of USMCA is negotiated favorably early on in the year, and we get an economy that is closer to 2%. How do you see that translating into your loan growth expectations. José Marcos Ramírez Miguel: Thank you, Jorge. In commercial, we are -- the guidance is between 8% and 10%. The corporate is also between 8% and 10%. Government is from 0% to 4%. Consumer is from 10% to 14%. Mortgage is from 8% to 10%. Credit card is from 14% to 18%. Auto loans, 15% to 20% and payroll 10% to 12%. That's if you breakdown the numbers. And now I will pass to Alex, the economy. Alejandro Padilla: Thank you, Marcos. Thank you, Jorge. Alejandro Padilla, Chief Economist. Let me just walk you through our 1.8% GDP or this range between 1.4% to 1.8% of GDP for 2026. What we think is that this year, all the engines of the economy will try to level -- last year, we observed that consumption grew less than 1%. For this year, we are expecting 2% of growth -- this is supported by the World Cup, as Marcos was mentioning. We think that given tourism and also private consumption in Mexico, we can have additional 30 to 50 basis points there. Also, I think it's important to take into account that last year, investment declined around 7%. We are expecting a mild recovery, only 0.7% in our models. This is supported by additional spending, especially in infrastructure. When you see the budget for 2026, the government will deploy 1.2 percentage points of GDP in key infrastructure projects. And in addition to that, nearly 25% of the budget is going to states and municipalities, so we think that, that should push a little bit this investment figure. And the other one is exports. Exports last year grew around 7%. It was a very positive year. Why? Because when you see the average tariff rate that Mexico is paying is around 4.5%. The world is paying 16.8%. So there is in relative terms, a competitive advantage that Mexico will likely hold throughout 2026. As you were mentioning, Jorge, this is an important year, given the review process of the USMCA. So far, regardless of how this process will take place. We think that Mexico will continue to be a key ally for the U.S. in terms of trade. We are surveyed in 2025, and we think that it will continue in 2026. So that's the way we are analyzing GDP. That's a range between 1.4% to 1.8% and just let me close with one thing. The fourth quarter of 2025 closed with a better momentum than in the third quarter, that will help inertial GDP for Mexico in 2026, where calculating that this inertial GDP will at least give you 60 basis points. That 60 basis points is more than what the entire economy grew in 2025. So that's why we are more constructive in terms of GDP dynamics. And the other one is that we expect that the U.S. will grow more this year than the previous year. We have 2.4% of growth supported by consumption in the U.S., but also by investment and I think this is key, taking into account that in our studies, 56% of the Mexican economy is highly dependent on the U.S. economy. So that's the way we are calculating this range between 1.4% to 1.8%. That's Rafael mentioned before. Tomás Lozano: Next question is from Renato Melone from Autonomous. Renato Meloni: Congrats on the result. So just wanted to pick up here on your earlier comment, credit card growth and payroll growth. We saw some NPL increases this quarter. I wonder if you can comment a little bit of the dynamics here and if you expect asset quality to stabilize and enable this growth. And then also related to this, your coverage ratio has been declining and it's at the lowest level now since 2019 at 134%. So I'm curious to know what level you feel comfortable in operating. José Marcos Ramírez Miguel: Renato, I will pass to... Gerardo Salazar Viezca: Thank you, Marcos. I will tell you, Renato that in payroll lending, the deterioration is attributable to the loss of payroll dispersion from our large clients, resulting in a very temporary statistical effect. Notwithstanding this impact underlying asset quality trends remained solid as the remainder of the portfolio continues to exhibit improved performance and declining risk metrics. In red cards, the increase is partially explained by the consolidation of a higher risk portfolio Tarjetas Del Futuro. And additionally, in December, delinquency ratios was distorted by a denominator effect as the strong origination growth reported in November to retail -- was offset by a significant but expected repayment in December. We see this seasonality effect every year. Within Banorte credit card portfolios, are behaving very well and also the payroll loans have very good risk metrics. Regarding the coverage ratio, I will say that asset quality is generally improving, early-stage delinquencies are also declining and vintage curves show better performance from recent originations. I will tell you that we have to take into consideration that although this reserve coverage ratio is declining. We have a very high degree of capital strength. We have a high CET1 total capital ratios and strong pre-provision operating profit in that regard. Even if reserves are lower, loss absorption capacity remains very robust. When -- I will tell you as Renato that you should worry when the reserve coverage ratio declines due to several factors that are not present in Banorte. Among them is NPLs rising, but reserves are flat or falling. It's not the case. I have to remark this. Also, you should be worried if early delinquencies are accelerating. That's not the case in Banorte. And you should be very worried if growth is driven by looser underwriting, we're not doing that. We are -- we remain very strong with the underwriting standards up to this point. Rafael Victorio Arana de la Garza: And if I just may add, Renato, on the credit part, don't be surprised it on the first quarter, you continue to see a slight pickup on credit card, very, very slight and then churning down in a very, very positive way in the second quarter. Because as Alejandro explained, we have a very strong prepayment part. You have a pretty. You continue to grow the book in a very fast pace. We placed close to 890,000 cards last year. Maybe this year, we can reach the 1 million cards but we have very, very strong placement. No first payment defaults are not present on the group. All the facilities are being served and follow in a very close way. So as Gerardo mentioned, I don't think this is a matter of concern. It's a matter of seasonality that will flow into the first quarter but spending in a very important way into the second quarter. Tomás Lozano: Thank you. Now we'll continue with Brian Flores from Citi. Brian, please go ahead. Brian Flores: Rafa, Marcos, Tomas and team I wanted to see how sustainable is the savings on the funding side. Rafael, we know Nubank and also I think now other fintechs like Revolut are joining the system. So we're very curious as to work -- or how low can this funding costs go. We have been very impressed positively on the results from Banorte. I think your cost, as you were mentioning in the presentation is now at 44.1%. How sustainable is this with obviously these pressures that could come from newcomers and if I may, just a very quick follow-up, a quick question to Alejandro on [indiscernible] because I was checking Banxico survey. I think at the medium point, is expecting 1.2 in terms of GDP growth. So just checking if maybe he thinks there is some enthusiasm from the World Cup that is missing on consensus numbers. Rafael Victorio Arana de la Garza: For the second one... Unknown Executive: Yes, for sure. Thank you, Brian. I think that we might start observing some adjustments in the market consensus regarding GDP especially given the figure that will be released this Friday that is the 2025 preliminary GDP because then I think that the market can recalibrate inertial GDP. But yes, I think that consensus, it's not taking into account some of the figures that could be important in terms of the World Cup. Just to put some examples, there are some expectations from FIFA about how many tourists can come to Mexico and how much money can they spend. And when you see the figures of tourism in Mexico, I think that even those assumptions are very conservative. I think that we can have a positive effect in terms of tourism. But it is not only tourism, let's take into account that private consumption, especially consumption from Mexico during World Cup is steered by purchases of screens, obviously, services, restaurants, bars, and all of the things that usually when there is a World Cup increases. So that's how we think that GDP can be benefited by this 30 to 50 basis points. Rafael Victorio Arana de la Garza: I think your question is a key one about how the dynamics in the market are moving. I think if you look at the numbers that are present on public numbers from most of the fintechs, what you see is a huge capability of gathering funding at a very high cost and then a limited part of deploying those funds into the asset side that create a very deep imbalance on the process. And I would like to say when you say how you have been able to really lower the funding costs and grow noninterest-bearing deposits above 12%. I think the fact is that Banorte really competes on the value proposition per client, we don't compete like product. I think that if there's 2 ways to compete in the market. One is playing the liability side, bringing up a lot of liabilities into the bank, and then you have through cost, the liquidity cost and the cost that you have to really finance that overpayment that we have. If you don't have the assets to deploy that. And when you look at the asset side, we can play the game to have a very high cost on the asset side for the clients. And then you have another imbalance because you are basically a factory of generating nonperforming loans and sending people to credit bureau. I think that the way that Banorte competes in the market and you see that in the activity at the branches and on the digital space is that we have a very strong digital foundation a very, very, very strong digital analytic foundation and the hyper personalization that we have at the bank takes into account the value per client, the present value of the client, the potential value for clients and also what is the business that this client has with other banks. And then we offer them, I will really a very comprehensive offer that take into account all those things. So when you monetize all the offer that Banorte has, is a much more powerful offer to the client. So the value added that we put in the hands of the client is not just a very high liability price for a very good full relationship that allows them to have a very balanced asset cost side and a very reasonable funding price on the funding side. And also you will see on the coming months more and more Banorte moving into a much more hyper personalization processes and being able also to attract young players into the market in a very reasonable way, not to try to overshoot the funding side and have a very reasonable and practical approach to really develop the clients that we have. That has been the approach that we have on the noninterest-bearing deposits is playing right the service that the branches provide the capabilities that we have on the digital and the surprises that where the client receives when they see the hyper personalization, that they receive is really what is allowing us to have a very good relationship with the client. When they monetize their relationship with Banorte is a much more profitable relations that they can have with the fintechs. That's the reason. Tomás Lozano: Now the next question is from Pablo Ordonez from GBM. Pablo Ordóñez Peniche: Marcos and Rafa, congratulations on strong results. My question is on the fee side and on the regulatory outlook. More than looking beyond the interchange fees, what should we expect in terms of digitalization and any boost to [indiscernible], should we expect any radical changes here? Any color that you can give us from the meeting yesterday with the government. And with this, how should we -- what should we expect in terms of the fee performance after a very strong year in 2025? José Marcos Ramírez Miguel: I will start with the meeting yesterday with President. We participated in the meeting, as you know, with President on the Mexican banking sector, the discussion was conservative and reported [indiscernible] openness to engage with the private sector. We welcome the government's collaborative approach to fostering conditions for stronger growth and sustainable investment as well as its forward-looking agenda to enhance Mexico competitiveness [indiscernible] Banorte, we value these dialogues,and it's important to step towards aligning efforts in support and Mexico long-term development. That's what happened yesterday. It was a good reunion. And now, Rafa, the... Rafael Victorio Arana de la Garza: I would say that the fee side has always been a very attractive point for the regulators to see. But if you look at the evolution of Mexico and you compare the interchange fees on the debit side and on the credit side, Mexico is quite competitive on that. So we don't have a -- I think the Mexican Banking Association have a constant dialogue with the authorities in order to put all the numbers in clear in order to because if this is going to sound a little strange, but this kind of price controls, obviously, they benefit the larger banks and they really uptake on the smaller banks. So that's something that I don't think is right for the market. I think the market has been behaving pretty, pretty good. And on the digital evolution on everything, I think the banks are fully prepared to really deploy the digital capabilities that the bank has even using CoDi or Movil and all the infrastructure that the bank has. I think what Marcos mentioned about also with the meeting yesterday is that it seems that now the digital approach to the Mexican economy is a real one. And I think the banks will be key players on deploying that part. So I'm not worried about the fees evolution, I think there would be a reasonable part trying to protect basically the mid and the small banks, not the large ones. Pablo Ordóñez Peniche: And a quick follow-up on this. What growth rates in terms of the guidance, should we expect in a few months... Rafael Victorio Arana de la Garza: We can't hear. Pablo Ordóñez Peniche: What growth rates should we expect for the fee income in... Rafael Victorio Arana de la Garza: 20% for the last year was really a very strong one. I think this will be above the loan growth. I think 4, 5 percentage points above loan growth. That's what we expect to see because we continue to see a lot of transactionality flowing into the bank, the transactional banking on the corporate commercial and the government and in the retail side, continue to be quite active. Just to give you a number that shows you that I think the new opening -- let me just go into the difficult part, the branches. We are now opening 5 to 6, 7 new accounts per branch per day when we used to have around 3. So that momentum continues to be and the number in digital you can multiply that number by 5 or by 6, but still the balances that come through the branches are much, much higher than the ones that come from digital. Tomás Lozano: Now we'll continue with Carlos Gomez-Lopez from HSBC. Carlos, please go ahead. Carlos Gomez-Lopez: Congratulations on the results. I want to ask about the fintech strategy. Now you are integrating at Tarjetas Del Futuro and Bineo. So what are going to be the -- how are you going to compete with the new fintechs? Are you going to have any new initiatives are you going to launch something which is different, which is a different brand? Or do you think that Banorte.com is where you want to be. Also accounting-wise, you had a charge in the quarter, I think, MXN 6.3 billion directly to equity from the integration of Tarjetas Del Futuro. Is it done? Is there anything else that we need to expect from Bineo and from the Tarjetas Del Futuro. And did you complete the sale of the license to [indiscernible]? Rafael Victorio Arana de la Garza: Carlos, for the last one, that's all. There's nothing more common. But what you have to see and you can look at that number in the discontinued operations there will be a flow in the reduction of the expenses and basically on the timing of the selling of the Bineo brand, but no additional costs will come to that. On digital, I would like to be very, very, very careful with this because Banorte never stays put. And as you say, Tarjetas Del Futuro will be a key element to continue to provide a flow of clients into Banorte, but now we can cross-sell them. So that will be a plus for the clients and for Banorte that they were a mono product in the past, and it was difficult really to make profit -- a reasonable profit from those relationships. I think we can offer a very good set of products, those clients that could bring additional benefit for them and a reasonable profit for us. So that will be the movement of Tarjetas Del Futuro. It's going to be fully integrated into Banorte. So all the scale of Banorte will be playing into Tarjetas Del Futuro but they will still have the individual attractiveness for that part of the market that will continue to be a permanent flow to bring into Banorte new clients. And also more and more, our clients seems to demand based upon the experience of Tarjetas Del Futuro that we have a much more, let's say, amicable approach to digital with the joint generation and from universities and that. And I think what we learned about Tarjetas Del Futuro there will be a very good evolution of Banorte into that part of the business. And you will see that in a very -- in the very short term. So we feel very confident in digital. I think Banorte is prime in digital. And you will see that expanded approach to try to integrate more and more clients into a digital offerings into the market. Carlos Gomez-Lopez: Would that strategy include any high-yielding account? We see that Revolut is offering 15%. Are you planning to compete with those offers? Or that's not part of your strategy? José Marcos Ramírez Miguel: We will manage a new way and create one, not in that way. Rafael Victorio Arana de la Garza: I think, Carlos, if I go with you and I say, okay, I'm going to give you 15% here. By the way, what are you going to charge me on the credit card, then you do the math, and maybe that's not a very good offer. And I respect a lot. And I think it creates a lot of good dynamics into the market, at least as companies come into the market and bring more clients into the banking system, my main way is to really take care of those clients and not over lend to those lines and really evolve with them all the financial, I would say, we needed for those guys to be sufficient in the way they manage their finance. I think Banorte will surprise the market pretty soon in a very reasonable offer to compete not in a way about price. I don't think that has been very -- always a very reasonable one, but sometimes you have to attract the attention of the market because of the price and things because you don't have anything else. You just have an idea. But Banorte, I think have a very, very, very present and reasonable offering to the markets that will evolve in a very intelligent way to really compete with this -- with the fintechs in the very short future. Tomás Lozano: We'll take the next question from Yuri Fernandes from JPMorgan. Yuri Fernandes: Marcos, Gerardo, Tomas, everyone connected. I have a question regarding the majority equity evolution of Banorte. When we go to the majority equity this year, it was mostly flat year-over-year, around MXN 249 billion, despite the net income -- I get you have some dividends, the AT1s. But what caught my attention here was a MXN 6 billion hit this quarter from Tarjetas Del Futuro, like the acquisitions you had. So my question is, what explains this hit on Tarjetas Del Futuro if you can provide a little bit of more color on this? The explanations on P&L and provisions from Gerardo they were very good, but this on the equity side was not clear for me. José Marcos Ramírez Miguel: Rafa, please go ahead. Rafael Victorio Arana de la Garza: Yes, Yuri, thank you for your question. And it seems -- remember that when we started with Tarjetas Del Futuro, we put down $50 million that was basically for the price of our total price of $250 million. When we try to really put the capital down that was around $200 million, there was a restriction on the authorities. So we needed to build up what is called a convertible loan that eventually will be converted into shares. At that point in time, if you're going to the premium on the equity side, we see that we have been building that part on the premium side. So there was a convertible loan here, but there was a premium on the equity side. So when you see the reduction on the equity side was basically when we do convert and we bought the company and we convert the convertible loan into really permanent investment into shares that was basically when we pulled out of that part of the capital based on the premiun and then we build capital into the company. On the other hand, the company has a loan that was basically guaranteed by a trust that owns the book of the company, okay? So the movements that happened in Tarjetas Del Futuro was basically the conversion of the convertible loan into shares to put capital because the company didn't have any capital at all, a commitment that we did when we bought the company that we were unable to do because of the regulations and then a guaranteed loan that was on a trust that was basically owning the loans of the company. So when you -- when we do all the integration of Banorte, we convert the loan into shares -- so now that the company does that capital that was always belonging to that company. So now it's on the capital part. And also, now you will see on the coming months started October 1, that all the loans now will be passed as Gerardo mention of the portfolio of the credit cards of panel and the additional cross-sell that we can give to them. So basically, what you see, Yuri, and thank you for bringing that out is that, that convertible loan was basically converted into shares using the brand that we will be saving at the equity side. Yuri Fernandes: Got it. So basically, [indiscernible] capitalized Tarjetas Del Futuro a few years ago, you convert the bond now. And this is just a onetime right half, we should not see this hit again. Rafael Victorio Arana de la Garza: We will not be touching the capital base because of Tarjetas Del Futuro. It will have a running rate like any product that we have, the provisions and everything, but basically on the running rate of the business, no additional capital noticed on anything. I think last year, believe me, was a lot of moving parts on this part. Finally, we are out of that. The only pending part is when Bineo is going to be sold. If we never sold in the -- as soon as that is being sold, the less we need to continue to spend on the expense side, but no more on the equity side, anything on the equity side. Yuri Fernandes: No, super clear, Rafa. And it was a mess here for us also to read it. If I may, just an easy one and a quick one here, just on margins. I think the guidance implies in a flattish margins for you, like 6.3%, 6.35%. But guidance for loan growth is for consumers to grow faster. So just trying to understand if there is any chance that maybe margins can go higher, like maybe to the high end of the guidance, given your top mix and the good funding cost. Rafael Victorio Arana de la Garza: No, I agree with you. We are really penalizing the margin, taking into account what Marcos mentioned that if we see an important acceleration on the government book, because infrastructure and things, those loans basically are not very rich in margins, but are very rich in fees and other things. So we are trying to cover the low end. But if you ask me, I think we will be more in the mid to the high end of the -- on the margin side because we continue to have very good funding cost, very reasonable fixed rate loans that really sustained the margin on a continuous basis. Yuri Fernandes: Super clear. . Tomás Lozano: I will continue with Ernesto Gabilondo from Bank of America. Ernesto María Gabilondo Márquez: Marcos, Rafa, Thomas, Gerardo, Alejandro, all have connected. Congrats on your results. I have a follow-up on your guidance. So should we expect seasonality in the guidance? Should we expect growth to accelerate in the second half? Or should we expect consistent growth throughout the year and also on your ROE guidance, how much dividend payout ratio are you assuming for this year? And also, considering your new guidance, should we expect this guidance to reflect Banorte's sustainable ROE for the group in the long term? And then I just have a very quick question also related to the fintech competition. We have asked several young people in Mexico if they are served by a financial institution. And we were surprised that most of them have a new bank account, but they don't have a BBVA or a Banorte account. We were surprised about this because the next generation using financial services without going to branches so just wanted to hear your thoughts on how is Banorte positioning to be on the mind of the next generations. And also how do you expect to monetize those younger generations, which tend to be [indiscernible] José Marcos Ramírez Miguel: Okay. The first one, yes, in the guidance, it's not a line that will always open up. It will accelerate at the end of the year. Everything is -- as you know, we are talking about the agreement with the U.S. and everything will accelerate as soon as we sign that agreement. So that's -- we think that that's going to happen at the end of the year. The second -- the ROE, the dividend that we are giving as always, 50% dividend and then we'll see if there is some extraordinary but these numbers, we are guiding to a 50% dividend. The guidance to reflect [indiscernible] sustainable ROE for the group in the long term should be, as we say always, [indiscernible], and the idea is to continue with the [indiscernible] that where everybody is talking around and use, but it's a good number. And the last one, we are working very hard. You are right. We need to do something with these young clients. And we are working and I don't know if the next quarter or maybe the other one, but we will issue something like we will see with you. And I don't know if you -- to say something about it, Rafa. But you will be, I hope, surprised that the word that we can use that. Internally, we will do something talking about exactly what you say, now the young people that they don't use branches, Banorte should be in the line of this young generation. So let's keep in touch. Rafael Victorio Arana de la Garza: And just remember, Banorte is very, very, very clear. And we expect very much -- the thing is that we have in Mexico, like Nubank, like Clara, like Stori, like Uala because they have really brought in to the table something that we were kind of in a comfortable way because we were growing nicely the digital evolution and basically attracting clients that were profitable for us, profitable for them on that but I think when you look at the offer of Nubank, I'm not talking about the products but I'm talking about the experience. I think we can really do a lot more about the experience to attract the plans that we have. And what we are really working as Marcos says, is the capabilities of Banorte in analytics and artificial intelligence to really flow the needs of the client and the emotions of the clients, not just the needs but the emotions of the clients are going to be very soon present into the market. You will see that. But thank you for the refelection about this because we have been working in a very, very important way. And we are really, really I would say, happy about what we can really deliver into the market. Tomás Lozano: The next question is from Tito Labarta from Goldman Sachs. Daer Labarta: Congrats on the strong results. I guess another follow-up just on the competitive environment. Particularly on payroll, right, because I think one of the things all these fintechs are getting banking licenses for is to try to compete on payroll and get some principality. I mean and you mentioned there were some losses there on some payrolls. So just how do you think about potential competition for that? Can the fintechs really compete for payroll once they get the banking license and is that a risk at all to sort of keep in mind? And also along those lines, another sort of incumbent with Banamex getting spun off of city potentially becoming more competitive? Just any risk that you see from there as well. José Marcos Ramírez Miguel: As I stated I don't know the environment is very competitive. So we are expecting that, and that's why we need to move faster than the others. But you are right. They are here and we are 52 banks now and competing and we need to do something spectacular. That's what we are working on. Rafael Victorio Arana de la Garza: And I would say just to add what Marcos mentioned is that the competitiveness on the payroll, I mean, the payroll that we lost was not for young people, it was really for civil servants. So -- but what you and I challenge you all to see the value proposition that Banorte has on the table. I think we have the strongest value proposition in payroll. It provides credit cards, it provides credit cards with a very, very reasonable rate -- it provides insurance, it provides savings, it provides everything that you need to link to your payroll with a lot of benefits linked because of the relationship that we build on the payroll. So I really do challenge to see the offer that we have on the payroll side that I think is the most comprehensive offer into the market and the most attractive on price-wise and functionality for the clients. So payroll is going to be a battlefield. It's already a battlefield. But now the battlefield is going to move into the new entrants into the banking system and that's where we think we can play a very, very key role. Gerardo Salazar Viezca: Yes. If I might add, Rafa, I will say that up to now, with a tremendous respect with these players fintechs are winning transactions. And banks like Banorte are winning because we're building ecosystems for the employer and for the employees. And that's a very different competition, just try to keep that in mind. Tomás Lozano: Now we'll continue with Marcelo Mizrahi from Bradesco. Marcelo, please go ahead. Marcelo Mizrahi: So my question is regarding the efficiency ratio going forward. So we are seeing this integration of Tarjetas Del Futuro. So it's -- we want to understand the mindset of you guys looking not just this year but -- in a long-term view. So what's the efficiency ratio that Banorte will target in the next few years. José Marcos Ramírez Miguel: We were discussing 34% or 35%. It's going to be 34%. Rafael Victorio Arana de la Garza: Our goal is to reach again the 34% -- not for the next year. We will try to be there. But I think we feel comfortable from 34% below and below. And I think with all that we are doing in digital and things, and the implementation of artificial intelligence bank-wide that will help us to deliver that. Marcelo Mizrahi: These levels that we will see in this year, that's an impact of the integration process.? Rafael Victorio Arana de la Garza: Exactly right, Marcelo. Marcelo Mizrahi: Okay. So after that, so we will -- so it's possible to see already in this year, the ratio started to come down. Rafael Victorio Arana de la Garza: Exactly right. I think '25, '26 will be and in between years, but a lot of the base to continue to drop to 34% will be set up in '26 because it will be the deploy of our bank-wide artificial intelligence push and also the integration of Bineo, the selling of Bineo, the integration of TDF. All that is potential benefits, but it will take time to realize through the year -- maybe at the end of the year, we will be very close to the number that we were trying to reach. Marcelo Mizrahi: I have another question. Can I do another question? So we -- you guys were talking about a better performance on corporate credit on the fourth quarter. So my question is regarding why do you -- so if you guys -- so you have an explanation. So we saw a better environment and growth to corporate side -- on the corporate side already on the fourth quarter. So we were expecting that just in the second half of this year, but it's already started to be better. José Marcos Ramírez Miguel: I will ask Rene Pimentel to answer that question. Are you there, Rene? René Gerardo Ibarrola: Yes. Thank you. Well, basically, during the fourth quarter, we closed a lot of the transactions that had been in the pipeline throughout the year. I think that this year, of course, we will continue to focus on our core sectors in which we have been focusing, which are growing faster than the economy. But also, we will start looking at new segments in which Banorte has not been clear before and that we believe that we have the product and services to offer a good offering to our clients. So we believe that this growth will continue throughout the year. And we have a good pipeline for the second half of the year. So we'll continue to see growth in the range that was already mentioned by Marcus, the 8% to 10%. Tomás Lozano: The next question is from Daniele Miranda from Santander. Unknown Analyst: Marcos, Rafa and everyone connected from the team. Just a very quick one from my side. You mentioned consumer lending will continue to be the main growth engine. Has this been driven or will it be driven by new customer acquisition or by deeper penetration and higher loan balances among already existing claims. Just trying to assess here how much more risk you are taking while expanding consumer exposure and how difference during this segment? José Marcos Ramírez Miguel: Thank you, Daniel. It's going to be both. We still want to grow operational way. And also, as we were talking about the hyper personalization, we still supplies that they need more products from now. So you will see that we will go in both lines and growing eco. Tomás Lozano: Now we'll take our last question from Federico Galassi. Federico Galassi: Two or 3 questions, if I may. The first one is, Rafa, you mentioned that you are thinking in 18 for the Mexican peso at the end of the year -- do you have any sensitivity? Is the currency continue to appreciate and finish, I don't know, 17, something like that. José Marcos Ramírez Miguel: Rafa, please go ahead. Rafael Victorio Arana de la Garza: I would say the really hard effect was last year because of the drop on the peso rate. I think -- we have some sensitivity on that part, but I don't think we are not going to play that game because it's a short-term basically strengthened of the peso. I think we are convinced and Alejandro is also convinced of that by the end of the year, the peso will be in a much more reasonable price around the MXN 18 per dollar. So no, we are currently doing this because it's a very -- it will be like follow the [indiscernible] will be up and down, so we will better fix on the end term of where the -- to be that is around MXN 18. Federico Galassi: Okay. Perfect. Fair enough. The other question is related with the insurance business, in particular in auto cars with the change in the regulation with the VAT. Do you -- what we are thinking to -- do you thinking to increase premiums? How do you think toward this year to keep up to at least maintain the rise of the last year. José Marcos Ramírez Miguel: Okay. We were discussing this in the morning and yesterday, and we will absorb part of this increase. And also a little bit will pass to the client. The competition is huge. It's not only banks, the insurance companies, but we think that it's going to be [indiscernible] going to come from for the banks and other for the clients. We will see the result in the next months. Rafael Victorio Arana de la Garza: And Frederico remember that Banorte has evolved not for a single price for the clients. We do price the insurance based upon the, I would say, the quality of the risk of the client. So that will allow us to have, as Marcos mentioned, a much more flexibility instead of just have a fixed price. So if you are really a low-risk line maybe we will absorb everything on that part. And if you are not a low-risk line, maybe you will get the full heat of the [indiscernible]. Federico Galassi: Perfect. And the last one, I don't know if you mentioned before, but do you have any news or something to mention about the pickup of fees -- on fees that was mentioned last year. José Marcos Ramírez Miguel: No, we don't have anything new there. Tomás Lozano: Thank you very much for your interest in Banorte. With this, we conclude our call. Thank you very much.
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.
Operator: Good morning, and welcome to the Prosperity Bancshares Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Charlotte Rasche, Executive Vice President and General Counsel. Please go ahead. Charlotte Rasche: Thank you. Good morning, ladies and gentlemen. And welcome to Prosperity Bancshares' Fourth Quarter 2025 Earnings Conference Call. This call is being broadcast live on our website and will be available for replay for the next few weeks. I'm Charlotte Rasche, General Counsel of Prosperity Bancshares, and here with me today is David Zalman, Senior Chairman and Chief Executive Officer; H. E. Tim Tamanis Junior, Chairman; Asylbek Osmonov, Chief Financial Officer; Eddie Safady, Vice Chairman; Kevin Hanigan, President and Chief Operating Officer; Mays Davenport, Director of Corporate Strategy; and Bob Dowdell, Executive Vice President. Randy Hester, our Chief Lending Officer, is unable to be here today. Also joining us this morning are Bob Franklin, Chief Executive Officer of Stellar Bancorp; Ray Vatuli, President of Stellar Bancorp; and Paul Eggie, Chief Financial Officer of Stellar Bancorp. David Zalman will lead off with a review of the highlights for the recent quarter. He will be followed by Asylbek Osmonov, who will review some of our recent financial statistics, and Tim Timanus, who will discuss our lending activities, including asset quality. Finally, we will open the call for questions. Before we begin, let me make the usual disclaimers. Certain of the matters discussed in this presentation may constitute forward-looking statements for purposes of the federal securities laws, and as such may involve known and unknown risks, uncertainties, and other factors which may cause the actual results or performance of Prosperity Bancshares to be materially different from future results or performance expressed or implied by such forward-looking statements. Additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bancshares' filings with the Securities and Exchange Commission, including Forms 10-Q and 10-Ks and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Now let me turn the call over to David Zalman. David Zalman: Thank you, Charlotte. We had a stellar quarter listening to our Fourth Quarter 2025 Conference Call. For the year ended 12/31/2025, we had net income of $543 million compared with $480 million for the same period in 2024, an increase of $63 million or 13.2%. Our net income per diluted common share was $5.72 for the year ending 12/31/2025, compared with $5.05 for the same period in 2024, an increase of 13.3%. The net income was $139.9 million for three months ending 12/31/2025 compared with $130 million for the same period in 2024, an increase of $9.8 million or 7.6%. Our annualized return on average assets and average tangible common equity for the three months ending 12/31/2025 was 1.49% on assets and 13.61% on tangible equity. Prosperity's efficiency ratio, excluding the net gains and losses on the sale, write-down, or write-up of assets and securities, was 43.6% for the three months ending 12/31/2025. As mentioned, since 2024, we expect that our net interest margin to increase, and it has. Net interest margin on a tax-equivalent basis was 3.3% for the three months ending 12/31/2025 compared with 3.05% for the same period in 2024 and compared with 3.24% for the three months ending 09/30/2025. During the year ending 12/31/2025, stock we purchased program. Prosperity Bancshares repurchased approximately $157 million or 2,340,000 shares of its common stock at an average weighted price of $67.04. Our loans excluding warehouse purchase program loans were $20.5 billion at 12/31/2025, compared with $20.7 billion at 09/30/2025, a decrease of $249 million. We continue to see good demand for loans. However, we are not willing to compete with the terms and conditions being offered sometimes by out-of-state competitors on some of the larger deals. Our overall loans have been impacted by efforts to outsource some less desired loans acquired in previous transactions also. Deposits, as mentioned in our last quarter, we expected deposits to increase due to seasonality. But the increase exceeded our expectations. Deposits were $28.4 billion at 12/31/2025, an increase of $700 million from $27.7 billion at 09/30/2025. Our nonperforming assets totaled $150 million or 46 basis points of quarterly average interest-earning assets at 12/31/2025 compared with $119 million or 36 basis points of quarterly average interest-earning assets at 09/30/2025. The increase in nonperforming assets during the year was primarily comprised of two loans made in our middle market lending group and one well-collateralized real estate loan acquired in one of our recent acquisitions. All of which Kevin will be able to answer and address in the Q&A. The allowance for credit losses on loans was $333 million and the allowance for credit losses on loans and off-balance sheet exposure was $371 million as of December 2025. Our allowance for credit losses on loans still stands strong at 2.21 times of our nonperforming assets. I'm excited to announce that on 01/01/2026, Prosperity completed the merger with our new partner, American and a totally owned subsidiary, American Bank headquartered in Corpus Christi, Texas. In connection with that transaction, we are pleased that Pat Wallace, the daughter of one of the founding families of the bank, and Steve Raphael, the CEO of American Bank, have joined our bank board of directors. We have also received all the regulatory and shareholder approvals for the merger with Southwest Bankshares, the parent company of Texas Partners Bank, and expect the transaction will be effective on 02/01/2026. We are pleased that Jean Dawson, in connection with the Southwest deal, interim chairman of Southwest Bancshares, and chairman of the nationally recognized Pate Dawson Engineering Firm, will be joining our bank board of directors. To further add to our San Antonio presence, Charlie Amato has joined our bank board of directors. In addition to his successful business, Charlie previously served as a board member of the Federal Reserve Board of Dallas, San Antonio branch, and region of the Texas State University System, and is an investor in the San Antonio Spurs. There's much more, but it would be too much more to go over with what all he's into. When Prosperity went public in 1998, we were a small community bank in rural Texas with less than $500 million in assets. For twenty-seven years, we have remained disciplined and focused on the same strategy delivering shareholder value by prioritizing low-cost core deposits, operational efficiency, and growth via opportunistic M&A. This morning's announcement that Prosperity is acquiring Stellar Bancorp is consistent with that strategy. And this transaction marks an important milestone for the company. Our combined Houston bank deposit rank goes from number nine to number five, making us the largest Texas-based bank in the market and second largest bank by deposits in the state. Importantly, Stellar is a well-run bank with similar credit discipline and an envious non-interest-bearing deposit mix. As a result, we view the transaction as a low-risk combination that significantly enhances our Texas footprint. I would like to thank all our customers, associates, directors, and shareholders for helping build such a successful bank. Thanks again for your support of our company. Let me turn over our discussion to Asylbek Osmonov, our Chief Financial Officer, to discuss some of the specific financials. Asylbek Osmonov: Thank you, Mr. Zalman. Good morning, everyone. Net interest income before provision for credit losses for three months ended 12/31/2025 was $275 million, an increase of $7.2 million compared to $267.8 million for the same period in 2024, an increase of $1.5 million compared to $273.4 million for the quarter ended 09/30/2025. The net interest margin on a tax-equivalent basis was 3.3% for the three months ended 12/31/2025. An increase of 25 basis points compared to 3.05% for the same period in 2024. An increase of six basis points compared to 3.24% for the quarter ended 09/30/2025. Excluding purchase accounting adjustments, the net interest margin for the three months ended 12/31/2025 was 3.26% compared to 3% for the same period in 2024 and 3.21% for the quarter ended 09/30/2025. Fair value loan income for the fourth quarter 2025 was $3.19 million for the third quarter 2025. The fair value loan income for the first quarter 2026 is expected to be in the range of $3 million to $4 million. Noninterest income was $42.8 million for the three months ended 12/31/2025, compared to $41.2 million for the quarter ended 09/30/2025 and $39.8 million for the same period in 2024. Noninterest expense was $138.7 million for the three months ended 12/31/2025, compared to $138.6 million for the three months ended 09/30/2025 and $141.5 million for the same period in 2024. For the first quarter 2026, we expect noninterest expense to be in the range of $172 million to $176 million. This projection includes three months of American Bank expenses and two months of Texas Partners Bank expenses. In addition to this, first quarter guidance we will also have about $30 million to $33 million in one-time merger-related charges for those two acquisitions. We expect to realize most of the previously announced cost savings related to American Bank and Texas Bank after Partners Bank after the system conversions, which are scheduled later this year. The efficiency ratio was 43.7% for the three months ended 12/31/2025 compared to 44.1% for the quarter ended September '25 and 46.1% for the same period in 2024. The bond portfolio metric at 12/31/2025 have a modified duration of 3.7 and projected annual cash flows of approximately $1.9 billion. And with that, let me turn over the presentation to Tim Timanus for some details on loan and asset quality. Tim Timanus: Thank you, Asylbek. Our nonperforming assets at quarter end 12/31/2025 totaled $150,842,000 or 69 basis points of loans and other real estate, compared to $119,563,000 or 54 basis points at 09/30/2025. This is an increase of $31,279,000. Since 12/31/2025, $6,631,000 of nonperforming assets have been removed or put under contract for sale. The 12/31/2025 nonperforming asset total was made up of $137,534,000 in loans, $12,000 in repossessed assets, and $13,296,000 in other real estate. Net charge-offs for the three months ended 12/31/2025 were $5,884,000 compared to net charge-offs of $6,458,000 for the quarter ended 06/30/2025. This is a decrease of $574,000 on a linked quarter basis. There was no addition to the allowance for credit losses during the quarter ended 12/31/2025. In addition, no dollars were taken into income from the allowance during the quarter ended 12/31/2025. The average monthly new loan production for the quarter ended 12/31/2025 was $314 million compared to $356 million for the quarter ended 09/30/2025. Loans outstanding at 12/31/2025 were approximately $21.805 billion compared to $22.028 billion for 09/30/2025. The 12/31/2025 loan total is made up of 35% fixed rate loans, 35% floating rate loans, and 30% variable rate loans. I will now turn it over to Charlotte Rasche. Charlotte Rasche: Thank you, Tim. At this time, we are prepared to answer your questions. Our call operator, Gary, will assist us with questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. The first question is from Catherine Mealor with KBW. Please go ahead. Catherine Mealor: Thanks. Good morning. David Zalman: Good morning. Good morning. Catherine Mealor: Wanted to start just on the Stellar acquisition. Congratulations on that. Noticed in the slide deck, you're using a different estimate for Stellar versus Consensus. Looks like it's about a $2.20 number versus $2 for Consensus roughly. Just curious what's driving that difference in your confidence in that level of earnings coming over from Stellar. Thanks. David Zalman: Catherine, you probably saw their fourth quarter earnings come out. That's really going to influence that. But Paul is here with us today from Stellar, I'll let him go over it with you. Paul Eggie: Absolutely. Thanks, Catherine. Hey, Paul. We've been thrilled with our growing momentum in 2025 and what that portends for 2026. We've been able to grow our earning assets in the back half of the year pretty meaningfully, all while maintaining and growing our core NIM. And that paints a great picture for 2026. We actually feel great about the momentum we're taking from a growth perspective into 2026 as well. So if you were to take 2024 just or pardon me, the fourth quarter just to be simplistic, and put a kinda more normalized provision onto it and annualize it, you'd be talking about $50.55 cent per share EPS run rate, which would annualize $2.20. Now we enter 2026 with about a $100 million more interest-earning assets than our average for 2025. That's gonna help assist us, and then we'll have the first kinda full quarter benefits of the rate changes the Fed rate cuts that occurred in the fourth quarter. So all that paints a really good picture for us to maintain and actually upside to the go-forward earnings run rate. Then I think the last point I'd note is we assume a more normalized consensus level of net charge-off. And both us and Prosperity have a great track record of delivering meaningfully lower net charge-offs, which would mean which would drive lower levels of credit costs and potential beats to the numbers we put forth. Catherine Mealor: Okay. Very helpful. Thank you. And then as we think through growth moving forward, so it looks like part of that is assuming better growth at Stellar, which is great. You typically shrink a little bit, and that's from Prosperity, what we've seen with past deals is, you know, you do an acquisition, then you been part of the headwinds that we've seen at growth at Prosperity recently. So why is this acquisition different and what kind of forecast for growth in '26 should we expect for Prosperity? Thanks. David Zalman: I think this is different. Bob and I have known each other for probably wrote romance for ten years plus, and again, we're across the street so we can throw rocks at each other. So to me, takes a lot of risk out of a transaction like this. I think we've talked about doing this for a lot of years. It makes a lot of sense. There's a I think there'll be efficiencies through this, and I would say far as growth going forward in 2026, I would say that our plate is pretty full with the transactions that we have. I think that we're gonna primarily focus on the three banks that we have. So the integration and having said that also, I think Stellar Bank is very much like our bank. So with some of the banks that we buy, we know that either their deposits are extremely high or their loans are something else wrong, we have to get rid of them. I don't see that in the Stellar acquisition. I think that they're very similar to us. So feel good about that. But, again, I think our focus is really gonna be taking care of our customers, taking care of our associates, and actually putting all these three deals together this year. That'll be our main focus. Catherine Mealor: Understood. Thank you. Operator: Our next question is from Manan Gosalia with Morgan Stanley. Please go ahead. Manan Gosalia: Hi. Good morning, David, maybe can you help us think about the price of the acquisition? You know, 18 times one year forward does feel a little high. But, you know, I know you mentioned the higher level of NIB and the synergies. Maybe if you can help us appreciate, you know, all the synergies and growth prospects that the combined banks have. And so the unback period, four and a half years unback is a little bit higher than what you've done recently. Yeah. David Zalman: Know, I could start off and say, and I think this I don't know if this is a good analogy or not, but I think banks are a lot like cars. You know? I can drive a Ford Pinto or I can drive a Range Rover. The Pinto will probably get me wherever I need to go. And I can probably throw it away and not lose a bunch of money when it's gone. Or I can really enjoy and have a Range Rover that's gonna really be something in have a good resale value. This you know, there's a big difference in the price of things, and I wish I think some people have a harder time doing that. A bank that's good deserves a premium price. These guys it's just it's a premium bank. And so the thing that we really look at is, you know, we say the price, but I look at it and I say, okay. In 2027, our combination will be earning $7.34 a share once we get all of this put together. And so there so it's $7.34. If we trade just at 13 times earnings, our you know, our stock value would be $95.42. If we traded at 15 times earnings, and then somebody may say, well, that's high. Well, I would just tell you the first bank in Colorado went for that much. You saw these other banks, and I can tell you I could call up any one of the midsized banks underneath Bank of America or JPMorgan, the guys underneath them. And they would offer us 15 times earnings probably in a New York minute, which would indicate a price a value of our bank at least at $110 a share. So there we paid a lot for it, but I would tell you too that should be easy for anybody to see that the franchise value, not only not only does it accretive, but the franchise by us being one of the largest banks in the Houston market. So I think the combination of the earnings, the enhancement of the franchise value, and that's what sometimes I know what kind how do you put a price on the enhanced franchise? That I can tell you is significant. I think that any anybody would want to probably acquire us as being one of the bigger banks in the state of Texas. And the franchise that we have. And so that's that's kind of the rationale behind it. It also know, we it takes us from being a these all three of these deals, takes us from having a 13% return on tangible capital. I mean, we're looking at a 17% on return on average tangible capital in the year 2027. So not only did I like it, not only is it pretty, the metrics make sense for all of these deals. So that's kind of the rationale. Manan Gosalia: Got it. That's helpful. So maybe as you think about the capital deployment strategy from here, I mean, I guess you're now integrating three deals together. Is that you know, is that it for now? Like, do you would you focus on the integration for the coming months and, you know, just given where the stock price is? Is there more of a focus on buybacks? You know, I know you guys upped the authorization yesterday, so maybe just help us think through, capital deployment plans from here. David Zalman: Well, let's say we're do any more deals. They've got me handcuffed in this room, so I can't get out. But you know, if you can look at the projections going forward in the year 2027, I think we're projected to make around $880 million. And so we have about 120 million shares outstanding, and you can do the math. We're paying $2.40 a share in dividends. That's $288 million or so I think that's right. So you subtract that 288 from $6.80 we have about $600 million, so we have a not only do we have we have just like a strong capital to begin with, a I mean, like a printing press. You know, if something doesn't go wrong, which 100 million, we can do a lot of we can do a lot with that. We can buy a lot of stock back. We can increase dividends. And we can buy more banks. It's a high-class problem. Manan Gosalia: But any I guess, any immediate priorities there? Like, would you tilt more towards buybacks in the near future? David Zalman: I think that we would when it's opportunistic, we certainly would look at buybacks for sure. We just as I'm with this last year, stock went down in the sixties, the low sixties, and I think you saw what we spent $157 million on buybacks this last year. And I think we have another 5% approved for this year, so you're talking was at 300 and something million dollars that we can buy back this year as well. And that's been approved ready by the Fed. Manan Gosalia: Got it. I appreciate it. Thanks so much. Operator: The next question is from Stephen Scouten with Piper Sandler. Please go ahead. Mr. Scouten, your line is open on our end. Perhaps it's muted on yours. Moving on, the next question is from David Chiaverini with Jefferies. Please go ahead. David Chiaverini: Hi, thanks for taking the question. So you mentioned about, you know, you've got multiple bank integrations occurring simultaneously. Can you talk about ways you'll be able to juggle these at the same time and not get distracted from the core operations? David Zalman: Well, again, they're all plans. And somebody may wanna talk about the which ones we have in order. But, I mean, we've done 40 of these transactions, so I don't think this is gonna be there may be three of these. But again, we're doing our own operational integration here probably in the next few weeks or so. Yep. And then right after that, we're going in American Bank dated what? Also back in So I think, specific to address the question, we have designated teams who does that. So it's not like our people who is out on the field doing the you know, organic growth. They'll be focused on this. We'll have specific team focusing on integration. So we'll have a plan to convert these banks with those two bank, American Bank and Partners Bank this year in the sense of integration. And in the process, so far, it's going well, and we started in advance. So it's not like we're starting now. Overall, we are scheduled to do convert later this year, and it's working as we planned. David Zalman: I we feel confident where we're at. It's not to say that you won't ever have any glitches. On anything that you do. There there always may be something like that, but for the most part, we have a well-seasoned team that's done many of these things, and they feel very comfortable where we're at. David Chiaverini: Great. Thanks for that. And can you talk a little bit about the cultural fit? How did the deal come together? And why now? With the deal? David Zalman: In the previous administration, I think we did a Well, the time seems to be right. I mean, if you look we were trying to do some bank deals and even much smaller deals. Think the last bank we took I may be wrong, but it took us almost a year to get completed. I think that from a regulatory standpoint, that the that the the regulatory the regulatory things are in place to make this happen. The timing is right. And you know, it it was right I think it was right for us. I think it's right for them. It it just seemed to be the right time. David Chiaverini: And can you talk about the cultural fit and how the deal came together? David Zalman: Yeah. I mentioned earlier, Bob and I have known each other for twenty years or more. I mean, I would say I said this in our meeting the other day. I said if I got killed and ran over tomorrow, and Bob took my place, I don't think that I don't think that that our bank would change, our combined bank would change at all. I think that if anything, I think they may be even more conservative than we are on the loan side, and it's hard to believe. And so I we feel we did our due diligence, and we feel really good. We feel the same way about things. You know, again, we've dated in romance for probably ten or twenty years, and it's not like know, we just saw this pretty girl across the street, fell in love, got married in a month. You know? This is something that we really thought about and have thought about and talked about with each other for years and years. And the timing just seemed to be right right now, and we did it. David Chiaverini: Thanks very much. Operator: The next question is from Dave Rochester with Cantor. Please go ahead. Dave Rochester: Hey, good morning guys. Good morning. I just wanna go back to the capital discussion real quick. I noticed the shares are trading below the average price for the buybacks this past quarter. So I just curious if you see that buyback opportunity is occurring now And then I know there are blackout periods related to the outstanding deals. If you could just talk about when you'd be actually able to buy back stock if you saw that opportunity in the near term, and if you had a, 10 b five dash one plan. Thanks. David Zalman: Yeah. I don't know what the 75 would what plan is he talking about? The 10 b five one plan. We can talk Charlotte Rasche: yeah. We don't have a 10 b five one plan. David Zalman: Yeah. And, David, I would say on the others, you know, basically, I get I I'd probably stick to our statement that you've seen us buy in the past that's been off to opportunistic, and we'll do that again. Dave Rochester: Okay. Any sense for blackouts when those pop up, when those ends, that kind of thing? Charlotte Rasche: Oh, we're in a blackout today for our David Zalman: So Right. We we formal earnings blackout and things, and there's some blackouts around the the merger transaction, of course, around shareholder votes and things like that. When you should start soliciting the Stellar shareholders. Dave Rochester: Okay. This before you do that, sorry. Go ahead. Asylbek Osmonov: I say at this price and then when it's available for us to buy back, we'll do buybacks. Yeah. Dave Rochester: Sounds good. I wanted to get your thoughts on the trajectory for NII and the margin through 26 just given the three deals you got coming in? Just assuming you closed Stellar June 30, can you just help us understand what you see as that path through the year? Thanks. Asylbek Osmonov: Yeah. If you look at Prosperity I'm just gonna talk about Prosperity and with two smaller acquisition on projection. We definitely see the improvement in the margin as for 2026 and beyond. And it's because, the margin on the smaller banks were higher than ours as stand alone. So that's have accretion there. But if you look at our balance sheet, with the, you know, repricing our bond portfolio, as we mentioned as I mentioned that we have a $1.9 billion cash flowing from that So we'll be repricing that our our yield on the bonds of two fifteen to pricing. Then we can get around four fifty right now. So 200 basis points there. If you look at our fixed, loans, that's getting repriced as well. So, putting altogether, our kinda projection for 2026 stand alone showing about around three fifty margin for 2026. But, if you add the Stellar Bank together, I think you the margin is still about more 4.22%, so that will be very accretive too. So combined together, you can do the math. It will be looking very, very good for 2026, and David Zalman: A minimum of three and a half. Yeah. That's Minimum of three and a half. Three and half without Stella. Yeah. Without Stella. Yes. So that's looking really good. And it comes a long way. It you know, it goes back to where two years ago Somebody said, well, you know, the bank in your peer group you know, you didn't perform as good as your peer group over the last couple of years. Well, the truth of the matter is we didn't. I mean, our bank has never tried to call rates one way or another, and we bought in every market. In fact, we should be buying more, but I think we're still scared from what happened last time. But so so for the most part, we said, you know, if every we we try to buy and have a three point seven, three point eight year duration. And we said two years ago, we got caught in that. And as this thing turns, we would turn it around. We went from a two point seven five two point seven five net interest margin to three and a half today. So we did everything we said and, candidly, we have very, very strong tailwinds in back of us. And I think that not only looking at 26, 27, without anything, we have some very, very strong tailwinds going at the same time. Asylbek Osmonov: Yeah. And, want to add to that. I think we have a year or two ago that we wanna reduce our borrowing levels. You know, we were almost at $3.9 billion borrowing two years ago, and we have conscious program that we're gonna reduce it to level that we are right now. So now we have we believe that, borrowing level is what we expected within 1.5 to $2 billion, and now we're gonna be you know, with growth in deposits and additional of the two banks, we're gonna start growing our average earning assets while past two years we were shrinking because we David Zalman: wanna I think it was just a matter of the time that somebody could make an argument in this email the Sharp email that I got this morning made that argument. I can make an argument that you could go back Anybody can pick the year and time that they want to. But if you go back in for the last since 2000 till today, and you compare us to the S and P five hundred and you compare us to the Nasdaq Bank Index, our bank has returned 1447% compared to the National Bank Index of about I'm thinking, 181% and it's compared to the s and p five hundred, 665%. So I think if you're a long term player, you need to jump in and buy this stock because I did the math for you all ago. What what this what this thing should trade for And so it just I think it's one of the greatest opportunities, and you you will benefit if you're a long term investor right now. Dave Rochester: Alright. Great. Appreciate all color. Maybe just one last one on the, the cost save estimate. I know historically, you guys have been pretty conservative or have outperformed your cost save expectations. I'm just wondering how you feel about about this level here that you've you've talked about and if there are any branch closures that, you'll have to take care of as a result of the higher concentration of branches in Houston. Thanks. Asylbek Osmonov: Regarding the cost, I would feel very comfortable with the 35% cost there that we printed, and it's combination of the combining two banks that have the same footprint. So, of course, there'll be some consolidation of branches. Also, there's, you know, as you know, the system conversion gonna help. So we took deep dive and feel very comfortable with the cost base. Dave Rochester: Great. Thanks, guys. Operator: The next question is from Janet Leigh with TD Cowen. Please go ahead. Janet Leigh: Good afternoon. David Zalman: Good afternoon, Janet. Janet Leigh: Back to M&A. If I were to ask it in a different way. So if I look at your Performa one, it will be about 13 and a half. Which is slightly above peers, but definitely more normalized. And in the past or at least over the five years, you've you've had CT one running above peers. Just given the size of the deal, which was more meaningful than the recent ones and the Performa CT one post the stellar deal. Does this change your appetite for M&A, whether it's your appetite for M&A itself or the type of deals that you might be potentially looking at in the future? Asylbek Osmonov: No. Even like I mentioned a while ago, we're David Zalman: when these things are combined, you're gonna have over $600 million a year just in excess cash flow. We had excess capital, and everybody was asking what we were gonna do this time. Again, we didn't have it wasn't a requirement that we pay 30% in cash down. We did to try to utilize our capital to get a better return on our average tangible capital. I think probably just just in earnings over a couple of years, if you've done the ratios telling to see where what we we're back up within a year or two, we? On on how, excuse me, on how fast we build our capital back? Yeah. We'll be back in a couple of years at minimum. Minimum, a couple of years, we'll be back to exactly where we're at. Janet Leigh: Got it. That's fair. For loan growth, so it seems like the potential acquired portfolio run offs from loans or deposits from the Stellar deal would not be material or meaningful. So in terms of 2026, I believe you were hoping for that low single digits or low to mid single digits kind of growth on balance sheet. Is that the fair way to assume? Or I don't want to put words in your mouth, but how should we be thinking about the overall trajectory there? Kevin Hanigan: Yeah, think that's a good assumption. This is Kevin. Low single digits is good. You know, Stellar has been growing faster than that. And we don't see any reason that that would change. I think American Bank had been growing faster than that as well. And we talked about the quality of the Stellar portfolio. Say the same about the American Bank portfolio. They they were we talked about seller maybe being cleaner than us. I think American Bank was cleaner than us. Right. Right. So so in terms of the quality of the assets we've purchased here, between American and Stellar, they are Stellar. Janet Leigh: Great. Thank you. Operator: The next question is from Peter Winter with D. A. Please go ahead. Peter Winter: Good morning. Thank you. Can you just talk a little bit you mentioned the increase in nonperforming assets. If you could give a little bit more detail Last quarter, you highlighted the like $35 million SNC credit. Just wondering if that was part of the increase in nonperforming assets. And just how you're thinking about credit quality. Going forward. Kevin Hanigan: As we said, I would reiterate what we said last quarter. We said portfolio is very clean. We had our eye on one particular asset, which we had downgraded to substandard. In third quarter to $35 million shared national credit that that we're not the agent on. That credit was downgraded further in the fourth quarter to nonperforming, so it's still substandard but now nonaccrual. As I said, on the call, in the third quarter, if if that became more problematic, and at this stage, it has become more problematic and we haven't worked things out. Although it is I will tell you it is a well-known, very large private equity firm who has a history of backing their deals. That doesn't mean they're backing this one, but they have a history of doing so. It's just that the resolution conversations have been challenging. Or were challenging in the fourth quarter and continue to be challenging. We don't see a need on this or the other credit we talked about last quarter, which is in the buy here, pay here space. We don't see the need at this stage or if something went further wrong with these credits. That we need to post reserve. As a result of it. David Zalman: I'd add it to the other large Posted a provision, I should say. We have reserves up against both. Okay. And I'd say the other large credit is a is a participation for one of the banks that we bought. Actually, we originated and sold the majority of it to another bank. From the Lone Star deal. And, basically, it's well secured with real estate. In fact, there should be excess equity in that. There shouldn't be any loss in that. Peter Winter: Got it. And with the Stellar deal, what what is the purchase accounting accretion? Going to the run rate You gave it for the first quarter. Also back, but I'm just wondering what it is after Stella. Asylbek Osmonov: So the guidance that I provided on purchase accounting payroll loan income, that's for American Bank and Texas Partners Bank. If you look at just Stellar, I think on the page 16, we disclose what the loan marks and AOCI mark that are pretax, and we have about $73 million net of tax and AOC. So I think on the loan mark, we're having about $31 million on loan marks. So for our modeling purpose, we use sum of year digits calculation. 2027, I think the mark accretion is about $30 million combined, $3,031,000,000 combined. Peter Winter: Okay. Thanks for taking the questions. Operator: The next question is from Michael Rose with Raymond James. Please go ahead. Michael Rose: Hey, good morning guys. Thanks for taking my questions. Anything to do once the deal is either leading up to or once the deal closed just on the on the bond book? I know most of Legacy Prosperity's book is is HTM, but Stellar's is AFS wanted to see if there's an opportunity for a potential restructuring that may be not included in the pro forma's here? David Zalman: You know, it's it's not. We could everybody asked, why don't you just do financial engineering? Sell your deal, sell your portfolio, If you you can do the math on $10 billion, you make an extra 2%. You know, 2% a year is another $200 million income a year. So you take your loss after tax, 600, and you get it back in three years. But I just again, I just feel like that's just financial engineering. We could do it. It would make us look good, make us look like well, you do $200 million. After taxes, see what we have extra in income between us. I mean, we'd be making a whole lot of money, but again, I think that's just financial engineering. And, again, we've always said that we're not trying to call rates one way or play the market. Just trying to be in every market and buy with the three point eight year duration. And so sometimes it'll be real good, and sometimes it'd be low. But I don't see any change in that. And, again, we will mark to market the the the pop portfolio from Stellar for sure. Into the asset liability sensitivity? Asylbek Osmonov: I think they are a little bit of asset sensitive on that. I think what we're gonna do if we mean, there will be some security that we're gonna sell and kinda buy back in a mortgage backed security like we do. So I think from the standpoint, it's gonna be maybe the same as a flight asset sensitive. We'll we'll try to buy ahead so that not so asset sensitive. We'll try to get back to neutral. If we can. Michael Rose: Understood. And then maybe just finally, if there's any stellar guys in the room, I think Paul was in there. I guess just given how robust the NII forecasts are versus where consensus is. I guess the question is from your point of view, why sell now if the outlook is is or or merger, you know, merge with Prosperity now if the outlook's so good? Thanks. Paul Eggie: Well, I think it's rare to get the to find somebody that kinda looks like you and thinks about the world the same way that you do. We've always concentrated on a real quality deposit base. I think that's what Prosperity has always done. We're really sensitive around the way we fund ourselves. To get our high-quality deposit base, low cost, of funds so that we can control that part of the deal. It's hard to find people to partner with. But I think the expanded balance sheet, the ability to continue to do that look like that. Kind of where the momentum started back in the third quarter, into the fourth quarter, and we can see it in the first quarter. It's starting to have a real good momentum. And because we look so similar and we do similar loans, similar types of deals, it's not a heavy lift to understand that we could continue to do those kind of things. So we think we're gonna continue to drive that momentum. And we feel good about what the future looks like over the certainly over the next twelve months because I think we're on a good path. Michael Rose: Makes sense. Thanks for taking my questions, everyone. Operator: The next question is Jared Shaw with Barclays Capital. Please go ahead. Jared Shaw: Hey, good afternoon. Maybe just going back to the original comment just about how your internal expectation for Stellar is better. When we look at their pipeline, are they David, do you feel like they're able to get the pricing in terms that you said if so, would that cause you to to reallocate more you're not able to get in other markets? And internal Prosperity resources to those markets to take advantage of that, you know, maybe disruption or relative difference between their markets and the rest of yours? What you're doing in the state? David Zalman: I would like to say to tell you that it it would be great. We just use our loan team, and they'll they'll make higher rate loans. But what usually happens is we usually banks that we join together Usually, the the the return actually comes down. I mean, the net interest margin, it's it's more they're getting they're probably you know, there there's a what is it? 4.2, you said? And ours is Margins. Yeah. But and ours is six 0.5 a part of that margin is because don't have as big of a bond portfolio. So their march is better because the they have a better loan to deposit ratio too. But but even having said that, even as we start merging together, it seems like their pricing from the banks that join us comes down a little bit. But I just think the number of people, though, that Stellar has on the ground and even with American Bank that had their they had a loan production office here in the Houston too together. We should really be able to inundate the market. This is such a big market. I mean, I don't know that people realize how many people move in, what the GDP is, if the Texas. It's just it's really phenomenal. So I think the opportunities are just unlimited, especially we get get momentum, put our groups put our guys together, guys and girls, I think the momentum is really gonna be good for everybody. And I think that we'll they maybe even had a better better than us where we a lot of our our payment or pay to lenders is maybe more discretionary. We do look at the actual production. They were more on a formula driven formula driven deal. And so that I think that helps them too. So we'll probably look you know, every bank that we join with, it looks like we take the we try to do the best. We take the best from them. And bring it to us. And so I think they should be able to help us with some of this stuff too. And, hopefully, hopefully, they won't lower their rates that they're charging. Let's say that. David, let's let me, if I can, tag on to you on that. I'll be real simple. I think the margin differential is threefold, and then and Bob or somebody from Stellar could comment whether they agree with this or not. The obvious differences are we we've got $10.5 billion in securities earning 2.17%. That's a drag. The second big item on our balance sheet that's a drag is $8.3 billion of single family mortgages. That were originated in times where rates were pretty low. And that portfolio is a drag. So those are the two biggies. But the one that doesn't jump out at you all that we see and we saw throughout due diligence is on the loan side of the bank, the basic commercial lending side of the bank. Not forget single family mortgages. Some of the other stuff. Just the basic commercial lending. Have a way more granular portfolio. And the granularity of that portfolio basically means it's smaller deals for the most part. They still do some big deals, but if it's just on average, smaller deals for the most part, tend to get higher pricing. Right. So it's those three factors that really drive their relative to ours. And I'd I see ours ours improving as those low rate assets run off. Bob Franklin: Yeah. I agree, Kevin. I mean, it I've we do have a granular portfolio. I think there's there's getting to be more and more balance to that over time. But it certainly started off that way when we combine the two banks together. But pricing's competitive. We're in Houston, Texas, and price is competitive. So no not one's not gonna be better pricing than the other. You guys are just as good as us with pricing loans. So but for the most part, it is granular, and we do get a little bit higher pricing on the smaller. Stuff. So yeah, I would agree with that. Jared Shaw: Okay. Thanks. And then just as a follow-up, comes with cheap deposits. Yeah. Right. Which is why your noninterest bearing deposits are generally a bit higher than ours. So I just a little additional inside baseball. Jared Shaw: Great. Thanks. And I guess just as a follow-up, what are some of the assumptions on customer retention as this will be I guess, an additional name change over the past few years for Stellar. Do you think that there's what what do you think the risk is of retention? David Zalman: I'll answer first. Or, Bob, you wanna go first? Mean I was just gonna say, I mean, we're think we're doing a good job of retaining our guys. I think that's that's the big key. Is to is to make sure that we we keep our our customer facing folks out there that our customers see every day and not changing that. So Bob Franklin: Yeah. I mean, we entered into fifth about 15 non compete agreements in about 70 letter of retention agreements. So we I think the team's the team's on board. It's it doesn't mean you won't lose somebody. Go I think for the most part, know, we'll be able to retain the customers, and it's not like it's not like another bank is coming out from another state that's jumping in. They they know who we are. We've advertised here. We've you know it it's not somebody that they that they're not familiar with. So I think the retention is good here. I think and, again, they don't have a lot of high yield time deposits or something that's gonna run off like that. So I mean, this is really a great combination, guys. It's truly it's it's a marriage made in heaven. And the other piece, David, I think is the credit cultures are very similar. Right. We've always thought about the world the same. And I so I don't think you see that drastic change that you do in some combinations where people say, oh gosh. You know, this maybe this is too conservative or whatever they might might think. Well, you're you're a lot like needed. Analysts. They wanna say, okay. You gotta have, like, double digit loan growth. Gotta do this. Gotta have 6%, 10%. Every year. Well, and your deposits are growing 3%. What do you do when you run out of money? So I think we we have a lot of the same logics that, you know, we're we're used to around the 80% loan to deposit ratio. Again, we bring in new deposits. We'll make more, but we have a lot of liquidity, I think. If if there's ever a run on our bank, for example, I think we have, like, $16 billion that we can draw in a minute. So we have a lot of liquidity. Y'all have a lot of liquidity. So the combined earnings of these two banks, the of these two banks, they're so similar I think it's a good deal. Thank you. Operator: The next question is from John Arfstrom with RBC Capital Markets. Please go ahead. John Arfstrom: Hey. Hello, everybody. David Zalman: Hey, John. Uh-huh. John Arfstrom: David, for you, just a couple on the numbers. What's your level of estimate for 2027? I don't think you have any revenue synergies in there, so it seems like it's just cost saves, but, you know, consensus six eighty is you talk about the accretion. How confident are you in the seven thirty four? David Zalman: Colin just handed me the seven thirty four. So if he's wrong, we'll shoot him. But I we feel very confident and I think we do have some we do have some triggers that I think that above beyond expenses. I mean, right now, they don't charge NSF the charges. I'm not saying one way or another, we'll go the other way. Their cost of money is a little bit higher than ours. So we do have some other triggers, but I feel very confident in the $7.34. Know, once we get everything combined, I think that's a really real number. And that's why I can't believe trading where we are trading if we're gonna make $7.34. I mean, again, we should have a 95 to a $100 price target really. Even you, John. John Arfstrom: I hear you. David Zalman: That's 75 stuff or 78. John Arfstrom: Well, okay. This begs the next question then. You kind of opened the door to it. It's gonna be with your well, with your with your 15 times acquisition, multiple math, that you shared earlier. You know, the question is, I'm not saying you should do it, but do the larger regionals call on you frequently? And is there a bid if you want it? Again, I'm not saying you should, but I'm just I'm curious on that. David Zalman: You know, I was I was on the I was on the Federal Reserve Advisory Board in Washington in it every bank that you can imagine that size was on there. I mean, you had a PNC Truist Regions. The answer to your question is they would all love us a lot. They would love us. And I would tell you that I wouldn't even accept 15 times because I think we could even do better. And anybody that really wants to break into a market like Texas, you can't do it. I mean, if you really wanna break into Texas and wanna be the largest bank in Texas, it's gonna cost you something. And that's the difference in the price of cars. One's a four Pinto and one's a Jaguar. I mean, it's just there's just a big difference. And, again, I'm not saying we are selling or not. I'm just telling that we are truly, truly undervalued in a takeout. John Arfstrom: Okay. Yeah. I think it adds a lot of franchise value. Despite today. So okay. Thank you very much. Operator: This concludes our question and answer session. I would like to turn the conference back over to Charlotte Rasche for any closing remarks. Charlotte Rasche: Thank you. Thank you, ladies and gentlemen, for taking the time to participate in our call today. We appreciate your support of our company, and we will continue to work on building shareholder value. Operator: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to Avnet's Second Quarter Fiscal Year 2026 Earnings Call. I would now like to turn the floor over to Lisa Mueller, Director of Investor Relations for Avnet. Please go ahead. Lisa Mueller: Thank you, operator. I'd like to welcome everyone to Avnet's Second Quarter Fiscal Year 2026 Earnings Conference Call. This morning, Avnet released financial results for the second quarter of fiscal year 2026, and the release is available on the Investor Relations section of Avnet's website, along with a slide presentation which you may access at your convenience. As a reminder, some of the information contained in the news release and on this conference call contain forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Form 10-Q and 10-K and subsequent filings with the SEC. These forward-looking statements speak only as of the date of this presentation, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this presentation. Please note, unless otherwise stated, all results provided will be non-GAAP measures. The full non-GAAP to GAAP reconciliation can be found in the press release issued today as well as in the appendix slides of today's presentation and posted on the Investor Relations website. Today's call will be led by Phil Gallagher, Avnet's CEO; and Ken Jacobson, Avnet's CFO. With that, let me turn the call over to Phil Gallagher. Phil? Philip Gallagher: Thank you, Lisa, and thank you, everyone, for joining us on our second quarter fiscal year 2026 earnings call. I'm pleased to share that we delivered another quarter of financial results that exceeded the high end of our sales and EPS guidance. In the second quarter, we achieved sales of $6.3 billion, driving a 3.2% operating margin in our Electronic Components business and a 4.7% operating margin in our Farnell business. We also generated over $200 million of cash flow from operations in the quarter and reduced inventory dollars and days as projected. Our double-digit year-on-year sales growth was led by record revenues in Asia along with better than typical seasonal growth in the Americas, Europe and Farnell. I want to thank our team for delivering this performance while remaining focused on the areas we can control. In the quarter, we made solid strides in expanding operating margins, optimizing inventory and generating cash flow while continuing to make necessary investments to best support future growth. From a demand perspective, sales increased sequentially in most of the verticals we serve and not surprisingly, were led by strong demand in compute and aerospace and defense. Year-over-year, we also saw a broad-based improvement across most verticals. Now turning to today's market. Demand signals continue to reset globally, resulting in lead times trending higher across most product categories. This trend is still largely driven by the data center, artificial intelligence, but is also broadening as projected growth rates at all segments we track continue to improve. We're also seeing an increasing number of customer orders being placed within lead times, along with higher instances of deliveries beyond lead times. These factors are driving a mismatch, if you will, between customer request dates and supplier delivery dates. This creates opportunity for us to deliver our supply chain value to our customers by addressing those misalignments. The pricing environment remained stable during the quarter, but we have seen spot price increases with a few suppliers and commodities. The supply dynamics suggest there may be upward pricing pressure across many technologies going forward. We exited the quarter with robust book-to-bills in every region, led by Asia and EMEA. As momentum builds, we are coordinating closely with customers to effectively validate and manage our backlog while continuing to encourage customers to provide us extended visibility that we can share with our supplier partners. The more visibility we can give to our supplier partners, the more supply chain expertise we can bring to bear to solve for the complexities in the market. With that, let me turn to our highlights for our businesses. At the top line, our Electronic Components business drove year-over-year growth and sequential sales growth across all regions. In Asia, sales reached a record high of over $3 billion. This marks our sixth consecutive quarter of year-on-year sales growth in the region. Demand increased across most of the verticals and geographies we serve for both the year-on-year and sequential compares. In EMEA, we're seeing clear signs of recovery, with sales growing both sequentially and year-on-year. Most end markets showed year-on-year growth, including industrial, while compute, consumer and transportation were the strongest end markets quarter-over-quarter. We are encouraged with the improving outlook in the region, especially given the continued market uncertainty. I'm confident that EMEA's new leader, Gille Petron, will continue to drive profitable growth in the region. In the Americas, sales grew both sequentially and year-over-year, marking our second consecutive quarter of year-on-year growth. Most end markets showed sequential growth led by Aerospace and Defense, while Industrial, Communications and Compute were the strongest end markets year-over-year. Our EC team is focused on several growth and margin expansion opportunities, including demand creation supply chain services, embedded solution and our Interconnect Passive and Electromechanical business or IP&E. Demand creation revenues increased sequentially by 7% as our field application engineers continue to drive the funnel for converting design wins into revenues. Our design registrations and wins also increased sequentially, which is a positive indicator for future revenues. We continue to develop and invest in both digital tools and hardware solutions that will allow our design engineers to better support our customers' design requirements. We are also pleased with the growth in our IP&E business, which had double-digit growth year-on-year. As a reminder, IP&E products carry higher gross margins, and there are many cross-selling opportunities with IP&E components that are complementary to our semiconductor business, including through our demand creation efforts. Now turning to Farnell. Sales grew sequentially and year-on-year. Farnell's Continued improvement reflects recovery across all three regions. We believe this is a sign engineers are working on developing new products, which we view as another indicator of the upturn in demand for electronic components. Operating margins improved sequentially in line with our expectations. We also continue to gain traction growing Farnell sales, which leverages the best of Avnet Core on the board components through our Power of One initiatives and Farnell digital platforms. Although we are seeing improvement in sales of higher margin on board components, Farnell continues to have a higher relative sales mix of test and measurement, maintenance and repair, and single board computers. As the recovery of demand for the onboard components continues, especially in Europe, we expect Farnell's gross and operating margins to continue to improve. So here at the center of technology supply chain, as we look forward, there are many reasons why I am optimistic about Avnet's future and our position in the marketplace. We have in areas of need. To conclude, we are pleased with the momentum we are seeing moving into the new calendar year. For those of you who attended CES this year, there was a lot of excitement at the show. We had the opportunity to meet with leadership of many of our supplier partners and customers, and we continue to be encouraged that 2026 will be a year of growth and margin expansion and improved returns for Avnet. With that, I will turn it over to Ken to dive deeper into our second quarter results. Ken? Kenneth A. Jacobson: Thank you, Phil, and good morning, everyone. We appreciate your interest in Avnet and for joining our second quarter earnings call. Our sales for the second quarter were approximately $6.3 billion, above the high end of our guidance range, and up 12% year over year. On a sequential basis, sales were higher by 7%. Regionally, on a year over year basis, sales increased 17% in Asia, 8% in Europe, and 5% in The Americas. During the second quarter, sales from Asia grew to over 50% of total sales compared to approximately 48% of sales last quarter. From an operating group perspective, electronic component sales increased 11% year over year and increased 7% sequentially. Constant currency, electronic component sales increased 9% year over year. Farnell sales increased 24% year over year and 7% sequentially. In constant currency, Farnell sales increased 20% year over year. For the second quarter, gross margin of 10.5% was flattish year over year and up slightly sequentially. EC gross margins are still being impacted by the Asia region growing than the West. From a regional perspective, EC gross margins were stable by region with gross margin improvement in Europe compared to last quarter. From a Farnell perspective, gross margins were up over 100 basis points year over year and were down 25 basis points sequentially. As Phil mentioned, we anticipate improvement in Farnell gross margins as we see more growth in on the board components relative to other product categories. As a reminder, Farnell's Europe region has the highest regional mix of on the board components and has been the slowest to recover. Gross margins at the product category level for Farnell continue to be stable. Turning to operating expenses. SG and A expenses were $492 million in the quarter, up $55 million year over year and $27 million sequentially. The sequential increase in SG and A cost is primarily from a combination of higher sales volumes and increases in stock based compensation expense. As a percentage of gross profit dollars, SG and A expenses were lower sequentially at 74% compared to 76% last quarter. We anticipate that our operating expense to gross profit ratio will continue to improve as we grow our gross profit dollars. Turning to expenses below operating income. Second quarter interest expense was $61 million and our adjusted effective income tax rate was 23%, both consistent with expectations. Adjusted diluted earnings per share of $1.05 exceeded the high end of our guidance for the quarter. Adjusted diluted earnings per share grew nearly 4x sales compared to last quarter. Turning to the balance sheet and liquidity. During the quarter, working capital decreased by $42 million sequentially. Working capital days decreased seven days quarter over quarter to 88 days. From an inventory perspective, we reduced inventory by $126 million or 2.3% sequentially. At the end of the quarter, our EC business received approximately $150 million of high demand inventory related to memory and storage products, which partially offset some of the broader inventory reductions that took place across EC this quarter. Substantially, all of the memory and storage products received at the end of the quarter have already been shipped to customers in January. We ended the quarter with 86 days of inventory as we continue to make progress on reducing total Avnet inventory days to below 80. As a reminder, the inventory turns models are different between the EC business and Farnell. Our EC business typically runs between four to six turns per year, whereas Farnell typically runs between 1.5 to two turns per year. Farnell's high service value proposition requires a breadth of on the board, test and measurement, and maintenance and repair product inventories. For further context on these inventory model differences, at the end of the second quarter, our EC business had less than 80 days of inventory and our Farnell business had less than 230 days of inventory. Even with the overall inventory improvement, our team remains focused on reducing. We still anticipate reducing our leverage to approximately three times over the next year. We continue to deploy cash in a manner that generates the greatest long term return on investments for our shareholders. In the second quarter, we paid our quarterly dividend of $0.35 per share or $28 million. Turning to guidance. For 2026, we are guiding sales in the range of $6.2 billion to $6.5 billion, with diluted earnings per share in the range of $1.20 to $1.30. Our third quarter guidance assumes current market conditions persist and implies a sequential sales increase of approximately 1% at the midpoint. The sales guidance implies sales growth in The Americas and EMEA, and a less than seasonal sales decline in Asia due to the Lunar New Year. Our third quarter guidance also implies further recovery in our higher margin Western regions, which accelerates the operating leverage in our business model. This guidance also assumes similar interest expense compared to the second quarter, an effective tax rate of between 21% and 25%, and 83 million shares outstanding on a diluted basis. In closing, I want to thank our team for delivering a solid quarter of improved financial results with a third quarter guidance giving us further confidence in the overall recovery of our business. 2026 should provide several opportunities for Avnet to help our customers and suppliers adapt to continually changing market conditions, and will serve us well as we continue to create value for our stakeholders. With that, I will turn it over to the operator to open it up for questions. Operator? Operator: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from William Stein with Truist Securities. Please proceed. William Stein: Hey, thanks for taking my question. I guess I would like to squeeze in two, if I can. First, could you talk to us about the linearity of orders during the quarter? Anything unusual or noteworthy there? I think, typically, new orders tend to fade as you go into December. Maybe I have that wrong, but whether right or wrong, maybe comment on that trend. And also, the duration of your backlog as it stands now? Do you have a bit more visibility? Are you seeing customers place it longer at a longer sort of time to request? Thank you. Philip R. Gallagher: Yeah. Thanks, Will. I appreciate you joining the call. So I guess that was the two questions. Right? So I will go first, Ken wants a heads up. On the linearity, the December quarter is always an interesting one, right, because you know, your billings continued through the quarter. But your bookings do tail off near the end of the, you know, the December, let's say, give or take a few days. So, it is definitely a stronger booking on in this case, October, November, pretty good through December till that midway, then that booking start to trail off, you know, the billings continue because even if there are shutdowns, through the holiday, manufacturing starts up when they get back. So, you know, you do go out some a bit more in bookings. But even that said, the book to bills were positive on top of a pretty good billing quarter. So that is it. It is improving. Will, the suppliers in part of them are on this call. They are banging us for backlog. They want to know what to build and we are banging the customers for more visibility into the future longer term bookings, if you will, or forecast. We are starting to see that increase. Still probably not at the level we would like to see it. But, yeah, we are starting to get a bit more visibility into the future, which any customers on the call, and we will see a lot of them next week here in Arizona, that is the message. Still we still want that visibility and pipeline. So we can pipeline appropriately for them. But it is improving, not where it needs to be quite yet. Operator: Okay. Answered your question. Our next question is from Joseph Michael Quatrochi with Wells Fargo. Please proceed. Joseph Michael Quatrochi: Hey, thanks for taking the question. These storage controllers, certain capacitors in the IPD space, we are starting to see some pricing inflation. And a lot of that is driven obviously by the activity around data center, increase in hyperscalers, but it is really a lot of our industrial customers are increasing demand based on their exposure to the data center, if you know what I mean. So overall, it is not across the board over pretty much from Q2 is stable. But we are starting to see some increases. And I think that will continue as we move forward. Kenneth A. Jacobson: And Joe, maybe just a point of clarity that we have seen the increases announced and we know they are coming. Right? But the actual quarterly results did not have a lot of impact from actual price increases in the quarter. So just to kind of clarify the timing of some of those things. Joseph Michael Quatrochi: Okay. That is helpful. And then just as I guess as I am thinking about the just the guidance on the revenue, you talked about Americas and EMEA up. And then Asia maybe a bit better than seasonal in terms of, like, the rate of decline. How do I think about just, like, Americas and EMEA relative to seasonality? Like, what is your expectation for the March? Philip R. Gallagher: Yeah. So the March, I would Ken jump in. Typically, Joe, the West bounces back in the quarter over December, a lot of that is a math equation with just more days and whatnot. But last year, it was an anomaly, you might recall, where the West did not increase over December. That was kind of the first time that saw that and ever, I think. So this year, it is back to more, you know, typical seasonality. Where the West will be up, which is positive. And outside our higher margin regions as you know. And Asia, you know, it is going to have a, you know, typical well, maybe not too well. Lunar New Year, Chinese New Year going to have an impact but not as significant as we have seen in the past. Right? So that is also positive. So our regional mix shift is in our favor this quarter as we get into March, which is good news. Ken, anyone add that? Yeah. I think I think steady, you know, high single digit is how I think about it in terms of the growth in the West, which is kind of as expected. Impacted by mix. Joseph Michael Quatrochi: That is really helpful. I appreciate all the color. Thanks. Philip R. Gallagher: Glad, Joe. Thank you. Operator: Our next question is from Ruplu Bhattacharya. And do you think the seasonality in the March quarter being different than the past couple of years impacts the seasonality going forward for the rest of the quarter? So how are you thinking about as you go through the year, you think you will see more than seasonal growth either in revenues or year over year growth in margins? Kenneth A. Jacobson: So, Ruplu, let me take the last part first. And I think, you know, there is no reason to believe seasonality would change. And how we think about seasonality is simply just the number of shipping days. And if you had a traditional Lunar New Year, with, you know, let us say, you know, seven to ten days depending on the country of shutdowns. You know, you have less shipping days that you know, we are still, you know, roughly 20 to 25% off the top line. In The Americas and probably 30 to 35% of the top line in Europe relative. Three thirty one to 90, 91 to one eighty, etcetera, and one eighty and above days it is encouraging. That is the word I am using with the team. It is very the signs are all very encouraging but as you know, we do not guide out beyond the quarter. But we are encouraged and optimistic about the next several quarters. Ruplu Bhattacharya: Okay. That is helpful. Can I ask a follow-up question on the pricing comment you made? Can you remind us how like, if suppliers are raising prices, how does that impact Avnet's revenues and margins in the near term as well as in the more medium term? And, Phil, I missed this if I might have missed this, but did you specify which product categories or areas you are seeing spot prices increases? Philip R. Gallagher: Yeah. Thanks, Ruplu. So pricing really affects the average selling price, right? So we have kind of our business is under contract and some of it is not. You know, where it is not, and it is, let us call it spot buys, if you will, customers come in, you know, time, place, utility, we can increase margins there, the price and the margins. Particularly the products, you know, tough to get. We are not breaking pillaging or anything, but, you know, just to kind of get a little bit of fair margin on that, which is positive for us. In the contracted customers, you know, it is the price gets passed on, so it does not have as much effect on the margin percent. But it does it can affect the revenue dollars and margin dollars. That makes sense. And similar to what we saw in the last tightness in the market, and then we do not the customers are you know, we cannot absorb it. That is for sure. But we are definitely starting to see that particularly in certain areas, memory storage, storage takes memory. So anything around memory storage we are starting to see some more in the controllers, some of the high high end products in networking, and are selected parts like antenna, capacitors, things on those lines we are starting to see some price increase. So some are modest right now, others a little bit more than modest based, particularly in the memory space. Ruplu Bhattacharya: Okay. Thanks for that. If I can sneak one more in. As Europe is recovering, right, I think you said for Farnell, maybe 50 basis points improvement every quarter. But as the region itself improves, do you think that can accelerate and you can see a faster recovery in Farnell margins? I mean how just help us level set our expectations for where this can go from a margin standpoint by the end of the year. Thank you. Philip R. Gallagher: Yeah. Thanks, Ruplu. Yeah. So, you know, specific to Farnell, typically their largest region and most profitable is Europe. Okay? And that is not been the case here the last several quarters based on Europe's softness. Still doing well, but actually The Americas, which is a higher like we also pointed out a higher mix in The Americas of test and measurement which is really good business, just runs at a different margin level than the onboard components being semiconductors and the IP and E. So any additional lift in Europe will further drive the drop through as for now it could. Possibly accelerate that you are right that 50 bps points of margin that we are looking to see them improve on quarter on quarter. That is the message of the leadership team as far now with who I know are on this call. You know, we need to see them and expect them to continue to show incremental improvement in operating margin that could be accelerated. To your point, with higher revenues in the right mix. And although we may not be projecting that, certainly we will really like to see them accelerate that and beyond 50 to 100 bps. So that is our commitment at this point in time. While they continue to manage their expense line. Right? So there are still other things they are doing. We are all doing. We are always doing as a company. And for now, specifically as well, you know, driving out, more efficiencies, taking out costs where we need to take out costs, while making investments where we need to make investments, i.e., in digital, e-commerce, AI, etcetera. So that answers your question. But we do see it as a continuing tailwind for us as we move forward. And we will look to accelerate getting to that double digit operating margin. Ruplu Bhattacharya: Okay. Thanks for the details. Philip R. Gallagher: Yep. You got it, Ruplu. Operator: Gentlemen, there are no more questions at this time. I would like to turn the conference back over to Phil Gallagher for closing remarks. Philip R. Gallagher: Okay. Thank you very much. And I want to thank everyone for attending today's earnings call. We look forward to speaking to you at upcoming conferences and at our third quarter fiscal year 2026 earnings report in April. Okay? Have a great day. Thank you. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
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.
Monique Mols: Good morning, everyone, good afternoon, depending on where you are, maybe even good night. Welcome to the Q4 full year 2025 financial results press conference. You may not see that when you're dialing in online and you're watching us online, but we are actually in a different location than we were last year. Today, we host the press conference in our training center in the ASML Academy, and that is located at the Brainport Industries campus in Eindhoven. And this is actually the place where we plan our expansion in the Netherlands. So we thought it would be a good idea to invite everyone here in the room to see what our new location is going to look like. There's nothing there to see yet, but this is where we are planning our expansion. And Christophe will talk more about that later in the presentation. My name is Monique Mols, I'm Head of Media Relations. So welcome to you all. I'm really happy to see that there are people in the room and people online. For those online, if you have a question later on, you can fill out the form on the website and we will take your question from here. If you're in the room, my colleague, Mark will walk around with a microphone and pick up your question. Sorry. So this is our annual results. Forward-looking statements for those who like it. So again, we are here at the Academy. We have several of those training centers all around the world. Here, we have quite a big center where, on average, 400 employees come here every day to get a training. So they actually work on the machines that our customers have in their fabs. And every year, we have about 26,500 people coming here to train. So this is a very important location for us. And we're very happy that we can host a press conference here today. With that, I'm not the only one who's going to talk to you today, of course, I have Christophe Fouquet; and our CFO, Roger Dassen, and they will talk you through the numbers, through the developments and everything that's happening at ASML. So I would like to invite on stage, Christophe Fouquet. Christophe Fouquet: Thank you very much, Monique. So Roger will be the one doing the good numbers later on. As you have noticed, we finished the year very, very, very strong with a record quarter record year, record booking. And this is basically a sign of the direction this industry is taking. We are very happy, of course, with the walk, the ASML team has done, being able to execute on such a big quarter in Q4 and also prepare us basically for 2026. So a lot of good news today. And again, Roger will get into the number. I'd like to say that we welcome also that clarification. In the course of 2025, you have seen that sometimes the business was still a bit uncertain. The last 3 months have really clarified basically at least the horizon for 2026 and most probably a bit beyond that. So before we go into the numbers, I'd like to provide you some context about what's happening in the industry, what is driving basically this type of news today. And of course, the very first thing is AI. You have been hearing about AI already for a couple of years. You have heard major, major announcement about AI infrastructure. I think from the very beginning in ASML, we have been a believer that AI will be a big thing. And this is true because as with semi before, any major application moving forward will not only use semiconductor, but it will also use AI. And I put a few examples of those applications on this slide. It's pretty much everything you can think about when it comes to technology, when it comes to the future of society, this will all rely on AI. If you look at the opportunity, this has been said also before, this will drive basically advanced technology, advanced logic, advanced DRAM. This will also basically drive the entire data infrastructure. And the effect AI can have on the overall GDP is pretty big. In fact, if you look at the U.S., even in 2025, AI was counting for a very large part of the growth, and we expect that basically to be applied to the entire worldwide GDP. So the opportunity is there. What was a bit, I would say, frustrating for us for a while is that where we heard all those news, we heard about all those investments, but basically, this was not yet translating into capacity addition at our customer. I think what the last 3 months have done is change that. We have seen our customer basically moving forward. They start to really believe in the sustainability of the AI demand. That's true for memory, that's true for logic. And as a result, they started to invest. They started to plan for capacity. And of course, this will drive demand for our product at ASML. And when you look at the demand for our product, what's interesting with AI is that this basically touch on all products. Of course, AI is going to require very advanced chips, and this is going to drive EUV, for example. So this year will be a big year for EUV, Roger will talk about that. It's going to drive advanced inspection tool. But at the same time, AI needs a lot of data generation, a lot of sensor, and this will be still created by the use of more mature technology such as DUV. So AI will have also this effect basically to really drive our entire product portfolio in the coming years. This is a bit of a summary of what our customers have told us. So I talked already about the fact that they are more confident that AI is here to last, and therefore, they are going to invest. I think, in fact, for a lot of our customers in 2026, capacity will mean market share. So we will see them very eager to get the capacity as quickly as possible. There's a few more good news when it comes to AI, AI also drive very advanced technology. This drive an increased use of EUV. And one of the things we've been talking in 2025 quite a bit is the fact basically that we have seen the number of layers of EUV increasing basically at our key customer. And this means practically that the overall litho intensity is going up, which means basically more use of our advanced lithography tool. 2026, we expect, as you understand, as the number will show an improvement of the business, a significant growth especially on the advanced tool, EUV as said before, will be a big year. And again, on the midterm, we expect that to continue. Long term, we stick basically to what we have told the market already several times, which is what we share basically at our Capital Market Day in November 2024. We still expect for 2030 revenue between EUR 44 billion and EUR 60 billion with a gross margin of 56% to 60%. Going a bit now to the effect of AI in the market. So this graph is showing a bit what AI will do. What you see here basically is the growth of the different segment of semiconductor. At the bottom, you see the historical growth of memory logic, which is about 6%, 7% year-on-year. 6%, 7% year-on-year is pretty great already. There are many, many industries that will wish to see this kind of number. But what you see with AI is that when we look at advanced logic, when we looked at advanced memory the growth on those segments is going to be more than 20% year-on-year for the foreseeable future. And this is really what is going to drive basically more demand on lithography. Why is that? So we've talked in the past a lot about Moore's low, of course. And Moore's Law is law that say that every couple of years, we need to double the number of transistors per chips. And that law has been true for many, many years for PC for mobile application. Now when you look at AI and this started to happen in 2010, the curve is far more aggressive. When you look at the most advanced AI product today, NVIDIA products, for example, the request is not to grow 2x every 2 years, but in the last few years to grow 16x every 2 years. So you see a major acceleration basically of the need for silicon. And of course, we provide that in 2 different ways. We provide that with scaling by making transistors small. We can put more transistor per chips. And this has been a good way basically to provide more transistor and follow Moore's law for many, many years, but that's not enough anymore. And if you cannot put enough transistor per unit of area per chips, then the only option will be to make more wafers. And that's a bit what we see happening with AI. So the most advanced AI application are going to drive up volume. And this is why when we look at DRAM customer today, when we look at logic customer today, they are building mega fabs. Some of them are talking about hyper-cycle because they have to be able basically to also provide this volume to the market. So just to illustrate that, I pick one example, and I picked it from NVIDIA because all of you are, of course, very much aware of what's happening there. Today, on the black wall system, you need about 2.5 wafers to create the product. If you look at 2027 on the revenue product, this number will go up to 10 wafers. So to provide the same product to their customer, NVIDIA will need 4x more wafer than today. And this is one of the reason why, again, we will see capacity extension driven again by this type of application. That's what you see here. And this is again, I would say, a bit of a new dynamic we have in our market AI by this acceleration of the need for performance of power reduction is going to drive both volume and technology a lot harder than any technology before. So what does it mean for technology, EUV is key. 2026 is going to be a good year for EUV. We are looking at more shipments. And this, despite the fact that we have increased the productivity of our tool by more than 40%. So we're going to ship a lot of capacity for EUV this year. If you look at it historically, we have already been having quite a bit of capacity. So the capacity headed of EUV in the last few years have been in average 25% year-on-year growth, which is quite significant. So we have seen all our customers basically already adopting this, it was logic first, then DRAM, but we expect basically to see that even more moving forward. Then we have High NA, and High NA, of course, is not going to be the tool that provide the capacity of EUV in 2026, '27, but that's the tool that will enable our customers to shift to even more advanced technology around '28-'29, that's important for DRAM. That's important for logic. And that's important for AI because as I said before, AI is going to be looking for more advanced chips with low power consumption and High NA is going to play into that very strongly. So good progress on High NA in the last few months. Our customers are still qualifying the tools. This takes a bit of time. The results are good. This year is going to be used to prepare a bit for insertion. And again, if we look at 2027, '28, we are going to see the first product being manufactured using some High NA system. Deep UV remains very important. As I said, it's not all about advanced semiconductor. As you know, a lot of technology still require Deep UV. So we continue to drive the road map both on Immersion, where we have launched our 2150, which basically give us sub-nanometer accuracy and more than 300 wafer per hour. Productivity is important. Productivity, of course, a way to get capacity. So we continue to drive that on immersion, I think the example of the NXT:870B, which is a KrF system is even more spectacular because there we have been capable to achieve more than 400 wafer per hour. And that tool today is creating a lot of interest at our customer because productivity, again, is capacity. We talked also last quarter about us starting to help our customer with what we call 3D integration. So I told you, when you cannot put all the transistor in one ship, you just make more chips and bring them together with 3D integration. We have our first system, the TWINSCAN XT:260 that was shipped last quarter, lot of interest from our customer. For us, this is the first product looking at this new market opportunity, and we will continue to work with our customers basically to define more product moving forward to support them also on that segment. A few words on metrology and inspection. So we don't talk always about metrology inspection. But when you drive technology, yield become very, very important, and yield can be improved by doing more maturity and more inspection. So in 2025, we have seen our metrology inspection business growing up by almost 30%, which is a major growth number. It has to with need for more metrology in spectrum, it has also do with the quality of our product in optical metrology for overlay, but also in e-beam. And one of the products where we have seen quite some progress in 2025 is multi-beam. Multi-beam is going to provide e-beam inspection at higher speed and most probably in the next, I would say, a couple of years really enable our customer to move this technology to high-volume manufacturing. So a lot of good progress there as well. You all heard about Mistral, I say back in the end of the summer when we announced our collaboration but also our investment in Mistral. The rationale there was to get AI in ASML and to get the very best people, the very best competence in ASML in order to be able to first strengthen our core competencies, read putting AI in our product, support the connected market, to offer some of those capability to our customers and also create new opportunity basically moving forward. That's a project we are going to talk more about in '26, in '27. We are making great progress with Mistral, our partner. Our teams are working very, very closely together to basically execute on each one of those points. Going a bit into some of the other things we are very, very proud of at ASML. This is our engagement in the community. We have been spending, I would say, both the time, talent, money in order to work together with the community on a few very important topics. The first one is mobility. Well, we are here today. As you know, this is also close to our next campus, which I will explain in a minute. We plan to have a groundbreaking this year in a few months. We want to continue basically to work with the Brainport community to improve the infrastructure because we are very much aware also that as we grow, we can sometimes create more headache, and it's very important to address that. So we have major investment there also, of course, through the Beethoven program. Affordable housing, there's been quite some press in 2025 about some of the progress we have done there. This is ongoing now for a few years. This remains very, very important, and we will continue to invest. You see the number there. I don't need to stress it to basically create more housing. We also understand that this is a broader challenge across the Netherlands, and we definitely want to do our part helping the community here. Culture. So we are very proud to be one of the, I would say, initial partner for the future Rijksmuseum here in Eindhoven. We love the city of Eindhoven. We love this place. But sometimes we feel that if we can bring a bit more culture, a bit more activity, I think this will help people to enjoy it even more to attract even more people moving forward. That's why we stay very committed to the PSV Football Club, as you know. But this we thought was a very, very nice initiative from the city of Eindhoven and we really wanted to be there. Finally, education, you know that we have a long-standing relationship with the TU University here in Eindhoven that could extend that to many other university across the Netherlands. This is key. We want to develop tenant that will be able to work in semiconductor moving forward, and we will continue to do that, of course, very strongly. One last word. We need to continue to grow. I will come back to some of the other announcement we had today about our focus on innovation and engineering. At the same time, we see more demand for our product. And therefore, our footprint needs to continue to grow because we need to invest in customer service. We need to invest in manufacturing. We need to invest in space. So last year, we opened 2 major sites, one in Korea, one in the U.S., and that intends to support basically our activity here. The big event in 2026 will be the groundbreaking of the big campus, which is our second big campus in the community. We'll do that mostly in May, June, and I'm sure you will be invited to join us with the idea that we can already start moving people as early as in 2028. So this will be very good for our people. It will be very good also to debottleneck a bit the campus in Eindhoven, of course. And this is a project, as you know, that is very, very important for ASML. This is my update. I will come back in a bit to talk a bit about the action we are taking on our engineering team to strengthen our innovation. In the meantime, I'll give a chance to Roger to give us those very nice numbers. Thank you. R.J.M. Dassen: Thank you, Christophe. And good morning, good afternoon, everyone. So indeed, I will present the financials for '25 and the outlook. Christophe said it, clearly, Q4 2025, a record quarter by any standard. It was a record quarter in terms of sales. It was a record quarter in terms of order intake. It was a record quarter in terms of cash flow generation. On the back of all the good developments that Christophe just shared with you. So I won't call them out here, but just looking at the quarter, it's pretty clear that it was indeed a very strong quarter. If we look at 2025, and if we look at the total business for ASML, we ended the year with EUR 32.7 billion in net revenue, 52.8% gross margin. And you see the key elements in here, a net income of EUR 9.6 billion and an EPS earnings per share of close to EUR 25 per ordinary share. All in all, a very, very strong year in which we also paid back and returned quite some money to our shareholders. And also, we're able to do the participation in Mistral that Christophe just alluded to. Very clearly, EUV was the main driver behind it. And you will see it in the pie chart that I will share with you in a moment. It will clarify that it is particularly the leading technology that really contributed to the growth. So both immersion, but first and foremost, also EUV. So EUV grew 39% in comparison to -- in comparison to last year to 2024, a mix of both more tools, significantly higher sales price of the tools because most of the tools that we sold, most of the low NA tools that we sold in 2025 were 3,800 tools, which, as you know, saw an increase in productivity from 160 wafers per hour to 220 wafers per hour and of course, a commensurate increase in the sales price. And obviously, we also had the recognition of a number of EXE tools, High NA tools. So it's in that combination that really EUV was the big driver of growth for us this year. Big moment indeed, and Christophe showed it as well, the revenue recognition of the first 5200B really big moment for us because that is the high-volume manufacturing tool on High NA and the fact that we were able to not just chip it but also get it installed and get accepted by the customer and the customer and really looking at putting that tool into high-volume manufacturing for its leading nodes is a very significant moment for the company. Deep UV went down a bit, decreased 6%. If you look at the geographies, you would see that most of the decline would come from -- would actually come from China. So that's where most of the decline on Deep UV was immersion is still quite strong, particularly on the dry side, it was lower than it was in 2024. But there, the step into the 3D integration market with the introduction of the 260, obviously was another big moment, application very strong. Christophe alluded to it a 20% increase right there with the need for more process control for our customers at the leading nodes. And finally, very, very strong 26% increase in our installed base business, both on the back of service, our installed base and EUV is obviously growing. Therefore, you see a continuous step up of our service revenue from EUV, but also increased appetite in EUV in upgrades. I'll come back to that later. This gives you some breakdowns and I won't call them out at all. But I think if you look at technology, it's interesting to see that the leading technologies, so both EUV and immersion combined give you 90% of our systems revenue. And I think that really talks volumes, I think, about the shift that Christophe is also talking about the shift to more and more leading nodes, clearly represented here in the share of technology. In terms of end use, you see -- we see memory at 34%, logic at 66%. You see memory actually declining a little bit in terms of percentage. We actually see that flip in 2026. So in 2026, you will see that memory becomes more and more important. In terms of regions, a lot to be said there, but I think China is still very, very big, but smaller than it was last time, both in terms of percentage of system sales and also in absolute numbers, you see a bit of a decline in the China market. We expect that decline to continue. As we said, we expect the China business for this year to be around 20% of our total sales. So here it was 33% of total -- of system sales was 29% in terms of total sales, we expect the 29 percentage number to go down to approximately 20% this year. This gives you the net sales by end use over the years. I won't spend too much time on it. Just one fun fact. If you look at the installed base business at EUR 8.2 billion, that comes pretty close to the total revenue for ASML in 2017. That just tells you how unbelievably rapidly the company grew. And the fact that we have such a big number in terms of installed base business, obviously, also provides a lot of resilience for the company. So therefore, it's an important number for us to focus on and to continue to increase. This gives you the business over the years. So if you just -- if you take the 4 year -- so the 4-year increase from 2021 to 2025, you would see that the company has grown 75% at the top line. You also see that R&D increases from 2.5 to 4.7, which, of course, was absolutely critical in getting us prepared for all the beautiful products that we're currently shipping to our customers. But I think it's also fair to acknowledge that this increase in R&D number has also driven some organizational complexity that Christophe will talk about after my contribution. So this gives you the overview. And as you see earnings per share an interesting number, round it 25, 25 by 25 is something that you might easily recall on a go-forward basis. In terms of return to shareholders, if we look at dividend, the total dividend that we proposed to the AGM for the year EUR 7.50, this quarter, we'll do EUR 1.60 per ordinary share as an interim dividend in Q1. And therefore, if the AGM accepts our proposal, we would have a final dividend of EUR 2.70, and that's a significant increase over last year. In terms of share buyback, we did not complete the full program of share buyback. As you see here, EUR 7.6 billion out of the total program of EUR 12 billion. We did announce a new program, EUR 12 billion over a 3-year period. In terms of outlook for the quarter, we expect net revenue between EUR 8.2 billion and EUR 8.9 billion with a gross margin between 51% and 53%. Look again at the installed base management sales, 2.4. So last quarter, 2.1 goes up to 2.4. What it really tells you is that the appetite from customers when it comes to upgrades is very, very high, because in the client that Christophe was describing, but customers really have a lot of appetite to increase their capacity as quickly as they can. Of course, on the one hand, they will try and complete their fab billing as soon as they can, such that they can new tools in. But in the meantime, once these fabs are still in construction, the fastest way to get extra capacity is really to make sure that the tools are squeezed to the maximum and therefore, to put as much upgrades on the tool as possible. And that's -- that's what you see here, and that really contributes to very, very strong installed base sales going up again this quarter. So the gross margin, 51% to 53% R&D and SG&A costs nicely under troll. For the full year, EUR 34 billion to EUR 39 billion, really on the back of all the developments that Christophe talked about. So the real steam engine behind this growth is once again EUV. So we once again expect the EUV business to go up significantly this year. We also expect the installed base business to go up this year, and it will go a little bit at the detriment of the non-EUV business. We expect that to be about flattish. So non-EUV business is expected to flattish from '25 to '26. With us moving parts for the leading nodes, so for the big customers, both in memory and advanced logic, we actually expect the Deep UV business to go up a bit. As I mentioned, in China, we expect the China business will go down. Metrology and inspection, we expect to be quite strong. So those are more or less the moving parts within the non-EUV business. Again, for the full year, EUR 34 billion to EUR 39 billion, which at the midpoint after a growth of 16% in '25. At the midpoint, you would be looking at a 12% increase in this year with good potential as the bandwidth also suggests gross margin 51% to 53% and annualized effective tax rate of 17%. And that concludes my presentation. And as I mentioned, Christophe has a part for you on the streamlining of our engineering and innovation function. Christophe Fouquet: Thank you, Roger. Good. Yes, I have one slide I want to share with you on the action we are taking basically to strengthen our innovation and engineering team. So I think that the net results of that, which is 1,700 people leaving the company, I think, has been picked up pretty clearly already this morning. What I want to do is to give you some background. And of course, you understand listening to our outlook, listening to the numbers. We are not doing that in any case because we are in trouble because we need to save money, et cetera, et cetera. Now the reason we are doing that is that we have been growing very fast. And this is also true for a technology team or innovation engine, and as you know, the technology team, the innovation engine of ASML has been the reason for our success. It's been true for many, many years, and this is still going to be true for many, many years to come. And as we have said in 2025, we want to continue to innovate more. This is why we engage in AI. This is why we engage in 3D integration. This is why we have a long road map on e-beam, and we believe that innovation will for many, many years to come, define our success. But when we listen to the feedback of many of our stakeholders, they have told us in the last few years that we're not very agile in fact. And we are not, I would say, responsive enough. So our customer are pointing to the need for us on technology to be able to respond much faster to work on quality to work on new product. A very important feedback we got is from our whole engineers who told us Well, a lot of the time we spend in ASML is not anymore on innovation, right? Because the organization has become so complex. We have so many people steering us in different direction that we have to spend a bigger part of our time just dealing with that. And this has been a very, very strong, and I would say, loud message from our people, and we felt the need basically to address that. Our supplier, if you talk to them, they also tell us the same, and therefore, we felt the need to move. So you heard about the number 1,700. I'd like to give you a bit more color to this number. If you look at our technology organization today, we have about 4,500 leaders, which is quite a bit. When we look at a future organization where we simplify our processes, where we reduce the number of steering access towards our engineers, we believe basically that we need about 1,500 leader to run this organization. So it's a 3,000 less leaders needed if we are successful in simplifying. So out of the 3,000 people that we don't need basically to lead the team, we are going to create 1,400 engineering positions. So we're going to add, in fact, some engineering bandwidth to work on existing product to work on future products. We want to, in fact, have out of this action, more engineers and less, I will say, leadership so that engineers can be fully enable to do their job. And as a result of that, if you do the math, we have 1,600 people out of the technology team that will not have a job in ASML anymore. Now the difference between the 1,600 and 1,700 is 100 people coming out of IT when we have a similar situation, similar feedback and where there, we believe that about 100 leading position are not needed. So this is a bit the math, we want to really boost again our engineering capability, our innovation engine. We want to improve, I would say, the satisfaction of our engineers, our customer, our supplier. And of course, this come at the cost of a very difficult decision we had to make. We explained our employees this morning. This is most probably the most difficult decision the management team ever had to make in ASML. But we do it because we truly believe that this is the right thing to do for the company for our stakeholders, starting with our employees and to basically continue to be this great company moving forward. So that's a bit more background. And with that, I think we'd like to take some questions from you. Thank you very much. Monique Mols: Okay. Thank you. So we have some questions online, and we have some people here in the room and because you all came here, I think you should go first. So let's ask some questions in the room first. Please state your name and your publication first, so everyone knows. Sarah Jacob: I'm Sarah Jacob. I'm from Bloomberg News. Regarding the job cuts that you announced today, what kind of restructuring costs or charges can we expect from this? R.J.M. Dassen: That's obviously subject to the discussions that we're having with the Work Council and first and foremost, union. So I cannot talk about that, but these costs in the grand scheme of ASML would not be considered material. Well, the finalization of number is very much subject to discussion, but not materially in our numbers. Sarah Jacob: I got a question about -- there's a lot of talk about capacity expansion from your customers. We've seen a lot of announcements. But how much of those announcements or is related to real capacity expansion? And what part is CapEx inflation, so to speak, because the cost of a wafer is increasing. How sustainable is that? Can you elaborate a little bit on that? Christophe Fouquet: Well, I think so, I talked about short and midterm. So I think that visibility we get from ASML is mostly for the next couple of years. And when we talk about capacity expansion, we talk about new systems. So that's why we said that if we look at 2026, we expect ship quite a few more EUV tool. It's also true with metrology with inspection. I think Roger was rightfully stressing the progress of our installed base business, which also include upgrades, and we will see also a lot of that. So I would say when you hear our customer talking about capacity expansion, this translate directly into need for more tools. And for a long time, we heard our customer' customer, sometimes our customer, customer, customer talking about expansion, and this was still a bit far away from us. In the last 3 months, if you have listened to TSMC, Samsung, Micron. Micron has been announcing groundbreaking almost every week for the last few weeks. There, you have a direct translation basically into shipment for us. And we have not said that in our talk, but also build up of capacity. So of course, a lot of that will affect positively, not only ASML, but the entire supply chain here in the region. Monique Mols: Okay. Let's turn to an online question and get back to you then. So a question from Financial Times. Please can you talk a bit more about how the AI memory shortage is driving your business? And to what extent those customers are being more aggressive in their capacity expansion than logic? Christophe Fouquet: I will start. I think that it's difficult to say if logic or DRAM is the bottleneck for AI today. I will still pick mostly memory at this point of time. And the reason for that is that it comes to memory, the demand for high bandwidth memory, which is the AI memory is extremely high. But the demand for DDR memory, which is for mobile PC is also very high. And as a result, we have seen basically the price of DRAM going up significantly in the last few weeks. Therefore, there's a need for capacity. And our memory customers are moving very aggressively. I mentioned a few examples. And the reason for that is when you have such a demand for capacity, capacity is also market share. And if we look at 2026, we know that the memory demand will be very, very tight because our customers are saying that publicly. So there is a huge appetite and it started most probably end of last year for our DRAM customer to really build up capacity as quickly as possible. And that's the dynamic we are in which, of course, has a major positive benefit for ASML. Monique Mols: Okay. Thank you. Mark, in the room, I see some hands. Unknown Analyst: So [indiscernible]. How does the stabilizing AI market influence the perspective of the amount of jobs you're about growing in Eindhoven? Christophe Fouquet: Well, so if you look at the big picture, so I mentioned again our long-term forecast as we establish it in November 2024, where we still see us going towards EUR 44 billion to EUR 60 billion revenue, which means that we see still need for more capacity. Even as we speak, this year, we will be adding jobs in manufacturing and customer service in order to support basically the need. So I will say the long-term trajectory is still a trajectory of growth. we take today a very specific action on a very, very focused part of the organization, which is the technology team and in fact, even focused specifically on the leadership of the technology team. But it doesn't change fundamentally our growth trajectory and therefore, our commitment to people, but also as I've shown to footprint, et cetera, et cetera, the supply chain I could add to that. And I think it's very important to understand that even as a company grow and is very successful, there's still a need once a while to make sure that some of the key elements of the company and for us, that's the technology. Technology is really our heart. We have to make sure that we keep the heart in the best possible shape. And the action we are taking today is difficult, is painful. But the intention is to make sure that, that innovation engine keeps going so that as the market grow, we keep our very strong leadership position in the market. Unknown Analyst: Mark [ NSA ]. I have 2 questions. One relating to the reorganization and the other one is to being prepared to this huge demand in new machines. First of all, the reorganization we refer to the technology team, does it mean that something changes within the internal structure as well regarding D&E or R&D? And the other question is when it comes to being prepared for this new up cycle, is your supply chain also prepared. So did you do some stockpiling there? Or is every -- does everybody have to expand? Christophe Fouquet: I'll take the first one and leave you the second one. So I think the short answer to your first question is yes. I think that the transformation, the change in the organization will be mostly around D&E, not only but mostly around D&E. The leadership I was referring to is mostly within D&E. That's also why Marco, our CTO, together with Jose are taking the lead also on that activity. But since innovation is the heart of the company, everything else is connected to that. And by improving the organization, the D&E organization, we also improve the interfaces with operation. We improve the interfaces with our customer, and we improve the interfaces with our supplier, right? So all the people who told us basically, you've got to do something better should benefit from that. So a lot of the work will be focused on D&E. In fact, what we talk about today, I would say, practically doesn't concern the very large majority of the team ASML, but the impact, I think, will go beyond D&E. R.J.M. Dassen: Mark, on the capacity, what we've done, as you know, in the past couple of years is to put in what we call the long lead time items, which means that everything that takes, let's say, longer than 12, 18 months to realize is in place in order to get to a much higher volume. So that means factory space, et cetera, et cetera. We've done that, and we've worked with our supply chain for them to do that as well. So what we're doing now based on the very strong signals that we're getting from our customers and also them indicating that they believe this development is sustainable. We're now making sure that every quarter, we increase our move rate because as you will appreciate, you cannot move from 44 units in 2025 to 80 units in 2026 doesn't work that way. So you gradually need to crank up your move rate, and that's exactly what we're doing right now. We're doing that. We have a very solid understanding also with our supply chain. They're doing the same thing, and that will lead to a very, very meaningful increase in our capacity this year, but also moving forward. Monique Mols: I'm going to go to one online and then get back to you. Could you share how ASML's R&D spending is currently divided between EUV-related development and non-EUV technologies. This is a question from the Chemical Daily in Tokyo and we have a lot of people from Japan online watching us. So that's really nice. R.J.M. Dassen: The lion's share of the R&D expense really is an EUV, right? Because on EUV, we have both High NA, we have the Low NA platform that where we still see a lot of potential to develop that. And we're also working on what we call the high perform platform. So we have 3 very significant work streams in the D&E organization to focus on EUV. So without a doubt, EUV is the lion's share of the development. But that said, we do have road maps for the other products as well. You heard us talk about the 260. You might have heard about the 870, which is a platform that really significantly increases the output capability in the drive business. So we're working there as well. Lion's share is really focused on EUV. Unknown Analyst: Folks, I had a question about the China business, which is going down quite dramatically. I'm wondering whether it's also going down in absolute numbers? And if that's the case, what's driving that? Where it just still a backlog thing or whether something else is going on as well? R.J.M. Dassen: Well, it is going down in absolute numbers as well, right? So if you do the math on the system sales, if you take the chart, you take the percentage and you apply it to the total system sales, you would see that actually it goes down in system sales, I think, something like EUR 850 million. But you can do the math yourself and verify whether I -- whether my memory serves me well here, but it's clearly going down from 24 to 25 and also at the 20% number that we indicated for this year, it will go down further. What's going on there? Well, first of all, it's normalizing, right? Because I think the reality is we should ask ourselves a question what was going on in previous years. What was going on in previous years is that over the COVID period, we build up a huge backlog because we -- and in fact, we underserve the Chinese market during the COVID days. As a result of that, a huge backlog has been built, and we have been executing on that backlog in the past couple of years. So at a certain point in time, we expect -- we already expected China to normalize. Frankly, the very strong China sales still in 2025 surprised us a bit. But given all the dynamics that we're looking at right now, we think 20% is probably the right number, which, by the way, still gives you at the midpoint close to EUR 7.5 billion of sales. So it's not in any way falling off a cliff, right? But it is reduced in comparison to what it was last year. So it's more normalization than that anything very spectacular is going on there. Monique Mols: So a lot of interest in the room. So let's go back to the room. Dan? Unknown Analyst: Dan from [indiscernible]. I have 2 questions. The first one is you mentioned that the EUV business will grow quite rapidly this year. I was wondering what share of that will be High NA. I think you mentioned this is really a preparation year for the coming years for insertion. Just wondering how many machines do you plan to ship this year? And the second one is, do you have a progress update on Hypernet the year you'll make a firm decision on it? And maybe on platform as well. R.J.M. Dassen: I'll take the first one, you take the second one. So on the -- the other way around. So the vast share of the growth will clearly be in low NA, right? So because it all goes into high-volume manufacturing because there is such a big need for customers to grow there. So that's where the lion's share goes High-NA will just continue to go along the lines of what Christophe has described earlier on, which is the 3 phases, and we're not yet in the high-volume manufacturing phase though as we did point out, the fact that one customer has accepted, signed off on the 5200B, our first high-volume manufacturing tool, of course, is an important step in that direction. But the lion's share of the growth this year will be low NA. Christophe Fouquet: Yes. On the Hyper NA before I go there, I need to take a bit of a step back. So we talk about low NA, we talk about High NA I think we talked about Hyper NA because we see that in the future, there may be a need for even a more advanced litho system. And we could end up in a war, I'm talking 10 years from now where the customer use basically each one of those 3 systems. Now this being said, when you look 10 years ahead, it's very difficult to know exactly when this will happen. And in order to not have to answer that question today, what we did is develop a program, which we call high productivity platform. So Roger mentioned it as one of the key program in EUV, and that program basically consists in defining an EUV platform that will come to the market early next decade, and that will be able to support Low NA, this major productivity improvement. We look at more than 400 wafer per hour. High NA, also with major improvement and potentially Hyper NA. So we're designing a platform basically that we'll be able to receive ultimately Low NA optic, High NA optic, hyper NA optic. This give us basically the full flexibility over time to decide exactly when and how we should introduce hyper NA. So the team has done a lot of work. So if you talk to our engineers, they tell you we could do it more, but there's no need for it tomorrow. So what we will do is, again, just continue to prepare for it. If you follow a technical conference, there will be a presentation on that a SPA in a few weeks from now, so you get a bit more. But the key is to is to be prepared basically to serve the whole market with EUV and the high productivity platform program we have put in place and we're executing on allow us to do that exactly. Monique Mols: I have a question from online, and then I'll ask to you, Toby. Maybe can do this quickly, but I think it's a question that a lot of people ask themselves. This is from [indiscernible] Novel in France, you're going to cut 1,700 jobs, but you say you want more engineers. Are you planning to hire in 2026 and beyond? And if so, do you have a figure? Will this offset the 1,700 job cuts? Or will ASML's workforce ultimately decrease? Christophe Fouquet: Yes. So I think 2 steps. So first, as I explained, we free practically about 3,000 people out of the action we take on the leadership in the technology team. And out of those 3,000 people, we already create 1,400 position. So that's the first thing. The second thing I've said is that a lot of that is done to enable, I would say, the full potential of engineers. So our engineers tell us today, well, maybe we spend 20%, 30% of our time not doing engineering, but doing meetings, talking to many different managers, et cetera, et cetera. Well, if we take that away from them, we give them also more bandwidth for development. So we also expect basically that our engineering workforce will be able to create more moving forward for the same amount of people. So it means that as we go through this transformation, we get 1,400 more people, and we get a lot more of everyone else in the organization. How this will really play out. We don't know, but we believe that this could fuel quite a few of our programs basically moving forward. So we will continue to hire people based on our need, and we do that today on operation. We'll do that if we need to on D&E because we can afford it or so, let's be honest. But we also expect that at least the next couple of years, the gain we could make by enabling our engineers to the full extent, will create a lot more bandwidth for us to develop. Toby Sterling: This is Toby from Reuters, Toby Sterling. Ballpark question. The only thing that did better than ASML's price in the past year is gold and silver. So I'm wondering if you guys can maybe say maybe not so much ASML, but how is this going to affect your industry? The rise in price for gold and precious metals? Christophe Fouquet: Gold and Silver, I would say, our industry over whole I think it's very small. I think it's very, very small. I think from all the things we worry about -- I tell you something, we worry a lot more about energy cost than gold or silver, because energy is, as we've discussed in the past, most probably, we love AI, we love the opportunity. I think Elon Musk say that also last week in Denver, but energy is most probably the one thing to watch to make sure that this industry keeps going. And now the good news for us is one way to reduce energy consumption is to move to more advanced chips because they reduce basically power consumption. . So that's also an opportunity. But I think if there's one thing this industry has to worry about as a whole is energy, cost and I would even say availability. Gold, silver, I say okay. Toby Sterling: Paul here from [indiscernible]. Do you expect to max out on capacity this year? And if so, what will be the bottleneck? R.J.M. Dassen: The question is not necessarily just for us whether we're going to be maxed out. I mean, it will be a very busy year. That's for sure. But I think in everyone trying to drive up capability, we also need to look at our customers. So I think everyone will be scrambling to get more capacity. . It starts with our customers because we can ship tools, but our customers also need to be in a position to receive them, and therefore, they need the fabs to be done. So I think that's what's going on. We will work extremely hard to get as much out as we can and as our customers are asking for it. But I think important factor will be when will our customers have their fabs ready to really receive those tools. Monique Mols: We have 4 minutes left. So let's go back to the room again. Unknown Analyst: San Hilson of Dutch Publicans. About the reorganization, I was wondering if you could share some insight on how did you end up in the situation in the first place, why did you create so many leadership roles in the past months or years? And can you give us a time frame on when the reorganization will be executed? Christophe Fouquet: Yes. It's always a good question. And if you look at the growth of the company, I think at any point of time, you try to make the best decision for the company. And I think this has been down. But as any large company, you tend to have a side job over time with the belief that they really help, and I think to some extent, they do at the beginning because you strengthen certain axis, right? You strengthen, I don't know, quality, you strengthen maybe the execution of part of the company. But there is a point of time where you add -- if you had too many of different axes, then people get confused. And we started to get that signal, I would say, already for 2, 3 years. We spent quite some time because the next question could be, how do you know now that the next things would be better than the previous one, which is another very good question. We didn't want to rush in that, and we spend more than 12 months designing not in the board of management, but designing with the people that are working day after day in technology, but also in the sector because of the connection I talked about. So we spent more than 12 months working with those people to try to drive an organization that they believe will fit better what they need. And I think we need to make sure over time that we keep on scanning the organization so that if we made maybe some non-optimized move in the past, we can correct it. So I think it's very normal in the company. What is not right is not to correct things if you feel they're not helping you anymore. R.J.M. Dassen: I think if you look in any rapidly growing organization, where do organizations grow? They grow because the number of competencies grow or products become far more complex. As a result of that, also the competencies that are necessary to get it done become more complex. 15 years ago, software, for instance, was not as important as it is today, just to call out one. So you see an expansion of capability and you need to see an expansion of a road map, many, many more products on the road map than we ever had before. The answer to something like that, that any rapidly growing organization does is a matrix organization where the competencies and the products meet each other. So that's your answer. And that gives you scalability for a while. But there is a point in time where a matrix organization, any matrix organization becomes so complex that you got to act. And I think that's the journey that we've been on. That's the thing that we've now concluded and hence the action that Christophe calls out. And I think the worst thing you can do is not recognize the issue and just continue to go on as you did before. In terms of timing, because that was your other question. I mean that completely depends on the negotiations that are currently going on with the unions, with the workers' council, et cetera, but this will definitely be a number of months. From our vantage point, as soon as possible because we want to be able to provide clarity to everyone in the organization and get rid of the uncertainty at the personal level. So that's why we would like to push as soon as we can in the interest of the people that are affected. Monique Mols: Okay. Our time is up. Thank you very much for coming. Thank you, everyone, online for watching. You can still send us your question. The media team is available for you. And for those in the room, nice you're here. There's coffee and we have some chats with some of you, and we look forward to seeing you next year. Thank you very much. Christophe Fouquet: Thank you. R.J.M. Dassen: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. It is now my pleasure to introduce Mr. Joey Rein, Director of Corporate Strategy at Trustmark. F. Joseph Rein: Good morning. I'd like to remind everyone that a copy of our fourth quarter earnings release and the presentation that will be discussed this morning are available on the Investor Relations section of our website at trustmark.com. During our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we'd like to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties, which are outlined in our earnings release and in our other filings with the Securities and Exchange Commission. At this time, I'd like to introduce Duane Dewey, President and CEO of Trustmark Corporation. Duane Dewey: Thank you, Joey, and good morning, everyone. Thank you for joining us again this morning. With me are Tom Owens, our Chief Financial Officer; Barry Harvey, our Chief Credit and Operations Officer; and Tom Chambers, our Chief Accounting Officer. Trustmark's momentum continued to build throughout the year, resulting in record earnings in 2025. Our traditional Banking business drove continued loan and deposit growth, a strong net interest margin and solid credit quality. Our Mortgage Banking business achieved increased production and significant improvement in profitability, while revenue in our Wealth Management business reached an all-time high. In our presentation this morning, I will provide a summary of our performance and discuss forward guidance before moving to your questions. Now turning to Slide 3, our financial highlights. Our fourth quarter results reflected continued significant progress across the organization. Net income totaled $57.9 million, representing diluted EPS of $0.97 a share, up 3.2% linked-quarter and 5.4% year-over-year. For the full year, Trustmark achieved a record net income of $224.1 million, representing diluted earnings per share of $3.70. Net income from adjusted continuing operations increased $37.8 million or 20.3% in 2025. This level of earnings resulted in a return on average assets of 1.21% and a return on average tangible equity of 12.97%. From the balance sheet perspective, loans held for investment increased $126 million or 0.9% linked-quarter and $584 million or 4.5% year-over-year. Our loan portfolio remains well diversified by loan type and geography. Our deposit base declined $131 million or 0.8% linked-quarter, driven in part by a decrease in public fund deposits of $219 million. Year-over-year, deposits increased $392 million or 2.6%, driven by growth in commercial and personal balances of $568 million. The cost of total deposits in the fourth quarter was 1.72%, a decrease of 12 basis points linked-quarter. Our strong cost-effective core deposit base is a continuing strength of Trustmark. During the fourth quarter, we repurchased $43 million or 1.1 million shares of our common stock. For the year, we repurchased $80 million or 2.2 million shares, which represented 3.5% of outstanding shares at year-end 2024. As previously announced, we have authorization to repurchase up to $100 million of Trustmark common shares during 2026. This program continues to be subject to market conditions and management discretion. Revenue in the fourth quarter totaled $204 million, while revenue for the full year totaled $800 million, a record year at Trustmark. Net interest income in the fourth quarter totaled $166 million, which produced a net interest margin of 3.81%. For the full year, net interest income totaled $647 million, up 8.4% from the prior year. Noninterest income in the fourth quarter totaled $41 million, up 3.3% linked-quarter. In 2025, noninterest income totaled $164 million, representing 20.5% of total revenue. Noninterest expense increased $1.2 million or 0.9% linked-quarter. For the year, noninterest expense totaled $512 million, an increase of 5.5% from the prior year. Diligent expense management continues to be a focus of our organization. From a credit perspective, net charge-offs in the fourth quarter were $7.6 million and included 1 individually analyzed loan, totaling $5.9 million, which was reserved for in prior periods. Net charge-offs represented 0.22% of average loans in the fourth quarter. For the full year, net charge-offs were 13 basis points of average loans. The provision for credit losses in the fourth quarter totaled $1.2 million. The provision for both loans held for investment and off-balance sheet credit exposure were impacted by positive credit migration, loan and unfunded commitment growth, and the macroeconomic forecast. In 2025, the provision for credit losses was $12.9 million. At year-end, the allowance for credit losses represented 1.15% loans held for investment. Again, very solid credit performance. We've been active on the capital management front, issuing $170 million of 6% fixed-to-floating sub debt in the fourth quarter, the proceeds of which were used to repay $125 million of existing sub debt and for general corporate purposes. This action further strengthens our regulatory capital position. At year-end, the CET1 ratio was 11.72% while our total risk-based capital ratio was 14.41%. Additionally, the Board announced a 4.2% increase in Trustmark's regular quarterly dividend to $0.25 per share from $0.24 per share. This dividend is payable March 15, 2026, to shareholders of record on March 1 and takes our full year dividend to $1 per share. As previously mentioned, we repurchased $80 million of Trustmark common stock during the year, including $43 million in the fourth quarter. At year-end, tangible book value per share was $30.28, an increase of 2.3% from the prior quarter and 13.5% from the prior year. I'm very pleased to report that through share repurchase activity and quarterly dividends, Trustmark returned approximately 61.8% of net income to 2025 shareholders. Now let's focus on forward guidance, which is on Page 15 of the deck. We're providing full year guidance for '26 as well as the 2025 benchmarks upon which the guidance is based. We expect loans held for investment to increase mid-single digits for the full year 2026, and deposits, excluding brokered deposits, to increase mid-single digits as well. Securities balances are expected to remain stable as we continue to reinvest cash flows. We anticipate the net interest margin will be in the range of 3.8% to 3.85% for the full year, while we expect net interest income to increase mid-single digits. From a credit perspective, total provision for credit losses, including off-balance sheet credit exposure, is expected to normalize. Noninterest income for full year 2026 is expected to increase mid-single digits, as is noninterest expense. We will continue our disciplined approach to capital deployment with a preference for organic loan growth, potential market expansion, M&A or other general corporate purposes depending on market conditions. I would point you to pages 17 and 18, showing Trustmark has made significant improvement in its financial performance over the last several years. We're committed to maintaining that momentum into 2026. And with that, I would like to open the floor up for questions. Operator: [Operator Instructions] The first question comes from Stephen Scouten with Piper Sandler. Stephen Scouten: I guess, this morning, obviously, we've got another transaction that kind of impacts some of your larger markets, along with a lot of recent activity. And I know we talked about maybe 21 production hires back in the third quarter. Curious how many new hires maybe you had in fourth quarter, if any, and if these deals kind of accelerate any of your thoughts around talent acquisition in '26? Duane Dewey: Stephen, in the fourth quarter -- I think in the third quarter, we announced 29 total new hires, 21 of them production oriented. In the fourth quarter, that number was in the range of 13 new production hires for the quarter. They're in all markets and several different disciplines throughout the company. So we continue to focus on organic expansion and bringing in new talent into the organization. As we talk and we'll go through the rest of the question-and-answer session here, we'll talk about loan growth and seeing some of the diversified loan growth that, through these new hires, we're starting to see C&I, our equipment finance team and so on, they all continue to now show improved performance and improved growth. So we're very pleased with that effort. As it relates to the M&A activity, that does create some opportunity. I mean with each transaction, both in our home core markets as well as in a market like Houston and so on, it does create some disruption, both clients and personnel. And so we continue to monitor that and stay in touch in the markets and continue to recruit actively. So we see it generally as a positive and look forward to that continuing throughout 2026. Stephen Scouten: Okay. Great. And maybe just -- my other question would be kind of around the guidance for 2026, around credit in particular, just this idea of normalizing, I guess, credit costs. Can you frame that up at all potentially or kind of give some color on what that means to you all just kind of within the context maybe of net charge-offs for '25 were around 13 basis points, if I'm looking at that correctly? So just kind of wondering how to frame up what you might expect within that normalizing from a charge-off and a reserve perspective. Robert Harvey: Stephen, this is Barry. I guess, starting with the charge-off piece of it. I would think that 13 to 15 basis points of average loans is kind of where we would expect to see ourselves on an ongoing basis. We don't really see anything that unusual about 2025. We probably did have a few credit -- a few larger commercial credits than we do today that we got resolved during 2025, and that did result in a little bit of loss in some of those credits. And we really don't have, today, we don't have those credits that we're dealing with or ones of similar size. So I would think 13 to 15 basis points of average loans for net charge-offs would be a good range for us, what we might expect to see. And then as it relates to provisioning, to us, 14 to 18 basis points of average loans would seem like a range we might fall inside of. A lot of that is going to be predicated upon how much more improvement we see from a credit quality standpoint. We've had substantial improvement in credit quality during 2025. For example, criticized for the year down $181 million, classified were down $57 million for the year. So as we work through some of these credits, some of those upgrades and some of those are going to be paydowns as well as moving out of the bank. As we continue to experience that, then that obviously will help our provisioning. And that is obviously what helped our provisioning quite a bit this quarter as well as it did in Q3. And so as -- if that trend continues, which we don't know if they will or won't, but we do expect some improvement, but if that trend continues at that pace, then we might expect a little lower provisioning cost than we're anticipating right now. But right now, 14 to 18 basis points of average loans feels about right. Stephen Scouten: Fantastic. That's great color. Congrats on all the progress in 2025. Operator: The next question comes from Gary Tenner with D.A. Davidson. Gary Tenner: Great color on the provision question. I just wonder, on the other guidance areas, I mean, it looks like the guidance is -- really falls well within expectations kind of exiting '25, into 2026. Can you talk about just the lever points that you see as it impacts the guidance, whether it's growth, fees, expenses, kind of where you see the most sensitivity and leverage potentially as we work through the year? Thomas Owens: Well, Gary, I'll start. This is Tom Owens. As you said, our guidance is pretty consistent with the range of analyst estimates coming into '26. With respect to levers in terms of how it falls to the bottom line and EPS, obviously, loan growth is going to be a key driver. We've talked a little bit also about capital deployment during the year and I think those things are related. We've been pleased with our ability to continue to drive capital accretion at the same time that we've been supporting solid loan growth and deploying capital via share repurchase. So probably the biggest levers are probably going to be that relationship between loan growth and capital deployment. Duane Dewey: Yes. I would add to the response there. So we're seeing improving conditions in the mortgage market. And we saw it in '25 starting to take shape. Things that impact that business, some of the MSR hedging and those sorts of things showed significant improvement. And so that reflects in our noninterest income category. As mentioned in the prior comments, in 2025, we had record net income in our Wealth Management businesses -- excuse me, at least record revenue in those businesses. And so I think we've invested there. We continue -- and when we talk about production talent, we're adding talent in those businesses as well across our footprint. So we see potential for some improvement, at least as we've guided mid-single digits, if not better, in some of the noninterest income categories. Expense management is going to be a continued focus for us. We'll see where that leads in the year, but at this point, we're good at mid-single digits. So really it's a continuing improving position across the whole both income statement, and as Tom noted, the balance sheet plays a critical role in that, obviously. Gary Tenner: I appreciate the color there. And then just a follow-up, specific to Wealth Management. In the fourth quarter, the pickup in revenue there sequentially, what the driver was? Duane Dewey: It's just general improvement in asset values. Asset values drive fee revenue. But it's a combination -- asset value improvement, I think, is a positive in that business, but also new account acquisition. We've invested -- like I said, we invested in the business. We have new talent, we have great leadership in that business, and a really focused effort across the organization on cross sales, on cross-pollination across our commercial businesses and the like. So it's all starting to really take hold and take shape and show improvement. I would also note, part of that business, we do have a brokerage team also that we converted from one brokerage platform to another in the third and fourth quarters. That new platform on the brokerage side is also generating new revenues and new opportunities for us. So we're optimistic on that front as well. Gary Tenner: So to be clear, there's nothing unusual on that line in the fourth quarter, more just kind of increase on... Duane Dewey: Nothing unusual. Gary Tenner: And equity value. Okay. Duane Dewey: That's accurate, yes. Operator: The next question comes from Feddie Strickland with Hovde Group. Feddie Strickland: I wanted to start on the expense guidance. Curious to see what the cadence of expense growth throughout the year, is it relatively steady as you make these investments in new talent? Or is there any particular quarter that's higher? F. Joseph Rein: He's asking about the timing of the timing of increases in noninterest expense. George Chambers: Throughout the year? F. Joseph Rein: Throughout the year. And was it chunky? George Chambers: Yes. Well, what we -- what you see is -- this is Tom Chambers. What you see is, yes, the last half of the year, we end up having our annual merit increases across the company. So you're going to have a natural increase starting on July 1 of that quarter. And then really there's nothing else unusual, unless it's mortgage commissions and revenue-generating business. Duane Dewey: Yes. I would just say, yes, the second half year, we do tend to -- merit increases go into effect July 1 each year, and so that hits in the second half of the year. Assuming performance is sufficient and so on, sometimes in the second half of the year we true up for year-end bonuses, production, commissions, those sorts of things. And so yes, I would say the second half of the year typically is a bit more -- a bit higher level of increase than in the first half of the year. And across our overall organization, we continue to look at and make technology investments and other things that are just the normal course of expense increase that impacts us every year. But I would say going into 2026, that's pretty much it. Feddie Strickland: Got it. That makes sense. And just wanted to ask conversations on M&A. I mean, would you say a deal is any more or less likely in '26? And just a quick refresher on preferred geographies, what you're looking for in terms of partners. Just curious in general on M&A. Duane Dewey: Yes. I would say, first and foremost, I mean, the increase in discussion and consideration, there probably is a fairly significant increase across our markets and the markets we serve and where we have interest. That has not changed really as we've talked for some time between Houston up to Dallas, Arkansas, Louisiana, Tennessee. I mean we cover such a large geographic footprint that are very attractive markets, and we have interest in those markets. We've talked about size ranges of $1 billion up to $10 billion. But it's all opportunistic. We have to see the opportunity. We have to see a good cultural fit. And we continue to create relationships and build rapport, but we are not going to be focused on doing a deal. We're focused on our organic strategy at this point. And if an M&A opportunity presents itself in a good market, that provides talent, that provides market opportunity and so on, then we will take advantage of that. We do feel from an overall operating profitability, capital, et cetera, perspective, we're in the best position we've been in to do that in quite a while. But we're going to be cautious and selective in that process. And we have felt that the buyback has been a good route to utilize capital to this point, and we'll continue to consider that as we move forward as well. Operator: The next question comes from Christopher Marinac with Janney. Christopher Marinac: Just to continue on the M&A question from Feddie. Do you think that there's a scenario where you don't do an M&A deal because there's too much happening around you? Stephen mentioned the Texas deal this morning. Obviously, you have a much bigger merger in your backyard that's happening this year with a competitor going away. Is there a scenario where you don't do anything on M&A, you simply focus organically just to take advantage of opportunities in people exclusively? Duane Dewey: I think that's a great point, and that's, again, there is a good amount of disruption and good companies all moving their organizations forward. But at the end of the day, it creates opportunities sometimes for those of us in the marketplace. And so that is absolutely a very accurate consideration for us. And as we have talked about our organic strategy, if you look at markets, like Synovus, Pinnacle, Cadence, Stellar, I mean, they're all in markets we serve, they all create some opportunity. And we're looking forward to considering what options we have for that organic strategy and we see it as significant. So I think that's a very good point. And I think it is a strong enough consideration that, yes, you may see us not do a deal. Christopher Marinac: Great. And then just to follow up on sort of the deposit success that you talked about in the prepared remarks. So are you doing anything to incent deposits differently than you had in past years? Thomas Owens: So Chris, this is Tom Owens. And so I'm guessing with your question, you're talking about internal incentivization. And the answer there is yes. That has been an increasing area of focus for us, obviously, is deposit customer acquisition and balance acquisition. And so when you look at, for example, our CRM bonus templates and the drivers in the templates, we've increased our emphasis on deposit growth there. And I'll just say, I mean, we've been pleased with, when you look at our competitive stance on deposits and where we rank in terms of deposit costs, we've been pleased with our ability to grow balances cost-effectively. You look at personal and commercial balances are up 4.4% year-over-year. And I think on an average balance basis in the fourth quarter, over year-ago quarter, they're up 4% plus. So we've been very pleased with our ability to do that to continue to fund solid loan growth. Operator: The next question comes from Catherine Mealor with KBW. Catherine Mealor: All right. One little nitty question on the margin. Tom, can you -- do you have any color you can give us on where deposit maybe ended the quarter or exiting the quarter just to kind of get a sense as to where we're going to start '26 just as we factor in the full impact of the recent rate cut? Thomas Owens: Yes. It's a little difficult to hear you there, Catherine, but I think I got the question. This is Tom Owens. And so before I answer that specifically, Catherine, I also want to make a point, because when I looked at the pre-call notes from the various analysts, I'm not sure everyone picked up on it. But our net interest margin, that 2 basis point linked-quarter decline of -- from 3.83% in the third quarter to 3.81% in the fourth quarter was essentially a function of the accelerated recognition of capitalized costs from the 2020 sub debt issue, which, as you know, we refinanced during the quarter. So that was about $1.1 million that we took through the income statement, through net interest income specifically. And so adjusted for that, we would have been at 3.83%, which would have been our second consecutive quarter at that level. And so now this gets back to your question, because it's also the jumping-off point for our guidance for NIM in 2026. But the range we put out there of 3.80% to 3.85% is pretty tight relative to the ranges that you see from some other banks. But we're running right in the middle of that range right now at 3.83%. And then with respect to your question about deposit costs in our guidance, is for a decline from 1.72% to 1.61% here in the first quarter. And I think if you looked at month-to-date in January, we're running at about 1.63%. And so of course, we -- our CD book continues to reprice here during the quarter, and so that should drive us 1 basis point or 2 lower for the full quarter, all other things equal. Catherine Mealor: That's super helpful, and thank you for pointing out that other $1 million cost that you mentioned. And then my last question is just on the buyback. Is it fair -- I mean, I know growth is improving and you've got M&A out there, and your stock is inexpensive and you've got a lot of capital. I mean, is it fair to put your entire authorization in our expectations? For the year, do you think you have enough capital where you could really lean into the buyback today but still have enough capital for a future deal? Or is it -- or are you a little bit more price-sensitive on that? Just trying to kind of put a range on buyback opportunity. Thomas Owens: Okay. Well, there's a lot there, but I'll start with giving you the range and the way to think about it. So you've heard us talk in the past about a continued accretion in our regulatory capital ratios and talk about 12%, for example, as a ceiling on CET1 in terms of where we would want to operate. We ended 2025 at 11.72% in our CET1, and without any deployment via share repurchase. Even with funding very solid, even robust loan growth in 2026, we -- our internal projections are that we would be -- we would end '26 slightly above 12%. So as Duane said, we've got the $100 million authorization. I mean a way to think about it is if we did no deployment via capital, assuming very solid loan growth, we would end the year '26 slightly above 12%. If we did every $0.01 of the authorization of $100 million, that would take us down to about 11.5%. So somewhere in between there, call it a range of $60 million to $70 million, is what would essentially keep our capital ratios where they are. And again at 11.72%, that's kind of mid-range between 11.5% and 12% in terms of CET1. So to your question of is it fair to put all $100 million in your model, I think that is -- I would probably guide you probably more to a range of $60 million to $70 million in all likelihood. And that range is based on trying to manage our capital levels where they are today, assuming the solid loan growth that we have in our projections. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Duane Dewey for any closing remarks. Duane Dewey: Well, thank you for joining us today on the call. Again, 2025 was a record year for Trustmark. We're very pleased and proud and look forward to keeping that momentum into 2026. We look forward to joining back up with you for our first quarter call at the end of April. You all have a great rest of the week. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to GE Vernova's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] My name is Liz, and I will be your conference coordinator today. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the program over to your host for today's conference, Michael Lapides, Vice President of Investor Relations. Please proceed. Michael Lapides: Welcome to GE Vernova's Fourth Quarter 2025 Earnings Call. I'm joined today by our CEO, Scott Strazik; and CFO, Ken Parks. Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and presentation slides, both of which are available on our website. Please note that our year-over-year commentary or variances on orders, revenue, adjusted and segment EBITDA and margin discussed during our prepared remarks are on an organic basis, unless otherwise specified. In addition, our 2026 guidance and our by 2028 outlook being presented today include the Prolec GE acquisition. We will make forward-looking statements about our performance. These statements are based on how we see things today. While we may elect to update these forward-looking statements at some point in the future, we do not undertake any obligation to do so. As described in our SEC filings, actual results may differ materially due to risks and uncertainties. With that, I'll hand it over to Scott. Scott Strazik: Thanks, Michael. Good morning, everyone, and welcome to our fourth quarter earnings call. We have been busy since our December 9 Investor Update, and I thought I'd start with progress since the event. First, on the positive. We continue to see very strong new gas contracts with an incremental 6 gigawatts signed in the last 3 weeks of December, for a total of 24 gigawatts of new contracts in 4Q '25 alone. We also ended the year with strong orders in both Electrification and Wind. Electrification had its largest order quarter in its history and Wind had its largest order quarter of '25. On the negative, we have been impacted by the U.S. government halting of all offshore wind activity on December 22, which led to us booking an incremental accrual in 4Q for costs associated with the delay on the Vineyard Wind project. Ken will talk more about this in his section. I'm pleased that our Prolec GE acquisition has received rapid approval from all required jurisdictions. This will allow us to close the acquisition on Monday, February 2. Taking all this into consideration, we are raising our full year '26 financial guidance, which now includes GE Vernova's full ownership and operation of Prolec for 11 months in '26. Taken in totality, the last 3 weeks of December since our last update were a reasonable proxy for our '25 performance in total: strong growth in our largest, most profitable businesses with momentum continuing; challenges and wins that we are continuing to combat with accretive capital allocation with the approvals required to close our first sizable acquisition as a stand-alone public company. '25 sets us up for substantially more profitable growth moving forward. In '25, we increased our total backlog by over 25% or $31 billion to $150 billion with robust profitable order growth in Power and Electrification, further underscoring our momentum as we kick off '26. In Power, we continue to see accelerating demand and favorable pricing trends for both equipment and services as customers invest in new units and existing assets. In 4Q, gas power equipment backlog and slot reservations increased from 62 to 83 gigawatts sequentially, primarily due to strong U.S. demand, but also with agreements in the Middle East, Vietnam and Taiwan, with backlog increasing from 33 to 40 gigawatts and SRAs increasing from 29 to 43 gigawatts. We expect to reach approximately 100 gigawatts under contract in '26. Under the assumption, we'll ship high teens in gigawatts this year with new contracts north of 30 gigawatts. In 4Q, we grew our power services backlog to $70 billion, up $5 billion sequentially and $9 billion year-over-year. This increase was mainly driven by strength in gas with customers investing in fleets and signing new long-term service agreements at favorable pricing, which drove strong, high-margin services backlog growth. In Electrification, customers are working to keep pace with growing electricity demand, grid stability needs and national security interests. In 4Q, we grew the segment's total backlog to $35 billion, up $4 billion sequentially and $11 billion year-over-year, representing Electrification's largest growth quarter on a dollar basis in '25. Importantly, we are seeing demand across the segment for grid and data center equipment, both with traditional customers globally and hyperscalers, primarily in the U.S. Of note, over $2 billion of Electrification's orders were signed directly for data centers in '25, more than triple the 24 total. We also signed large deals for providing grid resilience and reliability solutions in Saudi Arabia and Australia, an HVDC contract in Germany and a large grid equipment contract in Iraq in the year. In Wind, we received approximately $3 billion of orders in 4Q, the largest of the year for the segment. In onshore, we continue to receive [indiscernible] for repowering and new units as customers utilize safe harbor and initiate physical work for approximately 10 gigawatts of repowering opportunities in the U.S. The team is focused on what we can control. Taken together, our pathway to substantially more profitable growth is right in front of us. I'll talk about this more on Page 5 with the growth of margin in our equipment backlog, including $8 billion of incremental margin added to our equipment backlog in '25. I'm also pleased with the returns that our '25 investments are yielding. On the CapEx side, we remain on track to see a substantial step-up in gas turbine output in 3Q '26. We installed over 200 new machines in our factories while adding nearly 1,000 new production workers in '25. We plan on adding an incremental 200 machines and over 500 production workers in '26. Electrification is on track with its growth, delivering more than 25% revenue growth in '25 with a clear pathway to deliver $13.5 billion to $14 billion in revenue, representing 20% organic growth plus approximately $3 billion from Prolec GE in '26. Our investments in automation and robotics are advancing at scale, and AI is starting to gain momentum in our engineering organizations and back-office functions. Our Advanced Research Center is progressing future businesses for us. This includes direct air capture, where we already have a facility up and running, real momentum in our solid-state transformer program and a good technical progress on our fuel cell program in Malta, New York. We are making all of these investments from a position of financial strength, ending the year with almost $9 billion in cash. In '25, we were able to return $3.6 billion to our shareholders while repurchasing more than 8 million of our shares. We continue to see substantial opportunity to create value including through incremental investments with strong returns. A few more comments on our financial performance on Page 4. We booked $59 billion of orders, up 34% year-over-year. We also grew our revenue by 9% year-over-year to $38 billion with growth in both equipment and services while increasing our adjusted EBITDA margin by 210 basis points year-over-year. We generated $3.7 billion in free cash flow, more than double our prior year, while investing more than $2 billion in R&D and CapEx. We are increasing our '26 guidance and by '28 outlook, which now includes Prolec GE. Ken will speak to this more in a moment. And as announced, we are doubling our dividend in '26 versus '25 and have increased our stock buyback authorization to $10 billion from the previously approved $6 billion program. One of the primary drivers of our conviction on our path forward is the significant growth and margin expansion in our equipment backlog again in '25, which I will touch on in the next page. On Page 5, we show the growth of margin in our equipment backlog consistent with our practice from last January. We started '25 with the expectation to increase our margin dollars and equipment backlog above our run rate in the prior 2 years. We achieved that expectation, adding $8 billion in equipment backlog margin dollars in '25, more than the prior 2 years combined. We ended '25 with $64 billion in equipment backlog, an increase of approximately 50% year-over-year, with an incremental 6 points in equipment margin expansion. This included 11 points of growth in Power, mainly driven by our gas power business. We expect significant growth again in Power and Electrification's backlog in '26 at better margins as we convert higher-priced gas slot reservation agreements into orders and benefit from strong demand and pricing for grid equipment. These businesses' longer equipment cycles mean that we will not begin delivering on the majority of the higher-margin orders placed in '24 and '25 until '27 and beyond. In Wind, we expect relatively stable margins this year and for backlog to decrease as we execute on the remaining unprofitable offshore wind backlog, and project a smaller onshore wind backlog given the recent softness in U.S. orders. As we noted in December, we see incremental opportunity for the teams to expand margins that are not projected in our backlog today. This includes our operating teams delivering our backlog with variable cost productivity versus known cost today, accelerating capacity additions, leveraging lean to sell incremental slots and a recovery in U.S. onshore wind orders. In summary, good progress in '25, and we are excited about what's ahead. With continued strong demand and pricing in gas, the strong demand environment across multiple products in Electrification and my expectation for the team to drive variable cost productivity not embedded in our backlog margins today, we expect to add at least as much equipment margin dollars in backlog in '26 as in '25, setting us up for even more profitable growth over the long-term. Said differently, in totality, the equipment margin and backlog from '23 to '26, those 4 years will add at least $22 billion in equipment margin, driving future profitable growth. With that, I will turn the call over to Ken for more details on our full year and fourth quarter performance as well as our financial outlook. Kenneth Parks: Thanks, Scott. Turning to Slide 6. We finished 2025 strong with robust orders, growing backlog and revenues, margin expansion and significant free cash flow generation. In the fourth quarter, we booked orders of $22.2 billion, a 65% increase year-over-year and a book-to-bill ratio of approximately 2x. Equipment orders increased 91% while service orders increased 22%. All 3 segments delivered significant orders growth across equipment and services. As Scott mentioned, our backlog expanded to $150 billion, a year-over-year and sequential increase, with equipment backlog increasing to $64 billion, up approximately $21 billion and 50% year-over-year, while our services backlog grew $10 billion or 13% year-over-year to $86 billion led by Power. Revenue increased 2% with services growth in all 3 segments. Equipment revenue was flat year-over-year as 41% growth at Electrification and 8% growth at Power was offset by anticipated lower Wind revenues. Price was positive in all segments. Adjusted EBITDA grew 6% year-over-year to $1.2 billion, led by Electrification and Power. Adjusted EBITDA margin expanded 30 basis points with higher price and productivity more than offsetting higher contract losses at offshore wind as well as inflation and investments in growth and innovation. The strong adjusted EBITDA and working capital management drove positive free cash flow of $1.8 billion in the fourth quarter. Working capital was a $2.3 billion cash benefit, driven primarily by down payments on higher orders and slot reservations at Power as well as higher orders at Electrification. Year-over-year, free cash flow increased more than $1 billion, driven by higher positive benefits from working capital and stronger adjusted EBITDA, partially offset by higher CapEx investments supporting capacity expansion. We ended 4Q with a healthy cash balance of nearly $9 billion, up approximately $1 billion compared to the third quarter. During the fourth quarter, we returned $1.1 billion of cash to shareholders through share repurchases and dividends. Also, both S&P and Fitch upgraded our investment grade credit ratings and maintain positive outlooks on these upgraded ratings. In early February, we expect to issue roughly $2.6 billion of debt as we complete the previously announced acquisition of the remaining 50% ownership stake of Prolec GE. We'll remain below 1x gross debt to adjusted EBITDA after this debt issuance. We're encouraged by our strong financial performance in 2025. During the year, we secured $59 billion of orders led by Power equipment orders more than doubling and Electrification equipment orders growing more than 20%. Service orders increased 12% with growth in each segment. We delivered approximately $38 billion in revenue with 26% growth in Electrification and 10% growth in Power. We increased adjusted EBITDA by 46% and expanded margins 210 basis points driven by price, volume and productivity, more than offsetting the impact of growth and innovation investments and the impact of tariffs. Finally, we generated $3.7 billion of free cash flow, a year-over-year increase of $2 billion. As discussed in prior quarters, we continue to utilize lean to improve our billings and collection processes and drive better cash management and linearity. In 2025, we reduced days sales outstanding by 2 days compared to year-end 2024, resulting in over $200 million of additional free cash flow in 2025. Our growing backlog and healthy margin provides an excellent foundation for continued improvement in our financial performance moving forward. Turning to Slide 7. Power delivered another strong year, led by gas power. Power orders in 2025 grew more than 50% given robust demand for gas equipment and growth in services, which combined, increased backlog by more than $20 billion. Power grew revenue 10% for the year and expanded EBITDA margins by 100 basis points to 14.7%, driven by higher price and productivity, primarily at gas power and steam power. In the fourth quarter, Power orders grew 77% led by gas power equipment tripling year-over-year on higher volume and pricing. We booked 41 heavy-duty gas turbines, our largest orders quarter of the year and an increase of more than 70% year-over-year, including 15 HA units. We also secured orders for 18 aeroderivative units, that's 8 more than the fourth quarter of 2024. Power services orders increased 15% as customers continue to invest in their existing fleets. Revenue increased 5%. Services revenue increased due to higher gas transactional services and nuclear. Equipment revenue increased driven by nuclear as we progress in building our first SMR at the Darlington site with OPG, as well as aeroderivative growth at gas power. This growth was partially offset by fewer heavy-duty gas turbine shipments, primarily due to the improved linearity of deliveries through 2025 compared to 2024. EBITDA margins expanded 160 basis points to 16.9%, mainly driven by price and productivity more than offsetting additional expenses to support capacity investments at gas and R&D at nuclear along with inflation. Looking to the first quarter of 2026 at Power, we expect continued year-over-year growth in gas equipment orders. We also anticipate high single-digit revenue growth driven by both higher equipment and services. We expect EBITDA margin of approximately 14% to 15% as volume, price and productivity should more than offset additional expenses to support capacity and R&D investments as well as inflation. Given the typical seasonality of services outage, Power revenue and EBITDA margin should be lower sequentially in the first quarter. Turning to Slide 8. The Wind team delivered similar EBITDA losses in 2025 despite the impact of tariffs, driven by improved pricing and higher turbine deliveries at onshore wind, offset by offshore due to the absence of contract cancellation settlement gain recorded in the third quarter of 2024, net of lower year-over-year contract losses. In the fourth quarter, Wind orders increased 53% year-over-year, mainly due to improved onshore equipment orders, primarily outside of North America. However, it's still difficult to call an inflection point in U.S. orders as customers still face permitting delays and tariff uncertainty. At offshore, we remain focused on executing our challenged backlog. Wind revenue decreased 25% in the quarter given lower onshore equipment deliveries as a result of softening orders over the last year. Wind EBITDA losses were $225 million in the quarter, below the fourth quarter of 2024 levels due to higher offshore contract losses, including the impact of the recently issued U.S. order to halt construction of all offshore projects and lower onshore equipment volume, partially offset by improved onshore services. For the year, Wind losses came in at approximately $600 million, higher than our expectations of approximately $400 million outlined during our December investor event, driven by the U.S. government's December 22 stop work order for offshore wind projects. Until that point, the team was on the path to achieve these expectations as they worked to complete the Vineyard Wind project in early January. The order created a potential delay of at least 90 days and we accrued in 4Q the estimated incremental contract losses for the extension of installation work. As a reminder, the project has 62 turbines in total, and we've made significant progress with only 10 turbines needing blades and 1 turbine left to be installed at the time of the stop work order. At any time the order is in place, we are unable to execute the project. This and the resulting incremental costs are excused under a declaration of force majeure prompted by the government action. We understand that Vineyard Wind received an injunction of the stop work order yesterday. If given permission to resume work soon, we would work to complete installation of the remaining turbines by the end of March. At the end of March, we'll lose access to the vessel required to complete installation of the remaining turbines. If we're unable to complete the installation of the remaining 11 turbines, 2026 Wind revenue could be negatively impacted by approximately $250 million due to our inability to bill the customer for those turbines. Because of our contract loss accruals and protection from incremental costs resulting from the stop work order, we do not anticipate significant additional negative EBITDA impacts for the Vineyard Wind project beyond the amounts already recorded. For first quarter 2026, we anticipate Wind revenue to decline at high teens rate year-over-year due to lower onshore equipment deliveries. We expect EBITDA losses to be between $300 million and $400 million, down year-over-year primarily as a result of lower onshore equipment volume as well as the approximately $70 million impact of tariffs that started in 2Q of last year. Looking at 2026, we expect significant improvement in Wind revenue in the second half of the year given only 30% of our expected onshore turbine shipments are in the first half as almost 70% of our 2025 equipment orders came later in the year. Also, the volume we're shipping in the first half has fewer contractual protections for tariffs since we signed these orders before their implementation. As a result, we expect EBITDA losses in the first half to be partially offset by profitability in the second half. Now turning to electrification on Slide 9. Strong demand and price resulted in 21% orders growth and 26% revenue growth in 2025. Electrification equipment orders continued outpacing revenue, further increasing the equipment backlog to $31 billion, up more than $10 billion compared to the fourth quarter of 2024. EBITDA margins expanded 560 basis points to 14.9% driven by volume, favorable price and productivity. In the fourth quarter, orders remained strong at roughly 2.5x revenue and increased 50% year-over-year to approximately $7.4 billion due to growing grid equipment demand, particularly for synchronous condensers, substations partially to support data center growth and switchgear. We saw strong equipment orders growth in the Middle East, which increased over $1 billion and in North America, which more than doubled year-over-year. Revenue increased 32% with growth across all regions. We saw strong volume and higher price driven by switchgear and HVDC equipment. EBITDA increased 63% in the quarter with margin expansion of 320 basis points to 17.1%. Margin expansion was led by more profitable volume, productivity and favorable pricing. Looking to the first quarter of 2026, we anticipate continued solid equipment orders with healthy margins. First quarter Electrification revenues should be similar to the fourth quarter of 2025 as we include Prolec GE, resulting in a significant year-over-year increase. We expect continued strong EBITDA margin expansion to 16% to 17% from volume, price and productivity. Moving to Slide 10 to discuss GE Vernova guidance. For the first quarter of 2026, based on our expectations for the segments, as already outlined, we expect continued year-over-year revenue growth and adjusted EBITDA margin expansion. We also expect to deliver positive free cash flow in the first quarter of 2026 given our ongoing focus on aligning the timing of inflows and outflows along with the impact of down payments, which correlate with the timing of orders. For the full year, we're increasing our 2026 guidance provided in December to now include the Prolec GE acquisition. We now expect full year 2026 revenue to be in the range of $44 billion to $45 billion, up from $41 billion to $42 billion, with growth in both services and equipment. We continue to expect adjusted EBITDA margins of 11% to 13% as we deliver our growing backlog with favorable pricing plus improved operational execution. We're also increasing our free cash flow guidance to between $5 billion and $5.5 billion, up from $4.5 billion to $5 billion. By segment, we continue to expect 16% to 18% of organic revenue growth in Power, driven by gas power. We anticipate Power EBITDA margins to be between 16% and 18% as positive price, increased volume leverage and productivity more than offset inflationary impacts and the additional expenses for AI, automation and increased production. In Electrification, we now anticipate revenue to be between $13.5 billion and $14 billion, which represents 20% organic growth, plus approximately $3 billion of revenue from Prolec GE. We continue to expect EBITDA margin to expand to 17% to 19% as we deliver our more profitable backlog. In Wind, organic revenue is expected to be down low double digits due to decreased onshore equipment revenues given the softness in orders, but we expect EBITDA losses to be approximately $400 million in 2026, which is consistent with our expectations discussed in December as improvement in onshore wind services and offshore wind offset the lower onshore equipment volume. We expect 2026 GEV adjusted EBITDA to be more second half weighted than 2025, with the highest revenue and EBITDA in the fourth quarter of '26. We expect higher second half gas power revenue as we ship more gas turbines in the second half of the year as we increase annual production capacity to approximately 20 gigawatts starting in midyear '26. We also anticipate typical gas services seasonality, with the highest outage volume in the fourth quarter. We continue to expect Electrification EBITDA to increase sequentially through the year following the completion of the Prolec GE acquisition. And as mentioned earlier in Wind, we expect higher second half onshore turbine shipments given our recent orders profile and better services profitability. At Corporate, costs are typically uneven across quarters due to compensation timing and portfolio activity at our financial services business. We expect full year 2026 corporate costs to be between $450 million and $500 million as we continue investing in AI, robotics and automation to drive productivity over the medium and long-term. Turning to Slide 11. We're also increasing our by 2028 outlook to include Prolec GE. We now project at least $56 billion of total revenue by 2028, up from $52 billion, implying a low teens growth CAGR through 2028. And we still expect to achieve adjusted EBITDA margins of 20%. We're increasing our cumulative GE Vernova free cash flow generation from '25 to '28 by approximately $2 billion to at least $24 billion, which incorporates nearly $1 billion of incremental CapEx from Prolec GE to support increased transformer production. This brings our expected cumulative CapEx and R&D investments through this period to approximately $11 billion. At Electrification, by incorporating Prolec GE into our by '28 outlook, we now expect approximately $4 billion of incremental revenue on top of high teens organic growth and we maintain expectations for 22% EBITDA margins. We're not including any synergies from the Prolec acquisition into our updated outlook, but we see real opportunities in both revenues as well as costs. Overall, the combination of rising demand, combined with the consistently stronger execution, investments into our business and the acquisition of Prolec GE sets us up nicely going forward. With that, I'll turn it back to Scott. Scott Strazik: Thanks, Ken. And to wrap, a few themes. We are executing well in the early stages of our multiyear growth trajectory. This is evidenced in the $150 billion backlog we entered '26 with versus roughly $100 billion in backlog that we entered '22 with after the announcement of our spin from GE in November of '21. Just think about that for a moment. Just over 4 years ago, we announced our separation from GE. And today, our backlog is 50% larger than it was upon the time of the spin announcement. The steepness of our growth trajectory is probably best evidenced in our Electrification segment, which I often say has been the largest beneficiary of GEV working as one, purpose-built, focused company, now better linking the commercial muscle and customer relationships of our Power and Wind businesses with the Electrification solutions we provide. Electrification generated about $5 billion in revenue in '22, and we now expect that number to be $13.5 billion to $14 billion in '26, and we are just getting started. But this isn't about growth for growth's sake. In the last 3 years alone, we've more than doubled our GEV equipment backlog, adding over $14 billion in future margin dollars in this backlog, while adding $13 billion in high-margin services backlog over the same period. On the operations front, we are improving but culturally hunting every day for waste and opportunities to serve our customers in a more efficient manner. Take our transformer product line inside Electrification. Our labor hours were up 39% in 4Q, with output increasing more than 50% year-over-year as we drive significant productivity at these sites. And we now see real opportunity to apply a similar playbook to the 5 large factories we are acquiring with Prolec GE. In onshore wind, our critical, customer-facing events are down over 50% in '25 versus '24, and the business is well positioned to deliver a much more profitable services business in '26. But we also are running a business with the humility to acknowledge we continue to have real opportunity to improve on our execution in areas like offshore wind as we complete our only 2 projects. We are doing all of this while investing across the near, mid and long-term horizons. Our customers and investors will see substantial value creation from our increased gas turbine output starting in 3Q '26. These incremental returns are right in front of us, less than 180 days from now. Other investments we are making are just starting to take shape, but I have high confidence that our automation and AI investment returns will grow in '27, becoming a bigger part of our margin expansion in '28. These investment returns are not included in our '28 financial outlook today. And as we invest in these time horizons, we also are investing in businesses for the next decade. We expect SMR to contribute meaningfully to the top line of our power business in the next decade. We're making real products in construction of our first plant in Ontario today while continuing to invest in the engineering to drive down the cost of the product for the long-term. Nuclear was a drag on Power's '25 margins, and we expect '26 to be directionally similar. But our customers and investors will see this value in the next decade. Similar theme with our solid-state transformer product line. We've completed production of our first unit. And just 2 weeks ago, I visited our new testing facility in Upstate New York that we'll be using to test and validate the performance of this first unit before delivering the completed solution to our hyperscaler customer in the autumn of this year. And we can do all of this while returning substantial capital to our shareholders as evidenced in our $3.6 billion return of capital in '25 and our announced increase in our dividend and share buyback program. So we enter '26 pumped up about the company we are creating, the opportunities to serve our customers and deliver returns for our owners, not only in '26 but through cycles and for the long-term. With that, I'll hand it to Michael for the Q&A part of the call. Michael Lapides: Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask 1 question so we can get to as many people as possible. Please return to the queue if you have follow-ups. Operator, please open the line. Operator: [Operator Instructions] Our first question comes from Joe Ritchie with Goldman Sachs. Joseph Ritchie: So let's just -- I'm just going to focus my one question on gas power equipment orders. Clearly, incredible momentum in 2025. I think your original expectation was for backlog and for SRAs to be roughly around 60 gigawatts and you ended at 83 gigawatts. Now you have an expectation of 100 gigawatts by the end of 2026. Scott, maybe just talk about just the nature of your discussions. Have they changed at all? Types of customers? And then also, you did mention that you expected the margin in your backlog to be better as well. So it sounds like the pricing discussions have also been positive. Scott Strazik: Yes, Joe. I mean, on the end of that, I'd say, yes, pricing does continue to strengthen. When we look at where we're trending with our slot reservation agreements today versus our existing backlog, there's another 10 to 20 points of pricing strength in the SRAs today. We are pleased -- you're right, we were talking in the middle of last year at 60 gigawatts and landed at 83 gigawatts, because the intensity of the discussions really late summer fall right through the holidays have continued to be very intense. When you think about this year getting to 100 gigawatts by the end of the year, what I would tell you is it's likely going to be a larger proportion of orders. Today, with the 83 gigawatts, it's 40 gigawatts of orders, 43 gigawatts of SRAs, that probably shifts towards more of a 60-40 split with 60% on order over the course of 2026. And then really the question that we'll have to evaluate and share with you as we go is how many customers are ready to commit to slots today for really '31 to '35. And our 100-gigawatt assumption that we talked about today doesn't really assume a lot of those, let's call it, framework agreements get closed in 2026, but there are active discussions right now, and active discussions we're going to keep working that could take that 60-40 split of 60 gigawatts of orders directionally and 40 gigawatts of SRAs, to see the SRA number grow even higher over the course of this year. But it's January and we want to see how those discussions progress. Operator: The next question comes from Julian Mitchell with Barclays. Julian Mitchell: Just wanted to circle back to the gas power equipment market because I suppose we get a lot of questions from investors around smaller turbine makers looking to grab share, looking to take advantage of the fact that you're trying to be measured on capacity increases and there are very long lead times. And obviously, there was an announcement of someone looking to repurpose ancient narrow-body engines for power gen supply. So I just wondered, I suppose, 2 things. One was how serious do you think the threat of market share gains from that plethora of smaller players is? And do you think that they could have some negative effects on pricing in the equipment market as their capacity and share gain efforts ramp up in the years ahead? Scott Strazik: Thanks, Julian. I would just reinforce the comment I made before, which is we do see our slot reservation agreements 10 to 20 points higher in price than where we are in the backlog. So we're continuing to gain price as we continue to play this game in gas. Frankly, a lot of the smaller applications are simply enabling more projects to get started, because what it's enabling is earlier power that truthfully we can't provide, but then on the back end, as the heavy-duty gas turbines are available, those smaller applications will become the reliability solution on the back of the -- on the heavy-duty gas turbines. So what we talk about every day is this is about economics. And when you're underwriting 20-year business cases, efficiency matters a lot when you're running these units at base load. So now with humility, we don't really view those smaller units to be competition, but that doesn't mean that's not a good business in the near-term. I think those smaller applications could do very good business in the next few years. But we also have just as much conviction in the competitiveness and the value proposition our heavy-duty gas turbines are providing and will continue to provide, and we expect to continue to have the attractive share in the market that we have had and we'll continue to have. Kenneth Parks: And Julian, I know you know this, but we obviously play in a piece of that as well, right? So we have aeroderivative units, and I think last year we booked orders for about 63 of those, which was up significantly year-over-year. Because of us playing in that market, it informs those comments that Scott just made, which is we know how the customers are thinking about utilizing that equipment in the midterm. Operator: The next question comes from Nigel Coe with Wolfe Research. Nigel Coe: So my one question is on the backlog margins, specifically for Power. So 11 points of improvement year-over-year is really impressive. Maybe just can you talk about the 17 points of improvement since year-end '22? The starting point would have been about a breakeven. I just want to confirm that. And then based on where you're pricing turbines today, would you expect backlog margins to continue improving in 2026? Scott Strazik: That's fair that, directionally, the starting point is approximately breakeven, and most definitely, we expect the margins in equipment backlog in Power to continue to grow at a very healthy clip in '26. And that's why we articulated on the call that we expect to add at least as much equipment margin in backlog in '26, i.e., at least $8 billion, this year as we did last year. Kenneth Parks: And we get excited about that not only on the equipment side of it, but if you think about the pricing on the service contract that comes along with a new heavy-duty gas turbine, as the pricing is accelerating on the equipment itself, as we sign those new contracts for service orders, we'll see incremental pricing there. So your point is exactly right, we're seeing accretion in margins on the equipment. That also leads to a long life of pricing improvement on the service side of the portfolio. Scott Strazik: Because when you think about it, everybody, we added about $12 billion of equipment backlog in Power. We added $9 billion of services backlog in Power over the course of the year. Both are experiencing real margin accretion. Operator: The next question comes from Mark Strouse with JPMorgan. Mark W. Strouse: Scott, maybe switching gears to the Electrification segment. Just kind of stepping back, kind of leading up to the spin. Just kind of the opportunity that you've been talking about, kind of investing in that business to expand it from what it's been over the last decade or so. Obviously, you're clearly making progress with the orders. You talked about kind of record orders in 4Q. To the extent that it's possible, can you just kind of update how much of that do you think is really driven by just kind of the overall market strength versus what GE is doing specifically to gain market share? Scott Strazik: Well, I mean, Mark, with humility, I would argue that we're able to provide a very unique solution to the end customers today with the linkage of the power generation and the electrical equipment together in a way that it is difficult for many other providers to do. So this isn't simply about drafting on a larger market. I would say that was maybe more of a theme in '23 as the European market started to move post the Ukraine crisis, that supply and demand created an opportunity for us and we took advantage of it. That was a '23 theme. '25 theme is we're providing a differentiated solution. And our ability to link power generation solutions with electrical equipment is positioning us to continue to grow this business on an outsized basis. So I look at the business and I say $14 billion of revenue in 2026, directionally, we think our addressable market today with the products we sell, directionally $150 billion. So I mean, we're at like 10% of our directional market and there's a lot we can do. Now yes, to earn that, we've got to get better with our operations. And that's why we talked about the fact that from '24 to '28, we're doubling our output with transformers and switch gears. And most of that is coming from more shifts, more investments in how we operate that helps. And at the same time, we talked about things like solid-state transformers in December. I mentioned it in my prepared remarks, 2 weeks ago, I saw our first product that's completed, we'll be testing it over the course of the summer before we deliver it to the hyperscaler customer, that could be a substantial order for us with a new product line in 2027 for deliveries later in the decade. So I continue to grow my optimism and, frankly, my expectations with how material this is as a part of GE Vernova. And we're going to keep leaning into this business. Kenneth Parks: And then it's a great opportunity to think about the Prolec acquisition, right? Because you talked about what are we able to do not only just from a market, but from a GEV perspective, bringing things together. This was one of the primary reasons that we were so excited about the Prolec acquisition, because there were terms and conditions around the arrangement which allowed us to keep things within certain markets. Now that it's totally going to be consolidated by GEV and fully owned by GEV, we're able to optimize where we can have transformers go around the world. So that's a really good thing. But one of the other opportunities as well is Prolec is a provider of distribution transformers, which are a key part of what's going into data centers. So this opportunity of bringing GEV together and how it's benefiting the Electrification business though it runs right exactly to what Scott says, but it gave me the opportunity to remind everybody what the importance of this Prolec acquisition is. Operator: The next question comes from Alexander Virgo with Evercore ISI. Alexander Virgo: Can we start on Electrification, please? And just integrating Prolec, I'm surprised there hasn't been a little bit more of an accretion on the original margin guidance. So I wondered if you just talk a little bit about costs to integrate an investment that you might need to do to make sure that you get the benefit of what you just talked about and think about how that margin profile might look as we look at the 2028 guidance. Scott Strazik: I mean, Alexander, I'd just start by saying no change from the expectations from Prolec from what we talked about when we closed the deal in October. The reality is we could have a little bit of a debate as to whether we wanted to change the margin guide by basis points to be exact to where we had framed things up in October. What I would just interpret is this gives us even more opportunity to outperform over the course of '26. I wouldn't overthink that there's been any change in the financial contribution from Prolec in 11 months of, call it, the '26 or, at all, the '28 expectations. Frankly, if anything, we've had a very productive 3 months of integration meetings and are very excited for this to be part of the company on Monday. Operator: The next question comes from David Arcaro with Morgan Stanley. David Arcaro: I was wondering if you could touch on the nuclear space. We've seen a lot of momentum on the policy side, deal side and the SMR space. Wondering if you could talk to your project opportunities. Have things accelerated? Could there be opportunities for more SMR deals to come? Scott Strazik: David, the opportunity is great. The discussions are progressing. What I would say with nuclear, maybe a little bit different than gas and grid because we're really restarting an industry here in the western world, is they're progressing, they're sequential. There's a lot of terms and conditions that are being discussed. We're working very closely with the U.S. administration that is very determined to restart a nuclear industry in the U.S., and we're very motivated to serve them on that path. We're also having productive conversations in Sweden, in Poland today that we're very optimistic about going forward. But it may take a little while before they translate to announcements. So we're into a new year. We're working hard with a number of both governments and customer archetypes, including the hyperscalers on what this can mean for them in, let's call it, the first half of the next decade. So opportunity pipeline growing, but the timing to close is going to be a little bit different than the intensity of the closed velocity right now with gas and grid. Operator: The next question comes from Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Scott, I wanted to get your thoughts on something a bit higher level. A few weeks ago, we had this announcement from Trump kind of pushing for an emergency power auction. I'm really curious about your reaction to that, both with respect to the potential impact on gas power demand in the market in the U.S. as well as GEV. Scott Strazik: There's clearly a need to continue to evolve the market mechanisms to encourage what's needed in this country, which is substantially more new build of firm, fixed power generation capacity. Whether that happens through the auction mechanism a few weeks ago announced by the administration allowing hyperscalers to bid into a separate auction for separate PPAs, that's one pathway to do it. Do we probably need in a number of markets a capacity auction mechanism that provides more years of revenue guarantee for more build to happen today? Definitely. The market's already moving, right? We moved into '25 with 46 gigawatts on contract. We ended the year with 83 gigawatts. We'll end this year with at least 100 gigawatts. So the market is moving regardless, but we are very motivated by continuing to iterate with the administration on how to enable even faster growth and simultaneously thinking our way through on how we'll fulfill if that happens. So motivated by the announcement a few weeks ago. But I'd also emphasize it's early. I think changing policy in how these markets have worked isn't going to happen overnight. But clearly, you can see in our orders book that the market continues to move our way regardless. Operator: The next question comes from Amit Mehrotra with UBS. Amit Mehrotra: Just one clarifying question. Can you just update us on what you're sold out through -- I think last time it was 2028 on both heavy-duty and aeroderivatives. I mean these backlog members are eye-popping, so I assume we're going out quite further. And then just one clarification on Electrification. I know you talked about it earlier, but it just seems like the organic growth expectations have maybe come down for '26 when you include Prolec in there relative to the 20% you had last year. Maybe I did my math wrong, but if you could just clarify that point, that would be helpful. Kenneth Parks: Let me do the last part first and then I'll hand it back to Scott. No, the organic growth expectations haven't come down. When we give you the organic growth number we're giving it to you without Prolec. So just to make that easy, we're saying the organic growth for Electrification and then just add the $3 billion on top of it. So there's been no change in the expectations for Electrification negatively. Scott Strazik: And they've demonstrated ability to outperform the last few years with their ramp. Let's see how they do this year. But yes, no change, Amit, from December 9. The gas capacity, the reality is the 83 gigawatts that we now have on capacity is certainly very heavily playing into '29, but there are slots in '30 and beyond that are also secured. So we do continue to have capacity available today at 83 gigawatts on contracts for 2029. That said, by the time we get to 100 gigawatts, which we're now projecting by the end of the year, that 100 gigawatts directionally will have both '29 and '30 largely sold out based on where we see it today. But sitting here today on January 28, there are still slots available for 2029. Michael Lapides: Operator, we have time for 1 more question, please. Operator: This question comes from the line of Andrew Kaplowitz with Citigroup. Andrew Kaplowitz: Scott, can you give us more color on your assessment of how your teams are doing on that variable cost, productivity that you talked about and what that might mean for the next couple of years? Obviously, you've reiterated this 22% EBITDA margin targets for '28 in Power and Electrification, still early days on lean. What are you seeing on the ground as you begin to ramp up capacity more significantly? And can you remind us how your contracts are structured for rising commodity costs? Scott Strazik: Well, the commodity cost, to a large extent, I would say from when we take orders, Andrew, to a large extent, we lock in with the suppliers the price. So it's generally matched. The only exception of that is with our long-term service contracts, and those have material escalators attach with them. So on our $150 billion backlog, we feel very good about our protection for material inflation. Now on our variable productivity journey and where we are, it's a very good and timely question. We'll have our February operating reviews with our business teams next week, and that is the main event or one of our main events. If I assess where we are right now, I would say with the backlog that's grown by 50% in the last 4 years, the team has been making very good progress in our ability to fulfill on that. And that's when we talk about seeing the gas ramp up in the third quarter of '28 -- third quarter '26, excuse me, we'll hit that. Doubling transformers and switch gears '24 to '28, we'll hit that. Now can we be even more effective with our sourcing leverage here now that we're at this level of scale? And do I have a high degree of expectations that the sourcing productivity will contribute even more to our margin expansion, when we show you that chart that we showed you today on backlog in March 12 months from now? The answer is yes. But there's a maturation process here between investments in the factories for output and fulfillment, feeling very good, somewhat countered with how strategically forward thinking our teams are with sourcing savings that I think we've got a few miles still to go together. That is good news in the sense that it's opportunity, an opportunity for us to get better and something I look forward to updating everyone on as we go through that journey together in 2026. Michael Lapides: Before we wrap up, let me turn it back to Scott for closing comments. Scott Strazik: Michael, thank you, everybody. I would just again with our customers. We are humbled with their confidence in us to drive that $150 billion backlog to the 75,000 employees we have today that I'm proud to represent every day, as is Ken, in these meetings. For everybody on the call, we appreciate your continued interest in GE Vernova. And I hope you can hear in our voices both the combination of humility and hunger that we have as we go into a new year that there's a lot of work to do. We're ready to do that work. And we look forward to interacting with all of you throughout 2026. Thanks, everyone. Kenneth Parks: Thank you. Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Greif First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Bill D’Onofrio, Vice President of Investor Relations and Corporate Development. Please go ahead. Bill D’Onofrio: Good morning, and thank you for joining Greif's Fiscal First Quarter 2026 Earnings Conference Call. Today, our CEO, Ole Rosgaard, will provide a strategy and market update, followed by our CFO, Larry Hilsheimer, with a review of our financial results. Please turn to Slide 2. In accordance with Regulation Fair Disclosure, please ask questions regarding topics you consider important because we are prohibited from discussing material nonpublic information with you on an individual basis. During today's call, we will make forward-looking statements involving plans, expectations and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures and the reconciliation to the most directly comparable GAAP metrics that can be found in the appendix of today's presentation. I'll now turn the call over to Ole on Slide 3. Ole Rosgaard: Thank you, Bill, and thank you all for joining us today. We entered 2026 from a position of strength despite a still muted industrial backdrop. Our Q1 performance demonstrates the progress we are making on 2 critical fronts, delivering solid financial results in the present while also making progress on our longer-term build-to-last strategy. During the quarter, volumes performed as anticipated, remaining in line with expectations due to continued softness in the industrial economy. Our EBITDA margin profile continues to improve meaningfully, up 260 basis points year-over-year, which is the result of decisive actions taken on our cost optimization. As a result, adjusted EBITDA increased 24% versus prior year, and our results came in as expected. Based on this performance, we are reaffirming our 2026 guidance. Following the portfolio rationalization we undertook in 2025, our leverage is now historically low, enabling significant capital flexibility to create shareholder value. In Q1, we completed $130 million of the $150 million share repurchase program we announced 3 months ago. Given our strong free cash flow projection for the year with a conversion ratio of 50%, we fully anticipate remaining well below a leverage of 2x. Our strong free cash flow generation and balance sheet strength allows us to fund value-creative organic growth, including growth CapEx in our existing operations and higher return end markets. As we drive growth externally, we are also accelerating internal transformation. Our run rate cost optimization is now at $65 million, which reflects primarily SG&A actions taken early in fiscal 2026, which will benefit EBITDA for the majority of the year as contemplated in our original guidance. As a reminder, our fiscal 2026 year-end run rate commitment is $80 million to $90 million. We are confident in the progress we are making, and we believe we are demonstrating our ability to manage the present while continuing to shape the future. Please turn to Slide 4. Our end market performance reflects the reality of broader economic conditions remaining soft. In Customized Polymer Solutions, demand was essentially flat overall. IBC volumes were up low singles. Small containers down low singles and large containers down mid-single digits due to continued industrial softness. This is consistent with our expectations heading into the year, and we expect small containers to sequentially improve into Q2 as Ag seasonality picks up. Durable Metal Solutions remained under pressure with softness across regions, especially with chemical customers. We continue to focus this business on cost discipline and cash generation. Sustainable Fiber solutions saw volume declines in converting due to North America industrial softness, but the mills ran at solid operating rates throughout the quarter. Innovative Closure Solutions volumes declined high singles from both metal and polymer closure demand, driven by the industrial softness I just spoke on. Importantly, total sales, which reflects sales both direct to third parties and sold through our polymers and metals businesses were approximately flat due to strong price/mix, with volume down only mid-singles. This shows that our highest performing products remained the most resilient in the quarter. Overall, Q1 performance was consistent with our expectations and reflects our ability to improve margins through disciplined execution even in a muted industrial environment. With that context, I'll turn it over to Larry to walk through the financials on Slide 5. Lawrence Hilsheimer: Thank you, Ole, and hello, everyone. Adjusted EBITDA for the quarter increased 24% and margins improved 260 basis points to 12.3%, reflecting improved price/cost and the significant benefit of structural cost optimization. While Q1 adjusted free cash flow was lower year-over-year, this is primarily due to the inclusion in the prior year of cash flow from recently divested businesses. Excluding that impact, the core cash engine and continuing operations improved year-over-year, supported by EBITDA growth, lower interest expense following deleveraging and reduced maintenance capital post our containerboard sale. As we discussed last quarter, Q1 is seasonally the lowest quarter for free cash flow, and we have full confidence in our full year low-end adjusted free cash flow guidance of $315 million and approximate 50% conversion expectation. Our earnings strength showed in our earnings per share results, up 140% year-over-year, driven by higher EBITDA, lower interest expense despite year-over-year increased tax expense. Please turn to Slide 6. In Customized Polymers, gross profit was down on approximately flat volumes due to primarily product mix despite cost optimization gains. Durable Metals gross profit was slightly up and improved year-over-year, primarily from structural cost optimization. Fiber sales were impacted by the demand softness we anticipated and discussed during our Q4 call. Margins, however, expanded year-over-year, driven by cost discipline and favorable year-over-year pricing and OCC costs. Innovative Closures sales is presented as total sales to properly reflect the margin profile as gross profit reflects profitability of both direct external sales and external sales sold through the metals or polymers businesses. Net sales does not include the external sales sold through the metals and polymers businesses. Total sales were roughly flat year-over-year, but gross profit was up due to strong mix and continued benefits from our cost optimization. Please turn to Slide 7. We are reaffirming our low-end 2026 guidance of $630 million in adjusted EBITDA and $315 million in adjusted free cash flow. As discussed in Q4, this guidance reflects significant structural cost optimization, year-over-year price/cost changes in fiber as reflected in RISI as of our Q4 call and net flat volumes for the full year. Our Q1 results came in largely consistent with our guidance expectations. Price and raw material costs were slightly better than planned, volumes and manufacturing costs slightly behind and SG&A in line. No individual bucket change was material and the net impact of all these elements was consistent to our expectation, giving us confidence in reaffirming guidance. Please turn to Slide 8. Our capital allocation framework remains focused on pursuing margin-accretive organic growth and delivering high return on invested capital. Our leverage is historically low and our maintenance CapEx needs are significantly reduced from last year, both of which free up capacity to pursue high-return organic growth investments. We intend to continue to increase our dividend over time and have completed -- nearly completed the $150 million share repurchase program we announced last quarter. We continue to believe our stock is still one of the most compelling value propositions we can invest in. And as such, in December, our Board approved a new $300 million share repurchase authorization. We will execute on this authorization in a disciplined manner, incorporating repurchases as part of our ongoing and balanced capital allocation with a goal to repurchase up to 2% of our shares outstanding annually. As Ole mentioned, we can achieve these goals while still remaining well below our 2x leverage. That balance sheet strength and our strong free cash flow generation allow us to accelerate organic investment, funding growth CapEx within our existing operations and higher return end markets, even in a muted macro environment. Please turn to Slide 9 for closing remarks from Ole. Ole Rosgaard: Thanks, Larry. As we look ahead, we remain grounded in the realities of a still cautious demand environment, but we're not standing still. We're executing on cost, on capital and on strategy. The work we've done to transform Greif is not cyclical. It's structural, and it shows how we perform, how we invest and how we allocate capital. My sincere thanks to our colleagues all around the world for driving this transformation with me. We remain focused on managing the presence while also building the next era of durable value creation for Greif. Thank you for your support. Operator, please open the lines for questions. Operator: [Operator Instructions] And our first question will be coming from Gabe Hajde of Wells Fargo Securities LLC. Gabe Hajde: I wanted to ask, I mean, you guys have been operating sort of in this muted environment now for 3 years and have done a really good job of kind of hitting the low-end guidance and even moving it up a little bit. I'm curious, Larry, you kind of talked about some costs coming in a little bit better and that gives you confidence in the full year. But the volume performance here in fiscal Q1 was maybe a little bit even below what we were expecting. So was there anything, I guess, as the quarter progressed from an inventory management standpoint from your customers that jumps out at you? And then just being a little bit more back-end weighted, I'm curious if you can talk about trends in the fiscal Q2 such that it kind of implies a pretty good ramp into the back half of the year, on the volume side. Ole Rosgaard: Yes. Thanks, Gabe. I mean I have to say that, I mean, demand conditions, they remain muted and in particular, across fiber and steel. And that's like reflecting the continued pressure in both in industrial and chemical end markets. In some of our end segments, you will see some seasonality in there, which will pick up -- mean that they'll pick up during the Q2. But importantly, the environment really is not changing. The last week, I visited about 8 customers in various parts of the world, and the message is really the same. Conditions are still muted. But importantly, that doesn't mean we're standing still, as you quite rightly pointed out. Our commercial teams are executing with intent, and we are really transforming our commercial team to hunters from farmers. We're deploying capital for organic growth. We're adding capacity in spots where we can see we can sell that capacity. So we are being extremely aggressive in the market in that respect. Lawrence Hilsheimer: Gabe, one thing to supplement what Ole said is we have seen volume trajectory in our small plastics start Q2 in a very positive way. Gabe Hajde: Okay. And then I guess on the OCC front, any insights there? I know you guys obviously have the recycling operations. It seems like expectations are still for pretty flat here in the first, call it, half of '26. Anything that you'd point out for us there? Lawrence Hilsheimer: I just agree with that. That's our feeling as well, Gabe. Gabe Hajde: Okay. And CapEx, you've called out a couple of growth projects. It sounds like it's mostly small format plastics. Any particular geography or area that you want to call out for us? Ole Rosgaard: I mean it's sort of in various regions. We have -- in Europe, we are deploying additional capacity where we have like really, really good business cases on it. We have like in Africa, we're just in. We have like the whole mining sector in Southern Africa is -- I won't call it is exploding, but it's picking up significantly due to the run on precious metals. And a lot of the products we manufacture in that part of the world actually goes into mines. So regionally, when we add capacity in this respect, we get the ROIC on it almost immediately. We have added capacity in India. And last year, we did it in Singapore as well for specific customers where we end up with long-term contracts. So I'm confident that we will see that continue and the opportunity is certainly there. Operator: Our next question will be coming from George Staphos of Bank of America Securities. George Staphos: On the topic of volume, I was hoping you might be able to give us a bit more color in terms of what you're seeing with metal, recognizing, as you said, maybe things were a little bit weaker, but not terribly out of line. Where are you seeing some strength, if at all, within the end markets within metal where things perhaps weaker? And I remember, Larry and Ole, you had been expecting some pickup to be helpful in housing if it were to occur relative to these in your business overall. Any thoughts on what you're seeing out of your markets that are exposed to housing at this juncture? Ole Rosgaard: I'll make a comment first and then Larry has done some research on housing, so he'll follow up on that. Obviously, for our metal, the biggest segment that the end segment is chemicals and chemicals, one of their large segments is housing. We have not seen any pickup there. And demand remains muted, as I said. And it's all -- when housing picks up and when we see an improvement there, we will see an improvement. The mining aspect I mentioned earlier, could be an important one because when you do mining, then you don't bring anything out of mine. So all the equipment you have in a mine needs a lot of loop all the time. And that's brought into mines in metal containers. And you leave those metal containers in the mines in [indiscernible] that come landfills, you don't bring it up. You can't bring polymer products in a mine because if it catches fire, then you have lots of fumes. But as I said, the metals, we're managing that for cash. So I'll let Larry comment on the housing side. Lawrence Hilsheimer: Yes, George, it's interesting. There have been a couple of headlines in the last couple of months of resale of existing homes picking up a bit. I think in like November better than 5%. It's nice to see the headline. It's interesting to get a little bit underneath it. I think we've shared before that existing home sales are at 1995 levels. What's more, I guess, I call it interesting. And I look at it as interesting because I think it truly is an upside because I do believe it will turn at some point. Existing home sales today are actually on a population-adjusted basis at the levels of 1982. 1982 had 16% mortgage rates, and we were in a recession. And so they are really decimated. And as we've said before, when people go to sell an existing home, they spend money to fix it up, do all this. The new person moves in cares out what everybody else fixed up, buys new appliances, paints, buys new furniture. So it really is a big driver for the chemicals industry and us, but it is not there yet. I guess the positive, I think of it is, it's become a real issue for the current administration. You can see Trump talking about not allowing corporate investment in housing. You also see some discussion of portable mortgages, which is an interesting concept that's been in the U.K. for quite some time. So there's a lot of focus on it, but it really gets down to what's the resale prices and what's the interest rates. George Staphos: Okay. I appreciate that. Larry, 2 last ones, I'll turn it over and I'll ask them together. One, can you remind us where you think the price cost on fiber will sort of anniversary right now, things are good. Is that a second half issue? Or should you be running relatively positively throughout the year? And then margins in polymers were a little bit weaker than we were expecting. I know gross margin wasn't down as much. EBITDA was down a bit more than we were expecting. What was driving that? And what are the implications going forward? Lawrence Hilsheimer: Yes. I'll take the -- yes is the answer on the fiber question. It will be later part of the second half of the year that, that will annualize. On the polymer side, it really is just a mix issue. So we were down somewhat, and we expect this on our small polymers and our large plastic drums, which are better margin products in the IBCs and where volumes were up a bit and medium. So really it was just a mix issue, George, not anything on the cost or the price side. Ole Rosgaard: But George, just to elaborate on that. So polymer gross profit margins, they were slightly lower year-over-year in Q1, primarily driven by the mix and manufacturing costs, as Larry pointed out. Volumes were also lower in small plastics and large plastics, and they are among our higher-margin polymer products. And overall, that reduced contribution from those products that had a short-term impact on margins. And then lastly -- manufacturing costs across our network were higher. We're actively addressing manufacturing costs, and we expect that to improve as the year progresses. George Staphos: It seems like the EBITDA margin delta was worse than the gross margin delta. Anyway, I'll turn it over. If you have any thoughts on that, we take them otherwise, good luck in the quarter. Lawrence Hilsheimer: Yes. George, just back to the issue that we've talked about and why we moved to gross profit. It gets to be the allocation issue of overhead cost is what the driver on the EBITDA difference is. Operator: And our next question will be coming from Mike Roxland of Truist Securities. Michael Roxland: Just wanted to follow up quickly on volumes. Obviously, declined about 5% in 1Q. The EBITDA guide assumes flat, maybe slightly up volumes for the year. What gives you confidence that volumes are going to improve? And if volumes do remain weak, can you just talk -- when I say weak, maybe flat, down low single digits, what does that imply for your EBITDA guide for the year? Lawrence Hilsheimer: Yes. I'll hit the EBITDA guide for the year. I just repeat, we are extremely confident. It's why we go with the low-end guidance. We -- there's various elements that go into that. But on the volume side, we had expected Q1 to be low in some products, it was a little lower. As I said earlier, we're seeing the pickup in the small plastic volumes going down. And as Ole mentioned, and he'll add something here, too, but the -- we're very optimistic about our commercial team and the incentives that we put in place and the early things that we're seeing out of those efforts. But Ole? Ole Rosgaard: Yes. First, the bridge was never built on Q1 year-over-year performance. It reflects how we expect volumes to progress or normalize across the year. And as we have established, Q1 came in softer than last year, but nothing we saw changes our full year view. And importantly, as our commercial teams, they remain extremely active. I mentioned we have done a lot of organizational changes in the company. We have transformed or are transforming our global commercial organization from farmers to hunters. We are changing or have been changing the incentive program for that. We are targeting CapEx where we see organic growth opportunities, and we do that in a very disciplined way where we are targeting short-term gains. And basically, we've already seen customer wins and share of wallet gains with existing customers, which again supports our confidence in volume progressing as the year unfolds. Michael Roxland: That's very helpful. So basically, what it comes down to is volumes were weaker in 1Q, but given some of the commercial activities that you're seeing, you think those wins should creep up or should occur sometime in the back half that will allow you to achieve your volume guide for the year. Is that fair? Ole Rosgaard: That's fair. Michael Roxland: Perfect. Got it. And just one quick follow-up. With the -- just following up on George's question regarding the price cost spread in fiber. I thought that was going to be more of -- I thought you lapped that in fiscal 2Q. And if that's the case, I mean, what is the company doing to address that headwind as you lap that? Lawrence Hilsheimer: Yes. I mean you saw the $40 a ton in URB was last May rolled in, in June and July, and the OCC was through the last part of the year. So it's that second half of our year with more of it coming in the last quarter just because of the way some of the contractual pass-throughs work. That's all it is, Michael. Michael Roxland: Got it. Okay. And then one last question. Just you mentioned, I think, last quarter, deploying a very unique proprietary form of barrier technology. You said you guys are the only ones that have that. Wondering if you could provide any more color around the technology, what it does, the competitive advantage it gives you? And have you received any orders on that? We are using that technology? Ole Rosgaard: Yes. It's called the SIOC technology. We have received orders. We have -- the first machine is fully operational in France. We have 3 more machines in production that will be deployed during this year, and that will be followed by further machines. And so far, very good actually. Lawrence Hilsheimer: Yes. The financial impact for this year is not significant, Michael, but we are very, very optimistic about this technology and its impact, and we're ramping it up. Operator: And our next question will be coming from Matt Roberts of Raymond James. Matthew Roberts: I'll start in fiber. I think you noted converting was down mid-single digits this quarter, which I believe is down from low single-digit decline seen last quarter. And on the operating rates, I believe you said last quarter was 90%, quarter before that 95% and now solid. So maybe where are operating rates trending now versus those prior 2 quarters? And does that support price that was previously taken? And in tubes and cores, you're understandably lapping some paperboard supply cuts that were in 2025. When do we lap those? When should we expect tube and cores and fiber more generally to return to growth? Ole Rosgaard: Yes. So I mean, first of all, the URB mills, they took about, I think, about 14,000 tons of economic downtime in Q1, but that was all due to converting softness. And then converting saw similar MSD declines. And the largest driver is basically the paper industry, where we supply costs for SDS and CRB grades. We do expect fiber profitability to improve sequentially. There's a lot of activities in the pipeline. Matthew Roberts: That's helpful. And on the price cost, Larry, last quarter, you gave a bridge at the $30 million in price cost, I think $18 million of that was in the URB price and lower OCC. It sounds like there aren't any changes in expectations from OCC or URB price. But any other impacts or puts and takes from nonmaterials impacts, whether that be energy or freight? Lawrence Hilsheimer: No. I mean it's -- there's a lot of things going on. I mean, obviously, Matt, I mean, take like we're doing a really great job on our cost takeouts. I mean you've probably read about health care cost inflation across all industries in the U.S. So we're beating those inflation impacts and still delivering on what we have. But in terms of any differences relative to what we laid out in our Q4 guidance walk, there aren't any other than just getting down to, for example, we've now cut 10% of our headcount on the professional side. We're up to 220 headcount reductions. We continue to work that, and those are focused on our overall objective, but also overcoming inflationary challenges. Matthew Roberts: That's very helpful, Larry. And if I can get one last one in. Just on the repurchases. I think you said $130 million of the $150 million was exhausted during the quarter. Is that remaining $20 million, is that still outstanding utilized quarter-to-date? Or was it replaced by the $300 million? And on that $300 million, I know you committed now to that 2% annual buyback. Should we expect any more in 2026? Or is that more 2027, given you've already about doubled that target so far in '26? Ole Rosgaard: Yes. I'll do the first part. So we've done $130 million, and we still have $20 million remaining. That will probably be concluded up to the summer here. The price of the B shares obviously helps that at the moment. So -- and then what happens next, I'll leave Larry to... Lawrence Hilsheimer: Yes. I mean -- so the $300 million is incremental to the $150 million, Matt. And yes, then our go-forward intention is to do roughly 2%. But we think our stock is a very good buy, and we could end up deciding to talk to our Board about more than that, but we're committed to the 2% level going forward and obviously, subject to our Board's approval. Operator: [Operator Instructions] Our next question will be coming from Daniel Harriman of Sidoti & Company. Daniel Harriman: I wanted to follow up on the prior share repurchase question. And you guys have been very clear in recent calls and your focus to deploy capital where you see the highest returns. So with the $130 million purchase in the recent quarter, I'm just curious how should we think about the cadence of the $300 million authorization versus potential acquisitions as you guys look to reach some of your longer-term EBITDA and free cash flow targets? Lawrence Hilsheimer: Yes, Daniel, I mean we'll be flexing depending on what we see in terms of the markets and where our stock price is and what's going on in our M&A pipeline, which -- we continue to have a robust pipeline of tuck-in, small tuck-in deals, but our big focus is organic growth, but we're also active. So we'll just be reacting to where the market is and where we're at on capital deployment needs internal and external. Ole Rosgaard: If I can just supplement that on deploying capital. Our focus is organic growth, no doubt about it. And as and when we see an M&A deal that can complement that and it's a tuck-in, then -- and it fits our criteria, then we will approach that in a disciplined way. But our sole or not our primary focus is organic growth. Operator: I would now like to turn the conference back to Ole Rosgaard for closing remarks. Ole Rosgaard: Thank you very much, and thank you again for your interest and for your time and for your questions today. Greif has entered fiscal 2026 with strong momentum. Our 24% increase in EBITDA dollars, expanding EBITDA margins and meaningful cost reductions demonstrate our ability to drive returns in a muted demand environment. We have also reduced leverage to 1.2x while reducing or returning approximately $130 million to shareholders through disciplined share repurchases as discussed. This performance underscores the strength of our portfolio, the effectiveness of our operating model and our ability to convert execution into results. Our strategy is working, and we are positioned to continue delivering durable earnings and cash flow improvements. Have a great rest of your day. Thank you. Operator: This concludes today's program. Thank you for participating.
Operator: Good morning, and welcome to the Bridgewater Bancshares 2025 Fourth Quarter Earnings Call. My name is Betsy, and I will be your conference operator today. [Operator Instructions] Please note that today's call is being recorded. At this time, I would like to introduce Justin Horstman, Vice President of Investor Relations, to begin the conference call. Please go ahead. Justin Horstman: Thank you, Betsy, and good morning, everyone. Joining me on today's call are Jerry Baack, Chairman and Chief Executive Officer; Joe Chybowski, President and Chief Financial Officer; Nick Place, Chief Banking Officer; and Katie Morrell, Chief Credit Officer. In just a few moments, we will provide an overview of our 2025 fourth quarter financial results. We will be referencing a slide presentation that is available on the Investor Relations section of Bridgewater's website, investors.bridgewaterbankmn.com. Following our opening remarks, we will open the call for questions. During today's presentation, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward-looking statement disclosure in the slide presentation and our 2025 fourth quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is as of and for the quarter ended December 31, 2025, and we undertake no duty to update the information. We may also disclose non-GAAP financial measures during this call. We believe certain non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors to help them understand the company's operating performance and trends and to facilitate comparisons with the performance of our peers. We caution that these disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP. Please see our slide presentation and 2025 fourth quarter earnings release for reconciliations of non-GAAP disclosures to the comparable GAAP measures. I would now like to turn the call over to Bridgewater's Chairman and CEO, Jerry Baack. Gerald Baack: Thank you, Justin, and thank you, everyone, for joining us this morning. We finished the year strong with robust loan and core deposit growth, net interest margin expansion and higher fee income. Expenses were also well controlled and asset quality remained strong. The successful quarter reflective of the team at Bridgewater Bank. This all comes as we continue to take market share by providing an unconventional reliable experience to our clients. We continue to see opportunities in the Twin Cities for both client and talent acquisition and are taking advantage of both. We also see opportunities to grow the business outside of our market by using the expertise we have developed and expanded across the affordable housing market. Not only did we have a great quarter, but we see plenty of reasons for that to continue in 2026. Revenue growth was a key highlight of the quarter, both from a spread and fee perspective. We saw net interest margin expand 12 basis points to 2.75%, driving strong growth in net interest income. Last quarter, we mentioned that we expected to get back to a 3% margin by early 2027. We are well on track for that and in fact, think we can pull it forward into 2026. Joe will talk more about that in a few minutes. Swap fees, while up and down from quarter-to-quarter were strong in the fourth quarter, driving an increase in noninterest income as well. Core deposit growth of 9% was another highlight of the quarter, which allowed us to produce loan growth of 9% as well. As we've been focused on growing loans in line with core deposits, on a full year basis, core deposits were up 8%, while loans grew at 11% pace, exceeding our mid- to high single-digit guide we had at the beginning of the year. We also continue to feel good about the strength of our asset quality profile even as we saw a modest uptick in nonperforming assets and net charge-offs in the fourth quarter. Katie will provide more thoughts on this shortly. We pride ourselves on being able to produce consistent tangible book value per share growth for our shareholders. This is evident on Slide 4 and was again the case in the fourth quarter as tangible book value grew 16.5% annualized and was up 15.3% year-over-year. This continues to be a unique part of the Bridgewater story and one we are incredibly proud of. Before I turn it over to Joe, I want to take a minute to share some additional updates. First, in late December, we closed 1 of the 2 branches we added through the First Minnetonka City Bank acquisition. The decision was due to having other branches in close proximity. Overall, we were pleased to see very little deposit attrition from the FMCB post-merger. We are also on track to open a new branch in Lake Elmo next month. We're excited about the opportunity that will present as we expand further into the growing affluent East metro of the Twin Cities. Second, we continue to see opportunities related to recent M&A disruption in the Twin Cities, both on the talent and client front. Old National's acquisition of Bremer has been the main one, but the pending acquisitions of MidWestOne and American National have created additional opportunities. Bridgewater is now the second largest locally led bank in the Twin Cities. So we feel well positioned to be the bank of choice for those looking to work or bank local. Third, I'd like to acknowledge the events that have unfolded in the Twin Cities in recent weeks. It's been difficult to watch what's happening across our community. The people and the city are resilient, and we will get through this. In the meantime, we are actively monitoring the impact of these events are having on our team members and clients, and we'll continue to be here to support them in any way we can. Lastly, I want to thank our team for a great year in 2025. With an acquisition, a core conversion, the launch of a new online banking platform and other technology advancements, there are many new initiatives and challenges to work through. I remain impressed with the team and their consistent willingness to overdeliver. The efforts of our entire team continue to be the magic that makes Bridgewater a place people want to work and do business. I'm thankful for their efforts and the overall leadership across the organization. With that, I will turn it over to Joe. Joseph Chybowski: Thank you, Jerry. Slide 5 provides more color on the encouraging trends we are seeing with net interest income and net interest margin. We expected net interest margin expansion to return in the fourth quarter given 3 Fed rate cuts in late 2025. And this is exactly what happened as the margin increased 12 basis points to 2.75%, primarily due to lower deposit costs. With margin expansion and continued earning asset growth, we saw net interest income increase 5% during the quarter. Last quarter, we mentioned that we saw a path to get back to a 3% net interest margin by early 2027. Given the expansion we saw in the fourth quarter and as we look ahead to repricing opportunities in 2026, we are actually pulling forward and believe we can get to 3% NIM by the end of 2026, and this does not assume any additional rate cuts. As a result, we are very optimistic about our ability to continue driving net interest income growth going forward. Slide 6 highlights the declining deposit costs I mentioned, which decreased 22 basis points to 2.97% in the fourth quarter. At year-end, we had $1.8 billion of funding tied to short-term rates, including $1.4 billion of immediately adjustable deposits. As a result, given the Fed rate cuts in September, October and December of 2025, we are able to reprice a good portion of the book lower, driving lower deposit costs and boosting net interest margin. We could see deposit costs move a bit lower in the first quarter as we recognize the full quarter impact of the December rate cut. But absent any additional rate cuts, we would expect deposit costs to begin to stabilize again. On the loan side, we are very pleased to see yields hold steady in the fourth quarter despite the 3 recent rate cuts. This was a function of the loan repricing opportunities we have, which includes $637 million of fixed rate loans scheduled to mature over the next 12 months at a weighted average yield of 5.55% and another $106 million of adjustable rate loans repricing or maturing at 3.84%. With these lower-yielding loans running off the books and new originations in the fourth quarter going on the books in the low to mid-6s, we have further repricing upside ahead of us. We've also been active in increasing the variable rate mix of our portfolio to create better balance across interest rate environments. Variable rate loans now make up 22% of our loan book compared to 14% a year ago. Turning to Slide 7. We continue to see strong revenue and profitability growth trends. In fact, adjusted ROA was just under 1% in the fourth quarter, while total revenue increased 32% year-over-year. Noninterest income also bounced back in the fourth quarter, driven by increases in swap fees and letter of credit fees. After seeing no swap fee income in the third quarter, we generated $651,000 of swap fee income in the fourth quarter. Quarterly swaps have averaged nearly $500,000 per quarter over the past 5 quarters, but continue to be quite lumpy due to the timing and size of the fees. We expect swap fees to continue to be a portion of the revenue story in 2026. But given the shape of the yield curve and the current environment, we would expect them to slow a bit. Turning to Slide 8. Expenses were well controlled during the fourth quarter. Throughout much of 2025, we saw higher-than-usual levels of expense growth as we work toward the systems conversion of First Minnetonka City Bank in the third quarter. Historically, we have seen expense growth align with asset growth over time. With the conversion behind us, we expect it to get back to the pace as fourth quarter expenses, excluding merger-related, were up just 9.5% annualized, which is more in line with our expected pace of asset growth. With well-controlled expenses and strong revenue growth, our adjusted efficiency ratio declined to 50.7%, the lowest level since the first quarter of 2023. It is also worth mentioning that we exceeded our 30% cost savings estimate for 2025 related to our recent acquisition. With that, I'll turn it over to Nick. Nicholas Place: Thanks, Joe. Slide 9 highlights the momentum we continue to have on the core deposit front, thanks to the efforts of our bankers and the opportunities we have in the market. Overall, we saw annualized core deposit growth of 8.8% in the fourth quarter and 7.9% for the full year of 2025. The other notable story here is the improved mix as we saw strong noninterest-bearing deposit growth for the second consecutive quarter, including an increase of $100 million during the fourth quarter, while brokered deposits have been declining. Looking ahead, we continue to have a strong core deposit pipeline, including deposits we gather as part of our affordable housing initiative. However, we would expect growth to be less linear in 2026, given the nature of the deposit base, especially during the first half of the year. To that extent, we will continue to leverage broker deposits if needed, as we have done in the past. But overall, we feel really good about our ability to continue growing core deposits over time. While core deposit growth has been strong, so has our loan growth, as you can see on Slide 10. Loan balances were up 8.9% annualized in the fourth quarter and 11.4% for the year as our pipeline remains robust, and we see continued demand across the market. As we look ahead to 2026, I'm excited about the opportunities that our pipeline and the overall market demand will continue to present. On the other hand, the pace of core deposit growth and loan payoff levels will impact the overall level of loan growth. Considering all this, we believe we can maintain loan growth in the high single digits in 2026. Turning to Slide 11. You can see that the loan growth we saw in the fourth quarter was driven by an increase in originations in spite of an increase in payoffs and paydowns as well. The increase in originations was expected given the strength of our pipeline and some of the deal closings we saw slide from the third quarter into the fourth quarter. The increase in payoffs is due in part to a catch-up from the slower payoff trends we have seen recently as well as the pullback in rates, allowing for more refinances and sales. Turning to Slide 12. Construction was the largest driver of growth during the fourth quarter as an increase in new construction projects over the past year or so have begun funding. A good portion of this construction growth came in the affordable housing vertical. We continue to see great traction in the affordable housing space as balances overall increased $41 million in the fourth quarter or 27% annualized. On a full year basis, affordable housing balances increased 29% in 2025, spread across the construction, C&I and multifamily portfolios. We expect this to be a key contributor to loan growth for us going forward as we continue to invest in this vertical. With that, I'll turn it over to Katie. Katie Morrell: Thanks, Nick. Slide 13 provides a closer look at the multifamily portfolio, which continues to perform well and reflects a long track record of strong credit quality. Since the bank was founded in 2005, we still have recorded only $62,000 in net charge-offs within this portfolio, underscoring the resilience of the asset class and consistency in our underwriting discipline. In addition, multifamily fundamentals in the Twin Cities remain positive, especially as vacancy rates declined throughout 2025 and concessions became less prevalent, leading to increased rent growth. Multifamily sales volume also increased in the back half of 2025, further supporting the positive market trends in this segment. While there are still a few submarkets where conditions have softened, we remain confident about the multifamily portfolio overall and believe it is positioned to continue performing well. On the office side, our exposure remains limited at just under 5% of total loans, with the majority located in suburban Twin Cities locations where performance has been comparatively stronger than central business districts. Turning to Slide 14. Our overall credit profile remains strong. Nonperforming assets increased modestly to 0.41% of assets, driven by a multifamily loan that migrated to nonaccrual after the client's original purchase agreement fell through. The property is now under a new contract, giving us confidence in a near-term resolution. We also recorded $1.2 million of net charge-offs during the quarter related to a fully reserved C&I loan. Despite this, full year net charge-offs remained very low at just 0.04% of average loans. Our allowance ratio declined slightly from 1.34% to 1.31% due to the charge-off and continues to compare favorably to peers. Importantly, the items driving the modest uptick in NPAs and net charge-offs were both isolated issues and followed an extended period of virtually no nonperforming assets or net charge-offs, an outcome that is just not sustainable for a portfolio of our size. Turning to Slide 15. Our classified loan levels remain low at 1.3% (sic) [ 1.2% ] of total loans and 8.3% of capital. Watch and special mention loans are also manageable and make up just over 1% of the loan book. While we continue to actively monitor all loans on our watch list, we did not see any meaningful new migration during the quarter. And as stated previously, we feel credit trends within the portfolio remain stable. I'll now turn it back over to Joe. Joseph Chybowski: Thanks, Katie. Slide 16 highlights our comfortable capital position. This includes our CET1 ratio, which increased slightly from 9.08% to 9.17%. We've been able to regularly build capital through our retained earnings since our acquisition in late 2024. We did not repurchase any shares during the quarter given our strong organic growth pipeline and where the stock is trading. As of year-end, we still had $13.1 million remaining under current share repurchase authorization. In the near term, we expect capital levels to hold relatively stable given earnings retention and our stronger growth outlook. Turning to Slide 17, I'll recap our expectations for 2026. As Nick mentioned, we feel comfortable that we can grow loans in the high single digits in 2026. This will be dependent on a variety of factors, especially our ability to continue generating strong core deposit growth as we look to keep our loan-to-deposit ratio in the 95% to 105% range. From a net interest margin standpoint, we are more bullish now than we were this time a year ago. We think we can now get to a 3% net interest margin by the end of 2026 instead of early 2027, and this does not assume any additional rate cuts. We also expect to get back to growing expenses in line with assets, unlike 2025, where expense growth was a bit higher as we work toward the acquisition systems conversion. We feel we're well reserved at current levels and would expect provision to remain dependent on the pace of loan growth and the overall asset quality of the portfolio. I'll now turn it over to Jerry. Gerald Baack: Thanks, Joe. We are really pleased how we finished 2025 and the catalyst we have to support growth and profitability heading into 2026. On Slide 18, I'll finish up by outlining our strategic priorities we will be focusing on in 2026. These are very consistent with the priorities we set in 2025, but there are some new areas where we will increase our focus. The first is optimizing our levels of profitability growth. In 2025, we were able to get back to the levels of growth we have been accustomed to. We want to ensure that we maintain that with a focus on optimizing profitability. Continuing to align loan growth with core deposit growth while expanding our net interest margin will be key. Second, we want to continue to gain market share in the Twin Cities. This has always been an objective, and we are proud of the progress we have made. Given the M&A disruption, we believe we are the bank of choice for clients who appreciate our local knowledge and commitment. We will look to expand our expertise and capacity across certain targeted verticals, including nonprofits and SBA, areas where we have added some impressive talent. In addition, we implemented an M&A readiness plan in 2025 that positions us well to take advantage of future opportunities. Third is to continue expanding the reach of our affordable housing vertical, both locally and nationally. This includes enhancing our perm product offering, which would help drive additional loan and swap fee income. Last is continuing to leverage technology investments to support growth and organizational efficiencies across the business. This includes leveraging recent investments and developing a more formal strategy around AI. With that, we will open it up for questions. Operator: [Operator Instructions] The first question comes from the line of Nathan Race with Piper Sandler. Nathan Race: Maybe Joe or Nick, I was wondering if you could just kind of unpack some of the deposit growth in the quarter. Obviously, noninterest-bearing had some nice increase quarter-over-quarter. Curious if there's any seasonality in that or -- and just how you're kind of seeing the deposit gathering pipeline unfold with some of the hires you've made recently, just to Jerry's point on some of the M&A-related disruption ongoing in the Twin Cities. Nicholas Place: Nate, this is Nick. Yes. I mean we feel really good about our overall deposit growth, not only for the quarter, but the year. Q4 does tend to be a seasonally high watermark for us. We do have a lot of clients that tend to build balances late in the year and some of those balances do trickle out in Q1. So there was some seasonality there. We feel really good about our deposit pipeline overall. However, we continue to get in front of great client relationships, both locally and nationally through that affordable housing vertical. And the talent we've been able to pick up on both of those fronts has been great. So we do expect, as we've seen over the last handful of years that Q1 and Q2 of the year do tend to be more modest than we've seen even outflows in those quarters in the past. So that does tend to be the low watermark for us on the year, but we feel great about the progress that we're making on growing core deposits. And should we need to, as we've said before, I mean, we will supplement with broker deposits if loan growth is robust in the quarter and some of that seasonality is impacting the pace of core deposits. So overall, we feel really good about where we're at. Nathan Race: That's helpful. Maybe for Joe, with the $743 million of loans that you have fixed and adjustable rate repricing higher over the balance of this year, can you kind of just speak to the cadence of that? Is there any kind of lumpiness quarter-to-quarter? Is it pretty spread out just in terms of thinking about that as kind of the main driver to get close to a 3% margin by the end of this year? Joseph Chybowski: Yes, Nate. No, it's -- as you said, it's pretty well laid out. I mean it's not like there's super concentration one quarter versus the other. So we feel good about just kind of continued repricing higher. That will be the biggest driver the NIM guide to 3% is really on the asset side. And I think just given that roll-off and given where we're originating loans today, we feel that's very achievable. Nathan Race: Okay. Maybe one last one for me on expenses. I appreciate the commentary or outlook there is pretty consistent with asset growth. So is it fair to expect 2026 expenses in that high single-digit range? Or is it maybe kind of more of a low double-digit expectation for this year? Joseph Chybowski: No, I think high singles, like you said, I mean, asset growth, we expect grows in the high singles. And so as we continue to invest in the business, people and technology, we will manage that the same. And like we said, '25, obviously, given the acquisition was a little outside of the norm. But I think if you go back further look, I mean, we've historically always operated that way. So we feel good about it. Nathan Race: Okay. Great. And sorry, just within that context, I mean, does that contemplate any additional production-related hires? Obviously, there's been a theme on this call in terms of some of the M&A-related disruption. So just curious what type of conversations you're having and kind of what the magnitude of additional opportunities to maybe add production talent? Or do you think the existing team has plenty of capacity just to grow with some of the disruption ongoing? Nicholas Place: Yes, Nathan, this is Nick. Yes, we can continue to get some operational leverage out of the team. I think we're evaluating not only the capacity of the group, how portfolios are allocated, but really our internal processes to streamline things. So we're certainly looking in the business as well to gain some leverage there, while we will be opportunistic on the hiring front. We've been able to pick up some people here recently, and we will always be opportunistic on the hiring side. So as it relates to expenses, I think that could be difficult to predict. But overall, we really are excited about our prospects to drive that growth, both with the staff we have and the talent that we're bringing in. Nathan Race: Okay. Great. I apologize. Actually, just one more, Nick. To your point, are there any non-solicits in place with some of the hires that you've made on the production side of things lately? Nicholas Place: It varies from person to person, but surprisingly, most of them have not had non-solicits. Operator: The next question comes from Brendan Nosal with Hovde. Brendan Nosal: Joe, maybe starting off for you with the margin outlook. Totally get it's a more bullish outlook. You're pulling forward the 3% margin. Can you just help us with kind of the apples-to-apples given you pulled out the rate cuts? Like if you do still get the 50 basis points of cuts across 2026, like how does the margin compare to the current 3% expectation by year-end? Joseph Chybowski: Yes, Brendan, I mean, it pulls it forward. I think this last quarter is a prime example where you get 3 cuts. We really -- fourth quarter with the rate cut in third quarter in September, you really started to realize that in fourth quarter. You get one right in the middle of October and then you obviously get the one in December that we expect to kind of reap the benefits here in the first quarter. So I think the deposit cut story, I mean, if you do get 2 rate cuts, it just pulls forward that 3% kind of target. I think the asset side is much more obviously reliant on slope in the curve and the repricing story. So I just think the deposit story, if we don't get those cuts, we expect cost to somewhat stabilize kind of middle part of the year. But I think, yes, if you do get kind of an implied rate scenario and 2 cuts this year, that just pulls that forward and directly impacts deposit costs. Brendan Nosal: Okay. Perfect. That's helpful. Maybe turning to asset quality. Can you folks just update us on that CBD office loan that slipped to nonaccrual earlier in the year? Like where are you on kind of work out? And what are expectations around that credit? Katie Morrell: Brendan, this is Katie. We've mentioned previously, we expect that to be a longer-term workout. We've given the borrower time to re-lease the vacant space there. So that we still have a specific reserve on the loan and expect it to be a longer-term workout. Brendan Nosal: Okay. All right. One last one for me. Jerry, a lot of good organic trends at the bank in 2026. But would love to hear your take on the M&A environment and your own appetite for potential tuck-in acquisitions as you look over the year ahead. Gerald Baack: Brendan, really just more of the same of what we've talked about in the past, and we're always talking to local owners of banks and continue to have those conversations and hope would have something similar to what the First Minnetonka City Bank did for us. So I mean, again, we always say and we mean that if we wake up every day and we look at the business organically and what we can do organically and take market share and the M&A strategy is really second place to that. But we continue to be optimistic that over the next few years, a couple more deals might come our way. Operator: The next question comes from Jeff Rulis with D.A. Davidson. Jeff Rulis: I wanted to check in on the affordable housing vertical. Just kind of wanted -- in your discussions, how big could you -- or do you intend to grow that? Is there a cap on the size of that, I think, around -- I think you mentioned [ 650 ] now. But just wanted to see what the -- if there's a concentration size that you'd like to keep it to? Nicholas Place: Jeff, this is Nick. Yes, I mean, we really like the space. We do like the diversity in the geographic locations of some of the clients and projects that we're financing. We appreciate the diversification in the product type. Some of it lands in our construction bucket, some is in sort of stabilized multifamily. There's some land transactions in there. There's C&I. So we appreciate what that can provide for us, too. It's roughly 15 or so percent of the book today overall. We feel really good about where that's at and continuing to grow that over time. We believe in the short term, it will -- the pace of that portfolio growth will outpace the overall portfolio growth. So we expect that to increase as a percentage of the book overall here near term. We haven't set any specific parameters around how big we want that to get, but we're being methodical about how we're growing it and overall, feel really good about the space. Jeff Rulis: That's great. And then I can't remember, Nick, if it was you or Joe, on the swap fees, any -- we know these are going to be lumpy, but trying to model that. I think there was some mention of maybe that maybe cools off a bit. But for a full year, is that somewhat concurrent with growing the affordable housing vertical in terms of swap fees going forward? Nicholas Place: Yes. I mean there's certainly opportunity within the affordable housing vertical to drive some additional swap fee revenue over time, and we're actively building out a plan for that and a pipeline for those. That said, the swap market was a bit sort of dislocated with treasuries for a while there last year that did provide a bit of a boost in attractiveness of that product and to some degree, drove additional swap transactions in 2025. So that market is more in line with sort of its historical average today compared to treasuries. And so that does make those transactions a little less competitive. But we're really pleased with the progress that we've made just on educating the banker teams on how to sell through that product and educating our clients on the benefits of leveraging interest rate swaps on some of their transactions. So we expect it to be a bigger piece of the business overall. But the last 4 or 5 quarters, we probably averaged $500,000 a year, even though it's been lumpy. I would expect it to be a bit inside of that here this year, just given some of that swap spread to treasuries kind of being more in line with historical average. Jeff Rulis: And then one other one for Katie on the credit side. Just checking the -- what you said on both the nonaccrual was really one multifamily loan and the increase in net charge-off was a C&I loan. Katie Morrell: Yes, that's correct. Both of those upticks were directly tied to sort of isolated loans. So we feel good about the portfolio overall, and it's really just more of a timing issue. Jeff Rulis: Got it. So it doesn't sound that systemic in multifamily. I guess are you seeing any -- where you see pressure? Is it rate reset kind of one-offs? Or where are the pinch points on multifamily when you do see some issues crop up? Katie Morrell: Yes. I think overall, we feel really good about our multifamily portfolio. As I mentioned in the prepared remarks, there's certainly still some pockets that are more challenged. So I would say that's what drives some of the challenges still. But overall, I mean, the market fundamentals are improving. Property performances individually are improving. So the trends are all positive. Jeff Rulis: Katie, when you say pockets of challenges that the geographic location, the type of building... Katie Morrell: Yes, geographic pocket. Operator: [Operator Instructions] The next question comes from Brandon Rud with Stephens. Brandon Rud: Most of my questions have been asked. I guess I'll maybe start with a question on Slide 18, the modernizing the core banking system. I guess can you just maybe provide a general time line for that? Is that something that can be completed in 2026? Is there -- or is that more of a multiyear project? And then two, is that more a what I'll call it a quality of life improvement from the client-facing side or something that can be an expense saver over the longer term? Joseph Chybowski: Brandon, this is Joe. I think -- I mean, to all your questions, it's really all of the above. We're a Fiserv bank. So historically, we've -- and still today, we -- our core runs through Fiserv. And I think some of the technology innovation 5, 7 years ago was reliant on really Fiserv and their innovation stack. So the last couple of years, we've really spent a lot of time evaluating how can we position ourselves to take a better advantage of kind of emerging technologies and set ourselves up to somewhat decouple from Fiserv's innovation. And so I think that modernizing core banking is really a lot of that. I mean it's everything from efficiencies internally and how we book loans and deposits, but ultimately, how do we best serve our clients. So how do we stay in front of emerging technologies trends, it's moving so quickly. And so I think at the end of the day, the core banking stack is more of a custodian of information. And I think we really want to be set up such that we can flex and we can innovate with the space. So to your point, it's a longer-term initiative, certainly, and it's not one that's just begun today. We've been working on it for years now. And so we're just excited for the position that we're in and really the optionality that we have. Brandon Rud: Got it. Okay. I appreciate that. Maybe just a last one here on the increased competition in Twin Cities. Are you seeing that have any impact on loan spreads or new deposit rates? We've heard from a few other banks that there are some irrational competitors out there. I'm just curious if that increased competition is impacting that at all. Nicholas Place: Brandon, this is Nick. Yes, we definitely saw increased competition, particularly on the loan front throughout 2025. I think a lot of banks have built up some liquidity as they sort of retrenched after 2023 and have better line of sight on where sort of rates are stabilizing out at. And so a lot of banks kind of got off the sidelines and we're back in the market. I see that as a good thing overall. I think having a healthy banking economy is good for our local economy and ultimately will just benefit all of us. So -- and our pipeline, albeit probably peaked out in third quarter of last year, still remains really strong. I mean we're probably 75% to 80% of where we were at the peak. So we feel really good about our prospects to continue to grow in spite of some of the increased competition. And we'll let some of those transactions that people want to go out and buy, they can go ahead and do that, and we'll keep -- we'll move on to the next opportunity. Operator: This concludes our question-and-answer session. I will now turn the call back over to Jerry Baack for any closing remarks. Gerald Baack: I just want to say thank you, everyone, for joining the call today. We're very excited about 2026 and the future here at BWB. And part of that is the strategic leadership team that we have now and my confidence in them moving forward. I just want to thank our incredible team members here at Bridgewater Bank. Have a great day. Thanks. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen. Welcome to KPN's Fourth Quarter Earnings Webcast and Conference Call. Please note that this event is being recorded. [Operator Instructions] I will now turn the call over to your host for today, Matthijs van Leijenhorst, Head of Investor Relations. You may now begin. Matthijs van Leijenhorst: Yes. Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us today. Welcome to KPN's Fourth Quarter and Full Year 2025 Results Webcast. With me today are Joost Farwerck, our CEO; and Chris Figee, our CFO. As usual, before we begin our presentation, I would like to remind you of the safe harbor on Page 2 of the slides, which applies to any statements made during this presentation. In particular, today's presentation may include forward-looking statements, including KPN's expectations regarding its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to the safe harbor. Now, let me hand over to our CEO, Joost Farwerck. Joost Farwerck: Thank you, Matthijs. Welcome, everyone. Let's start with some highlights of the fourth quarter and full year. We delivered on our 2025 outlook and group service revenues increased by 2.7% with all segments contributing. Adjusted EBITDA and free cash flow exceeded guidance. We maintained strict cost control across the organization. Indirect costs were EUR 10 million lower than last year, marking a clear turning point in indirect OpEx. In the fourth quarter, we saw Consumer delivering another quarter of strong commercial momentum, especially in Broadband with record net additions for the full year. Business growth was mainly driven by SME and Wholesale continued to grow mainly driven by sponsored roaming. Last year, we expanded our footprint by adding 440,000 fiber homes and around 400,000 homes connected. And we strengthened our mobile network with the launch of our tower company, Althio. And through ongoing investments in cybersecurity, we ensured a resilient network that protects all users. For 2026, we expect service revenue growth of 2% to 2.5%, EBITDA AL of approximately EUR 2.67 billion, CapEx of about EUR 1.25 billion and free cash flow of more than EUR 950 million. Our dividend per share is expected to grow by 10%, and we intend a new share buyback of EUR 250 million in 2026. All in all, we closed the year in a good way, and we are well positioned to sustain healthy service revenue growth in the coming years, supported by our leading positions in consumer and business markets and continued growth in Wholesale. At the same time, we are accelerating our transformation to deliver around EUR 100 million in annual net indirect OpEx savings by 2030. And reducing CapEx below EUR 1 billion by 2027 next year will drive strong cash generation and deliver attractive shareholder returns. Later, Chris will give you more details on our financials and 2026 outlook. We delivered on our 2025 outlook. Service revenues grew by around 3%. EBITDA slightly exceeded guidance. Free cash flow was strong at EUR 952 million ahead of the upgraded outlook we gave at the half year results despite slightly higher CapEx. We reiterate our dividend commitment, and we will pay a regular dividend per share of EUR 0.182 over 2025 following AGM approval in mid-April. At our strategy update in November, we reaffirmed that we are well on track to achieving our Connect, Activate and Grow strategy, which is supported by 3 key pillars: one, we continue to invest in the leading networks; two, we continue to grow and protect our customer base; and three, we further modernize and simplify our operating model. And together, these priorities support our ambition to grow service revenues and EBITDA by approximately 3% on average and free cash flow by approximately 7% over the entire strategic period. Let me now walk you through the operational performance in more detail. We hold a clear lead in the Dutch fiber market, both in homes passed and connected and in business parks through our joint venture in Glaspoort. And together with Glaspoort, we now cover nearly 6 million Dutch homes or around 70% of the country. And to maintain our network leadership, we further optimized our rollout process and shifted focus from passing homes to connecting and activating the households. And this approach is paying off with a record number of homes connected in Q4 and continued growth in fiber Broadband net adds. Consumer Service revenues continue to grow, driven by consistent Fiber and Mobile service revenue growth. And commercial momentum remained strong across both fixed and mobile with subscriber growth exceeding our fair share. Throughout the year, our Net Promoter Score improved, supported by operational excellence, our Combivoordeel offer and initiatives launched to strengthen digital engagement. Now let's take a closer look at our fourth quarter KPIs. Thanks to a strong execution and proactive base management, we delivered double-digit Broadband net adds growth for the third quarter in a row, supported by a healthy inflow of new fiber customers. Our fixed ARPU held firm despite continued investments in our base and the competitive markets. Together, these achievements drove service revenues growth of 0.4%. In Mobile, we added 24,000 postpaid subscribers and postpaid ARPU increased year-on-year, supported by the price increase in October, partly offset by the ongoing promotional activity in the no-frill segment. Combined, these factors led to 2.9% growth in Mobile Service revenue. Now let's turn to B2B. Business service revenues increased by 2.3% year-on-year, mainly driven by SME. And also here, Net Promoter Score improved throughout the year, reflecting the continued trust from our B2B customers for stability, reliability and the quality of our networks and services. SME remains B2B's main growth engine driven by Broadband, Mobile and Cloud and Workspace. LCE service revenue growth trend remained relatively stable, supported by continued growth in Unified Communications, CPaaS, IoT and a growing customer base, partially offset by continued price pressure in mobile. And finally, Tailored Solutions service revenue decreased, reflecting a focus on value steering. Wholesale continued to grow, mainly driven by the strong performance in Mobile. Broadband service revenues increased driven by fiber and the growth trend leveled off compared to previous quarters, driven by the decline in the wholesale copper base. Mobile remained strong, driven by continued growth in International sponsored roaming and other service revenues increased mainly due to an uptake in visitor roaming. ESG remains a core element of our strategy. And on this slide, we show you the progress on carbon reduction, circularity and diversity. To further reduce our carbon footprint across the value chain, we increased our green energy sourcing in 2025, supported by a solar energy partnership with Eneco. And our Scope 2 emissions have further decreased by 70% year-on-year, while Scope 3 emissions slightly increased, but this was due to an expanded scope. Next to this, we, of course, remain committed to improving our diversity targets. Although achieving gender balance and recruitment remains challenging, diversity and inclusion continue to be a top priority for us. And to summarize, we ended 2025 in a strong position, and we carry that momentum into 2026. With strong commercial execution, a healthy base inflow and improving ARPUs, we are well positioned and confident in delivering on our 2026 outlook. Now let me hand over to Chris to give you more details on the financials. Hans Figee: Thank you, Joost. Let me now take you through our financial performance. First, let me summarize some key figures for the fourth quarter and the full year. First, the adjusted revenues were up 2.7% year-on-year in Q4, driven by service revenue growth across all segments and also higher non-service revenues. Second, our adjusted EBITDA after leases grew by 5.1% compared to last year, supported by higher revenues and lower indirect costs. Underlying EBITDA growth, excluding LTO was 3.7% in Q4 and our EBITDA margin improved by 100 basis points to 44.6% of total adjusted revenues. Third, our net profit increased 12% year-on-year, supported by a one-off tax gain of about EUR 20 million from the recognition of a deferred tax asset. Finally, for the full year, our free cash flow increased by 5.8% year-on-year to EUR 952 million, mainly driven by EBITDA growth. Also, our free cash flow margin over total adjusted revenues grew by nearly 40 basis points. And with our ongoing share buybacks, reducing the number of shares outstanding, our free cash flow per share growth is even stronger at 7% year-on-year. I will share more detail on the underlying cash developments later in the presentation. In the fourth quarter, group service revenues grew by 1.8% year-on-year, supported by growth in all segments. In this mix, we saw Consumer Revenue -- Service revenues increased by 1.2%, driven by continued solid commercial momentum in both Fixed and Mobile. For 2026, we expect Consumer Service revenue growth about 1.5% year-on-year, supported by base growth and commercial improvements. Business Service revenue growth was 2.3% year-on-year, mainly driven by SME. Tailored Solutions remain negative, reflecting our focus on margins and contract quality. For 2026, we expect B2B to grow about 3% year-on-year with growth weighted towards the second half of the year, given the segment's strong performance in the first half of 2025 and therefore, the comps that will weigh against Tailored Solutions revenue growth. Our higher-margin SME business will continue to show growth in the 5% region throughout the year. And finally, Wholesale Service revenues increased by 3.9% year-on-year, driven by ongoing growth in international sponsored roaming business. For '26, Wholesale is expected to grow by about 3%, supported by Mobile. For the full year and on a like-for-like basis, so excluding IPR benefits and the contribution from Althio, our adjusted EBITDA grew by 3.1%, exceeding our 3% CFD hurdle. This growth was driven by higher service revenues and supported by strict cost control. Direct costs or cost of goods sold increased mainly due to the Service Revenue mix effects in B2B and higher third-party access costs within Glaspoort. In 2025, we reduced indirect costs by about EUR 10 million, marking a clear inflection point after 2 years of inflationary pressure. The savings came from disciplined cost management, automation, digitalization, lease portfolio optimization and workforce reductions of over 300 FTEs year-on-year or more than 500 if we include contingent external staff. As shared at our strategy update, we are targeting EUR 100 million in net indirect OpEx savings over the next 5 years under our transformation programs. In 2026, we expect about EUR 15 million to EUR 20 million in additional savings driven by fast digital transformation, AI-enabled process improvements and continued cost base optimization. Our cost reduction program clearly builds momentum and will show gradually accelerating benefits over the coming years. Our operational free cash flow continues to show healthy growth of nearly 10% or about 6%, excluding IPR benefits in LTO. The growth was driven by EBITDA, while CapEx was marginally higher than last year, primarily due to a noncash accounting reassessment relating to cable damages. For 2026 and on a like-for-like basis, so excluding IPR benefits and excluding IP sales, we expect to deliver a mid- to high single-digit growth in operational free cash flow, in line with our CFD guidance. This underlying growth in operational free cash flow will be driven by EBITDA growth and effectively stable CapEx. In 2026, after completing the heavy lifting phase of our fiber rollout, we expect and confirm a significant step down in CapEx of about EUR 250 million, bringing total CapEx to below EUR 1 billion. With EBITDA growth and this CapEx step-down in 2027, operating free cash flow is set to grow by about 10% annually on average over the strategic period. The strong cash conversion will lift operating free cash flow margins from 24% today to about 30%, placing us among the top performers in Europe. This underpins our long-term value creation model and reinforces our confidence in delivering sustainable cash flow growth in the years ahead. Turning now into the moving parts of our free cash flow. At EUR 952 million, our free cash flow was about 6% higher, driven by EBITDA growth and partially offset by changes in working capital and an increase in cash taxes and interest payments. Excluding the cash component of the IPR benefits, our free cash flow grew at low single-digit rate. Note that the DELTA provisions is related to lower pension effects -- pension provisions and some timing effects. Our cash margin over revenues improved by nearly 40 basis points to 16.3%, reflecting the solid cash generation momentum of KPN, and we ended the year with a cash position of EUR 552 million. KPN remains focused on creating long-term value, which is evidenced also by the strong return on capital employed. Our ROCE improved by 30 basis points year-on-year to 14.7%, nearing and marching towards our midterm ambition of 15%, driven by operational efficiency, demonstrating our continued commitment to create value through operations and investments. We maintain a strong and resilient balance sheet at year-end with a leverage ratio of 2.4x, stable compared to previous year and below our self-imposed ceiling of 2.5x. Our interest coverage ratio also remained strong. Our average cost of senior debt decreased by 30 basis points year-on-year, mainly due to optimization of our derivatives portfolio and our exposure to floating rates remains limited at 14%. Our total liquidity position of around EUR 1.6 billion remains strong, covering debt maturities until the end of 2028. At our strategy update, we reaffirmed our midterm 337 financial ambitions. We see healthy service revenue growth in the coming years while accelerating our transformation to deliver about EUR 100 million in net indirect OpEx savings annually by 2030, which means for 2026, group service revenue growth is expected between 2% and 2.5% with all segments contributing. We expect adjusted EBITDA after leases to be around EUR 2.67 billion or around 3% growth on a like-for-like basis, i.e., excluding IPR benefits and IP sales and in line with our midterm ambitions. Growth will be driven by continued service revenue growth and lower indirect costs. We anticipate net indirect OpEx savings of EUR 15 million to EUR 20 million next year. Throughout the year, EBITDA year-on-year growth is expected to be strong in Q1 and Q4, while Q2 and Q3 will face tougher comparisons. CapEx will remain at around EUR 1.25 billion, in line with our midterm guidance. And we expect a free cash flow of over EUR 950 million. On a like-for-like basis, so including the aforementioned one-off effects in 2025, our free cash flow expected to grow low to mid-single digits, primarily driven by EBITDA growth, partly offset by higher cash taxes. And finally, over the entire strategic period, we reiterate our financial ambitions to grow Service revenues and adjusted EBITDA by 3% and free cash flow by 7% per annum on average, as reflected in the 337 CAGR model. Note that our underlying 2026 guidance and our daily trading are both in line and on track with this multiyear ambition, and we feel confident to reach our planned level of cash generation and shareholder distributions. On that very matter, our financial framework is centered on long-term value creation for all stakeholders. In this respect, we are committed to returning all free cash flow to our shareholders. Our free cash flow per share was up 7% during the year, providing ample room for growth in our dividends per share as well, which means we intend to pay a regular dividend of EUR 0.20 per share over 2026, up 10% compared to the DPS over EUR 0.25 and fully in line with what we communicated at our strategy update. For 2027, we aim for a further increase to about EUR 0.25 or 25% increase year-on-year. And in addition, as announced this morning, we will launch a share buyback program of EUR 250 million in '25, notably starting tomorrow. Let me conclude with some key takeaways. We delivered on our 2025 outlook, consistent service revenue growth across all segments. Adjusted EBITDA and free cash flow came in slightly above guidance and disciplined cost management delivered a EUR 10 million reduction in indirect OpEx, marking a clear inflection point after 2 years of inflationary pressure. We saw solid Commercial, Consumer and Business, including record broadband net adds in Consumer. And we continue to lead the Dutch fiber market with accelerated delivery of fiber connected and activated homes. Our strong progress in 2025 confirms the successful execution of our strategy and positions us for future growth. We reaffirm our 337 financial framework and the announced 2026 targets are fully aligned with this multiyear plan including the CapEx step-down in '27 to unlock enhanced cash conversion. We are accelerating transformation, targeting EUR 100 million in indirect OpEx savings over the next 5 years. And beyond '27, we expect mid-single-digit free cash flow growth, supported by strong fundamentals and disciplined execution. And cash momentum was very strong and solid going into '25, providing us with confidence. Finally, we are committed to shareholders to returning all free cash flow to shareholders through growing dividends and buybacks and the latter starting tomorrow. Thanks for listening. Now back to your questions. Matthijs van Leijenhorst: Thank you, Joost and Chris. We will now start the Q&A session. [Operator Instructions]. Operator, could you please open the line for Q&A. Operator: [Operator Instructions] The first question comes from Mr. Polo Tang from UBS. Polo Tang: I have two. The first one is just about Consumer Broadband net adds. So they've been very solid for the past 3 quarters at more than 10,000 a quarter. But do you think this level of net adds growth is sustainable going forward? I'm just asking the question because you referenced taking more than your fair share earlier in the presentation. Also, you've got Odido gaining subscribers with FWA. VodafoneZiggo seems to be making progress in stabilizing its broadband base and also start wholesaling in the DELTA Fiber footprint. So I'm just interested in how you're thinking about competitive dynamics for the broadband market going forward? Second question is just on B2B. Do you think that B2B service revenues can grow in Q1 and Q2, given that you've got that tough comparable in Tailored Solutions? And what's your view on the Dutch macro environment? And are you seeing any signs of caution from your B2B clients? Joost Farwerck: Thanks for your questions, Polo, and I'll start and then Chris will join me, I guess. Yes, on Consumer Broadband net adds, you're right, 3 strong quarters in a row. And meanwhile, we operate in a very competitive market that remains competitive. This is more or less normal course of business for us nowadays. And I think what we can more or less conclude is that the new strategy of ours is working, where we focus on base management instead of acquiring new customers who leave in the air for free TV set from another service provider. So we invest a lot in our customer base, and that seems to work. Is it sustainable, you said? Well, you mentioned FWA from Odido, changes in the VodafoneZiggo strategy. I think FWA is a niche market. That's in a country where households have 2 or 3 fixed lines into a household where 1 gig is the standard and 4 gig is becoming quite normal fixed. Unlimited is the standard on mobile. Fixed wireless access as a broadband connection is more for a niche segment than anything else. We more or less have, by the way, the same for rural areas. VodafoneZiggo, they are clearly now making noise around being a full always-on provider when it comes to quality and content. But let's see. I think for us, the best answer to everything for the last years was believe in your own plan, believe in your own strategy and execute on that. Last quarters were good. Of course, we plan to continue, perhaps not always above 10%, but we plan for strong growth, healthy growth on broadband this year as well. And on this B2B service revenues, I mean, the Dutch economy is growing and also expected to grow in 2026. SME is a very important segment for ours. That will grow probably around 5% like we did last year. Yes, you see some changes in our top line in B2B because we -- what we mentioned, focus on value steering, that is mainly in the Tailored Solutions part where we say goodbye to revenues that are not really contributing when it comes to margin. So of course, for us, very important to explain that to you in the quarters to come. But when it comes to healthy margin-rich revenues, I think we will do fine in B2B. Chris? Hans Figee: Yes. Polo, on your first point on broadband, there's 2 points to add is that, obviously, the important drivers behind the solid net adds were lower churn and lower migration. So churn has been consistently lower and lowering or declining during the last half year. I think it also has to do with the fact that our copper base is gradually shrinking. So the vulnerable part of our business is declining. Migrations from front to back book have -- we've managed that successfully. Combivoordeel will work. So I would say the churn side has been very positive. And if you look at fiber, our real net adds, fiber net adds, excluding copper upgrades of clients moving from copper to fiber has been pretty consistent now for multiple quarters in a row. So I have no reason to see that stop. And on B2B, as Joost rightly pointed out, on the Tailored Solutions side, we've been focusing on value and margins. which means that SME will continue to grow north of 5% basically during the year. I mean that's the highest margin business that we have, and that continues to grow nicely across all quarters. I expect the LCE business to also show positive growth across the quarters. Tailored Solutions will be negative, I guess, in the first half year due to the comps. That means that reporting-wise, B2B across the entire year will be growing around 3%, but heavily tilted towards the second half of the year and then flattish, I guess, in the first half of the year. But that's really only a pure Tailored Solutions effect. The high-margin businesses, SME and LCE will continue to show steady growth throughout the year. And then when the comps start to work for us, you can see an acceleration of lease-up reported growth. But I mean the 3% for the year is pretty well supported. It just will be, as you rightly pointed out, tilted towards the second half of the year. Operator: The next question comes from Joshua Mills from BNP Paribas. Joshua Mills: A couple from me. The first one is on the Consumer side. So I think, Chris, you might have mentioned that the annual service revenue guidance for consumer. If you could just remind us of that. I assume it will be accelerating throughout the year. And my question is what's going to drive that? Is it continued volume growth? Or are you also expecting ARPU to improve as well? And then secondly, related to that, if I look at the price increases last year, you were broadly in line with both Odido and VodafoneZiggo on the broadband side. I think you're a bit ahead on the mobile side. Now that you are outperforming your net add share relative to your market share in the Dutch market, and given some of the more aggressive price increases we've seen from the likes of Swisscom yesterday and incumbents taking advantage of the network leadership to push prices up, how are you thinking about the value versus volume mix going forward? And is there the opportunity with these fiber networks to be a bit more ambitious on price take? Hans Figee: Yes. On Consumer, we guided 1.5% growth throughout the year. It will be a continuation of what we do today. I would say Mobile itself should continue to grow nicely, should be north of 3% during the year. We're now hovering around 3%. That should be fine continuing that with pretty healthy net add growth and supporting ARPU. I think I picked something similar. Joost talked about the base dynamics, churn improvements and a flat to up ARPU. So during the year, I'd expect a continuation of reasonable net add growth and flat to increasing ARPUs supported by some price indexations. Obviously, we're looking at back book and front book alike to make sure we are fully consistent with orienting with a value orientation. So strategy-wise, to also take on your second question, we are a value over volume business. We'd love to take a bit more than our running market share, which we do. I think that's a reflection of the networks and the quality that we've built. We see some effects on network quality, both in Mobile and Fixed positively reflecting on us. So that should allow us to get continued inflow of net adds. But it will remain value-oriented if anything else. And that means for Consumer, 1.5% growth during the year. I would say, during the year, I would expect Mobile to be stronger in the first half of the year and the second half of the year, possibly some of the Combivoordeel effects will fade with Fixed carrying the baton from the second half of the year a bit more. Joost Farwerck: And on price increases, I mean, that's a call we make every second quarter of the year on Broadband. And last year, it was more or less centered around the CPI, so inflation. Operator: The next question comes from Siyi He from Citi. Siyi He: I have 2, please. The first one is just going back on the consumer ARPU comment. And it seems that the Mobile ARPU has stabilized. And despite that you have the combo discount on the Fixed products and you still delivered a stable fixed ARPU. Just wondering if you could comment on what you see in the ARPU development. Should we expect there is a solid reason for us to believe that ARPU is going to be stable and growing going forward? And the second question is really a quick one. Just wondering your feels on the increasing rigid stance from the EU on the Chinese vendors. And if you could comment on what's your exposure there? And what do you think it could potentially impact your CapEx plan? Hans Figee: Yes. Siyi, let me take the first question on ARPU. I think for both Mobile and Fixed, we expect stable to a modest increase in ARPU on fixed driven by price indexations, a shift towards higher speed levels that we have this year as well and a relatively manageable amount of migration from front to back book and the latter obviously margin dilutive, but that's -- the effects tend to be increasingly limited. We're able to manage that pretty well. A big chunk of our Broadband base is in contract. So with that, I expect fixed ARPU to be stable to have a modest growth over the year. Something similar for Mobile. Obviously, we had a step down in Mobile in last year or at least lower growth, mostly in the no-frills part and driven by the noncommitted part of the ARPUs. I think that is -- it feels like stabilization in that space. So what should drive mobile ARPU, it is indexations, for surely in back book, possibly more. It is a gradual continued move to unlimited customers, a significant amount of our new sales are now in unlimited. We're basically at our targets and we won't have in unlimited. And I think also a gradual stabilization of the market in the no-frills segment with I would say, less pressure on the noncommitted part. So in summary, I'd expect both Fixed and Mobile ARPU to be at least stable or deliver some modest growth during the year. Joost Farwerck: Yes. And on Chinese vendors, yes, we are well on track on implementing 5G toolbox swapping non-Western suppliers from critical systems while we introduce European vendors there. And we already started down this path many years ago, and we are fully aligned with Dutch and EU security guidelines. Of course, there's some discussion in the market about the Cybersecurity Act. It seems it's proposing a further ban on high-risk vendors. For me, too early to tell what the full consequences are, and I expect extensive debate there, and yes, more finalization towards the end of 2027. But I think the main message is we already started this many years ago, and we follow this life cycle of assets in our approach. So we do not see any impact on our CapEx envelope in the future. Operator: The next question comes from Ajay Soni from JPMorgan. Ajay Soni: I've got a couple. The first is on your '26 wholesale growth. You guided to 3% and medium-term target here is 4%. So what are the headwinds you see this year, which you expect to fade into the medium term? Then the second one is just around the convergent impact on your Fixed Service revenue. So just wondering what the impact was in this quarter versus Q3 and then how you expect that impact to evolve over 2026? I think you already said it will kind of fade by H2. So just some clarity on that. Hans Figee: Yes. Let me take both of them. On Wholesale, indeed -- on Wholesale, Broadband and Mobile, Mobile is continuing to do well, both on the national solutions as well as our international sponsored roaming solution. There's a very good funnel of customers waiting to be connected or to be contracted. In Broadband, we've seen a reasonable decline in our total base, mostly copper. So we declined in copper, increased in fiber. It has to do with our main wholesale Broadband customer shutting down the brand. That effect will probably continue into Q1, but then gradually expect it to fade towards the half year, although you should ask the client for more intel. But I think that happened last year, and that effectively shows up in the numbers this year. So basically, a stabilization in this year will be supporting service revenue growth in 2027. There's always like a bit of a year lag between base development and what you actually report in terms of service revenue. So to be -- and also, it's moderation of Broadband and Service Revenue growth in this year and support next year as this brands fade away -- brand effect starts to fade away supporting growth in '27 onwards and continuation of the sponsored roaming effect. And on the convergence, the Combivoordeel effect, we reported a fixed service revenue growth of 0.4% in Q4. If we hadn't made this investment, Fixed Service revenue would have been around 1% for the year as fixed only. So that's kind of the magnitude of things. If you look at the total service revenues of next year, the total effect for the year is probably around 15 basis points of growth for KPN as a whole. So look, it's a small amount, but as we're talking about a few digits after the comma, it actually has an effect. So basically, Fixed would have been around 1% in Q4, like 0.4%. And for the full year '26, I think the effect on service revenue growth of this investment is about 15 basis points of growth. I expect this gradually to fade in the second half of the year, towards the end of the year. More like Q4, you'll see less and less. And basically, the investment will continue, but then the base that is subject to the plan will be big enough so you can see lower -- the effect of lower churn already for those customers who've been part of Combivoordeel plan have shown markedly lower churn. So that will start to weigh in the numbers in the second half of the year. And let's be conservative more towards Q4 than Q3. Operator: The next question comes from Keval Khiroya from Deutsche Bank. Keval Khiroya: I've got 2 questions, please. So firstly, you talked about Mobile growth within consumer of 3% in 2026. Q4 was at that level, but benefited from quite an easy comp. So can you just elaborate a little bit more on what's going to drive the acceleration to that 3% in Mobile for 2026? And secondly, DELTA and ODF have now pretty much completed their fiber rollouts. What's happening to your customer churn in these areas? Is it slowing as they've ended their rollouts? Or is churn still at similar levels given they're still ultimately trying to penetrate these networks? Hans Figee: Well, regarding Mobile, actually you've got different -- more challenging comps. But as last year, we've done both front book and back book repricings last year. We look at a more-for-more price increase last year, and we might as well just repeat that action this year. So there are a number of pricing actions we do on our Mobile business with gradual indexation and the more for more for existing customers. I think that's one. Secondly, our base has grown. Our total Mobile base has grown by 129,000 over the year. It's quite good. I mean '24 was a fantastic year. That makes '25 look like a lesser year. But remember, '25 was actually still a lot better than '23 and '22. So it's still one of the best Mobile years in history in terms of net adds. So basically, next year, you have the benefit of a higher starting base to continue and base continues to grow in Q4 and also the first weeks in this year. And then you have another round of price indexations and possibly a more for more indexation as well for customers. So that should support Mobile revenue growth. And secondly, obviously, the big unknown is amount of traffic and uncommitted. That has declined a lot, but it feels that -- well, hopefully, we reached the bottom of that as well. So that gives us comfort that in general, Mobile growth should be healthy also in the tougher first half year comps. Joost Farwerck: Yes, Keval, you're right. DELTA and ODF are no longer expanding their fiber footprint. They're clearly focusing more on trying to connect households. These are footprints of different qualities. In the DELTA footprint, we originally, in some places, have a lower market share and ODF built their footprint in mainly the strong Ziggo area, the larger cities. So it's a bit of different dynamics in both footprints. And in the ODF area, we're building as well. And yes, our strategy there, of course, is to not only pass households, but also connect and activate. And I think that's a big difference between us and the others. So on fiber by overbuilding in the cities, we're doing good. And market shares on copper in other 5 areas are, of course, lower than we represent the 5 areas, but still doing okay. And I think expanding our footprint to 70% and connecting so many households. And at the end, moving up to 85% makes the churn in the copper areas also slowing down. Operator: The next question comes from Paul Sidney from Berenberg. Paul Sidney: A couple of questions from me, please. Just the first one, just perhaps building on a few of the earlier questions around customer behavior. You've made some very positive comments around churn, retention, network quality appreciation, especially interesting given the price increases that you've been putting through over the past few years. But just a very high-level question. Does this really suggest a wider appreciation of the services you provide for consumers and businesses? And the follow-on from that is it feels like there's substantial room for price increases to continue for the next few years. And again, just going back to an earlier analyst comment around the Swisscom move yesterday, it does feel like a bit of a shift, but I'm just interested to hear your comments around that. And then just secondly, Chris, on capital allocation, your decision to return all the free cash flow to shareholders over '26, is it a fair assumption that there is, therefore, no sort of small bolt-on acquisition opportunities on the horizon? And could there be such opportunities perhaps beyond 2026? Joost Farwerck: Yes, Paul, I'll start. Yes. Well, I think one of the most important changes we started in our strategy beginning of '25 was that we said, let's focus more on the customer base. So giving away discounts or Netflix for free or free TV sets to new customers while all loyal customers get a price increase every year is a bit annoying for the customer base. Since we represent the largest customer base, we shifted to building more quality in the base. So Combivoordeel is a service where you can combine your services, you get more loyalty points and at the end, you can get something for free. We launched a free security package for all households, they can activate themselves. We launched a new MijnKPN app where you can really organize everything yourself, order or deorder connectivity or whatever, very simple. So I think the whole message to our customers is we invest in you and we invest in your loyalty. And that, of course, is something you can't measure on a daily basis, but acquisition you can. But after a couple of quarters, we can say the churn is really slowing down. Net Promoter Score went up. So doing things like that hand-in-hand with a price increase works much better. So I think this is an important switch we made, and we will continue to focus on this strategy because it's also far more positive. Hans Figee: Yes. And on the point also on network quality, network stability, we have seen, especially in the Business segment, some corporate customers turning to us recently. So more interest volume-wise for corporate customers to select KPN simply because of network quality, network stability, which I think is a positive, right? That's a payoff. And not necessarily massive pricing power at least give you a volume and competitive advantage in that market. On your second question, returning more cash to the shareholders, that's what we do. We ended the year with a 2.4x leverage below our self-imposed ceiling of 2.5x. We typically, by growing our EBITDA, delever by about 0.1 turn per year, right? But if we wouldn't return our cash to shareholders, we delever faster. But typically, if you grow your EBITDA, you delever by about 0.1 turn per year. That gives a reasonable headroom towards a self-imposed ceiling. So I think, Paul, our war chest is big enough for bolt-ons. That doesn't mean we're going on a massive acquisition spree. But if we bump into something interesting, we have the rooms and means to do it. And obviously, especially for bolt-ons, the first hurdle is, does it create value for us? Is it value creating for shareholders, value creating for the business? How does it compare to buying back shares? We always check whether an acquisition does something strategically and financially and does the stack up to buying back our own shares. But if we find opportunities, we have the room to do so simply because our balance sheet gives us sufficient headroom whilst returning all cash to shareholders. Operator: The next question comes from Andrew Lee from Goldman Sachs. Andrew Lee: I had 2 questions. One was just a follow up on that Chinese -- on the Chinese vendor question that Siyi asked. Could you just help us understand, so does the extent of the risk extend to just you having to fast track the swap out you're doing anyway out to 2027? Or could it mean even greater swap out of equipment? And can you just give us a sense as to the scale of that, if you were to fast track it and do it in 1 year, how much is that -- how much does that cost you? And any help on the scale would be useful. Then just secondly, on the copper migration competition on wholesale that a few questions have been asking around and specifically the ODF and DELTA Fiber competition. Are you getting a sense that now that the build is slowing down or has slowed down, that the ability for those operators to actually win customers is starting to decrease? Or are you seeing no real let up in the near term from their ability to gain customers? Joost Farwerck: Yes. So like I said, Andrew, with respect to Chinese vendors, in particular, I mean, we made good alignment with our government years ago, and we're fully on track to move out like we mentioned -- like we call the non-Western vendors out of the critical systems, mobile core, fixed core; mobile cores, Ericsson; fixed cores, Nokia, that's all known in the market, and we're almost done there. So we're pretty good on track. And we do this, like I say, in the life cycle thing. So when it comes to other assets, we're also good on track. And we do not see any acceleration or uplift in CapEx on any risks. I mean there's a discussion around this Cybersecurity Act, but that's all taking time. And taking into account where we are and our plans are -- we invest, by the way, every year in our mobile network as well. And we have a multi-vendor approach. So we like to not be dependent on one vendor. So I can't give you all the details, but I think what I can tell you is that we're good on track, and we do not see any risks there in CapEx uplifts in the coming years. Hans Figee: Andrew, we have a CapEx envelope and a CapEx level. So if we had to fit it in, we'd make it fit in. So you have to give priority to one project over others. That would be -- so I would say with the visibility that we have today, whatever we have to do, as you said, it most likely fits within our life cycle plans anyway. If we had to fast track it, we'd make it fit into the CapEx envelope and prioritize this thing over something else. On your question on the wholesale and the [indiscernible], possibly probably, yes. So that we are seeing less churn in our business altogether. I don't have a full econometric model explaining it to you, but I do relate to the fact that most people are most -- are effective in getting new customers up on rolling out fiber in the street. So you open the street, people are working in, and that's the moment it becomes visible and the moment you sell. That's the easiest way to sell fiber. So once the rollout stops, actually getting new customers in is more difficult, certainly if you don't have a household brand. And thirdly, also if you see the feedback from some of these parties, their door-to-door sales have not been very effective. So I would say I don't have a full proof, scientific proof for you, but it feels as if that actually -- that helps us. And in the wholesale side, we also see most of our customers not actively migrating customers. So if you don't just start to migrate a customer from one network to another, the churn risk is way too high. So we do see that the end of the rollout of third parties benefits us on the churn side. So long story short. Operator: The next question comes from David Vagman from ING. David Vagman: First one on Mobile. So we recently saw VodafoneZiggo being more aggressive on speed. Do you expect speed tiering to become more difficult to monetize? And does this affect your view on Mobile ARPU evolution? And then my second question on the Glaspoort-DELTA deal, what do you think is the end game here? Have you noticed any progress in the conversation with the regulator? Do they want remedies or something else? Hans Figee: Joost, you want to take the first one? Joost Farwerck: On the first one, on the speed tiering thing, the fact that some of our competitors do not have speed tiering, we don't see this as a sign of strength, the sign of the network from our point of view. So at this point, no feedback on that, no market fallout from that. I think people do value and understand the quality of the KPN network. And quality is more than speed, but it's also coverage, its stability, the risk of disruptions and distortion. So I think in a broader sense, not having speed tiering is not always a good sign because also we signed a deal, we don't have the network to deliver it. But our view is that customers value the KPN network extensively and should be able to defend it off. Yes, so... Hans Figee: Not much of a change there. And on Glaspoort, yes, well, it was since December '24 that we're waiting for our regulator to come up with a verdict. It takes very long. So it's clear that they find it very difficult to give it a go. So we're still waiting. No news there. And I think whatever the outcome will be, we'll decide on the next step. Like we said before, it's not a super significant deal. It's about 200,000 households, which is representing more or less 4 months building. So yes, in hindsight, it took us very long to get where we are today on the discussions with the government or the regulators. So probably they will come up with something coming months. But let's see. It's the Netherlands, everything takes long when it comes to legislation and decision-taking on the government side. So let's wait. Operator: The final question comes from David Wright from Bank of America. David Wright: I just wondered if you could give us a little guidance into the cash flow, perhaps, Chris, just where you're expecting that cash tax to come in. I know previously, you talked about EUR 80-odd million. It looks like that could be a little lighter, where you might expect working capital to show? And any other items that you might just be flagging in advance, it would just be super helpful for the modeling? Hans Figee: David, thank you so much. I've been so much waiting for this question. Let me give you a quick perspective on '25 and '26, right? So '25, we had EBITDA up by EUR 129 million. Operating cash flow up EUR 120 million. Positive on DELTA provisions basically means the cash quality of our earnings went up as well. So basically, more cash earnings this year. And also 2025, interest was up EUR 30 million, taxes up EUR 32 million. So together, interest and taxes took more than EUR 60 million and then working capital was flat. That gave you basically a EUR 50 million free cash flow increase in the year. Obviously, there's some IPR benefits in there as well. So that means the way I look at it from '24 to '26, you get effectively a 2.7% annual CAGR. Next year or 2026, we said EBITDA will be EUR 2.67 billion, obviously EUR 33 million up, but including the fading of the IPR benefit. CapEx is stable. It might be slightly down, expect stable. So that means operating cash flow up about EUR 40 million if you take the guidance. Cash restructuring will be around stable. I would say interest about stable towards this year, possibly a little lower. We're always trying to optimize our interest spend. Taxes, up EUR 40 million, estimate about EUR 225 million to EUR 230-ish million to EUR 25 million next year. Working capital flat, possibly negative. We're cautious with working capital. And then others flat, that gives about EUR 950 million. So just modeling-wise, EBITDA, EUR 2.67 billion. CapEx is stable, slightly down a few million. It gives you operating cash flow increasing of EUR 40 million. Interest stable, taxes up EUR 40 million to EUR 225 million. Cash restructuring stable and working capital flat to a small negative, gives you basically a flat free cash flow, but that includes, of course, the compensation for the fact that we don't have IPR and IP benefits again this year, which means that effectively, we're growing our free cash flow by 2.5% to 2.7% year-on-year from '24 to '25 to '26. So I can't make it more easy for you, David. This is, I think, a pretty clear guidance. Matthijs van Leijenhorst: Okay. Thank you all for your questions. This concludes today's session. In case of any questions, you know where to reach out. Thank you. Operator: Ladies and gentlemen, this concludes today's presentation. Thank you for participating. You may now disconnect your lines. Have a nice day.
Operator: Welcome to Dometic Q4 Report 2025. Today, I am pleased to present CEO, Juan Vargues; CFO, Stefan Fristedt; and Head of Investor Relations, Tobias Norrby. [Operator Instructions]. Now I will hand the conference over to the speakers. Please go ahead. Juan Vargues: Hello? Can you hear us? [Technical Difficulty]. Okay. So good morning, everybody. Well, I would like to start by apologizing for the technical problems, but we are back. So good morning, everybody, and welcome to this Q4 and full year webcast for 2025. With that said, let's move into the presentation. Starting with the highlights, market, the overall market conditions are still challenging. Consumer confidence is still not where we would like it to be. And at the same time, retailers and dealers as well as OEMs are still cautious in building inventories. Having said that, we also feel that inventories at retail level are improving. They are just now at a low level, and it's very much just now a question about consumers starting to buy. Looking at growth, 3% negative organic growth for the quarter, with Service & Aftermarket down 3%, which is obviously an improvement in comparison to previous quarters. Distribution, back to growth, very much driven by Mobile Cooling. And then we see also improvements from an OEM perspective, where still, Marine slightly negative. We also have LV slightly negative, while we see improvements in other areas. EBITA margin, 6% in comparison to 7.3%. But then we also need to consider that we have a major effect on -- when like-for-like. So we have a substantial negative effect by currencies -- driven by currencies, and we will get back to that on the details. At the same time, as we previously communicated at the end of last quarter, we also have negative impact in Mobile Cooling specifically from increased labor cost since we added about 250 new people in the organization at the same time as we also have the price corrections to compensate for the higher tariffs in Mobile Cooling. Looking at free cash flow, we ended up at SEK 20 million, which is a bit lower than 1 year ago, even there, very much influenced by the currencies. But at the same time, as we have seen a more positive order intake, backlog starting to come to the same level as last year, and we have been building inventories for the start of the season in Q2. At the same time, we also had later invoicing in the quarter this year in comparison to last year. All those factors are having an impact on the free cash flow. Leverage ended up at 3.3x in comparison to 3.1x in previous year. If we move over to numbers, sales ended up at slightly above SEK 4 billion for the year with 3% organic growth, 12% FX, meaning obviously a substantial impact, and then 1% negative by the portfolio changes that we are doing. EBITA ending up at SEK 245 million or an EBITA margin of 6%, as I commented before, compared to 7.3% last year. We got a negative EPS in the quarter of SEK 0.67, adjusted negative EPS of SEK 0.39. And as commented before, cash flow of SEK 20 million -- free cash flow, SEK 20 million, a leverage of 3.3x. Moving to the whole year, ended up at SEK 21 billion in sales with a total negative effect of FX for the year of 6%, 8% down organic growth and the same 1% on portfolio changes. With EBITA landing above SEK 2.2 billion, or an EBITA margin of 10.6% versus 10.8%. And of course, considering the negative growth, we feel quite proud of what we are achieving, working very, very hard to keep our cost in control despite the negative top line decline. EPS ending up at SEK 1.34, with an adjusted EPS of SEK 2.52, and a free cash flow of above SEK 1.4 billion. Net sales, obviously, we are still not there, but we're starting to get close. As you can see on the graph, we are coming from hovering around 10%, 11%, 12% quarter-by-quarter for the last 3 years. And we saw Q3 landing on minus 6%, now minus 3%. And as commented before, we see order [ intake and backlog ] improving. Difficult to say obviously when we are going to see Dometic moving into positive territory, but it's quite clear as well that we are getting very close. Looking at the different segments, Land vehicles ended up at minus 4% with Americas down 10%, EMEA positive for the quarter, plus 1%, APAC minus 10%. Marine came back to a negative growth of 3% after slightly growth shown in Q3. And we don't see that as anything strange. Obviously, the market needs to stabilize. We are coming from pretty negative growth. We saw plus 1%. Now we see minus 3%. We're expecting obviously to see improvements moving forward as well. Mobile Cooling, good to see that we are back to growth and optimistic about the expectation for 2026. And then Global Ventures, minus 3%. And we'll come back later to some more details on the different segments. Looking at the different channels, no major differences, in reality, is -- really, we see Service & Aftermarket becoming a little bit higher on the share, while the OEM channel is becoming a little bit lower, ending up at 39%. And just as comparison, we are coming from a situation, 2018, where the OEM side stood for 62% of total sales. Looking at the different channels, again, it's quite obvious that we are moving in the right direction. Service & Aftermarket, we were [indiscernible]. We were positive in Europe, while we were negative in Americas. Distribution, as I commented, we have positive in parts of Global Ventures and positive on Mobile Cooling having an effect -- 2% positive effect on the distribution channel. And then OEM is also quite clear that on one side. The European market is stabilizing. We see -- especially in Southern Europe, that we are starting to see growth, while Central Europe is still sitting on a little bit too high inventories even if they are coming down. So we expect even, from that perspective, improvements moving forward. We also saw, as a matter of fact, the commercial vehicles showing growth for the quarter, and we have seen growth for the entire year. So that's also a positive sign that things are improving. Looking at EBITA, as I commented at the beginning, 6% versus 7.3% last year. Looking at the underlying margin when comparing like-for-like, 2.9% higher than 1 year ago. FX, again, we will get back later, but had a major impact in this specific quarter. We also have the additional labor cost and the comparison to duty drawbacks in Mobile Cooling, that we commented in previous quarter, was going to have an effect also in Q4. We are happy to see gross margins improving, ending up at 28.7% versus 26.8% despite the lower sales. So it's clear that the restructuring program is biting quite a bit. And on top of the restructuring program, we also have a number of other activities to increase efficiency overall in the company. And then even if we are showing negative EBITA development in the quarter, we also see that both Land Vehicles and Global Ventures are showing better margins despite the currency situation. Moving to specifics on the -- moving on the specifics to Land Vehicles. We have, on Land Vehicles, net sales of SEK 1.8 billion with organic growth -- negative organic growth of 4%. We got decline in both channels. But as I commented before, growth on the CPV channel as part of Land Vehicles. And we also showed growth in EMEA for the first time during the last 5 quarters, which is telling us really that the LV -- RV business in Europe is stabilizing. EBITA, higher SEK 66 million in comparison to SEK 23 million last year or 3.6% EBITA margin with clearly a positive impact of the global restructuring program. As we commented, when we announced the program, the LV segment was going to be the one showing the major impact during that program. We see both increased profitability in EMEA. We see reduced losses in Americas and APAC still delivering pretty high margins despite the drop on the top line. Marine, down in organic growth, 3%, with sales and aftermarket stabilizing as well, flattish in comparison to 1 year ago, and single-digit decline in the OEM channel. EBITA, almost SEK 200 million or 18.5%. So a slight decline on the EBITA margin, defending, in other words, protecting the margins pretty well despite the drop in the top line. In this case, the margin decrease is very much due to the currencies, as Stefan is going to come back to. And then we see even there that we are doing a pretty good job in reducing cost to compensate for the drop on the top line. Mobile Cooling. Organic growth, positive. That was a positive in the quarter. We see a strong recovery in North America in Q4 in comparison to Q3. On the negative side, obviously, the margin in the quarter is not coming as a surprise. We also already announced that we had on one side the positive onetime effect of SEK 63 million coming from the duty drawback. At the same time, as we also had inefficiencies caused on one side by labor since we employed again about 250 new people at the same time as we have additional training costs and at the same time, as we implemented prices, but the prices are kicking in in January. So we are not expecting negative effects from those factors from January this year. Moving over to Global Ventures, ending up 3% negative as well with good continuous organic growth in other global verticals. At the same time, as we see decline in Mobile Power Solutions driven by the soft RV industry, even if it's improving. And even here, we are pleased to see that our EBITA margin is improving 7.1% and also in absolute value, is improving to SEK 28 million in comparison to SEK 24 million last year. As a consequence on one side of the sales mix -- positive sales mix, at the same time as we keep working on reducing our cost. On sustainability, we are happy to see progress in all areas but one. So injuries coming down to, I would say, all-time low. In this case, after a lot of investments that we have been doing across the company, to improve in this area. Female managers, up to all-time high, 31% in the quarter. We would like -- obviously, we will continue to work in that area. But again, showing progress. Energy, renewable energy operations, 37%, and also beating our own targets, while innovation index, the same ending up 23% in comparison to 21% 1 year ago. And that's a super important one because that has an immediate impact as well on climate. So new products drive lower climate. [Audio Gap] So looking at the products in the Marine area, we have a new sanitation product for sailing boats that we just launched. And then last but not least, also starting to see the synergies coming from our Mobile Power business and introducing new products in the Marine area, where we are going to increase efficiency by connecting a number of different batteries into one single device. Happy to report as well that our global restructuring program is running slightly better than expectations. As you may remember, we are expecting SEK 750 million in savings at the end of 2026 -- running rate at the end of 2026. And so far, 300 employees have been impacted. We have closed 1 manufacturing site and 5 distribution centers. We are running at the end of December at a rate -- a saving rate of SEK 350 million. And we had cash out that also impacted obviously our free cash flow in the quarter of SEK 100 million, a little bit higher than SEK 100 million. And totally for the year, the cash out has been a little bit above SEK 200 million. And then we keep working on the divestments. Unfortunately, we cannot communicate anything yet, but we are working on that. And then on discontinued businesses, we stopped a couple of businesses, leading to a 1% negative organic growth for the year -- for total year. And we will see that number now fading away step by step. And with that said, Stefan, stage is yours. Stefan Fristedt: Thank you, Juan. Good morning. And we are starting with the Q4 income statement. Gross profit-wise, we continue the positive trend in improving our gross profit. And that is despite that we have a SEK 30 million negative effect from the tariff/labor cost increases within Mobile Cooling. Then we have an underlying development in the EBITA margin. So let me save that for the next slide here, and so we will come back to the different details on that. Further comments that on operating expenses that we have reductions driven by global restructuring programs and other measures. And at the same time, we feel that we are able to invest in strategic growth areas like product development and sales resources. On the net financial expenses in the quarter, we can see that the interest on bank loans is slightly higher than last year, and that is very much driven by the fact that we have, in the short-term perspective, had higher debt than basically needed with the plan that we are going to repay debt. We have also done that in the later part of the quarter, and we will continue to do another repayment in May 2026. So that has been driving up the net interest on bank loans and financial income somewhat. On the tax side, the tax rate is negatively affected by nondeductible interest expenses in Sweden. And then we also have made a tax provision in the fourth quarter for ongoing tax audits. So let's move over to the specification of the EBITA in the quarter. And as you recall, we had in Q4 last year, a duty drawback repayment of SEK 63 million related to Mobile Cooling, which was a onetime off, and that did, of course, not repeat itself this year. Then we also, as communicated in Q3 that we have a delay between the price increases we are taking out to compensate ourselves for tariff cost and higher labor cost, also mainly in Mobile Cooling. That is SEK 30 million. So that is the second part for the adjustment. If we sum that up, then we have an underlying EBITA of 6.8% versus 6% last year. And then we have the currency impact, of course, especially the dollar has been swinging a lot. It's almost a SEK 2 difference to the dollar between Q4 last year and Q4 this year. And that have had an effect which, measured in EBITA margin, is 2.1%. So that's the specification on how we come to the 8.9% underlying versus 6% last year. Let's move on to the next, coming into our cash flow statement. We have a somewhat lower operating or free cash flow than what we have seen in the past. And from a working capital point of view, we have seen that -- and also that we talked about in Q3 that we also have to build up inventory to meet demand, that we are expecting to come. And then there is also a currency effect in the free cash flow impacting it. It's approximately SEK 250 million. And then obviously, there is also an underlying lower profit that is impacting the cash flow. Then we have a cash out related to our restructuring program of SEK 103 million in the quarter. That means that program to date, so starting to count from Q4 last year, we have now had a cash flow effect of SEK 270 million on our restructuring program. And as you remember, SEK 400 million is what we have said will be the cash flow impacting part of the restructuring program. So on the free cash flow before M&A, interest expenses paid is down and also taxes paid are down. And then as you can see at the bottom, we did a repayment of USD 229 million in the loan here using cash on hand, which is perfectly according to plan. Yes. Moving over to the next slide, you see the free cash flow development more in a time horizon. And if we look into 2026, I mean, I still feel that the free cash flow, it's probably not going to come up to the full level of 2025, but slightly below that level is my expectation for the full year 2026. Looking to the working capital. There, we see positive development here. The working capital over the last 12 months is 25% of net sales. It was 29% of net sales last year. And if we look not on an LTM basis, but in the quarter stand-alone for Q4, we are down to 23%. This is, of course, driven by the inventory balance, which is now SEK 4.8 billion compared to SEK 6.5 billion last year, and we can also see that the days of inventory on hand is down to 119 days versus 138 last year. So I think we -- I'm satisfied with how we have been able to drive down inventory during the year. Then there is still further potential to optimize working capital going forward, where the target is 20% of net sales. And you can see the different components here and obviously, where we have the most profound development within inventories. The other 2 stays pretty stable. Moving over to CapEx and R&D expenses. CapEx is a little bit down in the quarter, and we are also making strategic decisions about where we spend, so -- but it's also partly related to timing. If we look on R&D, it's now 3.5% of net sales, and that has been clearly a target that we have had continued to develop and launch new products, which we also see in the innovation index, which is continuing to come up. Moving over to our debt maturity profile. As you see, we have some debt falling due in 2026. The SEK 2.2 billion is the remaining part of the 2026 Eurobond, SEK 100 million we paid off when we did the new bond in September in 2025. And that is intended to be paid off with cash on hand. Then we also have SEK 0.8 billion falling due in September, and we are keeping our options open here. But if the cash situation allows for it, we are considering to pay it off in September. Looking a little bit on our debt portfolio. It now has an average maturity of 2.7 years. And we have also extended a USD 233 million term loan to 2029. And then the undrawn revolving credit facility of SEK 300 million is maturing in 2028. So with that, we move over to our leverage ratio, which ended at 3.3x, which is 0.1x up versus Q3, and it's, of course, driven by the reduced EBITA and which is then the impact from lower net sales mainly. And we are highly focused in the organization on protecting margin and reducing working capital and which we have seen in the past. And that work, of course, continue combined with a very clear growth focus as well. And we are, as we have said all the time, committed to drive towards our target of around 2.5x of leverage. So with that, that was my last slide. So I hand over to you, Juan, to conclude the presentation. Juan Vargues: Thank you, Stefan. So looking at the business, we continue to see a market stabilization, and we see also the signs in order intake and backlog situation. EBITA in the quarter was, of course, disappointed even for us. And of course, the currency is not a lot that [indiscernible]. But nonetheless, we were disappointed clearly. Massive impact from currencies. We already commented after Q3 Mobile Cooling, and that was obviously confirmed during the quarter. Happy to see that Land Vehicles, that has been the toughest, obviously, segment, very much impacted by the RV industry, is showing better margins as well as Global Ventures, despite, again, the currencies. Free cash flow, I want to repeat myself. Currency did have an important effect even here, but we also built up some inventories in preparation for the Q2 when looking at better order intake and backlog. We have lower profit, clearly, which is also impacting the free cash flow. And on top of that, we had this SEK 100 million due to the restructuring program as cash out in the quarter. Leverage, 3.3x versus 3.1x. Difficult to predict when we are going to move into positive territory, but we feel that we are getting very, very close. We have seen the trend moving from, again, around 10%, 11%, 12% into 6% into 3%. And, again, we feel confident that the order intake and the backlog is going to lead us to positive territory, provided, obviously, that the geopolitical situation doesn't have more negative impact on the consumer confidence. Strategically, we keep working exactly on the same topics, innovation, super important for us and our future, ending up at 23%, an improvement of 2 percentage points versus last year. I'm happy to see that the global restructuring program is biting and how our gross margins are improving quarter-by-quarter. And with that said, I would like to open for the Q&A session. Operator: [Operator Instructions]. The next question comes from Fredrik Ivarsson from ABG Sundal Collier. Fredrik Ivarsson: First, you talked about the stronger order backlog, obviously, and a gradually stronger demand. My question is, did you see any big swings from the previous quarter? Or is it just smaller, gradual improvements that you see? Juan Vargues: No, we have seen a step-wise improvement quarter-by-quarter since Q1. So it's a major improvement if you're comparing with Q1 step by step. And it is a little bit in all areas, I would say, including the OEM channel, has been showing better numbers during the last 2 quarters. Fredrik Ivarsson: Okay. And then on the FX drag, 2 percentage points on the margin in Q4. Do you have any guidance for us as we look into Q1, Q2 in terms of FX? And maybe also if you could say anything about the specific impact from tariffs during the front end of the year? Stefan Fristedt: Yes. That was an obvious question. And I can say, I mean, just to give you a little bit of guidance, I mean, if the dollar changes plus/minus 5%, that will have an effect of SEK 47 million on EBITA and equivalent on the euro side is SEK 37 million -- and I am -- and that is on a full year basis, right? So it's -- so I mean, where are the currencies going to go here? But I mean, we have actually been spending some time on that to try to understand that. And our view, and that is, of course, followed by 100 disclaimers, but -- depending on certain things. But I would say that maybe we will have to assume from the rate that we are using by the end of December until the end of March, a 5% to 7% movement on the dollar and maybe a 3% movement on the euro. But that is just -- I mean, as you know, the P&L is driven by an average. So it's obviously not moving as fast as the closing rates here. But I would say a negative 5% to 7% in the dollar rate and then a minus 3% on the euro rate. And then you obviously need to use the numbers that I gave you here in the beginning. And we are actually considering to have a specific call with analysts on the currency effects so that you can -- that we can talk about it in such a forum. But so it's going to be negative, but not as negative as we saw now in Q4. I mean it's also a little bit unfortunate, obviously, that Q4 is a small quarter and these type of effects also -- because of that, has a bigger effect on the margin as such. Then tariff-wise, we are expecting that we, from Q1, will have compensated ourselves with price increases and -- which we also communicated in connection with the Q3 report. So we don't see any changes in that. Fredrik Ivarsson: Perfect. And if I may squeeze in one last one for you, Stefan, on cash flow, coming back to what you said regarding the 2026 expectation, not fully reaching last year's level, I think you said. In that statement, what do you assume in terms of working capital because you still seem to be quite positive on the upside in working capital? Stefan Fristedt: Yes. No, But I still see that we have more to do on inventory. Then, of course, there is also going to be a component in here where we need to increase inventory to make sure that we maintain the service level to the customer. But we still have pockets where we know that we will have to continue to work with that. And I mean the ambition in the big trend is to come down to 100 days of inventory. And as you know, we are on 119 as we speak. And will we be able to take that full step in 2026? Maybe not, but still moving towards that target, I would say. But then we are also working with the other components here in finding ways to improve that. So I still feel that we will continue to move towards the 20% working capital to net sales here. And as you saw in Q4, we are on 23%, and we are on LTM, 25% basis. So continue to move towards that level. Operator: The next question comes from Daniel Schmidt from Danske Bank. Daniel Schmidt: Two questions from me then. And just coming back to organic growth and the lack of organic growth so far, you mentioned that you've seen order intake improving since Q1 last year. It doesn't sound like that has changed recently heading into Q1 this year. Just simply, doesn't that mean that you are in positive territory in terms of sales organically now or sort of the delay between order intake and sales longer than normal? Or have you seen cancellations during the year of sort of the backlog? Or what's happening there? Juan Vargues: Now what happens, obviously, that this is a gradual recovery month by month and quarter-by-quarter. So we are much closer in Q4 than we were in Q2 in comparison to Q1. So the major drop we saw really in the second half of 2023 and 2024. And then we entered Q1 2025 on a low level, and we have been recovering since then. Keep in mind how the market has been evolving. First, you had a drop in North America RV. As the market on the RV in North America was stabilizing, then we got, in the last quarter, the second half of 2024, the European market dropping big time, at the same time as Marine was dropping. So the American market has been improving, while the European market is starting to recover now during the last 3 months. So again, it's not that you have a big bang upwards or downwards when -- normally, being global is an advantage. In our case, because of the magnitude of the drop in the different geographies, that's the reason for showing this negative growth for so long in comparison to many other companies. If you look at our American colleagues, they have been dropping 45%. But then after 18 months, they are back. As we have been recovering in some areas, we have been deteriorating in some other areas. We see the recovery on the order intake is all over. I wouldn't say that this is in one geography. We see improvements all over. But still, we don't see the sales yet. Then you have, at the same time, a little bit what we have seen with Mobile Cooling, that people are super careful in building up inventories. So they place an order, and then they see whether they have the sell-through or not. And then depending a little bit on how they see it, they will wait another period of time. So I believe really that we are getting into more stability. But to tell you that we are going to show positive growth on the 15th of February, I would be lying to you. I believe that we will see still what we have seen in Marine, 1 quarter, plus 1% or plus 2% and then another quarter, minus 3%. It's very, very seldom that you are dropping 10% and then all of a sudden, you're moving to 10% growth. I believe that we are going to be most probably one more quarter and then we should be seeing the growth coming back. And more positive on the European market, clearly. We see that Southern Europe and the Southern European players are starting to manufacture again. They were not doing that a few months ago. We said that the German manufacturers are a little bit more hesitant. They are still talking about -- the dealers in Germany are still talking about a little bit too high inventories. While at the same time, we know that companies like [ Klaus ] or like [ HAIMER ], part of 4, are more optimistic about 2026, and we see a major gap between manufacturing in 2025 and registrations. Registrations in Europe ended up at minus 2%, while manufacturing after 9 months was down 17%, or 25% if you look at rolling September. So that's telling me, obviously, that we are reaching the breakeven point somewhere. Daniel Schmidt: Yes. I was just sort of maybe referring to that you potentially now have said that order intake has been improving for maybe 12 months as we get through this quarter, but let's say, 9 months. And -- but maybe you're also saying that sort of the certainty in the order intake is a bit less, it sounds like, when it comes to dealers postponing orders and so on. Juan Vargues: I mean we saw that, and we have seen that in Marine, we have seen that in Mobile Cooling, that people are still hesitant to build up inventories. So they place orders, and then they wait. So everything is depending just now on the sell-through. The good news is that altogether, the inventory levels are lower. So it's going to be more and more difficult to postpone the orders. That's what we are trying to say. Daniel Schmidt: Yes. Okay. And then secondly, we talked about it in Q3, the Igloo court case being moved to March from September. Is still March the date for the court and any sort of -- any changes to what you've provisioned? Juan Vargues: No. So we still feel very confident about our provisions, and we will be in trial, I think, it's the second week in March. Stefan Fristedt: I mean our point is still that we don't believe it lacks any merit this quarter. We still believe that we should not pay anything more. That's what we basically say. Daniel Schmidt: What is the length of such a trial normally? Stefan Fristedt: Yes. Because -- I mean, there is a trial. And then if it is a fast judge, she will -- it's a she, will take a decision directly in the -- after the hearing, but they have up to 6 months' time to come with their verdict, so to speak. And then there is obviously a chance to appeal after that from either side. So it's like we have said all along, it's -- it could be a lengthy process. Operator: The next question comes from Johan Eliason from SB1 Markets. Johan Eliason: Juan and Stefan, just a short question on market share developments. You have a little bit of a history losing some market share during the pandemic to the Chinese in the fridges and the warning side. How are things developing more recently in the current quarter, obviously, disregarding the business you are closing down? Are you keeping? Taking? Or are you still losing some areas? Juan Vargues: No, I think it's very much in the same situation. So obviously, what we are referring to is obviously Chinese company is very much active in North America. And I don't see that the situation has changed anything. On the rest of the business, it is very much the same. So obviously, we are into a number of industries, and we are into a number of different product areas. Sometimes you lose 1% here and then you win another percent there. So I do believe that -- I don't see any changes altogether. Johan Eliason: Good. And I think you mentioned that you hoped you would regain some market share in the earnings moving it back to the U.S. again. Has that materialized or... Juan Vargues: No, not yet. We are working on that. Operator: The next question comes from Agnieszka Vilela from Nordea. Agnieszka Vilela: I have 2 questions. The first one, my understanding is that when it comes to tariffs, you have been protected by the USMCA agreement when you imported things from Canada and Mexico. Does the situation change at all with the Section 232 right now? Do you have like -- did you expect more tariff burden? Or it does not apply to your products? Juan Vargues: We don't see any effects so far. Then of course, we have Mr. Trump's statement last week about 100% on tariffs on a number of different products. We don't have any more detailed information, but obviously, the communication has not been official. There's going to be on when it's going to be. So we are in a waiting mode. Agnieszka Vilela: All right. Understood. And then apologies, I missed the beginning of the call and maybe you commented on that. But can you just explain the profitability development in Marine specifically? What were the headwinds there? And also, should we expect these headwinds to sustain during 2026? Stefan Fristedt: I would say that in Q4 specifically, Marine is the segment that has been impacted the most by the currency effect. So that -- we obviously -- I mean, who knows what's going to happen with the currencies? But if we are staying with what I mentioned before, I mean, our assumptions on how we believe that the currency is going to develop based upon our average rates, then I would expect that impact to be less going forward. But that's, of course, with some disclaimers, no doubt. Agnieszka Vilela: Okay. And maybe just a follow-up on Marine as well. Just looking at the organic growth development in the business as well. Now you -- I think the organic growth declined by 3%, somewhat worse than what was the case in Q4. Any kind of flavor you could give us when it comes to your expectations for the Marine business specifically into 2026. Juan Vargues: I can give you some indications, Agnieszka. On one side, we have the European market, which obviously size-wise is much smaller than the American market, but we had 2-digit growth in the European market, Marine in Q4. On the contrary, we had negative growth in the American market. On the American market, what we see is that on one side, marine dealers are still very cautious and talking about high inventories. At the same time, we see as well that engine manufacturers are starting to show nice growth on engine manufacturing, which is going to bigger boats. And that could benefit us. The question is when are we going to see that in our order intake and in our sales. But we have a couple of indicators that are positive. The one that obviously needs to change is dealer sentiment on the American side. Tobias Norrby: And now we have a couple of questions from the webcast audience. The first one being about our restructuring measures, whether or not the current ones are enough? Or do we feel that we need to come up with additional measures? Juan Vargues: You will never be done, right? Because there is always something more to improve. But our perspective just now is that the market -- we have indications the market is improving. Priority #1, #2, #3, #4, #5 is to put management attention on growth while keeping, of course, full control on the cost while carrying out the restructuring program we have. Just now, we are going for growth. And we intend to show growth in 2026. Tobias Norrby: And then there's a question on our account receivables program. If you, Stefan, please, could provide a few comments and expectations on that. Stefan Fristedt: It's a program that we have been putting in place. It's a tool. I was speaking to that. We were also working with the other components of working capital, and that is an example of what we are working with. So for some of our customer bases, we have that in place now. And if I would look on what that would mean by the end of the year, so let's say, by the end of 2026, I would say that it would contribute with another SEK 300 million to SEK 400 million. And then, of course, as we are a very seasonal company, it will be significantly more in certain parts of the year. But if we look on it from end of year to the end of year, I would say, compared to where we ended 2025, I would probably say that there is another SEK 300 million to SEK 400 million to be gained out of that program. Tobias Norrby: And then a short question on FX and in particular, full year 2025, the impact on EBITA, approximately, margin. Stefan Fristedt: There we have -- it's significantly less than what we have seen in -- I mean, we were talking about 2.1% units in Q4. And on the full year, it's 0.4%. So this is -- this has been an accelerating situation. And also, of course, versus the comparison to 2024, where the dollar ended with SEK 11.1 at the end of 2024, and now it is more on SEK 9.1. So it's dramatical development that we have seen there. But for the full year, 0.4% units on the profitability or on the profit margin. Tobias Norrby: And finally, if we can share some more comments on leverage in 2026, ambitions, expectations. Stefan Fristedt: Yes. But I mean, as one important driver, of course, here is obviously growth. And as Juan quoted before that the very clear ambition for 2026 is obviously to show growth, even though it's not going to be -- you should not expect double-digit growth. It's going to be low to mid-single-digit growth, I would say, in our base case here. So that is, of course, an important part. But then to drive the other parts of free cash flow as well in order to be able to reduce the net debt. And we also -- with the -- yes, plan on how to pay back gross debt, we are also going to reduce our financial net as we go. So I still feel that we should see a reduction in leverage in 2026. Then the question is how far that is going to be? I could say personally, I would be disappointed if that would not be at 2x at the beginning and so that we get out of the area with a 3x at the beginning. So if you see my point. Juan Vargues: I think just to fill in, if you go back to the last 3.5, 4 years, it has been very much about protecting margins, protecting cash flow, releasing inventories. It has been about navigating along a very, very, very tough period of time in any consumer business. At the same time, we feel that we are very, very close to turning. And that means as well that we need to also spend as management team moving from the defense to the offense. Just now, it's about growing the company, and that will have obviously a major effect, both on free cash flow and leverage without forgetting cost control. So we can assure you that we will keep working on restructuring program. We will keep working on protecting margins. But at the same time, we simply need to see the results of all the hard work that we have been doing also and get back to growth. Tobias Norrby: Good. And with that, I think we have one more question from the conference call audience, please. Operator: The next question comes from Daniel Schmidt from Danske Bank. Daniel Schmidt: Yes, it's me again. Just 2 short follow-ups, maybe Stefan. You mentioned reduction of debt in '26, and you outlined that on the slide earlier today. But what is the run rate in terms of financial net you think heading into Q1? Just could you give us any indication on a quarterly basis? Stefan Fristedt: [Technical Difficulty]. Okay. Daniel, can you hear us now? Daniel Schmidt: Yes. Stefan Fristedt: [indiscernible]. Can you repeat your question? We didn't really -- we were... Daniel Schmidt: I was just wondering, we talked about reducing debt and all that, and you did a lot towards the end of Q4, I think, if I'm not mistaken. What is the current run rate on the financial net heading into Q1 now on a quarterly basis? Stefan Fristedt: Now I would say that Q1, there is not going to be -- it's going to be a little bit down, but not significantly. But then after May, when we are paying back the bigger -- the remaining part of our Eurobond, it should be trending down. So I would say I mean we are a little bit above SEK 200 million now. So we should probably see that coming down with -- to, let's say, SEK 180 million or something like that. Daniel Schmidt: Okay. Okay. And then just a detailed question on the tariff/labor cost impact that you had in Q4. I think that combined was SEK 30 million, and now you're raising prices to adjust your profitability in Mobile Cooling since of January. How much of that SEK 30 million can you sort of counteract with this price increases? All of it? Or still you're going to end up with higher labor cost that is still going to have a negative impact? Or how do you view it? Juan Vargues: No, I see that on the pricing, our expectation is really to cover up for the increases that we saw during 2025. Absolutely -- now we increased prices, Daniel. The problem is that they are not kicking in before 1st of January. Stefan Fristedt: Some of them. Juan Vargues: So most of them kicked into the year, but we had a couple of major customers, obviously, where -- the prices are kicking in in January -- 1st of January. So we should -- our expectation is that we are going to cover up for those inefficiencies that we had in 2025 and the tariffs, of course. Daniel Schmidt: As of the full quarter Q1, there won't be any sort of delays into Q1? Stefan Fristedt: Price increases should be effective from the 1st of January. Operator: That was the last question at this time. So I hand the conference back to the speakers for any closing comments. Juan Vargues: So we would like to thank you for your attention. It's clear that we are not happy with the performance that we showed in the quarter. We have a number of underlying indicators that are positive, but we cannot be happy, obviously, when our EBITA, for whatever reason it is, is lower than 1 year ago and our profit margins are lower than 1 year ago. And our job is left. We keep working very, very hard to prove that we are going to come back to growth, that we are going to see margin improvements and that we are going to see higher free cash flow next year. And with that said, thank you very much for your attention, and have a good day.
Monique Mols: Good morning, everyone, good afternoon, depending on where you are, maybe even good night. Welcome to the Q4 full year 2025 financial results press conference. You may not see that when you're dialing in online and you're watching us online, but we are actually in a different location than we were last year. Today, we host the press conference in our training center in the ASML Academy, and that is located at the Brainport Industries campus in Eindhoven. And this is actually the place where we plan our expansion in the Netherlands. So we thought it would be a good idea to invite everyone here in the room to see what our new location is going to look like. There's nothing there to see yet, but this is where we are planning our expansion. And Christophe will talk more about that later in the presentation. My name is Monique Mols, I'm Head of Media Relations. So welcome to you all. I'm really happy to see that there are people in the room and people online. For those online, if you have a question later on, you can fill out the form on the website and we will take your question from here. If you're in the room, my colleague, Mark will walk around with a microphone and pick up your question. Sorry. So this is our annual results. Forward-looking statements for those who like it. So again, we are here at the Academy. We have several of those training centers all around the world. Here, we have quite a big center where, on average, 400 employees come here every day to get a training. So they actually work on the machines that our customers have in their fabs. And every year, we have about 26,500 people coming here to train. So this is a very important location for us. And we're very happy that we can host a press conference here today. With that, I'm not the only one who's going to talk to you today, of course, I have Christophe Fouquet; and our CFO, Roger Dassen, and they will talk you through the numbers, through the developments and everything that's happening at ASML. So I would like to invite on stage, Christophe Fouquet. Christophe Fouquet: Thank you very much, Monique. So Roger will be the one doing the good numbers later on. As you have noticed, we finished the year very, very, very strong with a record quarter record year, record booking. And this is basically a sign of the direction this industry is taking. We are very happy, of course, with the walk, the ASML team has done, being able to execute on such a big quarter in Q4 and also prepare us basically for 2026. So a lot of good news today. And again, Roger will get into the number. I'd like to say that we welcome also that clarification. In the course of 2025, you have seen that sometimes the business was still a bit uncertain. The last 3 months have really clarified basically at least the horizon for 2026 and most probably a bit beyond that. So before we go into the numbers, I'd like to provide you some context about what's happening in the industry, what is driving basically this type of news today. And of course, the very first thing is AI. You have been hearing about AI already for a couple of years. You have heard major, major announcement about AI infrastructure. I think from the very beginning in ASML, we have been a believer that AI will be a big thing. And this is true because as with semi before, any major application moving forward will not only use semiconductor, but it will also use AI. And I put a few examples of those applications on this slide. It's pretty much everything you can think about when it comes to technology, when it comes to the future of society, this will all rely on AI. If you look at the opportunity, this has been said also before, this will drive basically advanced technology, advanced logic, advanced DRAM. This will also basically drive the entire data infrastructure. And the effect AI can have on the overall GDP is pretty big. In fact, if you look at the U.S., even in 2025, AI was counting for a very large part of the growth, and we expect that basically to be applied to the entire worldwide GDP. So the opportunity is there. What was a bit, I would say, frustrating for us for a while is that where we heard all those news, we heard about all those investments, but basically, this was not yet translating into capacity addition at our customer. I think what the last 3 months have done is change that. We have seen our customer basically moving forward. They start to really believe in the sustainability of the AI demand. That's true for memory, that's true for logic. And as a result, they started to invest. They started to plan for capacity. And of course, this will drive demand for our product at ASML. And when you look at the demand for our product, what's interesting with AI is that this basically touch on all products. Of course, AI is going to require very advanced chips, and this is going to drive EUV, for example. So this year will be a big year for EUV, Roger will talk about that. It's going to drive advanced inspection tool. But at the same time, AI needs a lot of data generation, a lot of sensor, and this will be still created by the use of more mature technology such as DUV. So AI will have also this effect basically to really drive our entire product portfolio in the coming years. This is a bit of a summary of what our customers have told us. So I talked already about the fact that they are more confident that AI is here to last, and therefore, they are going to invest. I think, in fact, for a lot of our customers in 2026, capacity will mean market share. So we will see them very eager to get the capacity as quickly as possible. There's a few more good news when it comes to AI, AI also drive very advanced technology. This drive an increased use of EUV. And one of the things we've been talking in 2025 quite a bit is the fact basically that we have seen the number of layers of EUV increasing basically at our key customer. And this means practically that the overall litho intensity is going up, which means basically more use of our advanced lithography tool. 2026, we expect, as you understand, as the number will show an improvement of the business, a significant growth especially on the advanced tool, EUV as said before, will be a big year. And again, on the midterm, we expect that to continue. Long term, we stick basically to what we have told the market already several times, which is what we share basically at our Capital Market Day in November 2024. We still expect for 2030 revenue between EUR 44 billion and EUR 60 billion with a gross margin of 56% to 60%. Going a bit now to the effect of AI in the market. So this graph is showing a bit what AI will do. What you see here basically is the growth of the different segment of semiconductor. At the bottom, you see the historical growth of memory logic, which is about 6%, 7% year-on-year. 6%, 7% year-on-year is pretty great already. There are many, many industries that will wish to see this kind of number. But what you see with AI is that when we look at advanced logic, when we looked at advanced memory the growth on those segments is going to be more than 20% year-on-year for the foreseeable future. And this is really what is going to drive basically more demand on lithography. Why is that? So we've talked in the past a lot about Moore's low, of course. And Moore's Law is law that say that every couple of years, we need to double the number of transistors per chips. And that law has been true for many, many years for PC for mobile application. Now when you look at AI and this started to happen in 2010, the curve is far more aggressive. When you look at the most advanced AI product today, NVIDIA products, for example, the request is not to grow 2x every 2 years, but in the last few years to grow 16x every 2 years. So you see a major acceleration basically of the need for silicon. And of course, we provide that in 2 different ways. We provide that with scaling by making transistors small. We can put more transistor per chips. And this has been a good way basically to provide more transistor and follow Moore's law for many, many years, but that's not enough anymore. And if you cannot put enough transistor per unit of area per chips, then the only option will be to make more wafers. And that's a bit what we see happening with AI. So the most advanced AI application are going to drive up volume. And this is why when we look at DRAM customer today, when we look at logic customer today, they are building mega fabs. Some of them are talking about hyper-cycle because they have to be able basically to also provide this volume to the market. So just to illustrate that, I pick one example, and I picked it from NVIDIA because all of you are, of course, very much aware of what's happening there. Today, on the black wall system, you need about 2.5 wafers to create the product. If you look at 2027 on the revenue product, this number will go up to 10 wafers. So to provide the same product to their customer, NVIDIA will need 4x more wafer than today. And this is one of the reason why, again, we will see capacity extension driven again by this type of application. That's what you see here. And this is again, I would say, a bit of a new dynamic we have in our market AI by this acceleration of the need for performance of power reduction is going to drive both volume and technology a lot harder than any technology before. So what does it mean for technology, EUV is key. 2026 is going to be a good year for EUV. We are looking at more shipments. And this, despite the fact that we have increased the productivity of our tool by more than 40%. So we're going to ship a lot of capacity for EUV this year. If you look at it historically, we have already been having quite a bit of capacity. So the capacity headed of EUV in the last few years have been in average 25% year-on-year growth, which is quite significant. So we have seen all our customers basically already adopting this, it was logic first, then DRAM, but we expect basically to see that even more moving forward. Then we have High NA, and High NA, of course, is not going to be the tool that provide the capacity of EUV in 2026, '27, but that's the tool that will enable our customers to shift to even more advanced technology around '28-'29, that's important for DRAM. That's important for logic. And that's important for AI because as I said before, AI is going to be looking for more advanced chips with low power consumption and High NA is going to play into that very strongly. So good progress on High NA in the last few months. Our customers are still qualifying the tools. This takes a bit of time. The results are good. This year is going to be used to prepare a bit for insertion. And again, if we look at 2027, '28, we are going to see the first product being manufactured using some High NA system. Deep UV remains very important. As I said, it's not all about advanced semiconductor. As you know, a lot of technology still require Deep UV. So we continue to drive the road map both on Immersion, where we have launched our 2150, which basically give us sub-nanometer accuracy and more than 300 wafer per hour. Productivity is important. Productivity, of course, a way to get capacity. So we continue to drive that on immersion, I think the example of the NXT:870B, which is a KrF system is even more spectacular because there we have been capable to achieve more than 400 wafer per hour. And that tool today is creating a lot of interest at our customer because productivity, again, is capacity. We talked also last quarter about us starting to help our customer with what we call 3D integration. So I told you, when you cannot put all the transistor in one ship, you just make more chips and bring them together with 3D integration. We have our first system, the TWINSCAN XT:260 that was shipped last quarter, lot of interest from our customer. For us, this is the first product looking at this new market opportunity, and we will continue to work with our customers basically to define more product moving forward to support them also on that segment. A few words on metrology and inspection. So we don't talk always about metrology inspection. But when you drive technology, yield become very, very important, and yield can be improved by doing more maturity and more inspection. So in 2025, we have seen our metrology inspection business growing up by almost 30%, which is a major growth number. It has to with need for more metrology in spectrum, it has also do with the quality of our product in optical metrology for overlay, but also in e-beam. And one of the products where we have seen quite some progress in 2025 is multi-beam. Multi-beam is going to provide e-beam inspection at higher speed and most probably in the next, I would say, a couple of years really enable our customer to move this technology to high-volume manufacturing. So a lot of good progress there as well. You all heard about Mistral, I say back in the end of the summer when we announced our collaboration but also our investment in Mistral. The rationale there was to get AI in ASML and to get the very best people, the very best competence in ASML in order to be able to first strengthen our core competencies, read putting AI in our product, support the connected market, to offer some of those capability to our customers and also create new opportunity basically moving forward. That's a project we are going to talk more about in '26, in '27. We are making great progress with Mistral, our partner. Our teams are working very, very closely together to basically execute on each one of those points. Going a bit into some of the other things we are very, very proud of at ASML. This is our engagement in the community. We have been spending, I would say, both the time, talent, money in order to work together with the community on a few very important topics. The first one is mobility. Well, we are here today. As you know, this is also close to our next campus, which I will explain in a minute. We plan to have a groundbreaking this year in a few months. We want to continue basically to work with the Brainport community to improve the infrastructure because we are very much aware also that as we grow, we can sometimes create more headache, and it's very important to address that. So we have major investment there also, of course, through the Beethoven program. Affordable housing, there's been quite some press in 2025 about some of the progress we have done there. This is ongoing now for a few years. This remains very, very important, and we will continue to invest. You see the number there. I don't need to stress it to basically create more housing. We also understand that this is a broader challenge across the Netherlands, and we definitely want to do our part helping the community here. Culture. So we are very proud to be one of the, I would say, initial partner for the future Rijksmuseum here in Eindhoven. We love the city of Eindhoven. We love this place. But sometimes we feel that if we can bring a bit more culture, a bit more activity, I think this will help people to enjoy it even more to attract even more people moving forward. That's why we stay very committed to the PSV Football Club, as you know. But this we thought was a very, very nice initiative from the city of Eindhoven and we really wanted to be there. Finally, education, you know that we have a long-standing relationship with the TU University here in Eindhoven that could extend that to many other university across the Netherlands. This is key. We want to develop tenant that will be able to work in semiconductor moving forward, and we will continue to do that, of course, very strongly. One last word. We need to continue to grow. I will come back to some of the other announcement we had today about our focus on innovation and engineering. At the same time, we see more demand for our product. And therefore, our footprint needs to continue to grow because we need to invest in customer service. We need to invest in manufacturing. We need to invest in space. So last year, we opened 2 major sites, one in Korea, one in the U.S., and that intends to support basically our activity here. The big event in 2026 will be the groundbreaking of the big campus, which is our second big campus in the community. We'll do that mostly in May, June, and I'm sure you will be invited to join us with the idea that we can already start moving people as early as in 2028. So this will be very good for our people. It will be very good also to debottleneck a bit the campus in Eindhoven, of course. And this is a project, as you know, that is very, very important for ASML. This is my update. I will come back in a bit to talk a bit about the action we are taking on our engineering team to strengthen our innovation. In the meantime, I'll give a chance to Roger to give us those very nice numbers. Thank you. R.J.M. Dassen: Thank you, Christophe. And good morning, good afternoon, everyone. So indeed, I will present the financials for '25 and the outlook. Christophe said it, clearly, Q4 2025, a record quarter by any standard. It was a record quarter in terms of sales. It was a record quarter in terms of order intake. It was a record quarter in terms of cash flow generation. On the back of all the good developments that Christophe just shared with you. So I won't call them out here, but just looking at the quarter, it's pretty clear that it was indeed a very strong quarter. If we look at 2025, and if we look at the total business for ASML, we ended the year with EUR 32.7 billion in net revenue, 52.8% gross margin. And you see the key elements in here, a net income of EUR 9.6 billion and an EPS earnings per share of close to EUR 25 per ordinary share. All in all, a very, very strong year in which we also paid back and returned quite some money to our shareholders. And also, we're able to do the participation in Mistral that Christophe just alluded to. Very clearly, EUV was the main driver behind it. And you will see it in the pie chart that I will share with you in a moment. It will clarify that it is particularly the leading technology that really contributed to the growth. So both immersion, but first and foremost, also EUV. So EUV grew 39% in comparison to -- in comparison to last year to 2024, a mix of both more tools, significantly higher sales price of the tools because most of the tools that we sold, most of the low NA tools that we sold in 2025 were 3,800 tools, which, as you know, saw an increase in productivity from 160 wafers per hour to 220 wafers per hour and of course, a commensurate increase in the sales price. And obviously, we also had the recognition of a number of EXE tools, High NA tools. So it's in that combination that really EUV was the big driver of growth for us this year. Big moment indeed, and Christophe showed it as well, the revenue recognition of the first 5200B really big moment for us because that is the high-volume manufacturing tool on High NA and the fact that we were able to not just chip it but also get it installed and get accepted by the customer and the customer and really looking at putting that tool into high-volume manufacturing for its leading nodes is a very significant moment for the company. Deep UV went down a bit, decreased 6%. If you look at the geographies, you would see that most of the decline would come from -- would actually come from China. So that's where most of the decline on Deep UV was immersion is still quite strong, particularly on the dry side, it was lower than it was in 2024. But there, the step into the 3D integration market with the introduction of the 260, obviously was another big moment, application very strong. Christophe alluded to it a 20% increase right there with the need for more process control for our customers at the leading nodes. And finally, very, very strong 26% increase in our installed base business, both on the back of service, our installed base and EUV is obviously growing. Therefore, you see a continuous step up of our service revenue from EUV, but also increased appetite in EUV in upgrades. I'll come back to that later. This gives you some breakdowns and I won't call them out at all. But I think if you look at technology, it's interesting to see that the leading technologies, so both EUV and immersion combined give you 90% of our systems revenue. And I think that really talks volumes, I think, about the shift that Christophe is also talking about the shift to more and more leading nodes, clearly represented here in the share of technology. In terms of end use, you see -- we see memory at 34%, logic at 66%. You see memory actually declining a little bit in terms of percentage. We actually see that flip in 2026. So in 2026, you will see that memory becomes more and more important. In terms of regions, a lot to be said there, but I think China is still very, very big, but smaller than it was last time, both in terms of percentage of system sales and also in absolute numbers, you see a bit of a decline in the China market. We expect that decline to continue. As we said, we expect the China business for this year to be around 20% of our total sales. So here it was 33% of total -- of system sales was 29% in terms of total sales, we expect the 29 percentage number to go down to approximately 20% this year. This gives you the net sales by end use over the years. I won't spend too much time on it. Just one fun fact. If you look at the installed base business at EUR 8.2 billion, that comes pretty close to the total revenue for ASML in 2017. That just tells you how unbelievably rapidly the company grew. And the fact that we have such a big number in terms of installed base business, obviously, also provides a lot of resilience for the company. So therefore, it's an important number for us to focus on and to continue to increase. This gives you the business over the years. So if you just -- if you take the 4 year -- so the 4-year increase from 2021 to 2025, you would see that the company has grown 75% at the top line. You also see that R&D increases from 2.5 to 4.7, which, of course, was absolutely critical in getting us prepared for all the beautiful products that we're currently shipping to our customers. But I think it's also fair to acknowledge that this increase in R&D number has also driven some organizational complexity that Christophe will talk about after my contribution. So this gives you the overview. And as you see earnings per share an interesting number, round it 25, 25 by 25 is something that you might easily recall on a go-forward basis. In terms of return to shareholders, if we look at dividend, the total dividend that we proposed to the AGM for the year EUR 7.50, this quarter, we'll do EUR 1.60 per ordinary share as an interim dividend in Q1. And therefore, if the AGM accepts our proposal, we would have a final dividend of EUR 2.70, and that's a significant increase over last year. In terms of share buyback, we did not complete the full program of share buyback. As you see here, EUR 7.6 billion out of the total program of EUR 12 billion. We did announce a new program, EUR 12 billion over a 3-year period. In terms of outlook for the quarter, we expect net revenue between EUR 8.2 billion and EUR 8.9 billion with a gross margin between 51% and 53%. Look again at the installed base management sales, 2.4. So last quarter, 2.1 goes up to 2.4. What it really tells you is that the appetite from customers when it comes to upgrades is very, very high, because in the client that Christophe was describing, but customers really have a lot of appetite to increase their capacity as quickly as they can. Of course, on the one hand, they will try and complete their fab billing as soon as they can, such that they can new tools in. But in the meantime, once these fabs are still in construction, the fastest way to get extra capacity is really to make sure that the tools are squeezed to the maximum and therefore, to put as much upgrades on the tool as possible. And that's -- that's what you see here, and that really contributes to very, very strong installed base sales going up again this quarter. So the gross margin, 51% to 53% R&D and SG&A costs nicely under troll. For the full year, EUR 34 billion to EUR 39 billion, really on the back of all the developments that Christophe talked about. So the real steam engine behind this growth is once again EUV. So we once again expect the EUV business to go up significantly this year. We also expect the installed base business to go up this year, and it will go a little bit at the detriment of the non-EUV business. We expect that to be about flattish. So non-EUV business is expected to flattish from '25 to '26. With us moving parts for the leading nodes, so for the big customers, both in memory and advanced logic, we actually expect the Deep UV business to go up a bit. As I mentioned, in China, we expect the China business will go down. Metrology and inspection, we expect to be quite strong. So those are more or less the moving parts within the non-EUV business. Again, for the full year, EUR 34 billion to EUR 39 billion, which at the midpoint after a growth of 16% in '25. At the midpoint, you would be looking at a 12% increase in this year with good potential as the bandwidth also suggests gross margin 51% to 53% and annualized effective tax rate of 17%. And that concludes my presentation. And as I mentioned, Christophe has a part for you on the streamlining of our engineering and innovation function. Christophe Fouquet: Thank you, Roger. Good. Yes, I have one slide I want to share with you on the action we are taking basically to strengthen our innovation and engineering team. So I think that the net results of that, which is 1,700 people leaving the company, I think, has been picked up pretty clearly already this morning. What I want to do is to give you some background. And of course, you understand listening to our outlook, listening to the numbers. We are not doing that in any case because we are in trouble because we need to save money, et cetera, et cetera. Now the reason we are doing that is that we have been growing very fast. And this is also true for a technology team or innovation engine, and as you know, the technology team, the innovation engine of ASML has been the reason for our success. It's been true for many, many years, and this is still going to be true for many, many years to come. And as we have said in 2025, we want to continue to innovate more. This is why we engage in AI. This is why we engage in 3D integration. This is why we have a long road map on e-beam, and we believe that innovation will for many, many years to come, define our success. But when we listen to the feedback of many of our stakeholders, they have told us in the last few years that we're not very agile in fact. And we are not, I would say, responsive enough. So our customer are pointing to the need for us on technology to be able to respond much faster to work on quality to work on new product. A very important feedback we got is from our whole engineers who told us Well, a lot of the time we spend in ASML is not anymore on innovation, right? Because the organization has become so complex. We have so many people steering us in different direction that we have to spend a bigger part of our time just dealing with that. And this has been a very, very strong, and I would say, loud message from our people, and we felt the need basically to address that. Our supplier, if you talk to them, they also tell us the same, and therefore, we felt the need to move. So you heard about the number 1,700. I'd like to give you a bit more color to this number. If you look at our technology organization today, we have about 4,500 leaders, which is quite a bit. When we look at a future organization where we simplify our processes, where we reduce the number of steering access towards our engineers, we believe basically that we need about 1,500 leader to run this organization. So it's a 3,000 less leaders needed if we are successful in simplifying. So out of the 3,000 people that we don't need basically to lead the team, we are going to create 1,400 engineering positions. So we're going to add, in fact, some engineering bandwidth to work on existing product to work on future products. We want to, in fact, have out of this action, more engineers and less, I will say, leadership so that engineers can be fully enable to do their job. And as a result of that, if you do the math, we have 1,600 people out of the technology team that will not have a job in ASML anymore. Now the difference between the 1,600 and 1,700 is 100 people coming out of IT when we have a similar situation, similar feedback and where there, we believe that about 100 leading position are not needed. So this is a bit the math, we want to really boost again our engineering capability, our innovation engine. We want to improve, I would say, the satisfaction of our engineers, our customer, our supplier. And of course, this come at the cost of a very difficult decision we had to make. We explained our employees this morning. This is most probably the most difficult decision the management team ever had to make in ASML. But we do it because we truly believe that this is the right thing to do for the company for our stakeholders, starting with our employees and to basically continue to be this great company moving forward. So that's a bit more background. And with that, I think we'd like to take some questions from you. Thank you very much. Monique Mols: Okay. Thank you. So we have some questions online, and we have some people here in the room and because you all came here, I think you should go first. So let's ask some questions in the room first. Please state your name and your publication first, so everyone knows. Sarah Jacob: I'm Sarah Jacob. I'm from Bloomberg News. Regarding the job cuts that you announced today, what kind of restructuring costs or charges can we expect from this? R.J.M. Dassen: That's obviously subject to the discussions that we're having with the Work Council and first and foremost, union. So I cannot talk about that, but these costs in the grand scheme of ASML would not be considered material. Well, the finalization of number is very much subject to discussion, but not materially in our numbers. Sarah Jacob: I got a question about -- there's a lot of talk about capacity expansion from your customers. We've seen a lot of announcements. But how much of those announcements or is related to real capacity expansion? And what part is CapEx inflation, so to speak, because the cost of a wafer is increasing. How sustainable is that? Can you elaborate a little bit on that? Christophe Fouquet: Well, I think so, I talked about short and midterm. So I think that visibility we get from ASML is mostly for the next couple of years. And when we talk about capacity expansion, we talk about new systems. So that's why we said that if we look at 2026, we expect ship quite a few more EUV tool. It's also true with metrology with inspection. I think Roger was rightfully stressing the progress of our installed base business, which also include upgrades, and we will see also a lot of that. So I would say when you hear our customer talking about capacity expansion, this translate directly into need for more tools. And for a long time, we heard our customer' customer, sometimes our customer, customer, customer talking about expansion, and this was still a bit far away from us. In the last 3 months, if you have listened to TSMC, Samsung, Micron. Micron has been announcing groundbreaking almost every week for the last few weeks. There, you have a direct translation basically into shipment for us. And we have not said that in our talk, but also build up of capacity. So of course, a lot of that will affect positively, not only ASML, but the entire supply chain here in the region. Monique Mols: Okay. Let's turn to an online question and get back to you then. So a question from Financial Times. Please can you talk a bit more about how the AI memory shortage is driving your business? And to what extent those customers are being more aggressive in their capacity expansion than logic? Christophe Fouquet: I will start. I think that it's difficult to say if logic or DRAM is the bottleneck for AI today. I will still pick mostly memory at this point of time. And the reason for that is that it comes to memory, the demand for high bandwidth memory, which is the AI memory is extremely high. But the demand for DDR memory, which is for mobile PC is also very high. And as a result, we have seen basically the price of DRAM going up significantly in the last few weeks. Therefore, there's a need for capacity. And our memory customers are moving very aggressively. I mentioned a few examples. And the reason for that is when you have such a demand for capacity, capacity is also market share. And if we look at 2026, we know that the memory demand will be very, very tight because our customers are saying that publicly. So there is a huge appetite and it started most probably end of last year for our DRAM customer to really build up capacity as quickly as possible. And that's the dynamic we are in which, of course, has a major positive benefit for ASML. Monique Mols: Okay. Thank you. Mark, in the room, I see some hands. Unknown Analyst: So [indiscernible]. How does the stabilizing AI market influence the perspective of the amount of jobs you're about growing in Eindhoven? Christophe Fouquet: Well, so if you look at the big picture, so I mentioned again our long-term forecast as we establish it in November 2024, where we still see us going towards EUR 44 billion to EUR 60 billion revenue, which means that we see still need for more capacity. Even as we speak, this year, we will be adding jobs in manufacturing and customer service in order to support basically the need. So I will say the long-term trajectory is still a trajectory of growth. we take today a very specific action on a very, very focused part of the organization, which is the technology team and in fact, even focused specifically on the leadership of the technology team. But it doesn't change fundamentally our growth trajectory and therefore, our commitment to people, but also as I've shown to footprint, et cetera, et cetera, the supply chain I could add to that. And I think it's very important to understand that even as a company grow and is very successful, there's still a need once a while to make sure that some of the key elements of the company and for us, that's the technology. Technology is really our heart. We have to make sure that we keep the heart in the best possible shape. And the action we are taking today is difficult, is painful. But the intention is to make sure that, that innovation engine keeps going so that as the market grow, we keep our very strong leadership position in the market. Unknown Analyst: Mark [ NSA ]. I have 2 questions. One relating to the reorganization and the other one is to being prepared to this huge demand in new machines. First of all, the reorganization we refer to the technology team, does it mean that something changes within the internal structure as well regarding D&E or R&D? And the other question is when it comes to being prepared for this new up cycle, is your supply chain also prepared. So did you do some stockpiling there? Or is every -- does everybody have to expand? Christophe Fouquet: I'll take the first one and leave you the second one. So I think the short answer to your first question is yes. I think that the transformation, the change in the organization will be mostly around D&E, not only but mostly around D&E. The leadership I was referring to is mostly within D&E. That's also why Marco, our CTO, together with Jose are taking the lead also on that activity. But since innovation is the heart of the company, everything else is connected to that. And by improving the organization, the D&E organization, we also improve the interfaces with operation. We improve the interfaces with our customer, and we improve the interfaces with our supplier, right? So all the people who told us basically, you've got to do something better should benefit from that. So a lot of the work will be focused on D&E. In fact, what we talk about today, I would say, practically doesn't concern the very large majority of the team ASML, but the impact, I think, will go beyond D&E. R.J.M. Dassen: Mark, on the capacity, what we've done, as you know, in the past couple of years is to put in what we call the long lead time items, which means that everything that takes, let's say, longer than 12, 18 months to realize is in place in order to get to a much higher volume. So that means factory space, et cetera, et cetera. We've done that, and we've worked with our supply chain for them to do that as well. So what we're doing now based on the very strong signals that we're getting from our customers and also them indicating that they believe this development is sustainable. We're now making sure that every quarter, we increase our move rate because as you will appreciate, you cannot move from 44 units in 2025 to 80 units in 2026 doesn't work that way. So you gradually need to crank up your move rate, and that's exactly what we're doing right now. We're doing that. We have a very solid understanding also with our supply chain. They're doing the same thing, and that will lead to a very, very meaningful increase in our capacity this year, but also moving forward. Monique Mols: I'm going to go to one online and then get back to you. Could you share how ASML's R&D spending is currently divided between EUV-related development and non-EUV technologies. This is a question from the Chemical Daily in Tokyo and we have a lot of people from Japan online watching us. So that's really nice. R.J.M. Dassen: The lion's share of the R&D expense really is an EUV, right? Because on EUV, we have both High NA, we have the Low NA platform that where we still see a lot of potential to develop that. And we're also working on what we call the high perform platform. So we have 3 very significant work streams in the D&E organization to focus on EUV. So without a doubt, EUV is the lion's share of the development. But that said, we do have road maps for the other products as well. You heard us talk about the 260. You might have heard about the 870, which is a platform that really significantly increases the output capability in the drive business. So we're working there as well. Lion's share is really focused on EUV. Unknown Analyst: Folks, I had a question about the China business, which is going down quite dramatically. I'm wondering whether it's also going down in absolute numbers? And if that's the case, what's driving that? Where it just still a backlog thing or whether something else is going on as well? R.J.M. Dassen: Well, it is going down in absolute numbers as well, right? So if you do the math on the system sales, if you take the chart, you take the percentage and you apply it to the total system sales, you would see that actually it goes down in system sales, I think, something like EUR 850 million. But you can do the math yourself and verify whether I -- whether my memory serves me well here, but it's clearly going down from 24 to 25 and also at the 20% number that we indicated for this year, it will go down further. What's going on there? Well, first of all, it's normalizing, right? Because I think the reality is we should ask ourselves a question what was going on in previous years. What was going on in previous years is that over the COVID period, we build up a huge backlog because we -- and in fact, we underserve the Chinese market during the COVID days. As a result of that, a huge backlog has been built, and we have been executing on that backlog in the past couple of years. So at a certain point in time, we expect -- we already expected China to normalize. Frankly, the very strong China sales still in 2025 surprised us a bit. But given all the dynamics that we're looking at right now, we think 20% is probably the right number, which, by the way, still gives you at the midpoint close to EUR 7.5 billion of sales. So it's not in any way falling off a cliff, right? But it is reduced in comparison to what it was last year. So it's more normalization than that anything very spectacular is going on there. Monique Mols: So a lot of interest in the room. So let's go back to the room. Dan? Unknown Analyst: Dan from [indiscernible]. I have 2 questions. The first one is you mentioned that the EUV business will grow quite rapidly this year. I was wondering what share of that will be High NA. I think you mentioned this is really a preparation year for the coming years for insertion. Just wondering how many machines do you plan to ship this year? And the second one is, do you have a progress update on Hypernet the year you'll make a firm decision on it? And maybe on platform as well. R.J.M. Dassen: I'll take the first one, you take the second one. So on the -- the other way around. So the vast share of the growth will clearly be in low NA, right? So because it all goes into high-volume manufacturing because there is such a big need for customers to grow there. So that's where the lion's share goes High-NA will just continue to go along the lines of what Christophe has described earlier on, which is the 3 phases, and we're not yet in the high-volume manufacturing phase though as we did point out, the fact that one customer has accepted, signed off on the 5200B, our first high-volume manufacturing tool, of course, is an important step in that direction. But the lion's share of the growth this year will be low NA. Christophe Fouquet: Yes. On the Hyper NA before I go there, I need to take a bit of a step back. So we talk about low NA, we talk about High NA I think we talked about Hyper NA because we see that in the future, there may be a need for even a more advanced litho system. And we could end up in a war, I'm talking 10 years from now where the customer use basically each one of those 3 systems. Now this being said, when you look 10 years ahead, it's very difficult to know exactly when this will happen. And in order to not have to answer that question today, what we did is develop a program, which we call high productivity platform. So Roger mentioned it as one of the key program in EUV, and that program basically consists in defining an EUV platform that will come to the market early next decade, and that will be able to support Low NA, this major productivity improvement. We look at more than 400 wafer per hour. High NA, also with major improvement and potentially Hyper NA. So we're designing a platform basically that we'll be able to receive ultimately Low NA optic, High NA optic, hyper NA optic. This give us basically the full flexibility over time to decide exactly when and how we should introduce hyper NA. So the team has done a lot of work. So if you talk to our engineers, they tell you we could do it more, but there's no need for it tomorrow. So what we will do is, again, just continue to prepare for it. If you follow a technical conference, there will be a presentation on that a SPA in a few weeks from now, so you get a bit more. But the key is to is to be prepared basically to serve the whole market with EUV and the high productivity platform program we have put in place and we're executing on allow us to do that exactly. Monique Mols: I have a question from online, and then I'll ask to you, Toby. Maybe can do this quickly, but I think it's a question that a lot of people ask themselves. This is from [indiscernible] Novel in France, you're going to cut 1,700 jobs, but you say you want more engineers. Are you planning to hire in 2026 and beyond? And if so, do you have a figure? Will this offset the 1,700 job cuts? Or will ASML's workforce ultimately decrease? Christophe Fouquet: Yes. So I think 2 steps. So first, as I explained, we free practically about 3,000 people out of the action we take on the leadership in the technology team. And out of those 3,000 people, we already create 1,400 position. So that's the first thing. The second thing I've said is that a lot of that is done to enable, I would say, the full potential of engineers. So our engineers tell us today, well, maybe we spend 20%, 30% of our time not doing engineering, but doing meetings, talking to many different managers, et cetera, et cetera. Well, if we take that away from them, we give them also more bandwidth for development. So we also expect basically that our engineering workforce will be able to create more moving forward for the same amount of people. So it means that as we go through this transformation, we get 1,400 more people, and we get a lot more of everyone else in the organization. How this will really play out. We don't know, but we believe that this could fuel quite a few of our programs basically moving forward. So we will continue to hire people based on our need, and we do that today on operation. We'll do that if we need to on D&E because we can afford it or so, let's be honest. But we also expect that at least the next couple of years, the gain we could make by enabling our engineers to the full extent, will create a lot more bandwidth for us to develop. Toby Sterling: This is Toby from Reuters, Toby Sterling. Ballpark question. The only thing that did better than ASML's price in the past year is gold and silver. So I'm wondering if you guys can maybe say maybe not so much ASML, but how is this going to affect your industry? The rise in price for gold and precious metals? Christophe Fouquet: Gold and Silver, I would say, our industry over whole I think it's very small. I think it's very, very small. I think from all the things we worry about -- I tell you something, we worry a lot more about energy cost than gold or silver, because energy is, as we've discussed in the past, most probably, we love AI, we love the opportunity. I think Elon Musk say that also last week in Denver, but energy is most probably the one thing to watch to make sure that this industry keeps going. And now the good news for us is one way to reduce energy consumption is to move to more advanced chips because they reduce basically power consumption. . So that's also an opportunity. But I think if there's one thing this industry has to worry about as a whole is energy, cost and I would even say availability. Gold, silver, I say okay. Toby Sterling: Paul here from [indiscernible]. Do you expect to max out on capacity this year? And if so, what will be the bottleneck? R.J.M. Dassen: The question is not necessarily just for us whether we're going to be maxed out. I mean, it will be a very busy year. That's for sure. But I think in everyone trying to drive up capability, we also need to look at our customers. So I think everyone will be scrambling to get more capacity. . It starts with our customers because we can ship tools, but our customers also need to be in a position to receive them, and therefore, they need the fabs to be done. So I think that's what's going on. We will work extremely hard to get as much out as we can and as our customers are asking for it. But I think important factor will be when will our customers have their fabs ready to really receive those tools. Monique Mols: We have 4 minutes left. So let's go back to the room again. Unknown Analyst: San Hilson of Dutch Publicans. About the reorganization, I was wondering if you could share some insight on how did you end up in the situation in the first place, why did you create so many leadership roles in the past months or years? And can you give us a time frame on when the reorganization will be executed? Christophe Fouquet: Yes. It's always a good question. And if you look at the growth of the company, I think at any point of time, you try to make the best decision for the company. And I think this has been down. But as any large company, you tend to have a side job over time with the belief that they really help, and I think to some extent, they do at the beginning because you strengthen certain axis, right? You strengthen, I don't know, quality, you strengthen maybe the execution of part of the company. But there is a point of time where you add -- if you had too many of different axes, then people get confused. And we started to get that signal, I would say, already for 2, 3 years. We spent quite some time because the next question could be, how do you know now that the next things would be better than the previous one, which is another very good question. We didn't want to rush in that, and we spend more than 12 months designing not in the board of management, but designing with the people that are working day after day in technology, but also in the sector because of the connection I talked about. So we spent more than 12 months working with those people to try to drive an organization that they believe will fit better what they need. And I think we need to make sure over time that we keep on scanning the organization so that if we made maybe some non-optimized move in the past, we can correct it. So I think it's very normal in the company. What is not right is not to correct things if you feel they're not helping you anymore. R.J.M. Dassen: I think if you look in any rapidly growing organization, where do organizations grow? They grow because the number of competencies grow or products become far more complex. As a result of that, also the competencies that are necessary to get it done become more complex. 15 years ago, software, for instance, was not as important as it is today, just to call out one. So you see an expansion of capability and you need to see an expansion of a road map, many, many more products on the road map than we ever had before. The answer to something like that, that any rapidly growing organization does is a matrix organization where the competencies and the products meet each other. So that's your answer. And that gives you scalability for a while. But there is a point in time where a matrix organization, any matrix organization becomes so complex that you got to act. And I think that's the journey that we've been on. That's the thing that we've now concluded and hence the action that Christophe calls out. And I think the worst thing you can do is not recognize the issue and just continue to go on as you did before. In terms of timing, because that was your other question. I mean that completely depends on the negotiations that are currently going on with the unions, with the workers' council, et cetera, but this will definitely be a number of months. From our vantage point, as soon as possible because we want to be able to provide clarity to everyone in the organization and get rid of the uncertainty at the personal level. So that's why we would like to push as soon as we can in the interest of the people that are affected. Monique Mols: Okay. Our time is up. Thank you very much for coming. Thank you, everyone, online for watching. You can still send us your question. The media team is available for you. And for those in the room, nice you're here. There's coffee and we have some chats with some of you, and we look forward to seeing you next year. Thank you very much. Christophe Fouquet: Thank you. R.J.M. Dassen: Thank you.
Operator: Welcome to Dometic Q4 Report 2025. Today, I am pleased to present CEO, Juan Vargues; CFO, Stefan Fristedt; and Head of Investor Relations, Tobias Norrby. [Operator Instructions]. Now I will hand the conference over to the speakers. Please go ahead. Juan Vargues: Hello? Can you hear us? [Technical Difficulty]. Okay. So good morning, everybody. Well, I would like to start by apologizing for the technical problems, but we are back. So good morning, everybody, and welcome to this Q4 and full year webcast for 2025. With that said, let's move into the presentation. Starting with the highlights, market, the overall market conditions are still challenging. Consumer confidence is still not where we would like it to be. And at the same time, retailers and dealers as well as OEMs are still cautious in building inventories. Having said that, we also feel that inventories at retail level are improving. They are just now at a low level, and it's very much just now a question about consumers starting to buy. Looking at growth, 3% negative organic growth for the quarter, with Service & Aftermarket down 3%, which is obviously an improvement in comparison to previous quarters. Distribution, back to growth, very much driven by Mobile Cooling. And then we see also improvements from an OEM perspective, where still, Marine slightly negative. We also have LV slightly negative, while we see improvements in other areas. EBITA margin, 6% in comparison to 7.3%. But then we also need to consider that we have a major effect on -- when like-for-like. So we have a substantial negative effect by currencies -- driven by currencies, and we will get back to that on the details. At the same time, as we previously communicated at the end of last quarter, we also have negative impact in Mobile Cooling specifically from increased labor cost since we added about 250 new people in the organization at the same time as we also have the price corrections to compensate for the higher tariffs in Mobile Cooling. Looking at free cash flow, we ended up at SEK 20 million, which is a bit lower than 1 year ago, even there, very much influenced by the currencies. But at the same time, as we have seen a more positive order intake, backlog starting to come to the same level as last year, and we have been building inventories for the start of the season in Q2. At the same time, we also had later invoicing in the quarter this year in comparison to last year. All those factors are having an impact on the free cash flow. Leverage ended up at 3.3x in comparison to 3.1x in previous year. If we move over to numbers, sales ended up at slightly above SEK 4 billion for the year with 3% organic growth, 12% FX, meaning obviously a substantial impact, and then 1% negative by the portfolio changes that we are doing. EBITA ending up at SEK 245 million or an EBITA margin of 6%, as I commented before, compared to 7.3% last year. We got a negative EPS in the quarter of SEK 0.67, adjusted negative EPS of SEK 0.39. And as commented before, cash flow of SEK 20 million -- free cash flow, SEK 20 million, a leverage of 3.3x. Moving to the whole year, ended up at SEK 21 billion in sales with a total negative effect of FX for the year of 6%, 8% down organic growth and the same 1% on portfolio changes. With EBITA landing above SEK 2.2 billion, or an EBITA margin of 10.6% versus 10.8%. And of course, considering the negative growth, we feel quite proud of what we are achieving, working very, very hard to keep our cost in control despite the negative top line decline. EPS ending up at SEK 1.34, with an adjusted EPS of SEK 2.52, and a free cash flow of above SEK 1.4 billion. Net sales, obviously, we are still not there, but we're starting to get close. As you can see on the graph, we are coming from hovering around 10%, 11%, 12% quarter-by-quarter for the last 3 years. And we saw Q3 landing on minus 6%, now minus 3%. And as commented before, we see order [ intake and backlog ] improving. Difficult to say obviously when we are going to see Dometic moving into positive territory, but it's quite clear as well that we are getting very close. Looking at the different segments, Land vehicles ended up at minus 4% with Americas down 10%, EMEA positive for the quarter, plus 1%, APAC minus 10%. Marine came back to a negative growth of 3% after slightly growth shown in Q3. And we don't see that as anything strange. Obviously, the market needs to stabilize. We are coming from pretty negative growth. We saw plus 1%. Now we see minus 3%. We're expecting obviously to see improvements moving forward as well. Mobile Cooling, good to see that we are back to growth and optimistic about the expectation for 2026. And then Global Ventures, minus 3%. And we'll come back later to some more details on the different segments. Looking at the different channels, no major differences, in reality, is -- really, we see Service & Aftermarket becoming a little bit higher on the share, while the OEM channel is becoming a little bit lower, ending up at 39%. And just as comparison, we are coming from a situation, 2018, where the OEM side stood for 62% of total sales. Looking at the different channels, again, it's quite obvious that we are moving in the right direction. Service & Aftermarket, we were [indiscernible]. We were positive in Europe, while we were negative in Americas. Distribution, as I commented, we have positive in parts of Global Ventures and positive on Mobile Cooling having an effect -- 2% positive effect on the distribution channel. And then OEM is also quite clear that on one side. The European market is stabilizing. We see -- especially in Southern Europe, that we are starting to see growth, while Central Europe is still sitting on a little bit too high inventories even if they are coming down. So we expect even, from that perspective, improvements moving forward. We also saw, as a matter of fact, the commercial vehicles showing growth for the quarter, and we have seen growth for the entire year. So that's also a positive sign that things are improving. Looking at EBITA, as I commented at the beginning, 6% versus 7.3% last year. Looking at the underlying margin when comparing like-for-like, 2.9% higher than 1 year ago. FX, again, we will get back later, but had a major impact in this specific quarter. We also have the additional labor cost and the comparison to duty drawbacks in Mobile Cooling, that we commented in previous quarter, was going to have an effect also in Q4. We are happy to see gross margins improving, ending up at 28.7% versus 26.8% despite the lower sales. So it's clear that the restructuring program is biting quite a bit. And on top of the restructuring program, we also have a number of other activities to increase efficiency overall in the company. And then even if we are showing negative EBITA development in the quarter, we also see that both Land Vehicles and Global Ventures are showing better margins despite the currency situation. Moving to specifics on the -- moving on the specifics to Land Vehicles. We have, on Land Vehicles, net sales of SEK 1.8 billion with organic growth -- negative organic growth of 4%. We got decline in both channels. But as I commented before, growth on the CPV channel as part of Land Vehicles. And we also showed growth in EMEA for the first time during the last 5 quarters, which is telling us really that the LV -- RV business in Europe is stabilizing. EBITA, higher SEK 66 million in comparison to SEK 23 million last year or 3.6% EBITA margin with clearly a positive impact of the global restructuring program. As we commented, when we announced the program, the LV segment was going to be the one showing the major impact during that program. We see both increased profitability in EMEA. We see reduced losses in Americas and APAC still delivering pretty high margins despite the drop on the top line. Marine, down in organic growth, 3%, with sales and aftermarket stabilizing as well, flattish in comparison to 1 year ago, and single-digit decline in the OEM channel. EBITA, almost SEK 200 million or 18.5%. So a slight decline on the EBITA margin, defending, in other words, protecting the margins pretty well despite the drop in the top line. In this case, the margin decrease is very much due to the currencies, as Stefan is going to come back to. And then we see even there that we are doing a pretty good job in reducing cost to compensate for the drop on the top line. Mobile Cooling. Organic growth, positive. That was a positive in the quarter. We see a strong recovery in North America in Q4 in comparison to Q3. On the negative side, obviously, the margin in the quarter is not coming as a surprise. We also already announced that we had on one side the positive onetime effect of SEK 63 million coming from the duty drawback. At the same time, as we also had inefficiencies caused on one side by labor since we employed again about 250 new people at the same time as we have additional training costs and at the same time, as we implemented prices, but the prices are kicking in in January. So we are not expecting negative effects from those factors from January this year. Moving over to Global Ventures, ending up 3% negative as well with good continuous organic growth in other global verticals. At the same time, as we see decline in Mobile Power Solutions driven by the soft RV industry, even if it's improving. And even here, we are pleased to see that our EBITA margin is improving 7.1% and also in absolute value, is improving to SEK 28 million in comparison to SEK 24 million last year. As a consequence on one side of the sales mix -- positive sales mix, at the same time as we keep working on reducing our cost. On sustainability, we are happy to see progress in all areas but one. So injuries coming down to, I would say, all-time low. In this case, after a lot of investments that we have been doing across the company, to improve in this area. Female managers, up to all-time high, 31% in the quarter. We would like -- obviously, we will continue to work in that area. But again, showing progress. Energy, renewable energy operations, 37%, and also beating our own targets, while innovation index, the same ending up 23% in comparison to 21% 1 year ago. And that's a super important one because that has an immediate impact as well on climate. So new products drive lower climate. [Audio Gap] So looking at the products in the Marine area, we have a new sanitation product for sailing boats that we just launched. And then last but not least, also starting to see the synergies coming from our Mobile Power business and introducing new products in the Marine area, where we are going to increase efficiency by connecting a number of different batteries into one single device. Happy to report as well that our global restructuring program is running slightly better than expectations. As you may remember, we are expecting SEK 750 million in savings at the end of 2026 -- running rate at the end of 2026. And so far, 300 employees have been impacted. We have closed 1 manufacturing site and 5 distribution centers. We are running at the end of December at a rate -- a saving rate of SEK 350 million. And we had cash out that also impacted obviously our free cash flow in the quarter of SEK 100 million, a little bit higher than SEK 100 million. And totally for the year, the cash out has been a little bit above SEK 200 million. And then we keep working on the divestments. Unfortunately, we cannot communicate anything yet, but we are working on that. And then on discontinued businesses, we stopped a couple of businesses, leading to a 1% negative organic growth for the year -- for total year. And we will see that number now fading away step by step. And with that said, Stefan, stage is yours. Stefan Fristedt: Thank you, Juan. Good morning. And we are starting with the Q4 income statement. Gross profit-wise, we continue the positive trend in improving our gross profit. And that is despite that we have a SEK 30 million negative effect from the tariff/labor cost increases within Mobile Cooling. Then we have an underlying development in the EBITA margin. So let me save that for the next slide here, and so we will come back to the different details on that. Further comments that on operating expenses that we have reductions driven by global restructuring programs and other measures. And at the same time, we feel that we are able to invest in strategic growth areas like product development and sales resources. On the net financial expenses in the quarter, we can see that the interest on bank loans is slightly higher than last year, and that is very much driven by the fact that we have, in the short-term perspective, had higher debt than basically needed with the plan that we are going to repay debt. We have also done that in the later part of the quarter, and we will continue to do another repayment in May 2026. So that has been driving up the net interest on bank loans and financial income somewhat. On the tax side, the tax rate is negatively affected by nondeductible interest expenses in Sweden. And then we also have made a tax provision in the fourth quarter for ongoing tax audits. So let's move over to the specification of the EBITA in the quarter. And as you recall, we had in Q4 last year, a duty drawback repayment of SEK 63 million related to Mobile Cooling, which was a onetime off, and that did, of course, not repeat itself this year. Then we also, as communicated in Q3 that we have a delay between the price increases we are taking out to compensate ourselves for tariff cost and higher labor cost, also mainly in Mobile Cooling. That is SEK 30 million. So that is the second part for the adjustment. If we sum that up, then we have an underlying EBITA of 6.8% versus 6% last year. And then we have the currency impact, of course, especially the dollar has been swinging a lot. It's almost a SEK 2 difference to the dollar between Q4 last year and Q4 this year. And that have had an effect which, measured in EBITA margin, is 2.1%. So that's the specification on how we come to the 8.9% underlying versus 6% last year. Let's move on to the next, coming into our cash flow statement. We have a somewhat lower operating or free cash flow than what we have seen in the past. And from a working capital point of view, we have seen that -- and also that we talked about in Q3 that we also have to build up inventory to meet demand, that we are expecting to come. And then there is also a currency effect in the free cash flow impacting it. It's approximately SEK 250 million. And then obviously, there is also an underlying lower profit that is impacting the cash flow. Then we have a cash out related to our restructuring program of SEK 103 million in the quarter. That means that program to date, so starting to count from Q4 last year, we have now had a cash flow effect of SEK 270 million on our restructuring program. And as you remember, SEK 400 million is what we have said will be the cash flow impacting part of the restructuring program. So on the free cash flow before M&A, interest expenses paid is down and also taxes paid are down. And then as you can see at the bottom, we did a repayment of USD 229 million in the loan here using cash on hand, which is perfectly according to plan. Yes. Moving over to the next slide, you see the free cash flow development more in a time horizon. And if we look into 2026, I mean, I still feel that the free cash flow, it's probably not going to come up to the full level of 2025, but slightly below that level is my expectation for the full year 2026. Looking to the working capital. There, we see positive development here. The working capital over the last 12 months is 25% of net sales. It was 29% of net sales last year. And if we look not on an LTM basis, but in the quarter stand-alone for Q4, we are down to 23%. This is, of course, driven by the inventory balance, which is now SEK 4.8 billion compared to SEK 6.5 billion last year, and we can also see that the days of inventory on hand is down to 119 days versus 138 last year. So I think we -- I'm satisfied with how we have been able to drive down inventory during the year. Then there is still further potential to optimize working capital going forward, where the target is 20% of net sales. And you can see the different components here and obviously, where we have the most profound development within inventories. The other 2 stays pretty stable. Moving over to CapEx and R&D expenses. CapEx is a little bit down in the quarter, and we are also making strategic decisions about where we spend, so -- but it's also partly related to timing. If we look on R&D, it's now 3.5% of net sales, and that has been clearly a target that we have had continued to develop and launch new products, which we also see in the innovation index, which is continuing to come up. Moving over to our debt maturity profile. As you see, we have some debt falling due in 2026. The SEK 2.2 billion is the remaining part of the 2026 Eurobond, SEK 100 million we paid off when we did the new bond in September in 2025. And that is intended to be paid off with cash on hand. Then we also have SEK 0.8 billion falling due in September, and we are keeping our options open here. But if the cash situation allows for it, we are considering to pay it off in September. Looking a little bit on our debt portfolio. It now has an average maturity of 2.7 years. And we have also extended a USD 233 million term loan to 2029. And then the undrawn revolving credit facility of SEK 300 million is maturing in 2028. So with that, we move over to our leverage ratio, which ended at 3.3x, which is 0.1x up versus Q3, and it's, of course, driven by the reduced EBITA and which is then the impact from lower net sales mainly. And we are highly focused in the organization on protecting margin and reducing working capital and which we have seen in the past. And that work, of course, continue combined with a very clear growth focus as well. And we are, as we have said all the time, committed to drive towards our target of around 2.5x of leverage. So with that, that was my last slide. So I hand over to you, Juan, to conclude the presentation. Juan Vargues: Thank you, Stefan. So looking at the business, we continue to see a market stabilization, and we see also the signs in order intake and backlog situation. EBITA in the quarter was, of course, disappointed even for us. And of course, the currency is not a lot that [indiscernible]. But nonetheless, we were disappointed clearly. Massive impact from currencies. We already commented after Q3 Mobile Cooling, and that was obviously confirmed during the quarter. Happy to see that Land Vehicles, that has been the toughest, obviously, segment, very much impacted by the RV industry, is showing better margins as well as Global Ventures, despite, again, the currencies. Free cash flow, I want to repeat myself. Currency did have an important effect even here, but we also built up some inventories in preparation for the Q2 when looking at better order intake and backlog. We have lower profit, clearly, which is also impacting the free cash flow. And on top of that, we had this SEK 100 million due to the restructuring program as cash out in the quarter. Leverage, 3.3x versus 3.1x. Difficult to predict when we are going to move into positive territory, but we feel that we are getting very, very close. We have seen the trend moving from, again, around 10%, 11%, 12% into 6% into 3%. And, again, we feel confident that the order intake and the backlog is going to lead us to positive territory, provided, obviously, that the geopolitical situation doesn't have more negative impact on the consumer confidence. Strategically, we keep working exactly on the same topics, innovation, super important for us and our future, ending up at 23%, an improvement of 2 percentage points versus last year. I'm happy to see that the global restructuring program is biting and how our gross margins are improving quarter-by-quarter. And with that said, I would like to open for the Q&A session. Operator: [Operator Instructions]. The next question comes from Fredrik Ivarsson from ABG Sundal Collier. Fredrik Ivarsson: First, you talked about the stronger order backlog, obviously, and a gradually stronger demand. My question is, did you see any big swings from the previous quarter? Or is it just smaller, gradual improvements that you see? Juan Vargues: No, we have seen a step-wise improvement quarter-by-quarter since Q1. So it's a major improvement if you're comparing with Q1 step by step. And it is a little bit in all areas, I would say, including the OEM channel, has been showing better numbers during the last 2 quarters. Fredrik Ivarsson: Okay. And then on the FX drag, 2 percentage points on the margin in Q4. Do you have any guidance for us as we look into Q1, Q2 in terms of FX? And maybe also if you could say anything about the specific impact from tariffs during the front end of the year? Stefan Fristedt: Yes. That was an obvious question. And I can say, I mean, just to give you a little bit of guidance, I mean, if the dollar changes plus/minus 5%, that will have an effect of SEK 47 million on EBITA and equivalent on the euro side is SEK 37 million -- and I am -- and that is on a full year basis, right? So it's -- so I mean, where are the currencies going to go here? But I mean, we have actually been spending some time on that to try to understand that. And our view, and that is, of course, followed by 100 disclaimers, but -- depending on certain things. But I would say that maybe we will have to assume from the rate that we are using by the end of December until the end of March, a 5% to 7% movement on the dollar and maybe a 3% movement on the euro. But that is just -- I mean, as you know, the P&L is driven by an average. So it's obviously not moving as fast as the closing rates here. But I would say a negative 5% to 7% in the dollar rate and then a minus 3% on the euro rate. And then you obviously need to use the numbers that I gave you here in the beginning. And we are actually considering to have a specific call with analysts on the currency effects so that you can -- that we can talk about it in such a forum. But so it's going to be negative, but not as negative as we saw now in Q4. I mean it's also a little bit unfortunate, obviously, that Q4 is a small quarter and these type of effects also -- because of that, has a bigger effect on the margin as such. Then tariff-wise, we are expecting that we, from Q1, will have compensated ourselves with price increases and -- which we also communicated in connection with the Q3 report. So we don't see any changes in that. Fredrik Ivarsson: Perfect. And if I may squeeze in one last one for you, Stefan, on cash flow, coming back to what you said regarding the 2026 expectation, not fully reaching last year's level, I think you said. In that statement, what do you assume in terms of working capital because you still seem to be quite positive on the upside in working capital? Stefan Fristedt: Yes. No, But I still see that we have more to do on inventory. Then, of course, there is also going to be a component in here where we need to increase inventory to make sure that we maintain the service level to the customer. But we still have pockets where we know that we will have to continue to work with that. And I mean the ambition in the big trend is to come down to 100 days of inventory. And as you know, we are on 119 as we speak. And will we be able to take that full step in 2026? Maybe not, but still moving towards that target, I would say. But then we are also working with the other components here in finding ways to improve that. So I still feel that we will continue to move towards the 20% working capital to net sales here. And as you saw in Q4, we are on 23%, and we are on LTM, 25% basis. So continue to move towards that level. Operator: The next question comes from Daniel Schmidt from Danske Bank. Daniel Schmidt: Two questions from me then. And just coming back to organic growth and the lack of organic growth so far, you mentioned that you've seen order intake improving since Q1 last year. It doesn't sound like that has changed recently heading into Q1 this year. Just simply, doesn't that mean that you are in positive territory in terms of sales organically now or sort of the delay between order intake and sales longer than normal? Or have you seen cancellations during the year of sort of the backlog? Or what's happening there? Juan Vargues: Now what happens, obviously, that this is a gradual recovery month by month and quarter-by-quarter. So we are much closer in Q4 than we were in Q2 in comparison to Q1. So the major drop we saw really in the second half of 2023 and 2024. And then we entered Q1 2025 on a low level, and we have been recovering since then. Keep in mind how the market has been evolving. First, you had a drop in North America RV. As the market on the RV in North America was stabilizing, then we got, in the last quarter, the second half of 2024, the European market dropping big time, at the same time as Marine was dropping. So the American market has been improving, while the European market is starting to recover now during the last 3 months. So again, it's not that you have a big bang upwards or downwards when -- normally, being global is an advantage. In our case, because of the magnitude of the drop in the different geographies, that's the reason for showing this negative growth for so long in comparison to many other companies. If you look at our American colleagues, they have been dropping 45%. But then after 18 months, they are back. As we have been recovering in some areas, we have been deteriorating in some other areas. We see the recovery on the order intake is all over. I wouldn't say that this is in one geography. We see improvements all over. But still, we don't see the sales yet. Then you have, at the same time, a little bit what we have seen with Mobile Cooling, that people are super careful in building up inventories. So they place an order, and then they see whether they have the sell-through or not. And then depending a little bit on how they see it, they will wait another period of time. So I believe really that we are getting into more stability. But to tell you that we are going to show positive growth on the 15th of February, I would be lying to you. I believe that we will see still what we have seen in Marine, 1 quarter, plus 1% or plus 2% and then another quarter, minus 3%. It's very, very seldom that you are dropping 10% and then all of a sudden, you're moving to 10% growth. I believe that we are going to be most probably one more quarter and then we should be seeing the growth coming back. And more positive on the European market, clearly. We see that Southern Europe and the Southern European players are starting to manufacture again. They were not doing that a few months ago. We said that the German manufacturers are a little bit more hesitant. They are still talking about -- the dealers in Germany are still talking about a little bit too high inventories. While at the same time, we know that companies like [ Klaus ] or like [ HAIMER ], part of 4, are more optimistic about 2026, and we see a major gap between manufacturing in 2025 and registrations. Registrations in Europe ended up at minus 2%, while manufacturing after 9 months was down 17%, or 25% if you look at rolling September. So that's telling me, obviously, that we are reaching the breakeven point somewhere. Daniel Schmidt: Yes. I was just sort of maybe referring to that you potentially now have said that order intake has been improving for maybe 12 months as we get through this quarter, but let's say, 9 months. And -- but maybe you're also saying that sort of the certainty in the order intake is a bit less, it sounds like, when it comes to dealers postponing orders and so on. Juan Vargues: I mean we saw that, and we have seen that in Marine, we have seen that in Mobile Cooling, that people are still hesitant to build up inventories. So they place orders, and then they wait. So everything is depending just now on the sell-through. The good news is that altogether, the inventory levels are lower. So it's going to be more and more difficult to postpone the orders. That's what we are trying to say. Daniel Schmidt: Yes. Okay. And then secondly, we talked about it in Q3, the Igloo court case being moved to March from September. Is still March the date for the court and any sort of -- any changes to what you've provisioned? Juan Vargues: No. So we still feel very confident about our provisions, and we will be in trial, I think, it's the second week in March. Stefan Fristedt: I mean our point is still that we don't believe it lacks any merit this quarter. We still believe that we should not pay anything more. That's what we basically say. Daniel Schmidt: What is the length of such a trial normally? Stefan Fristedt: Yes. Because -- I mean, there is a trial. And then if it is a fast judge, she will -- it's a she, will take a decision directly in the -- after the hearing, but they have up to 6 months' time to come with their verdict, so to speak. And then there is obviously a chance to appeal after that from either side. So it's like we have said all along, it's -- it could be a lengthy process. Operator: The next question comes from Johan Eliason from SB1 Markets. Johan Eliason: Juan and Stefan, just a short question on market share developments. You have a little bit of a history losing some market share during the pandemic to the Chinese in the fridges and the warning side. How are things developing more recently in the current quarter, obviously, disregarding the business you are closing down? Are you keeping? Taking? Or are you still losing some areas? Juan Vargues: No, I think it's very much in the same situation. So obviously, what we are referring to is obviously Chinese company is very much active in North America. And I don't see that the situation has changed anything. On the rest of the business, it is very much the same. So obviously, we are into a number of industries, and we are into a number of different product areas. Sometimes you lose 1% here and then you win another percent there. So I do believe that -- I don't see any changes altogether. Johan Eliason: Good. And I think you mentioned that you hoped you would regain some market share in the earnings moving it back to the U.S. again. Has that materialized or... Juan Vargues: No, not yet. We are working on that. Operator: The next question comes from Agnieszka Vilela from Nordea. Agnieszka Vilela: I have 2 questions. The first one, my understanding is that when it comes to tariffs, you have been protected by the USMCA agreement when you imported things from Canada and Mexico. Does the situation change at all with the Section 232 right now? Do you have like -- did you expect more tariff burden? Or it does not apply to your products? Juan Vargues: We don't see any effects so far. Then of course, we have Mr. Trump's statement last week about 100% on tariffs on a number of different products. We don't have any more detailed information, but obviously, the communication has not been official. There's going to be on when it's going to be. So we are in a waiting mode. Agnieszka Vilela: All right. Understood. And then apologies, I missed the beginning of the call and maybe you commented on that. But can you just explain the profitability development in Marine specifically? What were the headwinds there? And also, should we expect these headwinds to sustain during 2026? Stefan Fristedt: I would say that in Q4 specifically, Marine is the segment that has been impacted the most by the currency effect. So that -- we obviously -- I mean, who knows what's going to happen with the currencies? But if we are staying with what I mentioned before, I mean, our assumptions on how we believe that the currency is going to develop based upon our average rates, then I would expect that impact to be less going forward. But that's, of course, with some disclaimers, no doubt. Agnieszka Vilela: Okay. And maybe just a follow-up on Marine as well. Just looking at the organic growth development in the business as well. Now you -- I think the organic growth declined by 3%, somewhat worse than what was the case in Q4. Any kind of flavor you could give us when it comes to your expectations for the Marine business specifically into 2026. Juan Vargues: I can give you some indications, Agnieszka. On one side, we have the European market, which obviously size-wise is much smaller than the American market, but we had 2-digit growth in the European market, Marine in Q4. On the contrary, we had negative growth in the American market. On the American market, what we see is that on one side, marine dealers are still very cautious and talking about high inventories. At the same time, we see as well that engine manufacturers are starting to show nice growth on engine manufacturing, which is going to bigger boats. And that could benefit us. The question is when are we going to see that in our order intake and in our sales. But we have a couple of indicators that are positive. The one that obviously needs to change is dealer sentiment on the American side. Tobias Norrby: And now we have a couple of questions from the webcast audience. The first one being about our restructuring measures, whether or not the current ones are enough? Or do we feel that we need to come up with additional measures? Juan Vargues: You will never be done, right? Because there is always something more to improve. But our perspective just now is that the market -- we have indications the market is improving. Priority #1, #2, #3, #4, #5 is to put management attention on growth while keeping, of course, full control on the cost while carrying out the restructuring program we have. Just now, we are going for growth. And we intend to show growth in 2026. Tobias Norrby: And then there's a question on our account receivables program. If you, Stefan, please, could provide a few comments and expectations on that. Stefan Fristedt: It's a program that we have been putting in place. It's a tool. I was speaking to that. We were also working with the other components of working capital, and that is an example of what we are working with. So for some of our customer bases, we have that in place now. And if I would look on what that would mean by the end of the year, so let's say, by the end of 2026, I would say that it would contribute with another SEK 300 million to SEK 400 million. And then, of course, as we are a very seasonal company, it will be significantly more in certain parts of the year. But if we look on it from end of year to the end of year, I would say, compared to where we ended 2025, I would probably say that there is another SEK 300 million to SEK 400 million to be gained out of that program. Tobias Norrby: And then a short question on FX and in particular, full year 2025, the impact on EBITA, approximately, margin. Stefan Fristedt: There we have -- it's significantly less than what we have seen in -- I mean, we were talking about 2.1% units in Q4. And on the full year, it's 0.4%. So this is -- this has been an accelerating situation. And also, of course, versus the comparison to 2024, where the dollar ended with SEK 11.1 at the end of 2024, and now it is more on SEK 9.1. So it's dramatical development that we have seen there. But for the full year, 0.4% units on the profitability or on the profit margin. Tobias Norrby: And finally, if we can share some more comments on leverage in 2026, ambitions, expectations. Stefan Fristedt: Yes. But I mean, as one important driver, of course, here is obviously growth. And as Juan quoted before that the very clear ambition for 2026 is obviously to show growth, even though it's not going to be -- you should not expect double-digit growth. It's going to be low to mid-single-digit growth, I would say, in our base case here. So that is, of course, an important part. But then to drive the other parts of free cash flow as well in order to be able to reduce the net debt. And we also -- with the -- yes, plan on how to pay back gross debt, we are also going to reduce our financial net as we go. So I still feel that we should see a reduction in leverage in 2026. Then the question is how far that is going to be? I could say personally, I would be disappointed if that would not be at 2x at the beginning and so that we get out of the area with a 3x at the beginning. So if you see my point. Juan Vargues: I think just to fill in, if you go back to the last 3.5, 4 years, it has been very much about protecting margins, protecting cash flow, releasing inventories. It has been about navigating along a very, very, very tough period of time in any consumer business. At the same time, we feel that we are very, very close to turning. And that means as well that we need to also spend as management team moving from the defense to the offense. Just now, it's about growing the company, and that will have obviously a major effect, both on free cash flow and leverage without forgetting cost control. So we can assure you that we will keep working on restructuring program. We will keep working on protecting margins. But at the same time, we simply need to see the results of all the hard work that we have been doing also and get back to growth. Tobias Norrby: Good. And with that, I think we have one more question from the conference call audience, please. Operator: The next question comes from Daniel Schmidt from Danske Bank. Daniel Schmidt: Yes, it's me again. Just 2 short follow-ups, maybe Stefan. You mentioned reduction of debt in '26, and you outlined that on the slide earlier today. But what is the run rate in terms of financial net you think heading into Q1? Just could you give us any indication on a quarterly basis? Stefan Fristedt: [Technical Difficulty]. Okay. Daniel, can you hear us now? Daniel Schmidt: Yes. Stefan Fristedt: [indiscernible]. Can you repeat your question? We didn't really -- we were... Daniel Schmidt: I was just wondering, we talked about reducing debt and all that, and you did a lot towards the end of Q4, I think, if I'm not mistaken. What is the current run rate on the financial net heading into Q1 now on a quarterly basis? Stefan Fristedt: Now I would say that Q1, there is not going to be -- it's going to be a little bit down, but not significantly. But then after May, when we are paying back the bigger -- the remaining part of our Eurobond, it should be trending down. So I would say I mean we are a little bit above SEK 200 million now. So we should probably see that coming down with -- to, let's say, SEK 180 million or something like that. Daniel Schmidt: Okay. Okay. And then just a detailed question on the tariff/labor cost impact that you had in Q4. I think that combined was SEK 30 million, and now you're raising prices to adjust your profitability in Mobile Cooling since of January. How much of that SEK 30 million can you sort of counteract with this price increases? All of it? Or still you're going to end up with higher labor cost that is still going to have a negative impact? Or how do you view it? Juan Vargues: No, I see that on the pricing, our expectation is really to cover up for the increases that we saw during 2025. Absolutely -- now we increased prices, Daniel. The problem is that they are not kicking in before 1st of January. Stefan Fristedt: Some of them. Juan Vargues: So most of them kicked into the year, but we had a couple of major customers, obviously, where -- the prices are kicking in in January -- 1st of January. So we should -- our expectation is that we are going to cover up for those inefficiencies that we had in 2025 and the tariffs, of course. Daniel Schmidt: As of the full quarter Q1, there won't be any sort of delays into Q1? Stefan Fristedt: Price increases should be effective from the 1st of January. Operator: That was the last question at this time. So I hand the conference back to the speakers for any closing comments. Juan Vargues: So we would like to thank you for your attention. It's clear that we are not happy with the performance that we showed in the quarter. We have a number of underlying indicators that are positive, but we cannot be happy, obviously, when our EBITA, for whatever reason it is, is lower than 1 year ago and our profit margins are lower than 1 year ago. And our job is left. We keep working very, very hard to prove that we are going to come back to growth, that we are going to see margin improvements and that we are going to see higher free cash flow next year. And with that said, thank you very much for your attention, and have a good day.