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Operator: Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Orrstown Financial Services, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Tom Quinn, President and Chief Executive Officer of Orrstown Financial Services, Inc. and Orrstown Bank, who will begin the conference. Mr. Quinn, please go ahead. Thomas Quinn: Thank you, operator, and good morning. I'd like to thank everyone for participating in Orrstown's Fourth Quarter 2025 Earnings Conference Call, both by telephone and through the webcast. If you have not read the earnings release we issued yesterday afternoon, you may access it along with the financial tables and schedules by going to our website, www.orrstown.com. Once there, you can click on the Investor Relations link and then the Events and Presentations link. Also, before we start, I would like to mention that today's presentation may contain forward-looking information. Cautionary statements about the information are included in the earnings release, the investor presentation and our SEC filings. The earnings release and investor presentations also include non-GAAP financial measures. The appropriate reconciliations to GAAP are included in those documents. Joining me on the call this morning are Orrstown's Senior Executive Vice President and Chief Operating Officer, Adam Metz; as well as our Executive Vice President and Chief Financial Officer, Neil Kalani; our Chief Revenue Officer, Zach Khuri; Chief Risk Officer, Bob Coradi; and our Chief Credit Officer, Dave Chajkowski, will also participate in the call. Our financial highlights: Orrstown achieved the highest reported annual net income in the company's history of 106 years. Net income was $80.9 million or $4.18 per diluted share. Our return on average equity was 14.76%, return on average assets was 1.49%. Net interest margin came in at 4.04% and fee income of $52.3 million contributed to 21% of the total operating income. We demonstrated our ability to maintain net interest margin near top of peers, enhanced fee income and created efficiencies, all while maintaining our focus on leading with risk. Regularly investing in the future remains a key strategy for the bank. We brought in several talented team members in 2026 and will continue to do so. With that has come a strong loan pipeline and enhanced growth opportunities going forward. Overall, it was a highly successful year for Orrstown, particularly with the numerous challenges presented to us along the way. We are proud that we have consistently demonstrated the ability to maintain strong profitability in any environment and expect that to continue going forward. I will now turn it over -- the call over to Adam Metz, who will speak about our quarterly results. Adam? Adam Metz: Thank you, Tom, and good morning, everyone. Our quarterly financial highlights are summarized on Slide 3 of our deck. As was the case with our annual results, our fourth quarter earnings were impressive. Net income was $21.5 million or $1.11 per diluted share. We maintained a strong net interest margin, which, coupled with noninterest income growth, drove our continued earnings and capital generation in the fourth quarter. Noninterest income as a percentage of operating revenue was 22% in the fourth quarter, that's the third consecutive quarter where this ratio exceeded 20%. As Tom said, enhancing noninterest income and investing in the future remain key strategic priorities for the bank. We recently announced the hiring of Matt Alpert as our Chief Wealth Officer. Matt's proven track record and team leadership and its client-first approach aligned perfectly with our mission to deliver personalized high-quality financial advice and trust services. Over time, we will look to Matt to bring additional talent to the organization. Our proven philosophy remains that investing in the right people today will lead to continued growth in the future. We are also looking for newer sources of fee income, such as our recently increased presence in the merchant services space. Loan growth was steady during the fourth quarter coming in at 4%. Loan growth was tempered by some projected closings being pushed into the first quarter of 2026. Growth has been balanced across our footprint and our product set, a nice mix of C&I and CRE, and we have also seen the benefit of our investment in the middle market team. We remain confident in our pipelines, which remain strong and the ability of our experienced relationship bankers to continue to responsibly grow the loan portfolio. Credit quality remains strong, highlighted by minimal provision expense, a reduction in classified loans and a healthy reserve coverage ratio. The bank recorded a provision expense of $0.1 million and net charge-offs of $0.5 million during the quarter. Classified loans decreased by $5.7 million from the prior quarter. The allowance for credit losses on loans as a percentage of total loans ended the quarter at 1.19% compared to 1.21% at the end of the prior quarter. We believe the allowance covered properly aligned with the makeup of the loan portfolio. While delinquencies have increased, we do not believe it is indicative of a broader trend. We continue to build capital, which will create flexibility for us in the future. Capital ratios increased across the board quarter-to-quarter. We remain well capitalized by all measures. Our shareholders remain our top priority. We remain focused on building shareholder value through strong earnings and an attractive dividend. As a result of our strong earnings performance, the Board voted to increase our quarterly dividend by $0.03 per share from $0.27 to $0.30 per share. This is the fourth dividend increase in the past 18 months, and our dividend has increased 50% since the merger date. Neil Kalani, our CFO, will now discuss our fourth quarter results in more detail. Neil? Neelesh Kalani: Thank you, Adam. Good morning, everyone. As Adam noted, we finished '25 strong with $21.5 million of net income or $1.11 in earnings per diluted share. ROA was 1.55% for the quarter and ROE was 14.7%. And then I'll start on Slide 4 of the earnings deck with my discussion. The net interest margin was 4.00% in the fourth quarter, down from 4.11% in the third quarter. There are a couple of factors that played into this. First, purchase accounting accretion impact to the margin was about 6 basis points lower in the fourth quarter. Also, the Fed rate cuts in September and October resulted in reduced interest income on our variable rate loans. Continued market pressure has lengthened the lag in deposit rate reductions. We expect funding costs to come down starting in the first quarter of '26 and I'm projecting a net interest margin in the range of 3.90% to 4% for 2026. As I've stated in previous earnings calls, we have anticipated some compression due to the asset-sensitive balance sheet, coupled with the lag in deposit pricing. So the fourth quarter margin compression was expected and will be focused on maintaining it around current levels. If there were no rate cuts in 2026, the margin, I do expect, would come in a little higher. The margin excluding purchase accounting impact was 3.53% in the fourth quarter as compared to 3.59% in the third quarter, primarily because of deposit rate lag. Purchase accounting accretion impact, excluding any unanticipated acceleration, should continue to decline modestly going forward. The core margin, I believe, will increase in the first quarter and stabilize from there. We also maintain our focus on replacing the accretion income from the acquired loan portfolio as it runs off, and we remain on pace to do so. Slide 5 covers fee income, which increased to $14.4 million in the fourth quarter from $13.4 million in the third quarter. Noninterest income for the fourth quarter was more than 22% of total revenues. Wealth management income was $5.7 million and swap fees were $1.1 million in the quarter. As Adam noted, we're excited about the opportunities ahead of us in the wealth space and expect to continue to make investments to grow that business. Service charges are up from the prior quarter as we grow our treasury management business, including merchant services, which has grown substantially since the prior year and represents 17% of treasury management revenue. Mortgage activity has been stable for several quarters. And due to the volatility in some of the components, I'm projecting a quarterly run rate for noninterest income to be in the range of $13 million to $14 million in 2026. Now I'll cover noninterest expenses on Slide 6. Expenses are elevated a little bit this quarter at $37.4 million, up $1.1 million from the third quarter. Salaries and benefits were higher with increased health care costs and some additional items that on the professional services line, which were a little elevated that drove the overall noninterest expense number up. With recently communicated and planned future investments in wealth management and other sales teams, I expect expenses to run at a rate around -- on a quarterly rate of around $37 million going forward. However, we do regularly seek opportunities to invest in talent that will drive future growth. Slide 7 covers credit quality. Provision expense was just [ $75,000 ] for the quarter. We had approximately $500,000 in net charge-offs, which were mostly offset by the impact of favorable economic factors in the allowance calculation. Our allowance coverage ratio was 1.19% at December 31, '25, which was a slight decline from September 30 that we believe it is more than adequately aligned with the risk profile of our loan portfolio. Classified loans are down mainly due to paydowns. Non-accruals are up from the prior quarter primarily due to one relationship and not indicative of any broader trends. Nonperforming assets remain very low as a percentage of total assets. Our earnings and performance metrics are shown on Slide 8. All metrics remain strong. TCE is now at 9% and tangible book value per share continues to build at a rapid pace. Our loan portfolio is discussed on Slide 9. Loans grew 4% in the quarter with some anticipated closings pushing into January. Loan yields did decline during the quarter due to impact of lower rates on the variable loan portfolio. We had $207 million of loan production during the fourth quarter and continue to have a robust pipeline. We feel good about achieving loan growth of 5% or better in 2026. On Slide 10, deposits were relatively flat declining slightly by $5 million. The loan-to-deposit ratio remains at a comfortable level of 89%. The cost of deposits was 1.98% for the fourth quarter. Due to the deposit pricing lag, I would expect deposit cost reductions to be more clearly reflected in the first quarter of 2026. Lowering overall funding cost is a regular discussion item for management as well as expanding wallet share and an emphasis on bringing in operating accounts. The investment portfolio is covered on Slide 11. We gradually repositioned the portfolio over time taking opportunities as they present themselves in the market. During the fourth quarter, market dynamics led us to making a bigger shift. We purchased $125 million of Agency MBS and CMO and sold about $42 million of securities. This was a strategic decision to help address the asset sensitivity on the balance sheet. The sales did result in a small gain. And the majority of the purchased securities are at a fixed rate, which will benefit us as rates decline. The investment yield -- portfolio yield of 4.58% reflects a decrease from the prior quarter of 4.67% due to the impact of declining rates on the floating rate investments. With still excellent yield and declining unrealized losses, we believe the investment portfolio is positioned well to be a driver of earnings growth as well as proper balance sheet alignment. Our regulatory capital ratios are covered on Slide 12. After the redemption of subordinated debt on September 30th, the total risk-based capital ratio has returned to where it was at June 30th. Capital generation is expected to be strong going forward based on projected earnings, and we believe we are positioned to take advantage of various capital allocation options. Finally, the guidance that was presented in the deck presents a conservative look at what we know we can achieve. And we remain confident that we can either exceed current analyst consensus. I'd like to now turn the call back over to Adam Metz for some closing remarks. Adam Metz: Thank you, Neil. As Tom said, we are proud that we have consistently demonstrated the ability to maintain strong profitability in any environment. We intentionally guided to assumptions we're confident we can deliver against. When you put these pieces together, unchanged loan growth, higher fee income, disciplined investment, the earnings profile for 2026 remains intact and, in our view, more reliable. We are optimistic about the future, both in the short and long term. We would now like to open the call to questions. Before we get started, the operator will briefly review the instructions with you. Operator: [Operator Instructions] Your first question comes from Tim Switzer with KBW. Timothy Switzer: You covered this briefly on the call a little bit, but I want to ask about the increase to the guidance on both the noninterest income and expenses. What was the primary driver for both of those? And does it reflect like any change in strategy or the business or anything from relative to last quarter? Neelesh Kalani: So a couple of things. It doesn't reflect necessarily a change in strategy, since our continuing strategy of finding talent to drive future earnings. So we've talked about in the past that we've constantly been successful by investing in talent, so part of starting with the expense side, which has translated to the income side and will translate further. We have taken some actions. We have brought in some talent on the lending side. We announced a new individual, Matt Alpert, Head of Wealth, to help drive us forward, there will be some investments in addition to that on the [ OFA ] side to help drive that business forward. So when we see opportunities to help us going forward, we will make those investments in strong talent to drive us forward. So I would say that is modeled in the expense guidance right now, depending on opportunities, whether it's team lifts on the lending side or whatever it might be, we could kind of go further in that range. But currently, based on where we stand, we're on the -- I do project being on the lower side of that range. But I do want to allow for some opportunity to invest in talent, as I said, to drive not only net interest income higher on the loan side, but fee income higher. So the flip side of that discussion is a noninterest income line, where we have had a couple of quarters where we've consistently been at a higher run rate than we were in the past. We broke $14 million. It was our highest quarter from a noninterest income standpoint that we've had historically. Not going to sit here and say that, that $14.4 million run rate is going to be something going forward because we can't -- as I talked about, swap fees can be -- can change from quarter-to-quarter. It's a very strong quarter from that standpoint and there's the wealth revenue driven by market. So we can -- I'm comfortable that we can kind of increase that guidance and that is driven by talent that we have brought on board and talent that we've already seen the benefit from and that we will see the benefit from going forward in the future from bringing in new people. Timothy Switzer: Got it. Okay. That was very helpful. And then if you could help clarify a little bit the NIM trajectory over the course of the year. So it sounds like the core NIM should go up in Q1, and you're already at the top end of your guide going into the year. So I would assume that reflects some moderating purchase accounting accretion over the rest of the year that brings you down what you mentioned. Are you able to maybe quantify like the pace of purchase accounting and how that should go down over time? Neelesh Kalani: Yes. So on a quarterly basis, it's kind of [ true to ] excluding acceleration, which we can't. We don't really predict, it's generally 2 to 3 basis points each quarter that it will decline. But with the loan production that we're putting on, that's essentially replacing the impact, but that's obviously a little lower rates that will drive the margin down a little lower. But -- so it's about 2 to 3 basis points on that side. But I do -- the projections do assume 75 basis point; 3, 25 basis point, cuts in 2026. So if that doesn't materialize, as I indicated in my comments, we would expect to come in higher than that high end of the range. But again, just trying to account for what we're anticipating happening in the market, but there's potential certainly to do better than that, and we are -- we do remain focused on the funding cost side of the equation. But all in all, we feel very good about the margin. We continue to manage it and hope to keep it at or near that 4% level, but there are some factors that can take it lower potentially. Operator: The next question comes from Gregory Zingone with Piper Sandler. Gregory Zingone: Just pivoting into the wealth management side for a second. Would you be able to tell me what AUM or AUA was at quarter end? And then also, if you have any numbers on how successful you've been in bringing some of the Codorus Valley customers on your platform? Neelesh Kalani: Total AUM was a little over $3 billion. Did you want to address? Adam Metz: I'm sorry, Gregory, What was the second half of your question? Gregory Zingone: I was just curious if you had any numbers on how successful you've been in bringing some of the Codorus Valley customers on to your wealth management platform. Adam Metz: Yes. I don't know that I'm sitting here with an exact statistic, but we've seen no significant decline in the portfolio, either from the wealth side or from the depository side from the -- or the commercial side. So as you saw in the first -- fourth quarter of last year, fourth quarter of 2024 and the first quarter of 2025, we did take a proactive approach from a commercial loan portfolio perspective where we identified certain loans that didn't necessarily meet our sort of credit box, and we proactively moved them out and you saw that. But from a client retention standpoint on the wealth side or on the depository side, we've seen pretty good stickiness. Gregory Zingone: Awesome. And then you guys had mentioned a little bit about the hiring aspect, and you guys are not too scared to hire new people, new teams when you see fit. Is there an area of the focus for the company this year, whether it is on the lending side, wealth, technology or other back-of-the-house functions? Adam Metz: Yes, I can answer that. I would tell you that in mid-2025, we made a move to build out a middle market commercial lending platform. And that has already generated significant results in our investments. So we feel very good about that, and we feel like there's additional opportunity there. On the wealth management side, as I think we shared with several of you, is that we feel like there's additional opportunity in our growth markets: Maryland, Lancaster, Harrisburg. We feel like we're just scratching the surface there. And I think Matt and his experience and certainly around recruitment and team building will benefit us greatly there. And from a technology side, we're always looking at that stack. And I think in this quarter and going forward, we're making investments to make sure we have the state-of-the-art CRM platform and training the teams to appropriately identify the full breadth and scope of the client relationships so that we make sure that we're bringing all the products and services to the client. Gregory Zingone: Awesome. And just one more for me. Seeing that your capital is building at such a nice pace, I'm curious where M&A ranks as a priority for capital deployment. Adam Metz: Yes. I appreciate the question. I think we have a very strong organic growth model. And frankly, that's what we're focused on. We feel like as I just shared, we have a lot of opportunities in the business lines, not only that we have today, but enhancing those. And so that's sort of where we're focused on. Our capital build does present optionality. And so we'll certainly -- we've done 3 in 106 years. And so we're pretty picky about the partners, and we'll sort of go from there. Operator: The next question comes from Kyle Gierman with Hovde Group. Kyle Gierman: I'm on for Dave Bishop. Kind of on that same question, could you provide an update on the company's current thinking around share buybacks and kind of what is like the near-term outlook for repurchases? Neelesh Kalani: We're always looking closely at that opportunity. We're trying -- our valuation versus tangible book is a big factor in that. We're going to take steps as needed where the stock price has been recently hasn't put us in that position, but we're certainly monitoring it and we'll -- we still have the shares available to purchase. So we continue to be open to kind of all allocation, capital allocation methods based on where our position is. Kyle Gierman: Great. And then regarding the recent security purchases of the CMOs and MBS, could you share like the yields achieved on those purchases and maybe the overall goals of the portfolio going forward? Neelesh Kalani: Yes. The yield on the -- average yield on the purchases was 4.92%. So we do -- we have always and we'll continue to view that not just as the investment portfolio, not just as a liquidity source and liquidity management tool. It's also a strong generator of earnings and obviously, cheap capital utilization as well. So we will continue to be active with the portfolio as kind of the situations arise. We do -- just from a guidance perspective, we do kind of expect -- the fourth quarter doesn't fully reflect everything on an average basis, so we do expect some benefit going forward in addition to what we saw in the fourth quarter from the investment portfolio, but we expect it to kind of sit around the levels where it's at now. Operator: That concludes the Q&A portion of the presentation. Mr. Quinn, I turn the call back over to you for concluding remarks. Thomas Quinn: Thank you, operator. As always, if we can clarify any of the items discussed this morning on this call or on the earnings release, please feel free to give us a call. Wishing you a wonderful day. Thank you very much. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the BMI Q4 and Full Year 2025 Earnings Call. [Operator Instructions] I will now hand the conference over to Barbara Noverini, Head of Investor Relations. Barbara, please go ahead. Barbara Noverini: Thank you for joining the Badger Meter Fourth Quarter and Full Year 2025 Earnings Conference Call. I'm here today with Ken Bockhorst, our Chairman, President and Chief Executive Officer; Bob Wrocklage, our new Executive Vice President of North America Municipal Utility; and Dan Weltzien, our recently appointed Chief Financial Officer. This morning, we made the earnings release and related slide presentation available on our website at investors.badgermeter.com. As a reminder, any forward-looking statements made on this call are subject to various risks and uncertainties, the most important of which are outlined in our news release and SEC filings. On today's call, we will refer to certain non-GAAP financial metrics, including certain base metrics. Use of the term base for these purposes is intended to refer to certain financial metrics, excluding the SmartCover acquisition. Our earnings presentation provides a reconciliation between the most directly comparable GAAP measure and any non-GAAP or base financial measures discussed. With that, I'll turn the call over to Ken. Kenneth Bockhorst: Thanks, Barb, and thank you all for joining our call. Turning to Slide 3. We delivered solid financial results in the fourth quarter, capping off another full year of record sales, profitability and cash flow. We continue to see robust demand for our industry-leading cellular AMI solution and the recent addition of SmartCover to our BlueEdge suite of smart water management solutions positions us well for long-term growth across the water cycle. I'm thankful for the dedication and perseverance demonstrated by the entire Badger Meter team during a year marked by global trade uncertainty and exciting acquisition integration and many ongoing AMI projects in various stages of deployment. I'll be back to provide a recap of the year and discuss our outlook later in the call. But for now, I'll introduce you to Dan Weltzien. As announced in December, Dan became our new CFO on January 1, 2026, following 7 years as Vice President and Controller. Dan, welcome to the earnings call. Bob Wrocklage is also here today in his new capacity as Executive Vice President, North America Municipal Utility. Bob will join me later in the call to provide more detail about the significant AMI project for PRASA that we mentioned in today's press release. With that, I'd like to turn the call over to Dan to cover the numbers. Daniel Weltzien: Thank you, Ken. I'm truly honored to serve as Badger Meter's Chief Financial Officer. I've benefited personally and professionally from the strong relationships I've had with both Ken and Bob for many years, and remain excited by the opportunity we have ahead of us to build upon our long track record of market leadership and success. So let's go ahead and start by reviewing another quarter of solid financial performance. Turning to Slide 4. Total sales of $221 million in the fourth quarter of 2025 represented an increase of 8% year-over-year or 2% base sales growth. Total utility water product line sales increased year-over-year by 9% or 2%, excluding SmartCover. As expected, fewer operating days in the fourth quarter and previously communicated project pacing effects resulted in a 6% sequential decline in utility water sales versus the third quarter of 2025. The term project pacing is intended to describe typical variation in activity driven by periodic changes in our active customer base and whether or not we act as prime contractor in what we refer to as turnkey projects. Simply put, the sequential quarterly sales decline between the third and fourth quarters of 2025 has everything to do with the calendar and quarter-specific customer and project mix and very little to do with other influences such as underlying market conditions, customer demand trends, utility budgets or the broader funding environment. On the last point, though not all that relevant to metering, recent congressional actions support funding of state revolving funds consistent with historic levels. This should allay some broader water industry funding reduction concerns. Sales for the flow instrumentation product line were flat year-over-year with modest growth in water-focused end markets, offsetting declines across the array of deemphasized applications. Turning to profitability. We were very pleased with the year-over-year operating earnings growth of 10%, which outpaced revenue growth. Operating profit margins increased 40 basis points from 19.1% to 19.5%. Base operating earnings increased 9% year-over-year, expanding base operating profit margins by 140 basis points to 20.5%. Gross margins expanded 180 basis points to 42.1% in the fourth quarter from 40.3% in the prior year quarter. Gross margin continued to benefit from structural mix driven by ultrasonic meters, cellular AMI, water quality and SmartCover sales, which were all above line average profitability. It's also important to mention that the same project pacing effects that impacted utility water sales also benefited margins in the fourth quarter. This is because when we act as prime contractor during certain turnkey projects, sales often include pass-through activities such as outsourced meter installation labor and ancillary meter pit supplies, which tend to have a lower margin profile. Separately, while we now have largely reached price cost parity on 2025 tariff and trade-related cost impacts and related price mitigation actions, we do expect global tariff and trade conditions to remain fluid in 2026. In addition, we expect elevated prices of copper and certain other components of our Bi-alloy ingot material cost to be a gross margin headwind in 2026. We factor all of these components, along with other puts and takes into our normalized gross margin range of 39% to 42% and into ongoing and routine price mitigation actions. SEA expenses in the fourth quarter were $49.9 million, with the $6.4 million year-over-year increase driven primarily by the SmartCover acquisition. When excluding SmartCover-related expenses, including $1.6 million of intangible asset amortization, base SEA expenses increased $1.3 million or 2.9% year-over-year. The year-over-year increase in base SEA expense was mainly driven by higher personnel costs to support normal course growth of the business. The income tax provision in the fourth quarter of 2025 was 24.8% versus the prior year's 27.1%. Consolidated EPS was $1.14 versus $1.04 in the prior year quarter, representing a 10% year-over-year increase. Primary working capital as a percentage of sales at December 31, 2025, was 20.9%, largely consistent with the comparable prior year period. Record quarterly free cash flow of $50.8 million increased by approximately $3.4 million year-over-year. With that, I'll turn the call back over to Ken. Kenneth Bockhorst: Thanks, Dan. For those of you who followed our story and interacted with Bob over the years, you've certainly experienced the passion and knowledge he has for our business, extending well beyond the traditional CFO focus. Badger Meter will benefit greatly from Bob's business acumen, customer focus and growth mindset as the leader of our largest line of business. I'm now going to hand it over to Bob, so he can talk specifically about the Puerto Rico Sewer Aqueduct Authority (sic) [ Puerto Rico Aqueduct and Sewer Authority ] or PRASA AMI project. Robert Wrocklage: Thanks, Ken. From the CFO's chair, it's been gratifying to be part of more than doubling our top line revenue over the past 7 years. In my new role, I'm excited about further expanding our market leadership as cellular AMI technology continues to increasingly be adopted by North American water utilities as the industry standard for AMI. Consistent with our Choice Matters BlueEdge portfolio, we continue to enable our customers to walk up the technology curve at a pace that's right for them. Our blueprint for growth begins with cellular AMI as the foundation to real-time insights and analytics and expands through the BlueEdge suite of smart water management solutions, enabling visibility and efficiency throughout the entire water cycle. A very recent example of our success with cellular AMI is the announced award for the PRASA AMI project, which will be one of the largest deployments in the world. An overview of the project is provided on Slide 5. This transformative multiyear project will include E-Series ultrasonic meters, ORION Cellular AMI radios and BEACON SaaS across the island of Puerto Rico, representing approximately 1.6 million service connections. Badger Meter's role in the project will be supply only, and we will not assume any prime contractor or installation or ancillary product supply responsibilities. Those activities will be handled by others. We will be utilizing our Racine, Wisconsin facility for production. Over the past year, investors have understandably focused on assessing the installed base of AMI and the remaining AMI adoption potential in North America, along with the underlying customer demand drivers and typical time horizons for AMI projects. To provide color on these factors, let's use the PRASA award as an example of a large project. PRASA's planning for the project began over 5 years ago. That planning materialized into a technology pilot and RFP, which Badger Meter, along with its partners, first participated in beginning in 2021. The pilot deployment began in 2023 and the project award occurred in 2025. We expect the PRASA project to translate into product shipments in 2026 with an initial ramp earlier in the year and more meaningful revenue contributions in the second half of 2026 when project deployment begins -- is expected to begin in earnest. To be clear, project awards of this nature, PRASA or otherwise, underpin our long-term high single-digit outlook over the next 5 years, and the PRASA project specifically is not additive to that either in a single year or over the long-term horizon. While we don't regularly share customer-specific wins and project awards, we're highlighting PRASA due to its scope and scale, to illustrate the drivers behind the uneven project nature of our business and to acknowledge that even today, there are many PRASA project variables known and unknown that will influence near-term 2026 revenue contributions, the year-to-year project pacing thereafter and the duration of the project deployment. Explicitly stated, for these reasons, we will not be sizing the revenue impact of this project on 2026 or more broadly. On that note, I'll pass it over to Ken for his closing remarks. Kenneth Bockhorst: Thanks, Bob. I'd like to take a moment to review our full year 2025 performance against the 5-year trend line. Please turn to Slide 6. In 2025, we delivered 11% sales growth, surpassing $900 million in revenue. This reflects a 17% compounded annual growth rate over the past 5 years. Our software revenue, which includes SmartCover, now exceeds $74 million and represents 8% of sales. Software revenues, largely driven by cellular AMI have grown at a 28% compounded annual growth rate over the past 5 years. In 2025, operating profit margins expanded 90 basis points to 20% despite the initially dilutive impact of the SmartCover acquisition. Base operating profit margins increased 200 basis points year-over-year. Over the last 5 years, both gross margin improvement and SEA leverage contributed to 470 basis points of operating margin expansion. And finally, we continue to manage our working capital intensity and again generated free cash flow in excess of 100% of net earnings. Our clean balance sheet with more than $225 million of cash on hand continues to provide significant financial flexibility to reinvest in our business, both organically and inorganically. In the third quarter, we increased our dividend for the 33rd consecutive year. And in the fourth quarter, we opportunistically repurchased $15 million in shares when the market price implied an attractive long-term return on capital. Turning to Slide 7. I'm proud of what we accomplished in just 11 short months as we integrated SmartCover into the Badger Meter organization. SmartCover delivered $40 million of sales in 2025 or 25% on an annualized basis. Over this time, SmartCover's profitability improved, driven by both higher sales volumes and focused cost management. We successfully transferred SmartCover's manufacturing operations to our facility in Racine, Wisconsin, and we're on track for earnings accretion in 2026 as expected. And finally, I'll conclude with some thoughts on both our near-term and long-term outlook. As we mentioned in our press release this morning, the second half of 2025 included a concentrated mix of concluding AMI turnkey projects, resulting in base revenue growth of 6%, which was lower than our 5-year forward outlook. We expect this project pacing dynamic to extend throughout the first half of 2026 until several awarded projects, including PRASA, begin multiyear turnkey deployments. We'd like to remind investors that it is not unusual to experience certain quarters or even whole years that are above or below our expectation of high single-digit sales growth over a 5-year forward period. Quarter-to-quarter variation in project pacing is typical in our industry and attempting to precisely time it can cause those who follow us to miss the big picture. Our products and solutions support critical elements of the water infrastructure and the long-term secular trends impacting the water industry will continue to influence our customers to plan for better resiliency. We are actively involved in enabling that change. For example, we created the market for cellular AMI against an incumbent technology and have since demonstrated success at gaining share. Via acquisition and internal development, we've expanded our opportunity set to include solutions across the entire water cycle. Long enduring secular trends support demand for smart water management solutions. When speaking directly with our customers, we have not seen meaningful evidence that real or perceived federal funding constraints will impact our ability to generate high single-digit sales growth, operating profit margin expansion and free cash flow conversion in excess of earnings over a 5-year forward time horizon. In summary, I'm proud of our performance in 2025, look forward to what's ahead in 2026 and see great opportunity for the execution of our long-term strategy to compound value for both our customers and shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Robert Mason with Baird. Robert Mason: Congratulations, Bob and Dan, on your new roles. Ken, just to touch on the topic around the timing of projects, understandable that it's not going to be always an even flow there. But I'm just curious, did we see the full impact of the conclusion of those projects in 4Q? Just trying to think about maybe we normally see a sequential rise in the number of operating days in the first quarter, how that dynamic may play into the first part of 2026. Kenneth Bockhorst: Yes. So first off, Rob, there are several projects that can be at play at any given time, some large, some medium, some small. So it's hard to really nail down exactly that point. But if I could take just a little look back to some of the earlier calls, if you recall, in Q2 of the year, we talked about project pacing and timing and some of those issues that we thought we might see in the second half. And then additionally, we talked about the fewer working days that you start to see in Q4. So it isn't unexpected to us that the second half of the year was a lower growth than the first half. So nothing specific on any individual project, but just the nature of the business that can be uneven from time to time. Robert Mason: But -- Okay. Fair enough. I guess just did we -- I guess, did more of those conclude in the third quarter versus the fourth quarter or if we're looking at another step down as those have now fully concluded? Kenneth Bockhorst: Yes. So what I would think about, if you look at 2025 and how it played out in 2026 and how we see it happening, the first half started out with a higher growth rate, the second half of the year with a lower growth rate. I think the way we see '26 is a lower growth rate in the first half and a higher growth rate in the second half. And that's something that is driven by the confidence that we have in projects that are in flight, awarded projects that haven't yet started. So we have visibility to some of those projects, and we do see how they're layering out in the year. Operator: Your next question comes from the line of Nathan Jones with Stifel. Nathan Jones: I guess I'll start. I know you don't want to talk about the size of this Puerto Rico project. So maybe I'll ask another question that you have answered previously. I think, Ken, you've said over the years that the size of the U.S. market is about 6 million meters per year and Badger's share is roughly about 30%. Are those numbers still accurate for what the size of the overall U.S. market is? Kenneth Bockhorst: Yes, give or take, 85% of the market every year is replacement, and it's roughly in that space, yes. Nathan Jones: Okay. So Badger ships give or take 2 million meters a year. So Badger ships about, give or take, 2 million meters a year is the rough way that would break down for what the overall U.S. market is. Robert Wrocklage: Yes. I mean it's not far off. Again, the indicated general volume that you alluded to flexes year-to-year. It's probably a little bit higher than 6 million. That reference figure is dated. But at the same time, the share element that you mentioned is still relevant. Nathan Jones: Got it. I'm just trying to give people a general sense for how big a project 1.6 million connections is for Badger Meter even over a 3- to 5-year period. Again... Kenneth Bockhorst: And Nathan, one thing is the reason we mentioned PRASA is because, as you know, we don't get into the habit of announcing projects because there's so many. But obviously, this one is pretty meaningful in size, as you point out. And to just give it some reference and the reason we're talking about it more publicly, is we never announced the win in the project that we did recently complete in Orlando. So everyone is aware, Orlando is a pretty large city. To put it in scope and scale, the PRASA award is the equivalent to 8 Orlandos. Nathan Jones: That's extremely helpful. My next question is going to be around gross margins. Obviously, gross margins very strong. There's probably a few headwinds as we go through the year. I mean second half of '26, you're talking about some more turnkey projects, which will be headwinds to gross margins. You've obviously seen a big spike in copper prices that will come through your business on a delay. But the first half is, as you said, is going to have an absence of some of these turnkey projects, which is a tailwind for margins. Any help you can give us with how we should think about first half versus second half gross margins in terms of that mix or how we should think about the full year for gross margins given you're at the very high end of the gross margin target range in 2025? Daniel Weltzien: Yes, Nathan, this is Dan. I think a couple of things to point out. I think as we think about it quarter-to-quarter, there's nothing that we would specifically point to say there's going to be variability from quarter-to-quarter. But I think you're thinking about the right topics being we continue to see structural mix impacting margins in a positive way in 2026. And I think you highlighted a couple of the areas that we're continuing to watch, which are the commodity input costs into our ingot recipe. And then certainly, tariffs is something that we continue to monitor. We've gotten to price cost parity on tariffs in 2025, and we'll continue to manage whatever comes our way in 2026 from that perspective. Operator: Your next question comes from the line of Jeff Reive with RBC Capital Markets. Jeffrey Reive: I had another one on the Puerto Rico project. I mean this is a really sizable win. Can you walk us through the typical timing and phasing of a large AMI project like this? How do the deployments ramp? Are they smoother, chunky? How much is in year 1, 2 versus 3, 4, 5 just over the life? Kenneth Bockhorst: Andrew, that's a fantastic question. And I would say you're a straight man for why we don't provide guidance from quarter-to-quarter. The project ramp-ups, oftentimes, there's a plan. There's so much that goes into an AMI project in terms of going through all the budget cycling and then having to align all the resources because you need people out on the street doing installations. And then you might have weather factors from quarter-to-quarter. So it's not as smooth as people might think that it would be to do a large deployment, whether that's something the size of Puerto Rico or something the size of a medium town anywhere in the United States. So typically, people look at these things and they expect them to be done over a 5-year period. If everything goes really smoothly, it could potentially go faster. If you have issues, it could go longer. But there's no real blueprint, but generally, we're thinking of this over a 5-year horizon for PRASA. Jeffrey Reive: Got it. And I think you said in the prepared remarks, the meters are being manufactured in Racine, not your Mexico facility. Is there a margin differential happening there? Robert Wrocklage: Yes. I mean I think you can just -- you can imply just from labor cost differential, there'd be a potential margin impact. Of course, that was all contemplated in the contracting stage. And so ultimately, the location of manufacture is being driven by U.S.-made manufacturing requirements. So that's part of the reason why we made an investment in that facility and continue to invest there. That's what dictates where it's made, and we understand that cost footprint, and we're able to engage and embed that, if you will, into the RFP process. Kenneth Bockhorst: Yes. And I'm sure I'm jumping the route here on anticipating the margin question on the project, which, of course, which we won't disclose. But since we're not -- since it's not full turnkey and there's a whole lot of different factors in here, but this is one where I think we've struck a really good value proposition where PRASA sees the value in what we're offering and they're happy to buy it, and we're happy to sell it at the margin it's going for. Operator: Your next question comes from the line of Andrew Krill with Deutsche Bank. Andrew Krill: I want to go back to the outlook for sales. One of your competitors yesterday suggested their revenue could be slightly to modestly down year-over-year. I think you used the word growth rate for this year. So I just wanted to confirm, I think that would -- do you feel pretty confident sales should grow this year even if they're below that high single-digit through the cycle target? Kenneth Bockhorst: Yes. So real quick, I know people really enjoy the read-throughs and trying to do the comparisons and see how things will work. First of all, there could be inherent unevenness in their business that's different than the mix of customers that we have that is hard to do just to begin with industry-wide. Secondly, the particular competitor you're talking about, I think we have several differences that have been built over the last several years. We have an industry-leading AMI offering that has several in-flight projects and awarded not started projects informing our view. We've got a really exciting software business at 8% of our revenue now that's 100% recurring. We're really excited about what's happening with sewer line monitoring and water quality monitoring and network monitoring. And these are things that I believe the competitor you're talking about doesn't have. So the read-through that people are getting, I would say, isn't the same. So when we look at all those factors that we're talking about, again, I would think you should view '26 as the inverse effect of '25 like I talked about before. But we feel confident given what we're seeing. Our conviction on high single digits through the 5-year horizon is as strong today as it was yesterday as it was 3 months, 6 months or 12 months ago based on all the same factors we use to think about that 5-year horizon. But some years -- and one thing, not to follow it all up here on this question, but everyone who's talked to us before, we've never pegged and said every single year is going to be 8%. We've said some years might be 12%, some years might be 5%. We just came off of 6% that I'm pretty proud of. And I think this next year is going to be exciting, and our 5-year conviction is as strong as it's ever been. Andrew Krill: Great. Very helpful. And then a quick one on pricing, and I know you don't disclose that exactly. But just can you remind us, has it been primarily or all list price increases thus far to deal with tariffs mostly? Or have you been using surcharges as well? And in the event tariffs were ruled illegal, like do you expect you can hold on to this price looking forward? And any conversations with customers looking for kind of some discounts at this point? Kenneth Bockhorst: Yes. So in our pricing, keeping in mind, 75% of our revenue is sold direct. And so when we're in a constant state of doing project pricing based on real-time output, so that helps us in some ways. Two, yes, we do list price increases. What we didn't do was temporary tariff add-ons or tariff issues that could be challenged in court or could be reversed once a customer says tariffs are gone or could be demanded back because tariffs have been rolled back. So ours is pretty clean, I think, compared to how other people have handled the pricing aspects of tariffs. Operator: Your next question comes from the line of James Ko with Jefferies. Jae Hyun Ko: I guess I wanted to kind of follow up on the project pacing dynamic here. So was this like dynamic kind of extending into first half 2026 expected? Or is this something new kind of developed? And kind of how much confidence do you have in kind of project converting into revenue in second half 2026? Kenneth Bockhorst: Yes, there can always be some variability. So in full disclosure, some of the projects that are starting in the second half, we thought would have started in the first half. So things can slide sometimes from a quarter or 2 out. And this is why we talk so much about the 5-year horizon. I'm absolutely confident all those things are going to happen within the 5-year. I'm confident what's going to happen in the year, but trying to peg it from quarter-to-quarter can be difficult. Daniel Weltzien: I just want to clarify, too, that when Ken says project slides to the right, for example, it's not related to funding. Each one of these projects is different. Every customer is different. There's contracting phases. There's initial deployment areas. There's full rollout. So there's multiple steps to these projects and everyone is different, and that's the largest impact to the timing of them. Kenneth Bockhorst: I think the point that I would like to maybe emphasize here is that these aren't hoping for backlog increases. These aren't hoping for things to happen. These are known awarded, not started projects that even if they have some variability in where they move, they're in our pocket. Jae Hyun Ko: Got it. And I guess similar questions, you kind of reiterated high single-digit kind of organic growth over the 4- to 5-year horizon. So like how much of that outlook is kind of supported by awarded but not executed projects versus kind of broader just few new opportunities? Kenneth Bockhorst: Well, so it's a great question. I mean this is how we -- when we think about our 5-year view and what we've talked about in several meetings is we're looking at several segmentations of how many people are looking -- working with consultants and working on budget, which are items that turn into revenue 3, 4 and 5 years out. We've got the whole bucket of things that are in RFP today that become revenue in the next year to 2. Then we've got in-flight projects. We've got awarded, not started projects. So it's this whole funnel of activity that we look at. And -- but what underpins it all that's really helpful for us is we're confident that no matter what happens with these project cycles, 85% of what we're going to take orders and ship for every year are replacement by nature in terms of meters and radios. So the project stuff is all very interesting, but the bottom line is very strong. And then, of course, the software continues to grow the last 5 years at a 28% CAGR. So it's a multivariable equation and one that we feel good about how those come together. Operator: Your next question comes from the line of Bobby Zolper with Raymond James. Robert Zolper: It looks like there's about $1 billion of metering projects in the ARPA data, which all needs to be spent by the end of 2026. How have you reflected that in your 2026 commentary? Kenneth Bockhorst: So we haven't. I mean, so when we sit here and we talk about what's fueled our growth for the last 5 or 6 years, it's really informed by the buckets I just walked you through. And when we look at who's planning for projects, who's actually doing RFPs for projects, what we have in known projects, there's so many ways that funding is done, especially around the AMI side, whether that be SRFs, WIFIA loans, rate base increases, municipal bonds. That is one factor, you're right, but it certainly is not an outsized consideration for us at all when we think about our forecast. Robert Wrocklage: I'd also be cautious about taking something that's listed in an ARPA database with reference to the word metering and assuming that, that whole total of money is related to metering. It's oftentimes considerably larger than the actual metering spend. So a headline grabbing number or a question like that is not necessarily indicative of the true metering content on those line items. Robert Zolper: All right. I appreciate it. And then I have a 2-part question on the PRASA project. I guess, one, how is PRASA funding that project? And then secondarily, what is the legal status of that project? Robert Wrocklage: The first part of that question shouldn't surprise anyone. Part of the project purpose and intent is in response to Hurricane Maria, which took place in 2017, so over 8 years ago. And so the funding of that project in part is coming from FEMA dollars. And so that is a FEMA-funded project, which ultimately drives the Buy American requirement, I mentioned earlier, which then drives our location of manufacture. In our -- to the second part of your question, in our -- first of all, we don't comment certainly on litigation of ourselves or and/or the legal status, if you will, of even our customers or potential customers. But in the direct sense in our commentary, we mentioned there's a lot of variables related to this project. And certainly, those variables could impact the pace at which that project gets deployed, whether it be here in the immediate term of 2026 or thereafter. And so I'm not making that statement generally, not specific to your legal question. But ultimately, there are a lot of variables at play. But what is known is the award and our participation in that award. Operator: Your next question comes from the line of Scott Graham with Seaport Research Partners. Scott Graham: I want to understand a little bit more, Ken, about some of your statements in the press release and then followed up on the call here about first half versus second half. It seemed in the press release to suggest that your second half growth was slower than your high single-digit long term and that, that decrement was either because of the roll-off projects, as you've discussed and the days in the fourth quarter, and that the first half of this year will essentially be the same, the roll-off of the projects. Does that suggest, Ken, that the organic growth that you're expecting in the first half of the year will be the same amount lower on a percent basis as the second half was versus the high single? Kenneth Bockhorst: So Scott, as you, I'm sure, expect, we're not going to get that granular with you. But when I had mentioned previously that I think you'll see 2026 play out in a similar fashion, except the inverse of how 2025 did. I would just expect a lower growth rate in the first half of the year and a higher growth rate in the second half of the year. Scott Graham: I had to try. Okay. So the stock is obviously, seems to not be reflecting what you're saying in this call. And I'm just wondering, you've been buying back some stock last couple of quarters. Is the plan here with that the stock where it is, is there an opportunity to maybe restrain some costs in the first half of the year to boost earnings? Or will we continue to see share repurchases to boost earnings or both? Kenneth Bockhorst: Yes. So a couple of things. So first off, obviously, with our great balance sheet, we still feel 100% positive about our capital allocation priorities. So we're going to continue to invest organically and inorganically in the business. So what that means is we'll do the right things to continue to drive long-term strategy and growth. So we would never do any shortsighted cost-cutting type things to try to short circuit a result. So we're going to continue to invest in the business. Two, returning cash to shareholders. That's traditionally for us been 33rd consecutive year of increased dividends. We did buy some shares back in Q4, as we talked about. And certainly, we have the authorization to purchase more. And if we thought it was attractive in Q4, I'm not forecasting anything for you, but I would think you'd think -- we think it's attractive now, too, to repurchase shares. And then on the M&A funnel, we're really, really thrilled with the deals that we've done over the last 5 years, and we continue to have a really exciting funnel. So the capital allocation priorities are still going to be aligned to support growth, return value to shareholders and do more M&A. Operator: Your next question comes from the line of Michael Fairbanks with JPMorgan. Michael Fairbanks: My first question is on SmartCover. So it was up 25% annualized and profitable in 4Q. I guess now that the integration is 12 months in, can you just give us an update on what you now see as the potential in that business? And how we should think about the growth algorithm there going forward? Kenneth Bockhorst: Yes. You cut out there a little bit, but I think what you asked was we saw a 25% growth in SmartCover and you're asking how we see the future of sewer line monitoring growth rate. So the thing that we were excited about SmartCover to begin with is that before we acquired it, it was growing at a 20% CAGR for multiple years. So that's the first point. Second point is we're still so early in adoption of sewer line monitoring that there's still so much more room to grow, which is why we really want to get into that space. And acquiring a known brand like SmartCover, the leader in North America was really important to us. So we fully, fully expect to continue to grow our sewer line monitoring at a higher rate than average. Michael Fairbanks: Great. And then on PRASA, can you maybe just talk about how you could use potentially an AMI deployment like that to expand the reach of the other offerings in the portfolio, just in the BlueEdge portfolio broadly? Robert Wrocklage: Yes. In fact, the answer doesn't even need to be PRASA specific. I think we have multiple examples where AMI adoption by a utility ultimately serves as the catalyst to the extension of other beyond the meter technologies. Essentially, AMI becomes an implementation that, in many cases, a utility grows into having data availability and the insights and analytics to influence how they run primarily their meter billing operations, but then having cascading effects into the remainder of the utility. And once that kind of capability or core discipline is in place, it then becomes very clear that marrying up that meter and flow data with other pressure management and/or water quality data becomes a very valuable value proposition, if you will. And so whether it's PRASA or any other AMI customers of ours, that's oftentimes the foundation or the springboard to the broader beyond the meter technologies. We often talk about Galveston. We've talked about Galveston historically over time. But that is the exact scenario that played out there. AMI was the first technology adoption and then other use cases followed in short order as data and analytics became a primary point of emphasis with the utility. Operator: There are no further questions at this time. I will now pass the call back to Barbara for closing remarks. Barbara Noverini: Thank you, operator. Badger Meter's First Quarter 2026 earnings release is tentatively scheduled for April 16, 2026. In addition, please save the date for Badger Meter's inaugural Investor Day, which will be held on May 21 in New York City. During the event, we will provide greater color and tangible examples of the evolution of our BlueEdge portfolio, along with the discussion of the key drivers enabling growth of our comprehensive suite of smart water management solutions. Information about how to attend and what more to expect will be available in early March. Thanks for your interest in Badger Meter, and have a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the Brinker International, Inc.'s Q2 2026 earnings call. At this time, all participants have been placed on a listen-only mode. The floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Kim Sanders, Vice President of Investor Relations. Ma'am, the floor is yours. Kim Sanders: Thank you, Holly, and good morning, everyone. And thank you for joining us on today's call. Here with me today are Kevin Hochman, Chief Executive Officer and President of Brinker International, Inc. and President of Chili's, and Mika Ware, Chief Financial Officer. Results for our second quarter were released earlier this morning and are available on our website at brinker.com. As usual, Kevin and Mika will first make prepared comments related to our strategic initiatives and operating performance. Then we will open the call for your questions. Before beginning our comments, I would like to remind everyone of our safe harbor regarding forward-looking statements. During our call, management may discuss certain items which are not based entirely on historical facts. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such risks and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC. And, of course, on the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations. And with that said, I will turn the call over to Kevin. Kevin Hochman: Thank you, Kim, and good morning, everyone. Thank you for joining us as we discuss our financial and operating performance for the second quarter as well as our outlook on the remainder of fiscal 2026. Q2 Chili's same-store sales were plus 8.6%, outpacing the casual dining industry by 680 basis points. This strong result was rolling at plus 31% from last year, for a two-year cumulative comp of 43%. This was our nineteenth consecutive quarter of same-store sales growth with a three-year cumulative comp of 50% and a four-year comp of 62%. The Chili's turnaround is real. It is sustaining, and we have no intentions of taking our foot off the gas, which means we will continue to be focused on improving our food service and atmosphere, as well as continue making Chili's more fun, easier, and more rewarding for our team members. Q2 results were driven by our world-class marketing and brand building, that brought guests in and continued improvements in food service and atmosphere that brought guests back. Now I'll give some updates on the Chili's business. We talked last quarter about the need to bring back our skillet queso, based on guest feedback. That reintroduction has been successful. We are now selling 20% more stop less queso and the original skillet queso versus the prior two queso lineup. In addition, our relaunched nachos featuring our signature chicken bacon and house-made ranch is now 170% bigger business than the previous nachos with guests loving our new nachos. We have also completed our bacon upgrade to thicker bacon strips and our bacon cheeseburger upgrade which now features triple the bacon in the prior burger. That bacon burger upgrade is doing 30-43% more sales than the prior bacon burger. What's important to take away from these examples is as we upgrade the menu offerings, while attracting a new generation of guests, to continue to build bigger, sustainable sales layers in the business. Over the past three years, we have had success with these menu renovations. Crispers, margaritas, burgers, ribs, frozen margs, and now queso and nachos with more segments still ahead of us to upgrade. Next on our list is our super premium chicken sandwich lineup, which will launch chain-wide in April with a substantial advertising campaign. Chicken sandwiches is a very large market with over 80% of people buying them at least once a year. And is by far the biggest segment of all restaurant chicken serving. It has the potential to drive customer traffic both with new and existing guests. We believe our new chicken sandwich lineup is superior, distinctly on brand, and highly differentiated than what is in the market today. Mold's signature flavor is unique to Chili's, terrific value with abundance, and a traffic-driving opening price point within a three-tier lineup. We'll also be advertising in a big way leveraging that sharp price point to drive awareness and traffic. The sandwich lineup has done exceptionally well from a mixed-in merchandising-only test in 200 restaurants, and we expect even bigger numbers when we launch nationally in April with advertising and earned media attention. From an operations perspective, we've also made great progress in Q2. We successfully eliminated a net total of six menu items which will continue to make it easier for our teams to serve hot, delicious food more consistently. One of the keys to our success has been staying disciplined on food innovation which means avoiding launching food limited-time offerings. This allows us to focus our efforts to improve our core offerings, simplify operations, and keep field leader attention on ops fundamentals like hospitality and great food. Avoiding limited-time offer distractions to maintain efforts on the core business, has continued to drive guest scores. Daily metric we measure, guests with a problem or GWAP, improved to 2.1% versus 2.9% for Q2 last year. For perspective, when we started the turnaround journey, over three years ago, we were at about 5% it's been consistently getting better every quarter as we keep hitting on different fundamentals in the business. We are also now seeing real movement in syndicated external guest perception metrics which allow us to track not just progress against ourselves, but even more importantly, how we are improving versus our competitive set. When we started this turnaround, third-party syndicated data places at the bottom or near the bottom of our competitive set in all seven of their key metrics. That correlate to future sales growth. In the last quarterly snapshot of these metrics, Chili's is now in the top three of all those metrics. Quality, value, service, atmosphere, taste, cleanliness, and overall experience. Yes. There's still room for meaningful gains, but our guest experience progress through our operational improvements is very encouraging. The other important takeaway from this data is where we have repositioned ourselves on value which allows us a long runway for growth. In the past three years, we have captured value leadership in casual dining and the broader restaurant industry. And while we earn that leadership value position, we were also able to improve restaurant operating margins from 11 to 18% while baking in hundreds of millions of dollars of guest experience investments into the going four-wall economic. The brand repositioning and operational improvements have delivered big results. Chili's was the number one traffic brand in casual dining for the entire 2025 year. And what's even more encouraging is Black Box data is telling us our per person check average is still more than $3 less than our direct casual dining competitors and more than $4 less than casual dining as a whole. Simply put, Chili's has been repositioned to win for the long term, and that's exactly what this team is going to do. On the Maggiano's business, we are making progress on the turnaround pillars of food and atmosphere. I talked about last quarter. Based on guest feedback, we brought back Gigi's butter cake, eggplant Parmesan, baked ziti, and classic meat sauce. On the value front, we've also increased pasta portions by 20%, and have up portions on select other dishes that had opportunities including our meatball dishes, salads, stuffed shells, and crispy mozzarella. As a result of bigger portions, value scores have improved in the past few months. We did see some sequential improvement in the business during the quarter, and sales beat our internal expectations for the first time in a while. Still lots of work ahead of us on service atmosphere, and team culture, but these are encouraging green shoots and small wins. Maggiano's is now only 8% of our company sales and 3% of our profit contribution, but it can be a source of growth in the future given the white space opportunities. This is why improving for all economics of the brand and getting momentum back into the business is important. Q2 marked another exceptionally strong quarter Chili's with continued progress in food service and atmosphere, guest experience improvements, world-class marketing, a repositioned relevant and distinctive Chili's brand, and our value leadership sets us up for a continued market share gain and a long run of profitable growth. We rolled big results from Q2 last year with more big results this year, and that's proof that the strategy is working and that it's sustainable. Lastly, I wanna recognize our restaurant teams and our home office teams quickly responding to winter storm Fern I know many of us on this call view the storm through a lens of what we'll do to sales or earnings, but on the ground, it's a whole lot more than that. Our restaurant teams have done an excellent job overcoming the challenges of the storm to reopen safely and quickly, Our field facility teams are working tirelessly on restaurant repairs that are needed, and our restaurant support center has been incredibly responsive getting restaurants what they need. Hats off to our BPOs our directors of operations, our managers, our team members, and our restaurant support center for all that you do to overcome challenges like these. Now I'll hand the call over to Mika to walk you through fiscal 2026 second quarter numbers. Go ahead, Mika. Mika Ware: Thank you, Kevin, and good morning. Brinker International, Inc. successfully comped the comp. Delivering another quarter of positive same-store sales growth led by 8.6% growth at Chili's, lapping a 31.4% increase from the prior year. With fiscal 2026 more than halfway complete, we expect to achieve our fifth consecutive year of same-store sales growth and second consecutive year of traffic gains demonstrating our continued momentum and sustained growth. We have grown our customer base by leaning into our everyday industry-leading value, core menu improvement, and marketing initiatives to position us well in a competitive and challenging environment. And by focusing on the fundamentals of food, service, and atmosphere, we continue to improve operations bring guests back, and deliver consistent positive growth. For the second quarter, Brinker International, Inc. reported total revenues of $1.45 billion, an increase of 7% over the prior year. Consolidated comp sales of positive 7.5%. Our adjusted diluted EPS for the quarter was $2.87, up from $2.80 last year. Chili's top-line sales growth was driven by price of 4.4%, positive traffic of 2.7%, and positive mix of 1.5%. These results were bolstered by the continued success of our margarita of the month program, which performed well during all months of the quarter. Notably, we exceeded our expectations in November, with what guests and the media coined the wicked margaritas which sold approximately 1.5 million more drinks than a typical margarita of the month. Another call up for the quarter Christmas day traded out of the second quarter into the third quarter, resulting in a favorable comp sales impact of 1.2%. Turning to Maggiano's, the brand reported comp sales for the quarter of negative 2.4%. As Kevin mentioned, we saw some encouraging progress as the team executes on its back to Maggiano's strategy, which is designed to improve our value proposition, optimize our service model, and ensure atmosphere is clean and well maintained. At the Brinker International, Inc. level, restaurant operating margin was 18.8% compared to 19.1% in the prior year. A 30 basis points decrease year over year, mainly due to Maggiano's sales deleverage and the additional investments needed to help improve that business. However, at Chili's, we saw a 40 basis point increase in restaurant operating margin year over year mainly due to sales leverage partially offset by incremental investments in labor and advertising, and higher health and workers' compensation insurance costs due to increased restaurant headcount. Food and beverage for the quarter were unfavorable by 20 basis points year over year due to unfavorable menu mix with 0.8% commodity inflation offset by price. Labor for the quarter was favorable 30 basis points year over year. Top-line sales growth offset additional investments in labor higher health insurance costs, and wage rate inflation of approximately 3.3%. Advertising expenses for the quarter were 2.9% of sales and increased 40 basis points year over year due to additional weeks on TV. G and A for the quarter came in at 4.1% of total revenues, 20 basis points higher than prior year due to increased restaurant support restaurant center support resources, partially offset by sales leverage. Depreciation and amortization for the quarter came in at 3.8% of total revenues and increased 30 basis points year over year due to an increase in our asset base from equipment purchases partially offset by sales leverage. Second quarter adjusted EBITDA was approximately $223.5 million, a 3.6% increase from prior year. The adjusted tax rate for the quarter increased to 18.8%, mainly driven by higher profits, which increased at a greater rate than the offset generated by the FICA tax tip credit. Capital expenditures for the quarter were approximately $63.7 million driven by capital maintenance spend. As discussed, in 2026, we started our reimage program for Chili's. We just completed our first four reimages and will use the learnings inform our long-term reimage and new unit growth strategy. We expect to complete another eight to 10 reimages during the balance of this fiscal year before ramping up to 60 to 80 reimages in fiscal 2027. We expect to fully roll out both our reimage and new unit growth programs during fiscal 2028. At Maggiano's, our main focus areas will be guest-facing repairs and maintenance, and a smaller scope reimage program. Our strong free cash flow provides sufficient liquidity to maintain our disciplined capital allocation strategy, allowing us to invest in our restaurants and return excess cash to shareholders. In the second quarter, we also repurchased an additional $100 million of common stock under our share repurchase program to support our ongoing commitment to returning capital to shareholders. In terms of our expectations for the balance of the year, as noted in this morning's press release, we're raising our fiscal 2026 guidance, which includes annual revenues in the range of $5.76 billion to $5.83 billion adjusted diluted EPS in the range of $10.45 to $10.85. Capital expenditures in the range of $250 million to $260 million and weighted average shares in the range of 44.7 million to 45.2 million. This guidance also includes the negative impact from closures caused by winter storm burn through Tuesday, January 27, which includes approximately $20 million in reduced revenues and a decrease of 15¢ in adjusted diluted EPS. Prior to the storm, Chili's comps, including the negative holiday flip, were running solidly in the mid-single-digit range. Giving us a good glimpse into the health of the base business. Once we get through the negative impacts of the weather, we expect Chili's same-store sales to return to the mid-single-digit range. Additional assumptions underlying our guidance largely remain unchanged. We still anticipate wage inflation in the low single digits and our tax rate to be approximately 19%, Our commodity inflation is now anticipated to be in the low single digits for the fiscal year due to the removal of Brazil-based ground beef tariffs this past quarter and better than expected poultry and dairy commodity prices. However, due to rising beef prices, we still expect mid-single-digit inflation for the back half of the year. We remain confident our plans will enable us to lap the upcoming quarters and continue to significantly outperform the industry on sales and traffic at Chili's. In summary, our second quarter results reflect the continued strength of our strategy. Chili's industry-leading everyday value continues to deliver for the guest, not only on overall price, but also on overall experience. As we look ahead, we remain focused on delivering sustainable long-term growth Our continued momentum and plan to the remainder of this fiscal year give me confidence in our ability to deliver on expectations and our strong financial position will allow us to continue to invest in the business and return cash to shareholders. Unlocking future growth potential. With our comments now complete, I will turn the call back over to Holly to moderate questions. Holly? Operator: Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset. If listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is from Dennis Geiger with UBS. Dennis Geiger: Great. Thanks, guys, and congrats on the strong results. First, I just wanted to ask a little bit more on contributors to the strong traffic and sales growth in the quarter. You gave a lot of color. Beyond the margarita campaign, just curious if any other notable shifts in contributors as we think about three for me and where that was mixing, triple dipper mix, etcetera. Anything to call out there? Mika Ware: You know, I'll start having a Kevin Hochman: Oh, go ahead. Go ahead. Go ahead, Mika. Sorry. We're in different we're in different locations because of the ice Mika Ware: I'll start with some of some of the things. And, Kevin, you can fill in some color. So you know, as as we've talked and we've got it all year, you know, our pricing has been very stable, kinda right in the middle of that three to 5% range. What I will say on mix is, yes, we were very, very happy with the performance of the Margaret of the month. But overall, you know, our mix was still positive. That was driven not only by the margaritas, but, you know, continued success in triple dippers. They were up still year over year even lapping the big numbers from prior year, and some appetizer sales. You know, with the new quesos out. So, we're not seeing any huge changes. We're, you know, we're still really happy, with how our menu is performing. How our sales are going. And, again, our traffic, we were very pleased with the traffic throughout the quarter. Had positive traffic, you know, that before the storm. Was continuing on. So, you know, nothing huge, Dennis, that changed Kevin, if you wanna add in some color to that. Kevin Hochman: Yeah. I was gonna say the same thing with a little bit different angle of the it's just more of the same. So we continue to know, streamline the menu. We continue to improve operations. And make the needed investments to improve the overall guest experience. And then we see that in the internal metrics, and then that allows us to both attract new guests with things like the three for me and and, you know, the margarita of the month program that we that did really well in November and December. But then also, allow us to, retain existing guests. So we don't see any frequency changes we don't see frequency changes in existing guests. When we keep bringing new guests in and they start looking like existing guests pretty quickly in terms of frequency, that's how you sustainably grow over time. So, like, you know, I shared the GWAP, metric. Guess what? The problem you know, continue to hit record lows. You know, our food grade scores went from 68% last year in Q2 to 74% this year. Also saw quarter on quarter improvements in food grade and same thing with intent to return. With 72% last year. It's, almost 78% this year. So you just look across the board, the internal metrics continue to get better, and this is what I keep saying. As long as you keep focusing on the fundamentals of casual dining, and we are honestly looking in the mirror saying, we gonna be better this year than last year? And we continue to have this world-class marketing. There's no reason why the comp will continue to grow. So just gonna it's gonna be kind of a boring quarter when you say there are new drivers, and it's like, well, they're not new drivers, they're new things we're doing. To drive those drivers. And couldn't be more proud of the team. Great. Appreciate it, guys. And just one more. You guys both gave good color on sort of back half of the year revenue and comp expectations. And I think talked about a a strong quarter to date even even with a a calendar shift pressure, I believe. Anything else on kind of the back half of the year? As it relates to top line expectations? Anything embedded from a stimulus tax rebate perspective or or, Kevin, anything else to share on on some of those, you know, big levers which sound exciting for the back half of the year? Thank you. Mika Ware: Yeah. Dennis, so let me kinda talk about that. So we, like Kevin said, expect more of the same. So we're forecasting for Chili's you know, mid sing solid mid single digit comps for the back half of the year. We've talked about pricing. I think, again, you know, mix may moderate a little bit in the back half of the year just as we continue to lap those really big triple dipper numbers. And then traffic, what I would say is, you know, prior to the storm, we would've expected traffic positive in both two three and two four. You know, we may have a little pressure with the storm and the holiday flip on, you know, traffic just because of those two events. If be flat to slightly negative traffic in Q3, but we expect you know, positive traffic in Q4. So, really, it's more of a same, but that's some of the, you know, detailed color into what we expect the same store sales to do. Over time. Dennis Geiger: Great. Helpful. Thank you, guys. Mika Ware: Thanks, Dennis. Operator: Your next question is from Chris O'Cull with Stifel. Chris O'Cull: Yes. Thanks. Good morning, guys. Mike, I just wanna follow-up on that last question. Can you just maybe elaborate on or level set us on the comp cadence that's embedded into the back half of the year guidance? Mika Ware: Yeah. No. It's gonna be pretty steady as we go. So you know, January did we'll have the storm and the holiday flip. But after that, the quarters will be very I expect it to be very steady mid single digit. There's not a lot of flips in and out in very similar to each other is what we expect. Chris O'Cull: Okay. Perfect. And then, Kevin, you guys have successfully used a ten ninety nine anchor to drive the 43% to your comp, but the barbell strategy relies on guests eventually, I would think, trading up to premium items like the Triple Dipper and then maybe the new ribs. But as you as you lap these massive traffic gains, how do you prevent the ten ninety nine price point from becoming a structural ceiling on the pricing power? Is there any long term risk that you're training, you're most loyal new guest or your new guest, I guess, to never leave that price point? Kevin Hochman: Yeah. Well, it's something we've talked about for several years now. It's very important for our team to have offerings for all guests because if too much mix gets in the $10.99 price point, obviously, the the math doesn't doesn't continue the math. So one of the first thing that we do is we have we call the barbell strategy, which we talked about, which is we have good, better, best price tiers. Because not every guest wants the cheapest thing on the menu. Some some want different benefits or different features in the things that they buy. So, like, when we when we launched the chicken sandwich when we launched the chicken sandwich, it's not just gonna be hot opening price point that we advertise on TV. We're gonna have a chicken sandwich with benefits. We're gonna have more premium chicken sandwiches that can take you all the way up to the to the highest tiers. And then we're gonna continue to manage that. So the the outcome when you do this is that you keep the $10.99, sales mix constant. You don't let it grow too much. Because that's when the margins can get out of whack. So as long as we continue to bring innovation, not just at the $10.99 price point, but at other price points that we keep other parts of the menu interesting and we hold the mix on all those parts of the menu, we shouldn't have any issue continuing to advertise $10.99. Now five years from now, I know we might be in a different position. It's, you know, it's hard to predict how what will happen with COGS inflation, etcetera. But because we have such a varied menu and we've done a really good job merchandising and we continue to innovate on higher tiers like ribs and margaritas, etcetera. We're continuing to drive people into that mix. We don't see we don't have, like, specific detail. We don't see in general a lot of training up and down the menu, so people kinda gravitate to what they wanna gravitate to, and they stick with it. So, like, the three for me, consumer tends to come more often. They actually spend more over the course of the year because they come more often. Versus a higher priced, guest. They don't come as often, but they're worth a lot to us because they spend more when they're there. So but, like, like, I get asked a lot of questions about our people. People bounce all over the menu, and you know, you just don't see that much of that. Chris O'Cull: Makes sense. Congrats on a great quarter, guys. Operator: Your next question for today is from David Palmer with Evercore ISI. David Palmer: Thanks. Good morning. I had a question on the reimaging. Are is there any one of the prototypes that you're testing that is emerging as the most exciting, the the the you know, perhaps the one that you feel like has a very good odds of being the go to market option and that that can be rolled out quickly and with significant sales. Lifts? And if so, what what can you tell us about the learnings from the reimaging? Kevin Hochman: Yeah. Good morning, David. Thanks for the questions. So there's two reasons why we're doing these first four. One is to understand the levels of investment and which ones make the most sense. And then the second is to have get operational learning so that we don't make this if there's any mistakes in the first word, we don't make them as we roll them out to the balance of the system. And, obviously, we'll continue to learn beyond just these first four. The first thing I would tell you is the guests and the team members absolutely love all all four of the reimaging. Units. And there's a lot of clearing in our system to get that across the system. And so that's good. It's too early to, you know, declare victory on sales lifts. The initial results look pretty pretty good. We're pretty excited about that. But it's nothing that we would publish and that you could take to the bank. You know, obviously, wanna understand more and look at test versus control and all that good stuff. So overall, the first thing is they look like completely different restaurants, and when all you guys are here for our investor day later in the year, you'll be able tour them. So we'll make sure we spend time where you can see them firsthand, those first four. And get, you know, get your eyes on them to see that there's a a market difference. I mean, the basically, the comment I typically hear from the managers is, like, we have a new restaurant, which is really cool to hear because these are really old restaurants. Restaurants that haven't been touched in a while. The second thing that we've learned is that that so each of the four have different elements to them. And the good news is the one that has actually the lowest cost is the one that everybody's gravitating towards is the best. So some of the ones that cost a little bit more, they had a little too much done, on the inside, and they're a little too busy. So we're learning, like, hey. Less is more in some of the interior units. But things like the bar part of the reimage has been phenomenal. I mean, it literally just makes the whole building feel different. Not just the bar area that creates an energy and a vibe. And it is distinctly chilly. I mean, you go in and you're like, wow. It feels like I'm back in Chili's when it first started, but in a modern way. So so that's the second thing we're learning is that we probably don't need all the bells and whistles. Like, for example, a couple of the restaurants have these oversized margarita shakers that we actually pulled from old the old old Chili's. And it's something that just feels like it's clutter. It's not really adding versus some of the tile tables that we've added some of the the cheaper, fills actually make a bigger impact. So we're gonna be obviously focused on the things that make the biggest impact for the lowest cost, so that's a good learning. And then lastly, we're learning a lot about the operational opportunities with rolling them out. So, for example, we're learning there's just a lot of extra dust and a lot of extra work that's coming in that construction, so we gotta do a better of, like, masking and taping and tarping, and those are important things to know as we roll out further. We're learning about some of the tile work that we're putting by the bar is actually not needed, and it adds additional expense that's not needed. So just using the tiles on the tabletops, on the exterior, and on the sides of the bar, but not the floor of the bar. Is making the maximum impact. And then we're also learning about some of the operational So, like, for example, we're bringing back tile tables but we're doing it in a smart way where they're much easier to clean. So like, the old tile tables that were so cool, are really difficult to clean the grout in between the tiles. So we're basically doing is a is a printed tile table that looks three-dimensional, but then has an acrylic top on top of it. We're finding that those are a little hard to clean, not the tile, but because that's just printed unit, but the actual plastic is starting to buckle under the heat of skillets. So an example where we're just gonna spend a little bit more time getting the right tabletop on that. So that's what we're learning from it. It's both operationally, how do we make sure that sound? And then two, what is the right investments? But I will you, we are extremely bullish about this, and we can't wait for you guys to see what we've done. David Palmer: Great. Thank you. Operator: Your next question is from John Ivankoe with JPMorgan. John Ivankoe: Oh, hi. Thank you. So much. It's actually a follow-up on the previous question. In terms of remodels, which obviously you're planning to accelerate into 'twenty, '7. I think you said '60 to '80, but correct me on that. With potential further acceleration into '20 Operator: John, you're cutting out. Looks like his line dropped. We'll take our next question from Jeff Farmer. Jeff Farmer: Yes. Just cutting to the weather and all the calendar shifts that the the industry is facing, what is your read on casual dining segment trends in December and January? So ultimately, I'm trying to ask you guys if you think the demand backdrop is stable Is it is it softening? Is it improving? Any color there would would be helpful. Kevin Hochman: Well, it's just like what you guys are seeing. It's mixed. Right? Like, you know, December was tougher for the industry, but then January looked really good, and then the weather hit. So kind of stopped that trend. So, I mean, candidly, it's a lot of mixed signals. You know, what I told our team just continuing to focus on the things that we can control, which is food service and atmosphere. Whether the economy gets better and the consumer gets better or worse, having a better experience is gonna win trips, which is what's happened in the last couple years for our business. So you know, if the macro gets better, that'll be more tailwind for us. The macro doesn't get better, we're gonna continue to steal market share from those that aren't improving their food service and atmosphere. So but but to answer your question directly, we you know, December didn't look great. January looked better. Weather stopped everything. We'll see what happens when when, you know, the we get out of fully out of the weather, whether the strength that we saw in January restarts. So it's similar to what you're seeing. Jeff Farmer: Okay. And then, Michael, would the updated guidance can you just sort of level set us on the restaurant level margin and G and A as a percent of revenue ex expectation for fiscal twenty twenty six? Mika Ware: Sure. So so, you know, looking out into the the back half of the year, what I would say is, you know, our restaurant level margin will probably decrease a little bit in the back half, versus what we posted in t two. And, really, it's the the line I think everyone should look at is, you know, make sure the cost of sales line is is gonna be pretty similar to what you saw in in in Q2, maybe a little bit higher. I talked about the the kind of influx in commodity pricing in the back half. That also that mid single digit includes some of those investments we've made in things like bacon and ribs and some, you know, better cut chicken. You know? But that being said, they're gonna be phenomenal margins in the back half, very steady. You know, similar what to what to what you saw in in q, maybe just, you know, wash through some of those laps year over year. a a little bit less as some as we kinda Kevin Hochman: And then g and a real quick? Mika Ware: Oh, g and a is gonna be very similar to you know, what you saw. We are 4.1% of total revenues in Q2. I expect similar numbers as you move through the fiscal year. Alright. Thank you. Similar to what you saw in Q2. Jeff Farmer: Thank you. Operator: Your next question is from John Ivankoe with JPMorgan. John Ivankoe: Hi. Thank you so much. Can you hear me? Operator: We can now. John Ivankoe: Alright. Super. You're talking about travel to disruptions. I'm doing this from the airport, I asked this big, long question. And so it's literally just talking to myself. So thank you for the patience on this. So the question is actually a follow-up to the remodel question. Obviously, remodel is an important part of Achilles' business. And I think I heard you say, correct me if I'm wrong, that you're planning sixty to eighty remodels in '27 with a further Operator: Looks like we lost his line again. I will move on to John Tower with Citi. John Tower: Hey. Good morning. Thanks for taking the questions. I appreciate it. Just a couple, if I may. Maybe starting off, I know obviously you're on the chicken from in April with advertising. I believe there's a soft soft launch now or soon in stores. But curious if you're attacking the marketing side of the equation any bit differently than what you've done with the previous two product launches on three for me the two burgers. You know? I know it's you don't wanna if it's not broke, you might not want but is there a different tact you might be taking this go around? Kevin Hochman: Well, we think that that high prices are more relevant than ever. So, you know, every time we think we're gonna the consumer is gonna get bored of our messaging, like, this this keeps coming back up in social media and in the zeitgeist. So and I think you guys see it all the time that consumers are really frustrated with high pricing. You know, in lots of different areas, not just restaurants. And so the idea of continuing to attack that head on with unbeatable value and abundance continues to win for us, so there's no reason why we would change that. John Tower: Got it. And and then just maybe the you have a fairly store level employees and and specifically thinking about incentives over time. Obviously, ambitious goal to get to roughly $6,000,000 AUVs across the the Chile store base over time. I'm just curious how you're thinking about store level incentives for the managers and where they sit today versus where you might optimally see them going over time? Kevin Hochman: Yeah. It's something we talk about a lot. You know, we look at, like, the best in class competitor, and they are masters at ownership at the general manager level. And part of that is their incentive structure. They do other things too. That we're obviously studying. And, you know, right now, we're in the camp of let's get our managers trained so they can be true owners of the business. For years, we started pulling things off of their p and l in effort to make their bonuses more and more fair and control more of what happens in the rest restaurant and we've gotta unravel some of that so that they actually understand the p and l, understand the areas that they can improve their their bottom line and their top line. And then start rewarding for them once they're trained and have the tools to do that. So the first step has been number one, what we're launching a new P and L tool. As part of our overall Oracle upgrade. That's done, and they've been trained on that. Secondly, we're teaching the principles of extreme ownership to our managers. We started with our directors of operation and above, and now we've been rolling that out over to the general managers. And the management team inside the restaurants. We're gonna do that for at least a year, maybe even a little bit longer before we actually change the incentive structure. Structure. I do anticipate that we will change the some of the long term or I'm sorry. Some of the bonus structure for the directors and above before that. So we'll we'll try to roll that out to the directors first. And make sure that we got their bite and their understanding before we would ever go to the manager level. But we're at least one to two years out from actually changing the incentive structure of the managers. John Tower: Got it. Thanks for taking the questions. Operator: Your next question is from John Ivankoe Your line is live. John Ivankoe: Okay, guys. Thank you so much for the patience. We're blaming this on the ice storm. So I'm in the airport, and this one's not gonna drop. So the question was on remodels. Remodel is obviously a very important part. Of your story in 2728. I think I heard you say 60 to 80 remodels in '27, followed by a greater in '28. So just confirm that, And secondly, you know, as we think about new unit development, you know, into '28 and beyond, I mean, that is something that you're planning to accelerate Achilles business in '28 And I'm not going to ask you for TAM at this point on this conference call, but what are we thinking in terms of percent unit growth that's kind of right for the Chili's brand at this part of the brand's life cycle. In '28, that maybe can be established for a long term and you know, Micah, you know where I'm getting with this question is how we should just think about broad capital intensity of the business in 'twenty seven and 'twenty eight. Is this such an important part of our model. And thank you guys so much for the patience. Mika Ware: Yep. So, John, let me start by a lot of pieces to your question. First, yes, I'll confirm. We want to ramp up in '27, fiscal twenty seven with 60 to 80 as our current plan. And then the goal in '28 is to get to about 10% of the system, which would get us a little bit over a 100. So you did hear that right, and we're very excited about it. Okay. On the new unit growth. And so what I would say is next year, you know, this year has been pretty flat with what we've opened versus what we've, you know, some of the leases expiring, etcetera, what we've closed. Next year, you're not gonna see that much of a bump because remember, it's an eighteen to twenty four month cycle. So that's from two years ago when we weren't really leaning into new units. But what I can tell you with all the progress we've made on building the team and all of the sites that we have at front end of the funnel that we're putting in, I do feel like you're gonna see a significant difference in f '28 in the new units that we're able to post, for that year. So, that is correct. You know, we haven't communicated an exact target of new unit growth you know, but you know, it it will be in the the low single digits, I would say, if that could be in the realm of expectations for what we can do. Again, that'll be something that we go into more detail on when we get to that investor day in talk about what we think the universe of Chili's could be, you know, what we think that new unit growth cadence will be over time. But we do know that we can build more Chili's, and we're really excited about it, especially with the change in the business. The areas of opportunities have opened up for us because our business is so much stronger on where we can build, in different areas, different locations. We've learned a ton, so we're really excited about it. As we move forward. So I hope that's helpful. John Ivankoe: It it it is. And I guess as we're thinking this point, I mean, do do we think that there might be an opportunity long long term to maybe double the Chili's brand relative to what it is? Or you know, am I maybe getting ahead of myself, you know, kind of the question of just thinking about what this brand could be now that it has, the returns the permission, the capital to once again start to expand this footprint again. Mika Ware: Yeah. Again, no. I don't I don't know that we're ready to say the numbers. Think double quite aggressive, but, yes, we think we can build, you know, more Chili's and, again, more to come. The great news is the company has plenty of capital available to do it too. So know, that's not a constraint, for us to continue to invest in the business and return to the shareholders. So, we feel really good about our capital allocation strategy over time and our ability to invest back in the new unit growth and grow some profitable Chili's. John Ivankoe: Alright. Well, I'm really looking forward to the event you guys to highlight all of your opportunities. So look forward to that. Thanks again for the patience. Operator: Thanks, John. Your next question is from Brian Harbour with Morgan Stanley. Brian Harbour: Yes, thanks. Good morning, guys. Micah, just so I'm clear on the food cost comments Yeah. Are are you saying sort of, you know, tariffs is helpful, but look. There's some other things that sort of offset that. So you're not really changing your outlook for commodities. Mika Ware: Yes. No. My outlook for commodities you know, we did have favorability in the tariffs. So it is more favorable than it was last quarter. But what I'm saying is I'm reiterating that the back half of the year is gonna be in that mid single digits. That does include some of the investments we've made in things such as ribs, and bacon. Made some investments in poultry. And so we're I'm just trying to level set everybody on, you know, commodities that look pretty favorable in the front half. In the back half, it will be that mid single digit. And then to help guide people on what does that mean, I was just trying to say, hey. The you've seen our food and beverage cost in quarter two. I think we'll have a similar number in quarter three as we move forward. So just trying to to help people kinda understand you know, what would that, turn into within, you know, 10 to 20 basis points. Brian Harbour: Okay. Got it. Thanks. And, with, sir, the chicken sandwich revamp, did you did you change any of the timing at all on on sort of the soft launches that still as expected? Are you is it fair to say you're not kind of giving yourselves credit for that in your your revenue comments or, you know, you sort of just view it as one of of the drivers that have been ongoing. Kevin Hochman: Yeah. That's the Go ahead, Micah. Mika Ware: I'll just say the chicken sandwich, what's what's in the guidance is we have it in over 200 restaurants now where we're getting all the learnings The real launch will be late in April. And that's when we'll go on TV. And that's really critical for the the chicken sandwich because this is about driving traffic with a very appealing product that we have. And so that that's the timing that's built into the guidance that we gave. Kevin, you can give more color on that. Kevin Hochman: Yeah. I mean, the thing to understand is in the 200 restaurants, when you when you don't advertise it, you're just basically gonna be moving mix You might get a little bit of repeat, but it's only a three or four month period, it's not gonna be a ton of repeat that you get. So you're really just trying to test for you know, what are consumers saying about the sandwich? Can we can we execute it with excellence given it's gonna drive a lot of mix, the way you merchandise it? What is the feedback that we're getting on the sandwich? But you're really you're really not gonna see a major change in the business other than some mixed shifts until you launch the the TV advertising and start bringing people in with sandwich. So I wouldn't read too much in the, the restaurants that we put in other than it's encouraging. When you see something mixed significantly more and the feedback's really good, that's always a good sign that it's gonna do even better when you go on TV. Operator: Thank you. Your next question for today is from Brian Vaccaro with Raymond James. Brian Vaccaro: Kevin, just back to chicken sandwich. Could you remind us just the changes that you've made to quality and the flavor profile? Maybe level set us on on where your existing chicken sandwich mix is and and just kinda how how you frame that potential opportunity? And then more broadly, just what's your latest thinking on the timing for other menu upgrades? Are you still thinking about steaks and salads, maybe moving into fiscal twenty seven? Just just curious there. Kevin Hochman: Yeah. So I'll let, Micah answer the exact mix question while I give you the, update on the platform. So the, the first thing is the base sandwich, and we had we had fixed the recipe on that. About a about a year ago where we went to a very focused build, that you see in kind of the most popular or the biggest innovation in, I I would say, in fast food history or modern history, which is the Popeyes chicken sandwich, is a very basic build. And we wanted to look at that and learn from that. And so what we did about a year ago. We basically have, you know, a brioche bun, semi cured pickle, mayonnaise, and a and a very large hand breaded chicken breast that we think is incredibly abundant in in the category. And we I don't have the exact data to say it's the biggest, but when you eat it, you're you you might you might think it's the biggest. And so that was done. And then we're gonna start bringing in some flavor updates to it which I can't go into the details of, but there'll be a variety of sandwiches in different benefit spaces based on some of the signature flavors that we have as well as a new flavor that we don't have in the in the restaurant today that mixed really well when Popeyes launched the sandwich, And then, and then we're gonna have a good, better, best, tiering of those sandwiches. So we'll have a base sandwich at a hot price point. We'll have a sandwich with benefits at a at a medium price point, and then we'll have a super premium that it will have, you know, like bacon and produce and things that you'd expect with a super premium sandwich at the super premium tier. And then we're also gonna bring some additional sides innovation and and, and dip cup innovation to that lineup to make it even more exciting and more distinctly chilly. So it really will look like a completely new lineup to the guests. And it's in areas that we know that consumers are excited about chicken sandwiches. But done in a very unique Chili's way, not just in the flavor profiles, but the abundance and value that we think that you're gonna get. Mika Ware: And so I'll talk about the next slide. Right right now, the mix is very low, Brian, because we aren't merchandising it on the menu. It's not on TV. So it's a it's just one item on the menu in our handheld section. So very low. But there are big plans for how we merchandise it, how gonna be on TV. So we do know that there is, you know, big room for Mix to grow there. And we do think, again, that the chicken sandwich is designed to be a traffic driver. Brian Vaccaro: Alright. That's that's very helpful. Was gonna ask one on the balance sheet as well. Micah, you only have $20,000,000 left on the revolver, I think, and you the 350,000,000 notes. At 8.25%. Just how are you thinking about the refi opportunity on the notes through calendar '26? And there an opportunity to maybe move those notes onto the revolver '26 and maybe, shave off a few 100 bps on the interest rate? Mika Ware: You know, Brian, right now, we don't have that in the works, but we are watching it closely. So if the opportunity arises where we can take out you know, the bonds early and it makes sense for an enrolled revolver and save us some money, we'd absolutely do that. Remember, you know, it's just different aspects of when you do it and the fees you have to pay upfront, but is something we're watching. So right now, I would say we don't have that planned, but we're gonna continue to watch it. Brian Vaccaro: Alright. Thank you very much. Operator: Your next question is from Eric Gonzalez with KeyBanc. Eric Gonzalez: Hi, thanks for taking the question and congrats on the strong results. I'm just curious about the timing of marketing investments this year. I know there was an uptick in spend in the second quarter. So if you could just confirm that you stayed in that range of 9,000,000 to $10,000,000 in incremental advertising? And then how does that look as you get into 3Q and 4Q? Particularly around the chicken sandwich launch? Mika Ware: Yeah. No. We did stay in that, Eric, So we had the biggest increase year over year in Q2. So that that did happen, and we said that was about 2.9% of sales. I think the percent of sales will say know, fairly stable as we move forward. The year over year increase is an f much in three and four, But exactly what we said, you know, did happen in Q2. Eric Gonzalez: Okay. And then just quickly just regards regarding the winter storm. I mean, how quickly do you expect to bounce back there? And and what are your expectations in terms of how long the effects could linger? Mika Ware: Yeah. No. That is the big question. So it was quite a challenge to be we had to quantify the impact of the storm while the storm is still happening and, unfolding. And so that is why I was pretty purposeful in saying, you know, this is what we know as of Tuesday. You know, and what the impacts are. So that is what we have built into that guidance. You know? We'll see there. Historically, we have had some bounce back. You know, when people get a little bit cabin fever. Now, you know, on the flip side, little caution, we lost a Friday, Saturday, Sunday. We're in a Monday, Tuesday, Wednesday when it bounces back. So there could could be some upside, but what I will say is we don't have a ton of upside built in that we just kinda have all systems go from Wednesday on. So upside or downside on the storm could could still be you know, kinda playing out a little bit. But we think we got the bulk of the impact captured with what I communicated earlier. In the 20,000,000, decrease in revenue and the the 15¢ to EPS. Eric Gonzalez: Yeah. Fair enough. Thank you so much. Operator: Your next question is from Christine Cho with Goldman Sachs. Christine Cho: Congrats on the quarter and thanks for taking my question. In the last call, you mentioned that the under $60,000 income cohort is your fastest growing group. Contrary to kind of the broader industry trends. Have these trends continued into to this quarter? And are there any other observations on spending across various consumer cohorts? And additionally, are you concerned at all that the QSR pricing growth continues to track below the casual dining average and how that would impact the overall category value perception? Thank you. Kevin Hochman: Yeah. So from an income cohort standpoint, we we didn't see much shifting in the quarter. Like, the the low income cohort is no longer the fastest growing there was a little bit of shift down and a little bit of shift to the higher income cohorts, but it wasn't anything like that was so obvious that I'd be willing you know, we we should proactively highlight to you guys on the call. So but just a little bit. We haven't seen any kind of trade down. Like, mix has been pretty healthy. So know, I would say not really made any major shifts or changes versus last quarter. Know that's a little bit of bucking the trend from what you see in the industry, but I also think we do have industry leading value, which is helping insulate us. To some extent. You know, as far as the QSR question that you the second part of your question, You know, I'd say we still have industry leading value on TV. You know, we still have when you look at casual dining's having a renaissance and you look at our I mentioned on my prepared comments, when you look at the PPA, or per person average, versus our casual dining, competitive set, direct competitive set, $3 under them or $4 under the broader casual dining. So we don't really we feel like we're really positioned to win because of what happens with the macro. Between the operational improvements that we've made, where we've positioned ourselves and then our everyday value, which looks pretty darn good. So know, I'm not particularly concerned. You know, I think we get asked that every time, you know, a competitor from Chicago decides to put a $5 meal out there, and we just keep chugging along. And I think it's because when you look at the overall value for what you pay for what you get, it does feel superior to what's out there, and we're gonna continue to deliver that. Operator: Your next question for today is from Sara Senatore with Bank of America. Sara Senatore: Oh, thank you. Just, I guess, maybe a couple of clarifications. One, Micah, you pointed out that you had positive mix in terms of the check impact, I think negative in terms of margins. You just talk about that? Mean, it didn't sound like there was a lot of shift in terms of consumption or or guest kinda choice. But, you know, I don't know if that was maybe a little bit more on the value side. And then also, I sorry if I missed it, but you lowered the CapEx guide. I don't think that's because of the lower kind of cost of remodels. Sounds like those are still in in test, but just wanted to maybe understand that too. Mika Ware: Okay. Yeah. Great, Sarah. So, you know, the first of all, we'll start with the mix. Yes. Mix is positive and a little less positive. One reason that margins went down year over year was, if you remember, last year, it's really about the lapping of last year when we accelerated our business, took a huge step change in the business, We weren't able to staff our labor as quickly as we needed to, you know, a year ago, October. We kinda over earned in quarter two, which I caution people about as we were lapping that even coming into this year. So I think that's probably what's in play with the margins more than just the overall health of the margins and the health of the business and the flow through. So, again, that's kinda the what kinda was built in the run rate. The same with the the restaurant expense. As our our as our restaurants got busier, it took us a little bit to ramp up and get those expenses caught up with kind of the new traffic level. And, you know, we've continued to invest in the business, and now we're lapping some of that. So I feel really good about the flow through and the mojo margin profile overall. So, you know, it it's really strong and really healthy. If I take a step back and just look at the full year, you know, I got it that I think we can improve restaurant level margins 30 to 40 basis points, even with the impacts of this this storm, that could put a little pressure on us. I still feel very confident in that number on growing the margins over time. So I feel like if there's any variability in the quarter to quarter, it's, you know, really back to some timing of expenses or investments. And a little bit of seasonality, but I feel really good about margins overall. Great question about CapEx. Really just taking a look at it at the midpoint of the year. You know, we realized it's not necessarily because reimages are less expensive. We're still finalizing the scope of that. We are doing a few less than we originally planned. I think the bigger nugget in is there is we had a placeholder for maybe a potential new equipment rollout. But now, you know, after the teams have have moved down a little bit further on that, we realized we aren't gonna a new big equipment rollout. So we went ahead and updated that in our forecast and just tightened it up a little bit. So, you know, plenty of capital out there. We're just tightening up the forecast. Sara Senatore: Okay. Thank you. That's helpful. And then just on the margin, I guess I was referring to COGS specifically. You had said it was, I think, 20 basis points. Unfavorable because of menu okay. Thank you. Mika Ware: Okay. So that is really, you know, what we're saying is there's a lot of investments into the quality of the food. That we're lacking. So ribs is is very material investment. We talked about you know, we were serving one third ribs and two third. We did the big shift from, you know, imported ribs to domestic ribs. So that's just an example of know, we put a lot more of quantity and quality into the cost of sales line. And so that's where I'm just saying, hey. You see kind of a new run rate in cost of sales. It's a combination of we have you know, we do have some more we we still have commodity inflation in there, but then the investments we're making into that cost line. And so that that's kinda what what's hitting there. Any you do mix into some more expensive items, you know, which is fine, puts a little pressure there. You always have higher penny profit, but you know, if you're selling more of the more expensive one, there's some more cost of sales associated with that too. Sara Senatore: Great. Thank you so much. Mika Ware: Thank you, Sarah. Operator: Your next question is from Jeff Bernstein with Barclays. Jeff Bernstein: Great. Thank you. Kevin, I was intrigued by your your prior comments on the restaurant level leadership model. I think you mentioned that you have a peer that successfully operates with a a market partner of a market partner ownership model, more akin to maybe a franchise model, which you know well from past days. So I'm wondering if you could just any more color conceptually about the the pros and cons versus the more traditional company operated manager model that most of the industry uses. It does sound like maybe you're considering a shift I know others have talked about the potential to benefit retention, engagement, compensation. Just wondering if there's any more color in terms of how you would implement it would seem like that will be a material change to your economic model, but presumably, more of an ownership structure for for long term further improvements. So incremental color would be great. Thank you. Kevin Hochman: Yeah. Hey. Good morning, Jeff. So the I think conceptually, all of the stakeholders online that we wanna do something here. Like, we believe that when we hear it from the managers, they wanna have more of a stake and ownership in the company especially when they see with how the company's performed. We believe that it would be a good thing for them to have more ownership over the results in terms of their personal compensation as well as just how they run the run the restaurants. So don't think anybody's really debating, like, should we do it? It's really the how. And the challenge for us is that when you when you benchmark the model that you were talking about earlier, that they tend to pay lower base salaries and then they put more into the variable comp. And that puts in a difficult position because we're not gonna lower base salaries and put it in the variable comp. That's not gonna be received very well. So we've really gotta figure out what's the how to do this in a way that is gonna work for everybody and not just, you know, hope that in the year that we make the change that people aren't upset about it because they would be because they're they're moving you know, comp that you can be confident into something that's more variable. So we've gotta figure out a way that wins for everybody and not just on one or two items. That's what we're gonna have to work through. At the same time, we still got a couple of years where we just gotta continue to build skill and capability and the ability to own own to own the restaurant. So that means building the best team, holding people accountable, making sure that you really are owning your to do in a while. restaurant and the facility. These are new muscles that especially, you haven't asked these guys That we've gotta build up over time before we did change any incentive structure. So and and I wish it was more simple, and we could just flip a switch and and kinda replicate the models that we see that work. But we're just we're starting from a different place. Operator: Your next question is from Andrew Strelzik with BMO. Andrew Strelzik: Hey, good morning. Thanks for taking the questions. Was wondering if you're seeing the mix of traffic growth shift between new customers and increasing frequency. And I guess what I'm trying to think through is know, as you brought back all these new customers over the last couple of years, as you kinda work through the the brand repositioning, kind of how you You know, is is the opportunity mix between those two buckets evolving and potentially evolve the strategy to to address the two buckets as you as you move forward? Kevin Hochman: Yeah. Hey, Andrew. It's Kevin. You know, I we don't see really a change in what how we're doing this. The the it's pretty simple. It's like, number one, continue to have a great, experience so that you don't leak gas. And so that's what we see on the frequency of existing guests that's not changing. And then and then use our world class marketing and great value offer and great new positioning to drive new guests in. And so if you're not leaking guests, and you're bringing new gas in and then they quickly are starting to look like existing guests in terms of their frequency pattern, that's a recipe for sustainable growth. So know, what I lean on my team is don't change that strategy. But you better have ideas every quarter to get better and better on the experience because that's the flywheel. We know the marketing guys can do it. They're doing it right now. They're continuing to just you know, really really reinvent the industry and what can be done with our advertising and marketing. Hats off to them. So as long as we continue to improve our experience over time, there's no reason why this road won't stop. So I don't anticipate changing the strategy. It's just making sure that we continue to execute it quarter after quarter so we continue that. Because the key to this whole thing having a great experience because that's gonna both retain existing guests and stop the leak. And be able to attract new guests because of the things that people are saying about our brand. And we're just gonna continue to do that. Andrew Strelzik: Okay. That that's helpful. And one clarification. Last quarter, you talked about the earnings drag from Maggiano's. Can you share what that looks like through the back half of the year? Mika Ware: Andrew, that's me. So, really, just what I would say is in the guidance that I gave, we haven't changed the expectations for Maggiano's very much. And so what we're expecting is their their same store sales will probably be in the negative mid single digit range. For the back half of the year. So probably just, you know, more of the same on that. So if we get some more green shoots out of Maggiano's, then I think we can start you know, improving that. But they're still gonna have a drag year over year in their margins. Andrew Strelzik: Okay. Thank you very much. Mika Ware: Okay. Thank you. Operator: We have reached the end of the question and answer session, and I will now turn floor back over to Kim Sanders for closing comments. Kim Sanders: And that concludes our call for today. We appreciate everyone joining us and look forward to updating you on our third quarter fiscal 2026 results in April. Have a wonderful day. Thank you. Bye, everyone. Operator: Thank you. This concludes today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the M/I Homes Fourth Quarter and Year End Earnings Conference Call. At this time, all lines Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press 0 for the operator. This call is being recorded on Wednesday, 01/28/2026. I would now like to turn the conference over to Phil Creek. Please go ahead. Phil Creek: Thank you, and thank you for joining us today. On the call with me is Bob Schottenstein, our CEO and president, and Derek Klutch, president of our mortgage company. First, to address regulation fair disclosure, we encourage you to ask any questions regarding issues that you consider material during this call. Because we are prohibited from discussing significant nonpublic items with you directly. And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call. Also, be advised that the company undertakes no obligation to update any forward-looking statements made during this call. With that, I'll turn it over to Bob. Bob Schottenstein: Thanks, Phil, and good morning, and thank you for joining us today. As I begin, I'd like to take a brief moment to acknowledge an important milestone for M/I Homes. 2026 marks our fiftieth year in business. Over the past five decades, our company has grown to become one of the nation's largest and most respected homebuilders. Looking back, we've been through a lot. We've experienced disciplined growth, and certainly our fair share of successes navigating through multiple housing cycles. Through it all, we have maintained an unwavering focus on quality, customer service, and operating at a high standard. As we look ahead to celebrating this milestone, we're proud to report that we are in the best financial condition in our history, have a group of leadership teams that are as strong as we've ever had, and that we are well positioned in our 17 markets. With that, we'll turn to our 2025 performance. Our full year 2025 results reflect the economic conditions that we and, frankly, our entire industry experienced throughout the year. Despite choppy demand, affordability challenges, economic uncertainty, and other macroeconomic pressures, our performance remained very solid. Though new contracts were down slightly for the full year, we were pleased that our monthly new contracts during the fourth quarter showed a 9% year-over-year increase and that we successfully increased our 2025 average community count by 6% versus our guide of about 5%. In 2025, we delivered 8,921 homes, recorded revenue of $4.4 billion, and excluding charges of $59 million related to inventory and warranty items, we generated pretax income of nearly $590 million, which was down 20% compared to last year's record $734 million. Our pretax income percentage was a very solid 13% before the charges, and 12% after all charges. Our financial services segment had a record capture rate of 93%, record volume levels, and a very strong year achieving pretax income for the year of $56 million. Our full year gross margins excluding the above-mentioned inventory and warranty charges were 24.4%, 220 basis points lower than 2024, and down primarily due to higher incentives and higher lot costs versus the same period a year ago. As you all know, our primary incentives were and continue to be mortgage rate buy down. And we will continue to use these incentives as necessary on a community-by-community basis. Our net income was $403 million or $14.74 per share, but a very strong return on equity of 13.1%. Our shareholders' equity increased 8% year-over-year and reached an all-time record of $3.2 billion with a record book value per share of $123. The quality of our buyers in terms of creditworthiness continues to be strong with average credit scores of 747 and average down payments of almost 17% or just over $90,000 per home. Our Smart Series, which is our most affordably priced product, continues to have a very positive and meaningful impact not just on our sales, but our overall performance. Smart Series sales comprised 49% of total company sales in the fourth quarter compared to 52% a year ago. And as I previously noted, we ended the year with community count growth with 232 active communities, which was an increase of 5% compared to the '4, and on average, an increase of 6%. In terms of our various markets, our division income contributions in 2025 were led by Columbus, Dallas, Chicago, Orlando, and Minneapolis. Our new contracts for the fourth quarter in our southern region increased by 13% year-over-year and by 4% in the northern region. For the year, new contracts decreased 1% in the southern region and 9% in our northern region. Deliveries increased 1% over last year's fourth quarter in the 57% of the company-wide total. The northern region contributed 981 deliveries, which was a decrease of 8% over last year's fourth quarter. For the year, homes delivered slightly increased in the southern region but decreased slightly in the northern region. Our owned and controlled lot position in the southern region decreased by 11% compared to a year ago, increased by 9% compared to a year ago in the northern region. We have a tremendous land position. Company-wide, we own approximately 26,000 lots, which is slightly less than a three-year supply. Of this total, 30% of our own lots are in the northern region, with a balance of 70% in the southern region. On top of the lots that we own, we control via option contracts an additional 24,000 lots. So in total, we own and control approximately 50,000 single-family lots, which is down 2,000 lots from a year ago, and this equates to roughly a five to six-year supply. Most importantly, 49% of our lots are controlled pursuant to option contracts, which gives us continued flexibility and important flexibility to react to changes in demand or individual market conditions. With respect to our balance sheet, we ended the year in excellent condition. With cash of $689 million and zero borrowings under our $900 million unsecured revolving credit facility. This resulted in a very strong debt to capital ratio of 18% and a net debt to cap ratio of zero. Before I conclude, let me again state that we are in the best financial condition in our fifty-year history. Despite the current challenging conditions, we feel very good about our business, remain very confident in the long-term fundamentals of our industry, and are well positioned as we begin 2026. I'll now turn it over to Phil to provide more specifics on our results. Phil Creek: Thanks, Bob. Our new contracts were up 18% in October, up 9% excuse me, up 6% in November, and up 4% in December, for a 9% improvement in the quarter compared to last year's fourth quarter. Our sales pace was 2.8 in the fourth quarter, compared to 2.7 in February fourth quarter. And our cancellation rate for the fourth quarter was 10%. As to our buyer profile, 48% of our fourth quarter sales were to first-time buyers, compared to 50% a year ago. In addition, 79% of our fourth quarter sales were inventory homes, compared to 67% in last year's fourth quarter. Our community count was 232 at the end of 2025, compared to 220 at the end of last year. During the quarter, we opened 17 new communities while closing 18. And for the year, we opened 81 new communities. We currently estimate that our average 2026 community count will be about 5% higher than 2025. We delivered 2,301 homes in the fourth quarter, and about 40% of our quarter deliveries came from inventory homes that were both sold and delivered within the quarter. As of December 31, we had 4,500 homes in the field, versus 4,700 homes in the field a year ago. Revenue decreased 5% in 2025 to $1.1 billion and our average closing price for the fourth quarter was $484,000, a 1% decrease when compared to last year's fourth quarter average closing price of $490,000. Our gross margin was 18.1% for the quarter, including $51 million of charges which consisted of $40 million of inventory charges and $11 million of warranty charges. Excluding these charges, our gross margin was 22.6%. The breakdown of the inventory charges is $30 million of impairments and $10 million of lot deposit due diligence costs written off. The majority of our impairments in the quarter were in entry-level communities, with average selling prices below $375,000. And the warranty charges were due to two communities in our Florida market. For the full year, our gross margins were 23%. Excluding our $59 million of charges, our full year gross margin was 24.4%. And our fourth quarter SG&A expenses were flat compared to a year ago, and were 11.6% of revenue compared to 11% last year. Interest income, net of interest expense for the quarter was $6 million. Our interest incurred was $9.5 million. We had solid returns given the challenges facing our industry. Our pretax income was 12% for the year, and our return on equity was 13%. During the fourth quarter, we generated $129 billion of EBITDA, and for the full year, we generated $608 million of EBITDA. Our effective tax rate was 21% in the fourth quarter, compared to 22% in last year's fourth quarter, and our annual effective rate for this year was 23.5%. We expect 2026 effective tax rate to be around 23.5%. Our earnings per diluted share for the quarter decreased to $2.39 per share from $4.71 per share in last year's fourth quarter and decreased 25% for the year to $14.74 per share from $19.71 per share last year. During the fourth quarter, we spent $50 million repurchasing our shares, and for the year, we spent $200 million. We currently have $220 million available under our repurchase authority, and in the last three years, we have purchased 13% of our outstanding shares. Now Derek Klutch will address our mortgage company results. Derek Klutch: Thanks, Phil. In the fourth quarter, our mortgage and title operations achieved pretax income of $8.5 million, down $1.6 million from 2024. Revenue of $27.8 million, down 2% from last year. Primarily as a result of lower margins on loans closed and sold and partially offset by higher average loan amounts and more loans closed. For the year, pretax income was $56 million and revenue was $126 million. The loan to value on our first mortgages for the quarter was 83% in 2025 compared to 82% in 2024's fourth quarter. 65% of the loans closed in the quarter were conventional, and 35% were FHA or VA. Compared to 59% and 41%, respectively, for February same period. Our average mortgage amount increased to $414,000 in 2025's fourth quarter compared to $409,000 in 2024. Loans originated in the quarter increased 1% from 1,862 to 1,874 and the volume of loans sold decreased by 1%. Our mortgage operation captured 94% of our business in the quarter, an increase from 91% in 2024's fourth quarter. Phil Creek: Thanks, Derek. As far as the balance sheet, we ended the fourth quarter with a cash balance of $689 million and no borrowings under our unsecured credit facility. We continue to have one of the lowest debt levels of the public homebuilders. And are well positioned with our maturities. Our bank loan matures in 2030 and our public debt matures in 2028 and 2030. Total homebuilding inventory at year-end was $3.4 billion, an increase of 9% from prior year levels. And during 2025, we spent $524 million on land purchases and $646 million on land development. For a total spend of $1.2 billion. This was up from $1.1 billion in 2024. And at 12/31/2025, we had $900 million of raw land, the land under development, and $1.1 billion of finished unsold lots. We own 10,500 unsold finished lots. And at the end of the year, we had 1,030 completed inventory homes about four per community, and 2,779 total inventory homes. And of the total inventory, 1,116 are in the Northern Region and 1,663 in the Southern Region. And at December 31, 2024, we had 706 completed inventory homes and 2,502 total inventory homes. This completes our presentation. We'll now open the call for any questions or comments. Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by 2. And if you are using a speakerphone, please lift the handset before pressing any keys. First question comes from Ken Zener at Seaport Research Partners. Please go ahead. Ken Zener: Good morning, everybody. Good morning. Positive order growth. Pretty impressive. And can you address the 13% growth you had in the South? Can you bifurcate that into Texas and Florida? Because I think, Ted, last time, you found that Texas is a little bit more of the volume. We've been seeing that Florida is actually doing a little better than Texas. Could you address the split in that those mark that region? You know, in general, we had pretty solid sales everywhere. Our Carolina markets, Charlotte and Raleigh have done, very well. You know, in Florida, our Orlando market, has actually held up pretty well. And Tampa also has improved as we've gone through the quarter. When you look at Texas, you know, Dallas is state pretty solid for us along with Houston. Weaker markets have been Austin and San Antonio. So with been spread around a little bit. But like you say, we were very pleased that our southern region was up 13%. And our northern region was also up 4%. You know, the the only other thing I'll mention, Ken, and it's a good call out, just to build on what Phil said, is as we're getting now some traction in our newer markets in the southern region, specifically Nashville and Fort Myers Naples. That will put us that that will slightly skew upwards some of the percentages. But but we felt very good about our fourth quarter sales. And I would simply add that as we begin 2026, you know, we we certainly have seen and I think some of it's clearly seasonal. We're beginning a selling season right now with opposed to leaving the slowest time of the year in the fourth quarter. But we've certainly seen a an important improvement in traffic. I appreciate those comments. It's and they are reported too today, and it's our margins are under pressure. The demand seems to be there. Could you comment, given the intra quarter orders and closing, could you comment on the margin differential between your intra quarter closings and your backlog or spread, if you will, as well as are the majority of those quarter closings, I assume they're coming from the lower priced Smart Series. It you could address those two questions. You very much. Well, it I'm not sure I completely understood the question. And you may have to ask it again. Operator: Okay. Ken Zener: Orders and closings per unit that were intra quarter So what I call spec. How are those margins compared to the homes that came out of backlog? And I'm assuming most of those intra quarter orders, which were closings, were the Smart Series. Well, yes and no. The Smart Series point. The the the one thing I'll say is over the last twelve to twenty four months, our business has changed quite noticeably. In terms of the the the the significant contribution of spec sales month in, month out. About you know, two thirds to three fourths of our sales are now coming from specs. And if you go back five years ago, that would have been less than 50%. Some cases less than forty. So that's been a pretty significant change. And it's likely here to stay as long as Operator: is Ken Zener: you know, we're in this this situation where we're needing to use rate buy downs to promote sales, because as you well know, the ability to provide a favorable rate buy down at any kind of a reasonable or at least acceptable cost it is one of the conditions is that you can get the home closed you know, within sixty to ninety days of of the purchase of the buy down money, which means that only been really worth respects. So having said all that, the the the majority of of know, 60 to 75% of the closings quarter to quarter to quarter all coming from spec sales. Bill, don't know if you wanna add anything to that. Yeah. I mean, you know, our closing GPs in the fourth quarter you know, were twenty two six, you know, forgetting the charges. We were, you know, pretty pleased with that. Are there continued pressures? Yes. We do feel good that our construction cost last year, came down about 2%. We were also pleased last year that our cycle time improved by about 5% So we're making some progress on some of those key areas. SPAC margins in general are lower than to be built homes. But the last couple of months, we have seen a slight pickup in our to be built business. But, you know, we just continue, focusing, you know, every day everything we can do to hold those sales prices stable or increase them. And also keep margins as high as we can. Thank you very much. Thanks, Kim. Operator: Thank you. The next question comes from Alan Ratner at Zelman. Please go ahead. Alan Ratner: Hey, Bob. Hey, Phil. Good morning. Nice quarter and Good morning, fiftieth anniversary. Good morning. Happy New Year. Yep. We don't feel we don't feel that old. I I hear you. Well, I it's it's very impressive impressive, and I'm sure we got 50 more out ahead of us. So looking forward to it. My first question is on the order strength in the quarter. I was looking and your fourth quarter, obviously, up year over year, but your fourth quarter orders were actually sequential basis as well, which, as far as I can tell, that's the first time that's happened since 2001. So I was hoping you could just talk a little bit about, you know, kinda your incentive and pricing strategy through the quarter. Would you say that order strength at least kind of seasonally, is a reflection of improving demand? Or was it more of a concerted effort by you guys to kind of clear through some inventory ahead of year end, maybe with some higher incentive incentive? Well, that's a great question. It's it's actually probably one of the most important questions that you know, as we as we look week to week and look at it in terms of our sales activity, I feel like it's a little bit of both. I think we, you know, we wanted to push to get as many completed specs you know, off the you know, out to the buyers as we could. I feel like demand is slightly picking up. Bob Schottenstein: And it you know, I felt like, you know, not every market but in many of our markets, we were you know, we were somewhat pleased with the level of traffic through the fourth quarter. And that is and that is continuing. It you know, it's I think it's too early to to make a call. But look, we've, you know, we've all been whining for the last number of years about all the pent up demand and under and and, you know, housing is underperforming and on and on and on and on, and more articles have been written about that almost than anything other than affordability. But but it's it feels like you know, we may be starting to see a slight improvement in demand. And I also think and and, you know, we'll know when we know. We expect our margins to drop at least 200 basis points last year. And, of course, they did that and then some. And the margins are likely to remain under pressure, but it's not clear to me at this point that the pressure in '26 will be as much as it was in '25. So hopefully, things are starting to level off a bit Again, we'll we'll know when we know. But you know, all things considered, you know, pre charges, made almost $590 million last year, brought 13% the bottom line. By historical standards, that's pretty good performance. And you know, just putting things in context, we've all seen a whole lot worse And you know, I think that you know, I'm optimistic about, you know, the first four or five months of this year in terms of demand and the selling season. So we'll see. You know, Alan, one thing I'll add is that we we talked about, you know, the impairments came primarily from entry-level communities with an ASP under $3.75. You know, it was led by, you know, our more challenging markets in Austin and San Antonio So in general, we've seen a little more pressure on prices and margins on the real entry-level lower price for us. Hopefully, that is gonna get a little bit better know, we tend to play at a little higher price point. But, that's kinda where things are. Alan Ratner: Got it. No. I appreciate all that detail. And and and, Phil, you you kinda touched on the second question I had, which was on those impairments. I guess the first one is a little bit of an accounting nuance, but I'm just curious. If I look at historically when you've taken charges, they're they're almost entirely in in your fourth quarters. I mean, you maybe have some minimal charges for the year, but it looks like fourth quarter is kind of where you generally take larger charges. So I'm curious if there's any accounting reason why that is, at least compared to other builders. And b, I don't know if you disclosed like a watch list of communities that are have maybe potential indicators of impairments, but is there any indication that impairment should continue here over the next handful of quarters just based on where some of your margins are trending in your lower price point communities? Phil Creek: Yeah. Alan, I appreciate that. And I'll I'll try to get all those points. You know, to to us, it's a business issue. Mean, if you look at our business goals, you know, we're in the subdivision That's what really matters to us. That's how we operate the business. And if we're not getting you know, we try to get a pace of three plus We try to get margins at 22 plus. And we try to make sure we're focused on all the items. Product, presentation, salespeople, make sure all those levers are working at all times. But when we're not getting acceptable pace, over a certain period of time, you know, we make the business decision oftentimes to go to price. Course, the way the accounting accounting rules are based basically is that once you get down to about a 10% GP, know, you kinda get to the point where, you know, carry cost, disposal cost exceed that. So they accounting rules you know, kinda force you to do an impairment. But, again, to us, it's a business decision. You know, we do look harder at things toward the end of the year for sure. So that's why the majority of those charges in the past have been that way. Although this year, we did a, like, you know, a small impairment also. I think it was in the third quarter. But, you know, if you look at us today, you know, we own about 25,000 unsold lots You always have a couple of problems subdivisions. Our impairment covered about a thousand lots. So about a thousand of the 25 lots. And, again, it was in the most affordable stuff. You know, we could have continued grinding through these communities. It may be one one and a half, two or a month. You know, maybe at 10, 12% margins. But, you know, our view is when you look at the landscape of the business, and the difficulty, at those lower price points, you know, we decided to go to that last lever of dropping price. And that's what, you know, triggered those impairments. But, again, we think that's a really good business decision. We expect that pace to pick up. We expect the margin to get back to closer to normal levels. And and that's why we did it. The other thing I'll say because I've I've been to the movie it was a long time ago, but back during the great recession, when every quarter you know, you were sort of holding your breath as the builders reported because many more impairments are coming And we also felt like there was more coming. This is very different. I'm not gonna say there's no more coming because no one knows that. But what I will say is is it is it as as we got towards the end of last year, it was sort of let's let's start 2026 you know, with all cylinders. You know, as strong as they can possibly be. Whatever thing we think might be a problem, let's deal with it now, and let's end at 2026. You know, with with with as many items controlled and behind us as possible. Alan Ratner: And, Alan, really appreciate that detail. Thank you. Phil Creek: 10,000,010 million was a combination of lot deposit write offs prepaid, like due diligence write offs on deals we're not pursuing. Anymore. Because we think to do those deals, it would take, you know, a pretty significant cost reduction other changes in terms. So we walked away from those deals. But, again, you know, on average, when you take a, you know, a $30,000,000 charge on a thousand lots, you're looking at 30,000 per lot, which is pretty significant. And, hopefully, that's gonna increase our pace and margins as we go into this year. Alan Ratner: Makes sense. Thanks a lot. I Thanks, Alan. Operator: Thank you. The next question comes from Buck Horne at Raymond James. Please go ahead. Buck Horne: Congrats on navigating a challenging environment and appreciate those the color on all the charges as well. Thanks, buddy. I was also yeah, very welcome. I was kinda curious about the acceleration in land purchase activity and some the lot development spend in the fourth quarter. It was up both sequentially and year over year. I guess, first, kind of wondering if any particular markets or regions are getting the bulk of that new spend that you're targeting? And, you know, is should we read into that that acceleration if there's is that a indication of your confidence levels of kind of the demand that's out there and your growth trajectory? Or how should we interpret that pickup in the land spend? Phil Creek: No. Nothing really special. You know? Again, some of our markets are impacted by you know, weather when we get black topping done and those type of things. I mean, we owed about 25,000 lots, as Bob said. We try to have about a one year supply of finished lots. That way, we don't go dark, etcetera. And we ended the year with a little over 10,000 finished lots. And, again, with our current run rate at 9,000, we feel good about that. So, no, nothing really special. You know, we're continuing to do a a lot of land development. You know, we self develop about 80% of our own land. But as far as any strategy or direction, that just kind of was the way the dollars were. We did spend a little bit more money you know, last year toward the end, but, you know, just the way it kinda fell. Buck Horne: Okay. That's helpful. Always curious about your your Florida trends in in particular. I was just wondering because we've seen some signs that resale inventory to start the year in Florida here. Seems to have flipped negative year over year. I think you mentioned that Tampa started to improve a little bit. Orlando seems to be steady. Are you sensing that that we may have I don't know. Is there any signs of improving traffic demand? Any signs that stabilization of the resale inventory is helping? Bob Schottenstein: When we look at the four Florida markets that we operate in, Orlando, Tampa, Sarasota, Fort Myers, Naples, Fort Myers, Naples is really new for us. We're we're very bullish about it. And you know, there we had significant growth because we went from almost zero to you know, over a 100 and some units, you know, last year. But and we're expecting pretty meaningful growth there over the next several years. As far as the other three where we've been a while, Orlando's clearly held up the best. And and and over the last I would say, you know, 30 to a 120, a hundred and fifty days, demand in Orlando has been stronger than Tampa and Sarasota. Tampa was the toughest market for a while. Had probably, whatever reason, the hardest hit for us in Florida clearly. Tampa business has picked up. Very importantly. It's not as strong as Orlando at this point. But but we're we're we're encouraged by what we're seeing. That's for sure. And and Sarasota is just sort of, you know, so so. You know, I I I think that mark market is it's a very good market but it's you know, it's sort of trending along and, you know, maybe c plus b minus, that kind of thing. So look, we're we're very invested in Florida. Very committed to Florida, It's a huge part of our business. Candidly, we have some of the best leadership teams in our company. In Florida. And it's, you know, so you know, we we've been there a long time and I mean, this this this was noted where we've been in business fifty years. The first market outside of Columbus, Ohio that we expanded to was Tampa. And the second one after that was Orlando. So we've been in Florida for a long time, since 1981 in Tampa and 1985 in Orlando. And we're not, you know, we're you know, we've we've we've had a very strong leadership position in those markets. We'll continue to. As well as the operation in Sarasota and Fort Myers Naples. Buck Horne: Outstanding. That's great to hear. Last one, if I can sneak one in. I was curious about just how you're structuring the mortgage rate buy downs right now in terms of what type of program or structure seems to be resonating in getting consumers over the hump Is there kind of a sweet spot target mortgage rate that seems to work best with those buy downs? Derek Klutch: I guess, this is this is Derek. We we've been going with a four and seven eights thirty year fix. And we think getting a sub five is the key. And that that's what really seems to attract the buyers. And then on top of that, in some divisions, we offer a temporary buy down so we can get buyers with the first year payment in the 2.875 range. We've we've run that for quite a while, that seems to be successful for us. So just that sub 5% note rate. That's clearly been our most successful recently. We've been tinkering with the the $7.01 arm that other builders have been using a lot. You know, it's everybody has their own experiences. To Derek's point, what seems to work best for us is the very straightforward thirty year fixed four and seven eights FHA, VA, or conventional. And you know, that's and and in many instances, it's supplemented with the two one buy down that Derek mentioned. And one thing I'll stress also is that, you know, our mortgage and title operations is very important to us. They only serve on my home customers. We're able to deal individually with customers. And depending on if it's a first time buyer, there may be a real big need for closing cost assistance. There's some people out there that do wanna do to build home to be built homes. That do want a longer term rate program, So we're able to customize whatever we need to do with an individual customer as opposed to throwing all kind of money to every customer that may or may not need that. So being able to individually deal with customers, we think it's very important to our business. Buck Horne: Awesome. Very helpful color. Appreciate it, guys. Good luck. Bob Schottenstein: Thanks. Phil Creek: Thanks. Operator: Thank you. The next question comes from Alex Barron at Housing Research Center. Please go ahead. Alex Barron: Hey. Good morning, guys. Good morning. I wanted to I wasn't sure if I missed it, but did you guys give any guidance or outlook for margins for next quarter Do you feel like they're going go down sequentially, or is these impairments you took this quarter gonna help stabilize margins? Phil Creek: Alex, you know us. We don't we don't give guidance on things like that. We were you know, pretty pleased with our margins in the fourth quarter. We did deal with problem communities that we thought we needed to with the impairments. Don't give any guidance. You know, we are working hard on construction costs and cycle time and all those things. We are opening a number of new stores this year. We did give guidance. We expect average community count to be up 5% this year. But, no. We did not give any guidance as far as margins. Alex Barron: Okay. Did your incentive levels or go up in the quarter versus the previous quarter? For new orders? Phil Creek: I mean, our margins were down a little bit. So you know, are we doing a little bit more on closings in the fourth quarter? Yes. We did. Again, that's reflected in our margins. Trying to do the best job we can opening all these new stores. We opened 80 stores last year, and anticipate open more than that this year. So that's a big opportunity for us. But, hopefully, spring selling season will be a little better than it has been. Alex Barron: Okay. And also, any shift in your strategy as far as what percentage of spec homes you guys are starting versus you know, going back towards hill to order? Bob Schottenstein: No. It it it'll likely it's Bob Schottenstein, Alex. It it'll likely remain about what it's been, which is about, like I said earlier, two thirds to three fourths of our business. Our spec sales And and I I don't see I don't see things changing there or on the rate buy down side to incent sales, I don't see any of that changing anytime soon. You know, obviously, you know, we're all reacting to know, to on a daily basis to what's happening in the market. Is we did mention we've been encouraged by by early traffic improvements here that we've seen through through the latter part of the fourth quarter and certainly as we begin 2026. Alex Barron: Alright, guys. Well, best of luck. Thank you. Phil Creek: Thanks a lot. Thanks, Alex. Operator: Thank you. And the next question comes from Jay McCanless at Citizens. Please go ahead. Jay McCanless: Hey. Good morning, everyone. Just to kind of follow on that point, Bob. Jay, congratulations on your new position. Thank you, sir. I really appreciate it. Appreciate y'all's time this morning as well. Just to kinda follow on what you were saying there Bob, Are you all seeing similar traffic pickup in both the North and the South, or is it a stronger in one region versus the other? You know, I in I think that it's not every single one of our 17 markets but certainly most. And I and I would not say it's it's particularly regional. Now the last five days, things aren't very good anywhere because you know, most people are frozen solid or they're, you know, they're they're snowed in, including know, here in Columbus, it's been pretty rough. But but in general, we've seen traffic you know, start to pick up. It's it always does this time of year. Feels a little better than even a year ago, though, to me. Okay. That's great. And then Phil, could you talk about in the fourth quarter, your ending gross margin in the backlog, how that compares to what you reported closings in 4Q? You know, right now, what we're doing, as Bob said, 75, 80% specs. You know, in general, the margins in the backlog are higher, you know, than than specs. Are the margins that you're in a little higher you're in a year ago? The answer is yes. You know, that's about a 100 basis points difference. But, hopefully, we're getting a little better We continue to focus on how we can improve the margins on the specs. So, we're doing all we can. You know, we did that twenty two six margins in the fourth quarter. So we're hoping margins hold up pretty good. That's great. And then the next question I had, just thinking about the sales pace for these newer communities you're opening. Are you all trying to push a similar sales pace as what you got in '25? Or are you trying to be a little more cautious and not wanting to give away too much margin at the beginning of these communities? Well, we always try to focus on getting that pace, you know, at 35%. But, you know, again, you gotta be a little more careful opening new stores you know, as far as if you're super aggressive on price and margin, again, you can feel that benefit for a while. So there is a lot of opportunity with these new stores. Hopefully, we've got the the right product and the right price to move through there. But, you know, we are focusing on trying to keep this pace, you know, at hopefully around three or a little better. Okay. That's great. Thanks. And then the last one for me. And and thank you for the detail on the specs. I guess, how how are you feeling about MHO's inventory right now and and maybe some broader commentary on what you're seeing in the industry. Does it feel like some of the the excess spec inventory is being drawn down? Or or how what are you hearing from the divisions on that? I think we feel really good about where we are. Not not to be, you know, silly. I mean, if we didn't, we'd change. But you know, we going into this year, again, a lot of it's community specific. But we wanna be very aggressive in making certain that we have the product standing product in the field, the in inventory, if you will, you know, so that we can, you know, take advantage of what should be a a, you know, hopefully a decent selling environment here over the next you know, three to four or five months. And and so I I think we feel we feel our strategy is the right strategy. We don't feel we need to do any significant shifts. You know, and and you know, other than community by community specific things, in general, I think we're we're we're we're very well positioned. That's great. And and just any industry commentary you've been hearing from the field In relating to what issue? Relating to inventory. Tech inventory specifically. You mean, are people like, you know, deep discounting just to move specs or have discounts slowed down. Or more incentives being paid to third party realtors or mean, things like that. Yeah. Things like that. That'd be great. Yeah. You you know, you hear a crazy story now and then about once every two days. So it it you know, I don't think that's anything new. I mean, people do what they need to do. Look, you know, I think that that knowing on a look back, knowing what 2025 was, if you just said to me, we're gonna bring 12 to 13% to the bottom line for the full year, I'd say I'll take it. Well, that's what we did. Understood. Jay, we pay a lot of attention to our inventory levels. We do have about a thousand finished specs which is a little higher than last year's 800 We do have 5% more stores. You know, we have a few less houses in the field today than we did a year ago. But, again, we benefit by better cycle time, We're just trying to be very focused A lot you know, a lot of times, execution doesn't get discussed. But, you know, now execution really matters. We're trying to be careful not to put too much inventory in the field, too many finished specs. You know, again, it depends on is it an attached townhouse community, is it a higher price community, every community is a little bit different. But, you know, again, I mean, doing 70, 75% specs I mean, I'll I'll we're relying on sales every week, every month, and that's what we have to stay focused on. We were very pleased. If you look at it last year, we closed almost the same number of houses that we did the year before, which was our record 9,000 homes. And, obviously, our our hopes and plans are, you know, we hope to close a few more houses this year than last year. We have more stores. But, again, we're staying focused. You know, we try to run a conservative business. We're not trying to put inventory out there too far ahead of ourselves. But, you know, again, we feel pretty good about our results. Absolutely. And and one question I forgot. Could you talk or or did can you if you talked about it, maybe repeat the commentary on what the margins on new community profit margins on new communities look like. As far as what the margins are on new communities we're opening versus older communities. Is that your question? Correct. Yeah. That's it. You know, again, that that's really a hard question. You know, last year, we opened, you know, 80 stores. I would say in general, they're they're pretty close. You know, we have some new stores that are doing really well and, you know, some that aren't doing so hot. It's a pace it's an individual situation. But, you know, overall, we feel pretty good about, you know, the new stores we're opening. We're trying to make sure we have the the right product and the right price and all those things open the right way. But, yeah, that's just a really hard question, Jay. Understood. Well, thank you guys for all the time. And that's all the questions I have. Thank you. Bob Schottenstein: Thanks, Jay. Operator: Thank you. The next question is a follow-up from Ken Zener at Seaport Research Partners. Please go ahead. Ken Zener: Hello again. Thank you. I wonder if you could comment on the flexibility of the business. So obviously, mortgage buydowns for let's say, two thirds of the communities at you know, you have product, you're trying to protect the community, price voids, etcetera. But for new communities, given that, you know, communities that opened last year and conversely are opening this year, how much of a change to the product type or you know, how you open it up at what price points. Can you talk to the dynamics that you employ when making those choices on new communities in terms of resetting the let's say, home size or you know, the specs that you're building are I I don't wanna use the word despec, but, you know, they're more simpler in terms of price points. Much flexibility do you really have there when you're coming into opening a community six to nine months out vis a vis the product structure Probably. Yeah. Type. Bob Schottenstein: I I think a lot more flexibility, I think, than most people might realize. Look, so much of it's determined by zoning. And so, you know, you're you're you have to stay within the confines of the zone of the permissible zoning parameters. Having said that, usually those parameters give you a fair amount of flexibility The the amount of internal debate, discussion, analysis, strategy, if you will, that goes into each community planning from the very earliest stages when we think there's a site and I'll use this as an example, in Charlotte, that we're looking to tie up from the moment that we think that site might be available the the the debate occurs within the division. Sometimes it springs all the way up to corporate conversations. About what what are we gonna do with that if we get that deal done and that becomes a new store for us. What is that store gonna look like? What are we gonna merchandise in that store? What is what who is the buyer? And you know, there's that's a lot more art than science I'm not saying it's rocket, you know, like building a rocket ship to the moon, but it is a lot more art than science. And you do have some flexibility And we're, you know, there's there there is a fair amount of tinkering that takes place We have projects, many of them, that will be coming on this year that when we first started planning them, we might have planned to do you know, larger homes. And now we're looking to do smaller homes. That's a very simple example. But or we may be replanning in a way that the density stays neutral but we've now we're now gonna develop it with smaller size lots. Or perhaps the opposite, larger sized lots to take advantage of maybe lot premiums. So that's a huge part of what goes on. And, of course, every new land deal in this company before we are in a position where we've made a firm commitment must get approved at the corporate level through, you know, our land committee process. Evaluation process which is a discussion involving the specific division of course, a few of us here at corporate. And even in that, after this thing this thing has been batted back and forth at the division level, will quite often have questions about the product and the product line. Are we really trying to do here. And and, you know, should we should we should we adjust this or that? And and certainly on larger deals where there's multiple product lines or they have a long tail, we may have two or three land committee calls along the way. What are we thinking? How does it look now? Let's reconvene in ninety days. So there's a whole lot that goes into that. You know, we're as good as our stores. We're a retailer. You know, we're we're a very unusual retailer because reinvent ourselves about every three years. The stores that we have out there today three years from now, 90% of them will be completely different. And because we'll sell through and replace with new. And as Phil mentioned, you know, we're poised to open a whole lot of new stores this year. And we'll be closing out of a number of them too. So what those stores look like and what we choose to sell hopefully meeting the market where it is, who is the buyer, what are we targeting, That's a huge part of the business. Huge part of the business. And, you know, we've we've made our fair share of mistakes. So hopefully, we've learned from some of them. And and there's times when we've absolutely, you know, shifted to a strategy that has turned something that might have just been average into something really good. And, you know, so when we see something that works in one market, you know, we that maybe it's a little bit, you know, off the wall thinking. You know, we'll also try to apply to that, you know, in other markets if it makes sense to do so. So it's a very, very big part of the business. Doesn't often get a lot of conversation. But you know, it's it's a it's a terrific question. Thank you. Operator: Thank you. There are no further questions at this time. I will turn the call back over to Phil Creek for closing comments. Phil Creek: Thank you for joining us. Look forward to talking to you next quarter. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Please stand by. Good day, and welcome to the Stifel Financial Fourth Quarter 2025 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Joel Jeffrey, Head of Investor Relations. Please go ahead. Joel Jeffrey: Thank you, operator. Good morning, and welcome to Stifel Financial's fourth quarter and full year 2025 earnings call. On behalf of Stifel Financial Corp, I will begin the call with the following information disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplement copies of which are available at stifel.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause the actual results to differ materially. Stifel Financial Corp. does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in our earnings release. I will now turn the call over to our Chairman and Chief Executive Officer, Ronald James Kruszewski. Ronald James Kruszewski: Joe, and good morning, everyone. 2025 was another record year for Stifel. Firm-wide revenue of $5.5 billion increased 11% and marked the first time we've surpassed $5 billion in revenue in our 135-year history. Record performance in global wealth management and our second-highest year of institutional revenue drove these results. Given the volatility we experienced throughout the year, this performance highlights the breadth, quality, and resilience of our franchise. Stepping back, 2025 was a strong year for markets, but it was not without its challenges. Economic resilience, healthy balance sheets, and improving capital markets activity supported growth even as volatility, geopolitical risk, and policy uncertainty remained very real. As the environment strengthened during the year, our focus on client service allowed us to capitalize on the improving market trends. That focus is reflected in J.D. Power ranking Stifel number one in employee adviser satisfaction for the third consecutive year and in the fact that 2025 was our strongest financial adviser recruiting year since 2018. On the institutional side, I'd also highlight the performance of our KBW subsidiary. In 2025, we participated in approximately 75% of depository M&A advisory transactions measured by deal volume, underscoring our leadership position in financials and the depth of our client relationships across the sector. Building on that momentum, this morning, we announced another depository M&A transaction representing Stellar in its sale to Prosperity Bank. This reflects the continued level of engagement we're seeing across bank boards and management teams as strategic conversations translate into executed transactions. Before getting into the details of our results, I want to step back and briefly address our business model because it's central to understanding Stifel's competitive position. We do have a $41 billion balance sheet. Approximately 80% of our revenue comes from wealth management, asset management, investment banking, and capital markets, with net interest income representing about 20% of the mix. Our balance sheet exists to serve our clients, not as a standalone business. It allows us to provide individual lending, credit, and treasury capabilities to companies in the innovation ecosystem, and capital solutions to clients. It's client-serving infrastructure that supports our core business. This structure gives us meaningful competitive advantage. Unlike independent wealth managers, we can enhance the full client experience through integrated lending and cash management. Because our model is advice-led, we generate the growth and returns on an advice-based business. That's why you'll hear us focus our commentary on the businesses that drive our growth trajectory: Global Wealth Management and Institutional. The balance sheet enables those businesses, but it is not itself a separate business line. We use our balance sheet to support our clients when it's right to do so while remaining well-capitalized. Our bottom-line results reflect increased scale and operating leverage. Excluding the first quarter legal accrual, we delivered EPS of $7.92, a pretax margin of 21%, and for 2025, a return on tangible common equity of roughly 25%. Strong earnings again generated meaningful excess capital, which allowed us to continue investing in the business, grow our adviser-led client-serving platform, acquire Brian Garnier, and the employee wealth business from B. Riley, and repurchase shares. To put our 2025 performance in proper context, more than two years ago, on our third quarter 2023 earnings call, we discussed our ability to generate at the time, we looked forward, it was our ability to generate $5.2 billion in revenue and $8 a share in a normalized environment. And, look, at the time, those targets were viewed as aspirational. Particularly given that we were on our way to delivering 2023 revenue of $4.3 billion and earnings per share of $4.68. In 2025, we exceeded that revenue target and essentially reached $8 per share in earnings despite market headwinds in the first quarter. That outcome reflects and reinforces both the durability of our model and the operating leverage inherent in the business. Stepping back and taking a longer view of our growth, the trajectory of the firm has been consistent and disciplined. Over the last decade, Stifel's revenues are up 137%, driven by meaningful expansion across both of our operating segments. In Global Wealth Management, revenue has grown 157% over the last ten years, reaching $3.5 billion. That growth has been driven by sustained adviser recruiting, higher adviser productivity, growth in fee-based assets, and the continued build-out of our client-serving platform, which has improved both the growth and consistency of our results. In our institutional business, revenues nearly doubled over that same ten-year period, reaching $1.9 billion. That growth reflects diversification across advisory, capital markets, and public finance, deeper industry coverage, and continued investment in talent. That long-term execution is also reflected in shareholder returns. Since 1997, the S&P 500 is up roughly nine times. Microsoft, one of the most successful growth companies of our generation, is up approximately 45 times. Stifel, over that same period, is up around 76 times. Even over a more recent horizon, the story is consistent. Over the last five years, Stifel stock is up roughly two and a half times, while Microsoft has roughly doubled and the S&P 500 has not quite doubled. Reflecting that performance and the confidence the Board has in the durability of our earnings and cash flows, the Board of Directors authorized an 11% increase in the common stock dividend beginning in 2026. In addition, the Board authorized a three-for-two stock split effective February 26, 2026, for record as of February 12, 2026. This marks the fifth stock split during my tenure. Taken together, these results reinforce what we believed for a long time: that disciplined growth, consistent investment in our people, and a long-term mindset can create significant value for shareholders across market cycles. With that context on our business model and long-term performance, I'll now turn the call over to our CFO, James Marischen, to walk through our quarterly results and outlook in more detail. James Marischen: Thanks, Ron, and good morning, everyone. The fourth quarter capped another strong year for the firm. Revenue was a record $1.56 billion, surpassing last quarter's record by 9%, with both operating segments delivering solid results. Global Wealth Management once again led the quarter, delivering another record result, while institutional revenue increased 28% year over year, marking its second strongest quarter on record. The performance across both segments drove record EPS of $2.63, a pretax margin of more than 22%, and a return on tangible equity of more than 31%. During the quarter, we also announced the sale of Stifel Independent Advisors. Combined with the actions taken earlier in the year, this positions the firm for improved operating leverage going forward. Turning to slide four, I'll walk through our results relative to consensus estimates in the prior year. Total net revenue exceeded consensus by $50 million and increased 14% year over year. Investment banking revenue was the primary upside driver, exceeding expectations by $70 million or 18%. Higher advisory revenue was the main contributor, and we also exceeded expectations for both equity and fixed income capital raising activity. Transactional revenue came in 4% below expectations, primarily due to lower fixed income revenue, which more than offset modestly higher wealth management revenue. Within fixed income, results were slightly below our prior quarter guidance. Asset Management revenue was in line with expectations. Net interest income was at the high end of our guidance but was $2 million below consensus. This was a result of the decline in fee income recognized during the fourth quarter. Expenses were well controlled, with the compensation ratio and total non-compensation expenses generally in line with expectations, allowing for operating leverage on a higher revenue base. The effective tax rate for the quarter was 14.1%, slightly above both guidance and consensus. During the quarter, we recognized the benefit related to stock-based compensation, which was offset by an unfavorable return to provision adjustment on foreign taxes. Turning to slide five, I'll start with Global Wealth Management, which remains the foundation of the firm's earnings, capital generation, and long-term growth. 2025 marked our twenty-third consecutive year of record wealth revenue, with total revenues exceeding $3.5 billion, driven by record asset management and transactional revenue, along with our second-highest year of net interest income. Fourth quarter results were equally strong, with record quarterly revenue of $933 million, again driven by strength in both transactional and asset management activity. We ended the quarter with record total client assets of $552 billion and record fee-based assets of $225 billion, reflecting continued market appreciation and net new asset growth in the low to mid-single digits. Recruiting was a significant contributor to growth in 2025. We added 181 financial advisers, including 92 experienced advisers with trailing twelve-month production of $86 million. This represents more than double the number of experienced advisers added in 2024 and a meaningful increase in trailing production. Our recruiting pipeline entering 2026 remains strong, and we expect another solid year. Our client-driven balance sheet activity continues to enhance both earnings consistency and client engagement. As shown on the slide, economics associated with client-driven balance sheet usage has been relatively unaffected by rate cuts over the past year. Given the floating rate nature of our assets and liabilities, we remain relatively rate agnostic, with growth in net interest income driven primarily by client activity and balance sheet expansion, rather than changes in interest rates. For 2026, we expect net interest income to be in the range of $275 to $285 million. Client cash and funding increased meaningfully during the quarter. Sweep balances increased by $510 million, while non-wealth client funding increased by nearly $1.5 billion. This was the strongest quarter of growth we've seen in our venture activity and reflects continued momentum from investments made in that group. In addition, we saw more than $1.4 billion in third-party money fund balances. As a result, we enter 2026 with significant capacity to support wealth-related and institutional client-driven balance sheet growth while maintaining a conservative credit risk profile. Turning to slide six, I'll discuss our institutional group, which provides meaningful upside as market conditions improve. For the full year, institutional revenue exceeded $1.9 billion, up 20% year over year, marking the second strongest year for the segment. Fourth quarter revenue was $610 million, up 28% year over year, driven primarily by investment banking. Investment banking revenue totaled $456 million, up 50% year over year. Advisory revenue increased 46% to $277 million, continued strength in financials, and improving traction in technology and industrials. Equity capital raising revenue was $95 million, double the prior year, led by health care, financials, and industrials. Fixed income underwriting reached a record $76 million, up 23% year over year, driven by increased public finance activity and higher corporate issuance. We remain the number one negotiated issue manager in public finance by deal count. We're also seeing increased success in larger par value transactions at record levels. Investment banking and advisory pipelines into the quarter provide strong visibility into the first quarter and beyond. Transactional revenue declined 10% year over year due to an 18% decline in fixed income revenue, which more than offset a 6% increase in equity revenue. The fixed income results were impacted by the government shutdown and timing of gains in prior periods. Turning to slide seven, expenses remained well controlled during the quarter. Non-compensation expenses totaled $307 million, up 6% year over year, primarily reflecting increased investment banking gross-up associated with higher advisory and underwriting activity. As a result, our quarterly adjusted non-compensation operating improved by 200 basis points. For the full year, excluding the first quarter legal accrual, our non-compensation operating ratio improved by 140 basis points, reflecting the benefits of increased scale, improved operating leverage, and a more favorable revenue mix. Compensation expense remained well aligned with revenues, coming in at 58% for the quarter and the full year. Despite quarter-to-quarter variability, improvement in our overall expense profile continues to be driven by the combination of scale, growth in net interest income within wealth management, and actions taken to simplify business support. Our capital position remains strong and provides meaningful strategic flexibility. The tier one leverage ratio increased to 11.4% and the Tier one risk-based capital ratio rose to 18.3%. Based on a 10% Tier one leverage target, we ended the quarter with more than $560 million of excess capital. We repurchased 335,000 shares during the quarter and have 7.6 million shares remaining under the current authorization. Assuming no additional repurchases and a stable stock price, our fully diluted share count for the first quarter is expected to be approximately 109.7 million shares. On a pro forma basis, reflecting the recently approved three-for-two stock split, that equates to approximately 165 million shares. And with that, Ron, back to you. Ronald James Kruszewski: Thanks, Jim. As we look ahead to 2026, the setup is constructive. Client engagement remains high. Strategic activity is picking up. And capital is beginning to move more decisively. At the same time, we remain mindful that risks are ever-present and that market conditions can change quickly. Our focus remains on disciplined execution, serving clients, and building durable performance through the cycles. Our adviser-led integrated model continues to differentiate Stifel. We're attracting high-quality advisers, deepening client relationships, and seeing clear evidence that a platform combining wealth management advice, institutional capabilities, and balance sheet support creates value that clients recognize and that advisers appreciate. Before turning to guidance, I want to briefly highlight how our businesses are positioned as we enter the year. Our wealth business enters 2026 with strong momentum. Recruiting engagement and pipeline remain robust. Experienced advisers are attracted to Stifel's platform, tech, and integrated model. Fee-based asset flows remain elevated, with fee-based assets up 17% in 2024. And revenue, as always seems to be true, follows assets. Our venture initiative continues to gain traction, supporting lending activity, deposit flows from venture-backed firms and their stakeholders, and fund lending relationships. Elevated client asset levels continue to represent opportunities, supporting lending initiatives and providing flexibility for future investment alternative allocations and opportunistic deployment by our clients. We're also seeing increased momentum across our institutional business with a record pipeline. A few areas are worth noting. We continue to see strong momentum in advisory, supported by active pipelines and increasing client engagement. Equity capital markets activity is off to a strong start to the year, with issuance active across sectors and products. We continue to see a pull forward in the new issue calendar where possible. Pitch and mandate levels are increasing. While there have been some volatile sessions, markets are functioning well with strong investor engagement. Financial institutions activity is robust across banks, insurance, and financial technology, as evidenced by the Old National Bancorp offering, which we priced on Monday, which was upsized based on demand at attractive spread levels. And, of course, I've already mentioned a recently announced M&A transaction. Health care has experienced one of the strongest January new issues in several years, with a growing backlog of biotech IPOs that are helping drive broader market momentum. Technology and industrial technology remain active, driven by AI and infrastructure investment, with large transactions in energy, infrastructure services, and defense being well received by the market. Our public finance backlog remains strong. And a normalization of the yield curve is a positive development for our fixed income rates and credit businesses compared to the headwinds created by the sustained inversion of the yield curve following the Fed's rate hikes beginning in 2022. Taken together, these trends across wealth and institutional position us well to continue executing our strategy, gaining share, delivering operating leverage, and compounding earnings is disciplined through the cycle. So this brings us to our guidance for 2026. Total net revenue is expected to be in a range of $6 billion to $6.35 billion. I would note that this reflects the impact of the SIA sale and the closing of our European equities business, which together represented $100 million of annual revenue. So our guidance does not include that $100 million of revenue which we had last year. We think that these changes will be offset by improved expenses and improved margins. Net interest income is forecasted to be between $1.1 billion and $1.2 billion, supported by approximately $4 billion of balance sheet growth. We have lowered our expense ratios to reflect increased operating leverage. The compensation ratio is now in a range of 56.5% to 57.5%. And non-compensation operating ratio is 18% to 20%. So what does this mean for Stifel going forward? Simply put, our long-term track record of disciplined execution gives me confidence that we can once again double this business over time. Yes, I still believe we'll reach $10 billion in revenue and $1 trillion in client assets. And, no, I'm not gonna give you a time frame. With that, operator, please open the line for questions. Operator: Thank you. Star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow the signal to reach our equipment. Again, press 1 to ask a question. We'll pause for a moment to assemble the queue. We will take our first question from Mike Brown with UBS. Mike Brown: Great. Good morning. Good morning. Thanks for taking my question. So, Ron, maybe just to start on recruitment here. So what factors do you think will kind of shape recruitment in 2026? And then you maybe just give an update on how you're approaching recruitment of the high net worth adviser space, you know, specifically. And, maybe just one last follow-up there. How are you thinking about productivity expansion from the experienced advisers that you bring on to the platform? Maybe you could touch on the B. Riley advisers that you brought over. Did you have you noticed a pickup in the productivity from that advisor cohort specifically? Ronald James Kruszewski: Thank you. Yeah. Well, your last question first. I for sure, have noticed productivity increase in B. Riley. I know some of that's market, but a lot of it is just platform technology products. You know, we have a well-developed platform. We have an integrated lending and credit model. All of which helps us deal with clients across a broad spectrum of their financial needs. And that equates to higher productivity. As it relates to recruiting, look. Past is prologue. I get this question all the time. I feel like I'm out of for twenty-eight years, and we continue to recruit. What I would say has changed over the years is the level of teams that come in. I think I've said in previous calls that, you know, a few years ago, we would say, oh, you know, we hired 10 people doing $7 million. And now we're saying, well, we hired one team doing $7 million. And it's really how our focus is. We're recruiting people who do a mix of business. They do advisory, for sure, but they also will do brokerage. They'll also participate in lending activities and in deposits. So it's a broad mix of clients that we like to look at. But to answer your question, recruiting is strong. If anything, I'm thinking about even increasing our allocation to recruiting because I think our platform and where we are allows us to really gain even more market share if we choose. So that's on my mind. Mike Brown: Okay. Great. And just as a follow-up, just change gears a little bit and shift over to the institutional side. So very strong investment banking results this quarter. Clearly, a lot of strength coming through on the financial side and particularly in advisory. As we now move into 2026, are you starting to see the activity really broaden across the platform? And where is maybe the deal momentum accelerating the most in your observation? Ronald James Kruszewski: Well, I think that as you we went into 2025 in the sector, at least on advisory, that picked up first. And that we, you know, we just had a tremendous year was in financial institutions. Primarily depositories, although we've done a lot in fintech. But where we see we see that continuing for one. But we see an increase now in activity in health care. Health care at one point was one of our largest sectors, and we're seeing equity capital markets transactions and other transactions in health care. You know? And if I can sort of say the same story again and again when I talk about industrials, tech, and consumer. I would say that as we looked last year, those businesses started to pick up in the fourth quarter. And now if we, you know, with keep geopolitical risks at bay and let the market function normally. I see a lot of business to be done, not just in big, but in industrials, tech, health care, and consumer. James Marischen: I'd also add to that. Sponsor activity is really not all the way back but is noticeably improving. You know, we still there's still a runway for significant growth related to sponsor activity if markets hold up through the remainder of 2026. So that's definitely an area of growth as well. And, you know, and a lot of people like to use the term the, you know, private equity unlock. You know? And we've been talking about that for years. So, you know, when will private equity begin to unlock some of these companies? And we're seeing signs of that. Certainly, robust market valuations are helping that. But when you think bring all of this together, it's a very conducive environment as we sit here today. Mike Brown: Great. Thank you, Ron and Jim, and good luck to the US ski team. Ronald James Kruszewski: Hey. You got it. Alright. I like that. I'm gonna bring some metal salt. Stifel US ski team. Stifel US ski team, by the way. Let's get the name right. Operator: We will take our next question from Steven Chubak with Wolfe Research. Steven Chubak: Hey, Steven. Good morning. Hey, guys. Good morning. Thanks for taking my questions. So maybe to start just on the ECM outlook. And Ron, everyone recognizes the strength of the advisory franchise, particularly in fin services. If I look at advisory fee share, it kept pace with the bulge bracket peers. DCM fee share was also consistent with the bulges. I'd say the more surprising stat was the magnitude of ETM share gains. Full year revenue growth, I think, outpaced that group by about 40 percentage points. And just want to better understand what's driving some of that share strength in ECM relative to your large peers and your confidence level that ECM fees should continue to build this year given the pipeline commentary and you were alluding to a strong start to '26 as well. Ronald James Kruszewski: Well, Tim, go back to '21 and look at our ECM fees while I answer this question. Give them some look up even while we would do this. But yeah, I think that it's nice for you to point out that we've done that. I view it as the firm. We were talking before we got on the call about some recent deals that we've done in both fixed income and equities where we have been lead left with some rather large firms to our right. The left, which five years ago didn't happen. And as co-managers, and Stifel has been on it just didn't happen. And so on those deals alone, obviously, we're getting market share because we're getting more economics on those deals. And what I see happening is not, you know, some, you know, seismic shift in all this. It's just that we are moving up in our participation levels, and we're doing more deals that go to the just the level of capability that we brought to the firm. You know? And ten years ago, our institutional business was half of what it is today. And we didn't have as many MDs. We didn't have the capabilities. We didn't have the debt. We didn't have the ability to leave left, you know, a $500 million subordinated deal with the large firms to our right. All of those things speak to the fact that we are really achieving our goal, which is to be a premier wealth management and middle market, if you will, investment banking firm. And you're seeing it. So thanks for pointing it out. James Marischen: ECM revenues back in 2021 for the full fiscal year were $230 million. So we were above that and what we produced in 2025. Ronald James Kruszewski: Pretty extraordinary. James Marischen: Easy? We've exceeded 2021, but we don't think in 2021, I think we're running at 105% of capacity. And today, I think we're running at 50% of capacity. And that's an important, you know, don't quote me on those numbers. That's off the top. I have big people always want to know what capacity actually means. But I feel that we have a lot more ability to do things because instead of being a 5% co-manager, we're a book. Same deal. Just higher economics. And that's what you're seeing. Steven Chubak: Alright. Well, rest assured, we won't reflect those numbers you just quoted in the model. Around capacity. But I did want to ask you on the comp guidance. And if I look over the last two years, the revenue guide's come in better than the midpoint of the outlook that you guys have provided. The comp ratio, however, has come at the higher end. And the guidance for 26 contemplates pretty meaningful comp leverage a 50% incremental margin, and just want to better understand how much of the comp improvement in '26 is attributable to the restructuring and business exits versus the, let's call it, improved business as usual comp discipline. And what gives you confidence that this time will be different? And the comp leverage will come through just given continued elevated competition for talent? Ronald James Kruszewski: Well, first of all, I mean, we've been in our range, and albeit we've been at the top end of our range. And I think if you step back a little bit, you know, we don't operate a vacuum when it comes to talent. Right? It's very easy to say, oh, our model's x and what we're gonna do. And if you run just pure numbers, you will see comp leverage as productivity goes up. Is that just sort of to be expected. And as you bring new recruits, you might be paying recruiting, you're gonna bring those people online. And what I would say, Steven, if you go to most of the street, what you've seen is an uptick in the comp ratio. Over time. You look at your own universe, and we've remained very consistent. And what that is is it's us trying to manage our growth while not giving up our margins. We've had if steady state people stayed here and we weren't recruiting, we'd be driving our comp ratio lower. Now that's because of a lot of the investments we've made since 2020 across the board. We've recruited a lot of people. You know, growth in recruiting puts upward pressure on the comp ratio. We've managed it very well. All that said, I'll let Jim talk about it. We're doing a couple things with the sale of SIA and the European restructuring, which alone left in a vacuum drive comp ratio lower. James Marischen: So again, yeah, I'll focus on the sale of SIA and the European reorg here. And Ron talked about in his prepared remarks as well as we noted in slides, you're talking about $100 million of revenue here. In terms of compensation expense, you know, both of those groups were well north of our consolidated 58% comp to revenue total. Yeah. I would say most people understand generally where the comp ratio hovers around for an independent FA model. That ratio was probably a little bit lower for European equities, particularly since we have retained some US distribution capabilities there. Kind of in the after reorg. But when you think through those that can give you a ballpark idea of where those comp savings are. Now I'll just touch on the non-comp related to those two entities as well. You know, the independent channel is obviously gonna be more heavily weighted towards comp. So there's not a whole lot of non-comp savings there. You back off related to the SIA sale. But when you look at that in combination with the European reorg, that could take a good 20 plus million dollars out of non when you look at 26 compared to 2025. And then I just kinda highlight that, you know, when you look at our expense guide, as Ron kind of reiterated, both of those things then do contemplate additional investment across our existing businesses but it can give you somewhat of a decent understanding of how we came up with those new ranges absent the normal course of just higher net interest income or the normal operating environment, but specific to these two transactions. Ronald James Kruszewski: I think it's a great question. Very helpful, man. I'm comfortable with our comp ratio. We also take opportunities just like every firm does. We take opportunities to recruit and build our capabilities. And that goes the other way on the comp ratio. So we tend to be conservative. But you got to admit, we at least deliver within our range. Steven Chubak: Fair enough. And usually towards the higher end of the guidance. I appreciate that. And thanks for taking my questions. James Marischen: Thanks. Operator: We will take our next question from Devin Ryan with Citizens Bank. Devin Ryan: Great. Good morning, Ron. Good morning, Jim. Good morning. Stay on financial adviser recruiting. Obviously, coming off of a good year. Ron, it should be good to get your perspective around kind of the future of adviser mix in the industry between kind of employee independent RIA? Obviously, a lot of discussion over the last, you know, decade plus around tailwinds towards independent. But recently, we've seen pretty healthy and maybe accelerating or reaccelerating net new assets within some of the leading employee firms. So just love to kind of hear what you think about maybe whether we're getting to an equilibrium of how many people wanna be independent. Obviously, you have your trip on the employee channel, but at the same time, I also appreciate that you're taking advisors from the wirehouses as well, so maybe you grow independent of what the wirehouses are doing. So just wanted to get a thought on kind of broader kind of remixing potential of advisers. Ronald James Kruszewski: Yeah. It's a tough question. I'm you know, in terms of remixing. What I would say is that the initial competitive landscape of private equity. Remember, a lot of this gasoline to get this done was provided by private equity dollars. And I would say that, you know, they started with a bang on, you know, being able to pay less in transition and sell the way you can be independent and all of that. And you got a lot of initial flows. And then it got quite competitive. And so now I think that, you know, that plus rates coming down are double kind of whammy. A lot of the economics in the independent channels on the rate is, you know, on the cash side. And as that comes down, that's pressure on that. So what I see is the overall in the competition, I see the ability to, you know, to recruit at significantly higher levels. These PE firms are, you know, they want 20% IRRs. The math just doesn't work as many people think. And then the concept of trading paper. You know, we'll pay cash and many private firms say, well, wait. We just value debt this. We'll give you paper. That's slowed down. That's all I can say. Now the independent channel is absolutely it's like the do-it-yourself channel and investors. Some people are just gonna use discounters, some are gonna use advice. Some people, advisers really like the employee model. They don't have to worry about a number of things. Their profit margins are 60%. So I see, to answer your question, I see a general slowing of what, you know, get 100 people in I'm making up 70 were going independent, and 30 were going employee. I would see those numbers going seventy's lower. And more will come to employee for all the dynamics I just said. Now that's my view of the world. You know, some other people may have a different view. Devin Ryan: Yep. I appreciate that, Ron. Just good to get your perspective there. So thank you. A follow-up probably more for Jim here just on kind of the net interest income guide. Some of the underlying assumptions we'd just like to unpack a bit. So the $4 billion of loan growth, can you just talk about kind of where you see that coming from? What are some of the buckets that you expect to see kind of the net growth? And then just talk about some of the differentials in yields that you're seeing across different loan categories today. And then as you think about kind of that $4 billion could there be upside obviously $600 million or so of excess capital today that's going to grow or you're going to create a lot of excess capital over the next year? So just how we should think about potential upside cases to the four? And then the liability side as well, if you could just touch on that kind of in terms of what you're expecting. You've seen kind of a couple of quarters of nice growth in sweep cash. So I'd love to get some sense there as well. James Marischen: I think that was about four questions, but I'll start taking them one at a time here. The first of which is the $4 billion in growth. I'd say, you know, you look back at what we've done historically, think fund banking will be a large portion of what you see in our balance sheet growth here. You know, that's probably 130 to 160 basis points in yield higher than what you see on the average loan portfolio. We'll continue to add mortgage. We'll, you know, we'll do what we can at securities-based lending. We'll do selective commercial lending, and, obviously, we're supporting our venture group as well. But those yields, you know, I think you can look at the yield table and kind of see where those are coming out. But if you take a step back and think about the guidance general, you know, we're talking about $275 to $285 million of NII. In the first quarter and then a billion one to billion two for the full year. I think when, you know, we make comments about being relatively rate neutral, the key assumption here then is that $4 billion balance sheet growth, which I touched on kind of what the mix could look like there. But we're, you know, we're generally assuming linear growth. So you can basically plug, call it, $2 billion of average interest-earning assets into your model. And I would also say when you touch on the liability side, we're assuming that all that growth will be funded with treasury deposits. Rather than, you know, sweep or smart rate. So, you know, we're talking about a cost of funds slightly better than where we see smart rate today. We're not really modeling in any changes in interest rates even though, you know, I just said we're agnostic to interest rates. And so you bake that all together, we're somewhere around a 320 basis point, net interest margin for the year. And so, again, the key is gonna be the mix of those assets and being able to deliver on that growth. And so we provide a range. It's a large range, but can kind of annualize the first quarter and think about that $2 billion of average interest-earning asset growth. And the fact that we're really not baking any other kind of fee income related to our assumptions here. That, you know, we feel like we're being, you know, fairly conservative in the guide there. Devin Ryan: Let's see. James Marischen: Other questions were liquidity and capital. Is that right? Devin Ryan: I didn't go there, but if so you could you could always expand. But, no, I think we're good. James Marischen: Alright. We have plenty. Devin Ryan: Yeah. Good. I did see that you have excess capital here, beyond the, you know, it's kind of fun the $4 billion, I guess, is the point. So just like the upside case to potentially growing loans even more. James Marischen: Right. Operator: We will take our next question from Brennan Hawken with BMO Capital Markets. Brennan Hawken: Hey, good morning. Thanks for taking my question. You just touched on this a little bit in the questions from Devin. But the C&I loan growth that we saw here this quarter seemed to come on in the back end of the quarter. And it also seemed to come on the asset beta was a little bit greater than we would have expected. Of course, there's some front-end sensitivity, but it seems like the spreads are coming on a little tighter. Could you speak to how much of that was new loans versus like a remix in the portfolio? And how should we be thinking about spreads in that book? Here as we go forward? James Marischen: So the asset beta, you gotta remember the commentary we gave on fee income. We really didn't have any of those fees showing up. Which, you know, obviously can distort some of your yield calculations. The yield calculation annualizes that, you know, one-off type fee over the entire year. And, again, it distorts the yield a little bit. We just we went from, you know, last quarter, we had a handful of million dollars of fees to, you know, not a whole lot of those, you know, less than, you know, maybe $100,000 or so in the quarter. So it was a pretty big change there. We had a reclass of loans, out of held for sale back into the retained portfolio. That was probably a couple $100 million, but not overly material, but that was driving some of that growth as well. But, again, I would just kind of focus on our commentary related to fee income is the biggest driver as a delta between your expectations and the beta on the asset yields? Brennan Hawken: Got it. Okay. Thanks for that. And then there's, you know, what justified or no, there seems to be a decent amount of concern around private credit markets. I'm curious what you're seeing within your COO book. You know, how are you thinking about that? I know you guys buy it high quality. You got a lot of subordination. But, you know, can you speak to any trends that you're seeing there? Thanks. Ronald James Kruszewski: Look, the minuscule? I mean, none. I just really none. Some of our CLO book had very, very little exposure to some of the names. But as we look at it, and I've always been very comfortable with both the subordination and what goes on in that book. And a lot of our sponsored finance loan book. You know, we sold. So just to answer your question directly, really no, we don't see any issues there. James Marischen: I think one thing I would add to that is, you know, we've actually seen a fair amount of refinance and redemption activity across the CLO book. You know, the structure is the credit subordination and diversion of cash flows and whatnot. If there are any credit issues here, we end up getting paid off. And so the structure works as intended. We're not seeing any material change. Any of our key metrics and really no concerns. Brennan Hawken: Thanks for taking my questions. Operator: We will take our next question from Bill Katz with TD Cowen. Bill Katz: Great. Thank you very much for the expanded commentary and taking the questions this morning. Maybe big picture down. You mentioned sort of the loan growth thing that's pretty straightforward. Ron, how are you thinking about maybe strategic use of capital, fair amount of M&A going on around you, just obviously from the banking side. Also, some of your peers have been sort of been pretty active. Maybe just update us on your thinking of where you might be interested versus maybe returning that capital to investors? Thank you. Ronald James Kruszewski: Well, you know, we increased the dividend. Right? So the dividend's up eleven. As I've said in every call, you know, the breakeven analysis, if you will, between stock buybacks and deploying capital, whether on the balance sheet or acquisition, moves around, and we're always looking at that. Broadly speaking, you know, we've said that we see balance sheet growth of about $4 billion. And so round numbers, that's $400 million of capital plus the dividend. It still leaves us a lot of capital. To do some things with. And I would say that while we see almost everything, a lot of everything seems pretty richly valued. Not just at the point in time, but frankly, forward projections. On things that, you know, may have me usually take pause. And I'm pretty conservative, and if you know our history, we generally do not participate in, you know, really good markets. Okay? That's just not our style, and we'll be there. And if the right deal comes along and it makes you money as a shareholder, and builds our client relevance and is accretive to our new people and to the existing people in the firm. That has been a formula that has worked for us for twenty-eight years. And done a lot of deals. The fact to just go out and do a deal to become larger and maybe dilute that return on tangible equity, return on equity, it's just not in our mindset. So plenty of opportunity. I tend to not answer the phone as much when the markets are at these levels. Bill Katz: Alright. That's helpful. Just as a follow-up, maybe two-part to keep up with my peers here. First one is just in terms of the margin, how much of the margin if you separate maybe sort of the repositioning of SIA and the European footprint, as you look forward, how much of the incremental margin comes from the investment banking opportunity versus the wealth management looking particularly at the wealth management business, and that seemed to be a little sticky on the margins again. I don't know how much of the merger charge was in there. Or the prospective impact. And then unrelatedly, the second question is, you give us a sense of any activity levels into the new quarter just in terms of client cash dynamics? Thank you. Ronald James Kruszewski: I'm not quite sure I understood the I generally say that I think for the year, for instance, institutional margins combined came in around 17%. And, you know, when we look at what we're doing, there was a drag in our European operations. You know, I'd like to think that those margins are in the low twenties. Right. So that's maybe five points more. On, you know, $2 billion of revenues, round number last year. So that'll give you some sense of what we see as we're, you know, making sure that we're optimizing that business. Okay? And I think that business can I think those can even be higher? But we've had a lot of new hires, a lot of invest. So we're 17. We've talked when we gave our $8 number, I think that we said that if we got to 18%, that would be one of the triggers of helping us recover to where, you know, our interim target was. As it so, you know, that'll give you a sense. Wealth is a very profitable business, you know, margins of 35, 36, 37% is just a very good business that's been consistent over time. So I'm not sure I see anything diminishing that. Jim, on cash, James Marischen: Yep. So in terms of liquidity, we saw a total sweep in smart rate balance increase at as of year-end, it was about $26.6 billion. I look back over the last week, and that number has been relatively steady to say down $200 million. Most of that fluctuation we've seen has been in sweep. It is somewhat hard to say exactly where those balances will move on a day-to-day basis, and a lot of that's just gonna depend on client activity. Generally speaking, I will say we expect to see some outflow of cash through tax season and then a build in the latter half of the year as we've historically seen. But I would also highlight, you know, within venture and other treasury deposits, we had a record quarter of growth in April. It's $1.5 billion. Not sure if that's exactly the right run rate to model going forward. I'd say at this point, it'd probably be reasonable to expect around, call it, $750 million to a billion dollars of incremental deposits on a quarterly basis. And, lastly, I'll just highlight, you know, we just had recently made some new hires within kind of the health care, life sciences group, as well as in energy tech. Those folks are just getting started, and, you know, they're gonna continue to add your capabilities here. Bill Katz: Thank you. Operator: We will take our next question from Michael Cho with JPMorgan. Michael Cho: Hi, good morning. Thanks for taking my question. I just wanted to touch on bank M&A. You highlighted it a few times on the call, and clearly, an uptick in kind of nice momentum looking into '26. I mean, if we think about the bank M&A runway and maybe beyond '26, I was wondering if you could maybe remind us how we might frame the multiyear tailwind and maybe in terms of sizing and maybe pace of that opportunity for Stifel ahead? Ronald James Kruszewski: Yeah. I think look, I don't think there's really any question at the broad not I don't want to talk about any specific banks or anything like that. That's not appropriate. But generally speaking, there you know, there's a lot of banks that are going to need to combine for scale, profitability, you know, the technology investments, the challenges on deposits, and loan origination. And you have there's just a lot of institutions that are probably thinking, you know, how are we gonna compete? And they're gonna wanna do it through scale. And you got valuations that are allowing conversation to occur. And on the converse side, the buyers are thinking the same thing. You know? They're thinking they need to acquire or be acquired on many fronts. So I think that the banking is in a period of consolidation. And maybe driven as much by the fact that it was very hard to do any consolidation from the period 2020 to 2024 in the previous administration. They did, you know, you can remember all those transactions. It would take years to get approved. And that put a damper on boards talking. So I look. I think there's a lot to do. What I like from my perspective is that we've been, you know, we merged with KBW back in 2013. And, you know, virtually all of the MDs that were calling and have relationships with clients are still with us. We have that core group of bankers that have deep, deep relationships not only with management but in the boardrooms. And we're in a good position as a trusted adviser on getting these deals done. So I'm not gonna predict how many banks what the volume's going to be because I really don't know. I would say the trends are that you'll see more than average. And most importantly, we're just in a really good spot, with the consistency the fact we have a separate sales force that we trade, everything that we've done has put us in a good position. You saw it last year, and we're starting this year off. With a nice transaction. So I'm confident about this. Michael Cho: Great. I appreciate all the color. If I could just switch to the wealth side, Ron, I think you made a comment earlier in the call touched on maybe increasing allocation to recruiting. I was hoping maybe you could just flesh that out a little bit. You mean in terms of more recruiting dollars or higher incentives? And is that something that's already in the guide? In, you know, in the twenty-sixth guide? And is that something that should actually accelerate? NNA into '26? Ronald James Kruszewski: Thanks. I mean, it's a great question. I'm looking at these numbers. I'm looking at what drives our results. I'm looking at the number of hires that we've hired, the number of teams that we have hired, the mix of business they bring in, how some of these teams come in, and then we immediately see it in lending and in cash balances and in fee-based business. And I just, you know, made the general comment that as I sit here, I think I said that maybe after this call, I'll sit down with Mr. Zemlock, and just say, look. Everyone's asking me about, you know, utilization of capital and where do we wanna put our dollars. You know, we can buy back stock. We've already increased our dividend. Look at acquisitions, do a number of things. But one the other one increased the balance sheet. The other one is to get after recruiting a little bit more. We have been generally a shop where we want people to come to us. We don't make a huge amount of outgoing phone calls. Advisors join us because they want to. That's very effective, by the way. You get people who wanna be with us. But we might be able to pick up the phone here and there, and that's what I'm thinking about, because we have a great platform. We are a traditional wealth management firm that people love it here, and we need to press that advantage. A little bit. Michael Cho: Great. Thanks, Ron. Operator: We will take our next question from Alex Blostein with Goldman Sachs. Ronald James Kruszewski: Alex, you made it, I think. Michael Cho: Hey, guys. You actually have Michael on for Alex this morning. Just one question from us. Ronald James Kruszewski: Tell Alex I said hello to you. Jeez. Michael Cho: Appreciate the color on the expense outlook from here. We spent some time talking about it. But on the non I think the guide implies something like 10% year over year growth next year. Can you walk us through the incremental areas of growth embedded in there? It sounded like there might be some wiggle room on that depending on how top line results come in over the course of the year. James Marischen: So, you know, first, I would say we are taking our guide down. We're taking it down a full percentage point down to 18% to 20%. On an adjusted basis for, you know, as a percentage of revenues. Obviously, there are some timing things associated with the sale of SIA. There are some things that take time to recognize some of the cost saves associated with the European reorg. There are certain things we've talked about in the past. Things like, you know, we're running kind of our cloud migration and data center process at the same time now. We do see some potential cost savings related to that, but that's probably more of a 2027 event. So there's a number of things related to that or that are coming into that guide. But when you look at kind of where we've come in at, from a margin perspective, it's, you know, you take comp and non-time together, you're seeing a pretty nice increase in overall pretax margins. We've gotten a few questions related to the non-comp or seen a few questions so far this morning. But, you know, our guide is implying already higher margins for 2026. Michael Cho: Great. Thank you. Operator: And gentlemen, there are no further questions at this time. I will now turn the conference back to Mr. Kruszewski for any additional or closing remarks. Ronald James Kruszewski: No, I would say that thank you, everyone, for joining. As we embark on 2026. I feel that the firm and its capabilities and our ability to grow from here, frankly, have never been better. We have a better platform, broader product mix, and increasing profiles, doing detracting larger teams, doing larger transactions. It feels that the way what we've done to build out the capabilities of the firm through talented people is continuing to work, and I expect 2026 to be a continuation of the same. So look forward to reporting back to everyone. At for the first quarter. And I'll end with while some I'm gonna end with two things. One, I'm gonna say that the Indiana Hoosiers are the national champions and go Stifel US ski team. But I've not been able to brag about Indiana in my sixty-plus years of being alive, so I'm taking it right now. So go Hoosiers. Congratulations, everyone. Thanks for your time. Take care. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin. Craig Lampo: Great. Thank you so much. Afternoon, everyone. This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, our CEO. I would like to wish everyone a Happy New Year and welcome you to our 2025 conference call. Our fourth quarter 2025 results were released this morning. I'll provide some financial commentary, and then Adam will give an overview of the business and current market trends. Then we will take your questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and make certain forward-looking statements. Please refer to the relevant disclosures in our press release for further information. The company closed 2025 with record sales of $6.4 billion and GAAP and adjusted diluted EPS of $0.97 and $0.93, respectively. 48% local currencies, The fourth quarter sales were up 49% in US dollars, and 37% organically compared to 2024. Sequentially, sales were up 4% in US dollars and in local currencies, and up 3% organically. Adam will comment further on trends by market in a few minutes. For the full year 2025, sales were approximately $23.1 billion, up 52% in US dollars, 51% in local currencies, and 38% organically compared to 2024. We are very encouraged by our orders in the quarter, which were a record $8.4 billion, up a strong 68% compared to 2024 and up 38% sequentially, resulting in a very strong book-to-bill ratio of 1.31 to one. This impressive book-to-bill in the quarter was primarily driven by robust bookings in the IT datacom market related to AI applications. We have seen customers open their order window a bit in certain cases, which helped to drive these strong bookings. For the full year, orders were $25.4 billion, up 51% compared to 2024, resulting in a book-to-bill ratio of 1.1 to one. GAAP operating income was $1.7 billion in the quarter, and GAAP operating margin was 26.8%. GAAP operating margin included $47 million of acquisition-related costs, primarily for external transaction costs and the amortization of acquired backlog. Excluding acquisition-related costs, adjusted operating margin and adjusted operating income was 27.5% and $1.8 billion, respectively. On an adjusted basis, operating margin increased by a strong 510 basis points from the prior year quarter and was flat sequentially. The year-over-year increase in adjusted operating margin was primarily driven by robust operating leverage on the significantly higher sales volumes, which was only modestly offset by the dilutive impact of acquisitions. For the full year 2025, GAAP operating income was $5.9 billion and included $181 million of acquisition-related costs. Excluding these costs, adjusted operating income was $6.1 billion in 2025. For the full year, GAAP operating margin and adjusted operating margin reached annual records of 25.4% and 26.2%, respectively. On an adjusted basis, operating margin increased 450 points compared to 2024, primarily driven by strong operational performance on the significantly higher sales volumes, which again was only modestly offset by the dilutive impact of acquisitions. I'm extremely proud of the company's operating margin performance in the fourth quarter and for the full year 2025, both of which reflect continued strong execution by the team. Breaking down fourth quarter results by segment. Compared to 2024, Sales and Communication Solutions segment were $3.4 billion and increased by 78% in US dollars and 60% organically. Segment operating margin was 32.5%. Sales in a Harsh Environment Solutions segment were $1.7 billion and increased by 31% in US dollars and 21% organically. And segment operating margin was 27.6%. Sales in Interconnect and Sensor Systems segment were $1.4 billion, increased by 21% in US dollars and 16% organically. And segment operating margin was 20.1%. Bringing down full year results by segment compared to 2024, sales in the Communication Solutions segment were $12.1 billion, an increase by 91% in US dollars and 71% organically. And segment operating margin was 31.1%. Sales in the Harsh Environment Solutions segment were $5.9 billion, increased by 33% in US dollars and 17% organically. And segment operating margin was 26.2%. And sales in the Interconnect and Sensor Systems segment were $5.2 billion and increased by 15% US dollars and 13% organic. The segment operating margin was 19.5%. For the fourth quarter, the company's GAAP effective tax rate was 26.9%, which compared to 17.4% in the '4. And full year 'twenty five GAAP effective tax rate was 23.1%, which compared to 18.9% at 2024. On an adjusted basis, the effective tax rate of 25.5% both for the fourth quarter and full year, which compared to 24% in the prior year periods. As we discussed last quarter, the increase in our adjusted effective tax rate in '25 was due to some shift in income mix to higher tax jurisdictions. For modeling purposes, you should assume that this higher tax rate of 25 and a half percent continues into 2026. As our typical practice, our adjusted our adjusted tax rate percent compared to the 55¢ in the 2024. This was an outstanding result. For the full year, GAAP and adjusted diluted EPS were both a record 3034¢, an increase of 7477%, respectively. Operating cash flow in the fourth quarter was $1.7 billion or 144% of net income. And free cash flow was $1.5 billion or 123% of income. And for the full year of 2025, operating cash flow was a record $5.4 billion, 126% of net income, and free cash flow was a record $4.4 billion or a 103% of net income. Considering the high growth rates we experienced this year, this is a very strong result. From a working capital standpoint, inventory days, days sales outstanding, and payable days are all within our normal range. During the quarter, the company repurchased 1.3 million shares of common stock at an average price of approximately $134. When combined with our normal quarterly dividend, total capital return to shareholders in 2025 was approximately $373 million and was nearly $1.5 billion for the full year of 2025. Total debt at December 31 was $15.5 billion, and net debt was $4.1 billion, which included $7.5 billion from the US Bond offering we completed in October and in anticipation of the closing of the CCS acquisition. Total liquidity at the end of the fourth quarter was $17.5 billion, which included cash and short-term investments on hand of $11.4 billion plus availability under our existing credit facilities. And $3.1 billion of term loan facilities put in place in anticipation of the CCS acquisition. In early January, the company closed the CCS acquisition, which was funded with cash on hand primarily resulting from the October 2025 bond deal as well as the $3.1 billion of term loan facilities. As a result of the acquisition of CCS, we expect 2026 quarterly interest expense, net of interest income from cash on hand, to be approximately $200 million, which is reflected in our first quarter 2026 guidance. Adjusting for the impact of the CCS acquisition, our net debt at year-end would have been $14.7 billion, and our liquidity would have been $6.9 billion, which includes pro forma cash and short-term investments on hand of $3.9 billion. Fourth quarter 2025 EBITDA was $2 billion, and our net leverage ratio was 0.6 times at the end of the quarter. Pro forma net leverage at the 2025, including the CCS acquisition, would have been approximately 1.8 times. As of December 31, the company had no outstanding borrowings under its revolving credit facility or its commercial paper programs. I will now turn the call over to Adam, who will provide some commentary on current market trends. Well, thank you very much, Craig, and I also would like to offer my best New Year's wishes to all of you here. Craig and I are here in the winter wonderland of Wallingford, Connecticut, and it's a real pleasure to talk to you about our fourth quarter and full year achievements. I'll highlight some of those achievements, and then as Craig mentioned, I'm going to discuss the trends across our served markets. We'll make some comments on the outlook for the first quarter, and then, of course, we'll have time for questions. Turning to the fourth quarter, there's no doubt that Amphenol had a strong finish to a very successful 2025. With sales and adjusted diluted earnings per share in the fourth quarter both exceeding the high end of our guidance. Sales grew by 49% in US dollars and 48% in local currencies, reaching a new record of $6.439 billion. And on an organic basis, our sales increased by 37%, with robust growth across nearly all of our served markets. As Craig mentioned, we booked a record $8.4 billion of orders in the fourth quarter, which represented a very strong book-to-bill of $1.31 to one. These orders grew by 68% from the prior year and were up 38% sequentially. And while orders were strong across the board, there's no doubt that these robust orders were driven primarily by data center demand related in particular to artificial intelligence investments being planned by a number of our large customers. We're also pleased in the quarter to have delivered adjusted operating margins of 27.5% in the quarter, which matched our record-setting margins in the third quarter and which represented an increase of 510 basis points from the prior year. This superior profitability is a direct result of the outstanding execution of the Amphenol team around the world. Our adjusted diluted EPS in the quarter grew by 76% from the prior year, reaching a new record of 97¢. Finally, the company generated record operating and free cash flow in the fourth quarter, $1.7 billion and $1.5 billion, respectively. Both clear reflections of the quality of the company's earnings. I just can't express enough my pride in our team here in the fourth quarter. These results once again reaffirm the value of the discipline and agility of our entrepreneurial organization. As we continue to perform well amidst a very dynamic environment. We're also very excited in the quarter that we closed on the previously announced acquisition of Trexon. With operations in the US and Europe and with annual sales of $290 million, Trexon's a leading provider of high-reliability interconnect and cable assemblies primarily for the defense market. We're particularly excited that Trexon further expands our value-add interconnect offering for the defense market. Enabling us to offer our customers in this important area a complete solution of high-technology interconnect products, really the broadest in the industry. We look forward to the Trexon team flourishing as part of the Amphenol family. In addition, just here in January, we're excited to have closed on the acquisition of the CCS business from CommScope a bit earlier than we had anticipated. This business, which will be known going forward as CommScope, an Amphenol company, represents a significant expansion of our interconnect capabilities across three of our important end markets. As we discussed last year, CommScope had significant fiber optic interconnect capabilities, for the IT datacom and communications networks markets as well as a diverse range of industrial interconnect products for the building connectivity market, which will be included in our industrial segment. We look forward to working closely with the CommScope team as they embrace the Amphenol uprooting culture. And are really excited about the potential that this significant acquisition can bring to our company. As previously disclosed, we expect CommScope to generate full year 2020 sales of $4.1 billion and to add 15¢ to Amphenol 2026 adjusted earnings per share. As we welcome the outstanding CommScope and Trexxon teams to the Amphenol family, we remain confident that our acquisition program will continue to create great value for the company. Our ability to identify and execute upon acquisitions and then to successfully bring these companies into Amphenol remains a core competitive advantage. And there's no doubt that as our organization has evolved and scaled, so too has our ability to effectively manage a greater number of acquisitions of all sizes. Now turning to the full year 2025, 2025 was a uniquely successful year for Amphenol. We expanded our position in the overall market. Growing our sales by 52% in US dollars, 51% in local currency, and 38% organically, reaching a new sales record of $23 billion or $23.1 billion. As we cross $23 billion in sales in 2025, we're very proud to have more than doubled Amphenol's revenues in the past four years. A great reflection of our organization's ability to navigate market dynamics while capitalizing on the broad array of opportunities arising across the electronics industry. Our full year 2025 adjusted operating margin reached a record 26.2%, and that was a robust increase of 450 basis points from the prior year. And this strong level of profitability enabled us to achieve record adjusted diluted EPS of $3.34, an increase of 77% from the 2024 levels. As Craig mentioned, we generated record operating cash flow of $5.4 billion and free cash flow of $4.4 billion. Clear confirmations of the company's superior execution and disciplined balance sheet management. Very proud that our acquisition program again created great value this year. We completed five acquisitions in 2025. Including Andrew, our largest acquisition at the time, together with the acquisitions of Trexon, Nardemitek, LifeSync, and Rochester Sensors. Collectively, these acquisitions have added to Amphenol annualized sales of nearly $2 billion. In addition, as I just mentioned and as we announced earlier this month, we also closed on our largest ever acquisition now, which is the CommScope acquisition. What is in common across all these acquisitions? Is that they enhance our position across a broad array of end markets, and deep enabling technologies. All while bringing outstanding and talented individuals into the Amphenol family. We also returned substantial cash to shareholders in 2025, buying back nearly 7.5 million shares under our share repurchase program and increasing our quarterly dividend by 52%. This represented a total return of capital to shareholders of nearly $1.5 billion. As we enter 2026, remain excited about the opportunities ahead of us for Amphenol. Our agile entrepreneurial organization has created a new position of strength for the company. From which we can continue to drive superior long-term performance. Now turning to our served markets. Once again, I'm very pleased that the company's end market exposure remains diversified, balanced, and broad. And there's no doubt that presence that we have across all these end markets creates great value for the company. As we're allowed to participate across all areas of the global electronics industry, wherever there may be new revolutions arising, all while not being disproportionately exposed to the of any given application or market. Turning first to the defense market. That market represented 10% of our sales in the fourth quarter and 9% of our sales for the full year 2025. Sales in the fourth quarter grew strongly from the prior year. Increasing by 44% in US dollars and 43% in local currencies. On an organic basis, sales increased by 29% with broad-based growth across virtually all defense applications. Including in particular radar, space, communications, avionics, and unmanned aerial vehicles. Sequentially, sales increased by 16% well ahead of our expectations for mid-single-digit growth. For the full year 2025, our sales grew by 30% in US dollars in local currency, and by 21% organically. Reflecting our superior operational execution as well as growth across all segments of the defense market. In addition, we're very pleased that our growth in '25 was really broad-based geographically. Reflecting our leading position across the many countries for increasing their defense spending. Looking ahead, we expect sales in the first quarter to increase slightly largely driven by the benefit of the Trexon acquisition. And we remain encouraged by the company's leading position in the defense interconnect market. Where we continue to offer the industry's widest range of high-technology products. Amidst the current dynamic geopolitical environment, countries around the world are further expanding their investment into both current and next-generation defense technologies. With our existing offerings, as well as the exciting and complementary capabilities from Trexon, we are positioned better than ever to capitalize on this long-term demand trend. The commercial air market represented 5% of our sales in the quarter and for the full year 2025. In the fourth quarter, our sales grew by 21% in US dollars, and 20% in local currencies. On an organic basis, sales increased by 19% from the prior year driven by broad-based strength with virtually all commercial aircraft manufacturers. Sequentially, our sales grew by 10% from the third quarter well above our expectations coming in ninety days ago. For the full year 2025, sales in the commercial air market increased by 39% in US dollars and 38% in local currency. As we benefited from accelerating demand across aircraft platforms as well as from acquisitions. Organically, our sales increased by 13% from the prior year, reflecting our robust design in positions on a broad array of jetliners. Looking into the first quarter, we expect sales to moderate seasonally by approximately 10% on a sequential basis. I'm truly proud of our team working in the commercial air market. With the ongoing growth and demand for aircraft, our efforts to expand our product offering both organically and through our successful acquisition program continued to pay real dividends. In particular, I just want to note that we're very pleased. With the progress of the CIT team who have truly embraced being part of Amphenol and have driven outstanding results. We look forward to further capitalizing on our expanded range of product solutions for the commercial air market. Long into the future. The industrial market represented 18% of our sales in the quarter and 19% of our sales for the full year 2025. Our sales grew by 20% in US dollars and 18% in local currencies from the prior year. And on an organic basis, we were pleased that sales grew by 10%, driven by relatively broad-based growth across the industrial end markets. In particular medical, alternative energy, e-mobility, heavy equipment, industrial instrumentation applications. We also grew again in all of our major geographic regions. On a sequential basis, sales grew by 2%, better than our expectations. For the full year 2025, sales grew by 21% in US dollars and 20% in local currency. As we benefited from relatively broad-based growth as well as from acquisitions. Organically, sales grew by a strong 10%, from the prior year. Looking into the first quarter, we expect our sales to increase approximately 20% from these fourth quarter levels driven by the addition of CommScope's building connectivity business. We remain encouraged by the company's strength across the many diversified segments of this important market. Over the long term, I'm confident in our strategy to expand our high-technology interconnect antenna and sensor offering both organically and through complementary acquisitions. This strategy has enabled Amphenol to capitalize on the many revolutions that continue to occur across the diversified industrial market. And thereby create further opportunities for the outstanding team working in this important market. The automotive market represented 14% of our sales in the fourth quarter and 15% of our sales for the full year. Sales in the fourth quarter grew by 12% in US dollars and 9% in local currencies and organic. And that was driven by relatively broad-based growth across automotive applications. In addition, we are pleased that once again, we realized growth in all three regions. Sequentially, our automotive sales were flat, but this was better than our expectations coming into the quarter. For the full year 2025, our sales increased by 8% in US dollars and 7% in local currency and organic. With growth in all three regions. As we look into the first quarter, we do expect a seasonal moderation in sales from this quarter's levels of approximately 10%. I remain very proud of our team working in the important automotive market. And while there are always areas of uncertainty in the global automotive market, our organization continues to be focused on driving new design wins with customers. Who are implementing a wide array of new technologies into their vehicles. We look forward to benefiting from our strengthened position in the automotive market for many years to come. Communications networks market represented 9% of our sales in the fourth quarter and 10% of our sales for the full year 2025. Sales in this market grew from the prior year by 120% in US dollars and 119% in local currency, as we benefited from the Andrew acquisition completed earlier last year. Organically, our sales were flat from the prior year. On a sequential basis, sales declined as expected by 13% from the third quarter. And for the full year 2025, our sales to communications networks increased by 134% in US dollars in local currency and by 13% organically as we benefited from the addition of Andrew as well as growth in our products sold into the mobile network operators and wireless equipment manufacturers. As we look towards the first quarter, we do expect a significant nearly 50% increase in sales as we benefit from the addition of the CommScope business which more than offsets the typical seasonal sales declines that we would see here. With our expanded range of technology offerings, following the acquisitions of both CommScope and Andrew, We are well positioned with service provider and OEM customers across the global communications networks market. Our deep and broad range of products, coupled with an expansive manufacturing footprint, have positioned us to support these customers wherever they may be. And as customers in this market continue to drive their systems and networks to higher levels of performance, We look forward to enabling them for many years to come. The mobile devices market represented 6% of our sales in the quarter and also for the full year, and in the fourth quarter, our sales moderated by 4% in US dollar local currency local currency and organic, as growth in tablets, wearables, and accessories was more than by some moderation in sales related to smartphones. On a sequential basis, our sales increased by 6% which was a bit better than our expectations coming into the quarter. And for the full year 2025, sales in the mobile devices increased by 5% in US dollar and organic, and that was really driven by growth across virtually all mobile device applications. As is typical in the first quarter, we do anticipate a seasonal decline of some magnitude roughly in the 30% range as we look into the first quarter. But, nevertheless, I'm very proud of our team working in the always dynamic mobile device market. As their agility and reactivity have once again enabled us to capture incremental sales in the quarter. I'm confident that with our leading array of antennas, interconnect product, and mechanisms, designed in across a broad range of next-generation mobile devices. We're well positioned for the long term. Finally, the IT datacom market represented 38% of our sales in the fourth quarter and 36% of our sales for the full year. Sales in the fourth quarter grew by a very strong 110% in US dollar and organic driven by continued strong demand for our products used in AI applications together with ongoing growth in our base IT datacom business. On a sequential basis, our sales increased by 8% from the third quarter which was substantially better than our expectations ninety days ago. This sequential increase was essentially driven by growth in AI-related applications. For the full year 2025, our sales in the IT datacom market grew by a very strong 124% in US dollars and organic. As we benefited from strong demand for AI-related applications as well as accelerated growth in our non-AI IT data business. As we look ahead, we expect a low double-digit sequential sales increase in the first quarter driven by the addition of CommScope. And on an organic basis, we're very pleased to anticipate that we will remain at these very levels in the fourth quarter. We are more encouraged than ever by the company's position in the global IT datacom market. I just can't emphasize enough what an outstanding job our team has done, not only in securing future business, on these next-generation IT systems, with a really broad array of customers, but in executing upon that demand here in 2025. It's no doubt that the revolution in AI continues to create a unique opportunity for Amphenol. Given our leading high-speed and power interconnect products. With now the addition of CommScope, we have the broadest range of high-speed power and fiber optic interconnect products all of which are critical components in these next-generation systems. This creates a continued long-term growth opportunity for Amphenol. Turning to our outlook and of course, assuming the continuation of current market conditions as well as constant exchange rates, For the first quarter, we expect sales in the range of $6.9 billion to $7 billion and adjusted diluted EPS in the range of $0.91 to $0.93. This would represent significant sales growth from the prior year of 43% to 45% and adjusted diluted EPS growth of 44% to 48%. I would note that our Q1 guidance includes $900 million in sales and $0.02 of adjusted EPS accretion from the CommScope acquisition. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges present in the current environment. While continuing to grow Amphenol's market position all while driving sustainable and strong profitability over the long term. Finally, I'd like to take this opportunity to first thank our customers for the trust that they put in us and also to thank the entire global team of Amphenolians for their truly outstanding efforts here in the fourth quarter and in the full year 2025. And with that, operator, we'd be happy to take any questions. Operator: Thank you, Mr. Norwitt. Question and answer period will now begin. Please limit to one question per caller. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We have a question from William Stein from Truist Securities. Please go ahead. William Stein: Great. Thanks for taking my question. Congrats on the very strong results and outlook. First, I'd like to ask about the bookings, which was very strong. I think you highlighted a 1.31 book-to-bill. Adam, that I imagine, must have in it some extended duration orders in the backlog. And I wonder whether that's entirely concentrated or mostly concentrated in IT datacom. And also, if you can talk about what gives rise to that level of orders? Is it based on sort of a need for them to place this in order to get in line, from a sort of a lead time perspective? Or is this based, perhaps on sort of minimum order requirement in order to meet CapEx requirements that you have? Any color on that would be really helpful. Thank you. Adam Norwitt: Well, thank you very much, Will. Look. No doubt. We were very encouraged by the bookings as we came out of the year in 2025, and you know, I'll say a couple of things. I mentioned earlier that, in fact, our bookings were really broadly strong across all of our end markets with maybe I think, only one exception our book-to-bill was at or above one. And then in a few cases, significantly above one. And there was certainly the IT datacom market specifically related to AI investment was a primary driver of this 1.31 book-to-bill and record orders, you know, for the company. To achieve orders of more than $8 billion in the quarter was certainly a milestone for all of us. Look. I think that as I mentioned, and I think Craig alluded to, that we have seen customers open up their order window for in particular related to significant plans that they have of investments related to AI. This is not because of kind of getting in line so to speak. I mean, I think our team's done a fabulous job of ramping up, I mean, as evidenced by the extraordinary growth that we achieved last year, a 120% year-over-year growth. For the full year in IT datacom, there's no doubt that our team has done an amazing job of ramping up to our customers' needs. But at the same time, and we've talked about this in the past, you know, because of the technology involved in a lot of these next-generation products, really pushing the limits of these systems and pushing the limits of the products. You know, these products do require, in certain cases, more automation, which fortunately, we do the vast majority of that in-house, which has been an amazing competitive advantage for Amphenol through this time period. And so we've worked with customers because of these, you know, sometimes outsized investment requirements, and they're outsized plans that they provide to us, to somehow share the risk of those investments and we do that in a variety of ways. Those ways can include customers actually sharing some of the spending, contributing to the spending, and, otherwise, you know, giving us commitments that are solid commitments that give us the comfort to make those investments and drive the ramp-ups that ultimately meet those customers' demands. And so I think it's more not and you use the word minimum order. I wouldn't call it minimum order. But rather it's giving us the comfort through their own commitments to Amphenol that we should then make the commitments in capital and using Amphenol's hard-earned cash and the time of our team, to make those investments. And I think it's a great sign. It's a sign, number one, of our customers' intention and their plans, which are very robust. It's a sign number two of our customer's commitment and confidence. In the Amphenol organization. And so no doubt about it. I think it's a positive. And, you know, we look forward to continuing to drive great success in that market in the future. Thank you. Our next question comes from Amit Daryanani from Evercore ISI. Amit Daryanani: Please go ahead. Adam Norwitt: Yep. Thanks a lot. Good afternoon, everyone. Thanks for taking my question. Adam, post the CCS deal, can you just talk about the breadth of your offerings when it comes to serving these AI infrastructure customers? You folks have done really well on a stand-alone basis, but know, there's this view, I think, out there that Amphenol is driven more by And as we move more to optics and fiber, there's a risk here. So maybe hoping you can spend some time to help us appreciate the range of offerings you're gonna have post-CCS. And how do you see these offerings that you get from CCS really being complementary to what Amphenol has today? Thank you. Adam Norwitt: Yeah. That's it. Well, thank you very much, Amit. Look. There's no doubt about it that we have worked for a long time, and it's kind of ironic. Know, we just celebrated the twentieth anniversary of another foundational acquisition for Amphenol, which was the acquisition of the Chariton Connection Systems business twenty years ago which really catapulted Amphenol into a leadership position in high-speed copper interconnect products. I will tell you that at that time, you know, high-speed meant five gigabits. Maybe 10 on the outside. And over those twenty years, we've continued to double down on the excellent capabilities that TCS brought us the people most of whom are still with our team today, you know, there to celebrate that same twentieth anniversary. And that has put us in a real leadership position as our customers drive their systems to higher and higher speed. Now we have always been a player in fiber optics. I mean, going all the way back to, you know, the early foundations of what a fiber optic connector was you know, half a century ago or more. But there's no question that with CCS, just like at the time with CCS twenty years ago, CCS vaults us into a position of breadth and depth in the technology around fiber optic interconnect that is a real expansion. Of our capabilities. And so when we go to customers data center applications or when we go to communications networks, customers and talk about their next-generation network planning, We can now have that conversation across the entirety of the Internet of the interconnect spectrum. As they think about the various trade-offs that a customer goes through every time they think about their specific system architecture, You know, do they want to use a high-speed copper interconnect here? What's the power situation? How do they bring power? Into their system, into the rack, into a data center? Into a network? And then how did they use fiber optics, you know, which have, of course, fabulous traits in particular around high bandwidth, long-distance communications. And customers are making these trade-offs every day, And now with the CCS acquisition, what I'm so excited about is the unique position it puts Amphenol in as a company to be able to go in and talk to that entire spectrum. Of interconnect. Our customers just want to get a signal from a place to a place. And it's up to us to work with them to figure out the best way to do that. Whether they're getting a signal from a GPU to a GPU or from a central office home somewhere or anything in between. And I think now we were able to come to them with a total solution of leading interconnect products that ultimately allow us to have a seat at the table as a partner with those customers for many, many years and many generations to come. Thank you. Operator: Our next question comes from Luke Junk from Baird. Please go ahead. Luke Junk: Adam, maybe to bridge on the comments you just made, I'd just wondering if you could maybe speak to integration first steps at CommScope. And, you know, like you mentioned, the deal got closed a little sooner than you had expected. Just how important is that in terms of bringing this new fuller, broader portfolio to bear in data center, especially given how quickly this market's moving right now? Thank you. Adam Norwitt: Well, thanks very much, Luke. I'll answer the second question. I mean, know, you get one of these deals done. You gotta get a lot of approvals in a lot of different places. And I think our team did a great job of working with the various authorities to get those approvals a bit faster. And I'm really grateful also to the folks who sold us this company, and, you know, they've renamed their company now, and I wish them all the best. It was really a great experience, I think, for all sides, and we work really well together. To bring this deal to fruition quite a bit faster than, you know, we thought it was gonna be at the time that we originally announced the deal. I would say so the speed I don't think the fact that we closed it early in the quarter versus end of the quarter, that doesn't change our position in the marketplace. Obviously, as soon as we announce the deal, you can imagine that our customers around the world wanted to talk to us about what that meant for the long term. And so we've been having those conversations for quite some time already. In terms of the integration, I mean, you know, that word integration is not a word in the Amphenol lexicon. You know, there are two words we don't use, integration and synergy. And but what we do talk about is letting them evolve into the Amphenol family letting them be who they were because it's a fabulous organization. I mean, the leadership of the company is still the same leadership. The people are still the same people. We're not parachuting people in. We're not merging and morphing things into one or another, synergizing and restructuring. We're actually working with the team on day one to say what are the opportunities that now that you're part of Amphenol, you could hope to achieve that you maybe couldn't have done part of your former company. I was so happy, you know, on the first day of the acquisition that right after we announced it, I went really one of the nerve centers of the company. As you know, you know, the CommScope, we've talked about this. In many ways, it is a collection of extraordinary iconic businesses in its own right. The CommScope business that was founded nearly fifty years ago by Frank Drendel as a supplier into the broadband networks market. The Systemax business, which is an amazing iconic business selling into building connectivity. And the ADC Communications, which was a long legacy leader in fiber optic interconnect. And so I was really happy to go to Shakopee, Minnesota, which is really the nerve center of the fiber optic capability of this company. And meet with these engineers and the product managers and the folks leading that business. And I can tell you they're so excited to be part of Amphenol. And we broadcast a welcome around the world. And the just a kind of a almost a universal excitement to be part of this company called Amphenol, to become Amphenolians as they all now know that word. And so you know, the first steps is, you know, meet the people, get excited, find opportunities to go accelerate the business, and that's all well underway today. Luke Junk: Thank you. Operator: Our next question comes from Wamsi Mohan from Bank of America. Please go ahead. Wamsi Mohan: Yes. Thank you so much. Adam, I was hoping you could maybe parse the January IT datacom guide of flattish organically excluding CCS. Should within that, should we be expecting the traditional sort of you know, enterprise-centric market, double-digit and the AI workloads to grow. Is that the right way to think about it? And within the AI context, is that more programs for you, more units in existing programs? Any color you can share around, so what you're hearing from your larger AI customers in terms of just trajectory given especially your comments about very strong orders? Adam Norwitt: Yeah. Thanks very much, Wamsi. Look. I mean, it's hard for me to give too much of a parse of what that flat organic means. I mean, you're correct. Traditionally, the base IT datacom cycle would be down in the first quarter. So I think probably there's some of that here as well. But look, in terms of our ongoing growth in AI, I mean, I want to emphasize one thing, which is just the breadth of that business. You know, we have an enormous position with a lot of different customers up and down the stack of AI, you know, from the folks who are making the investments the big web scale folks, and otherwise, including, like, you know, the cloud, the Neo cloud, whatever you guys all call these folks. The equipment manufacturers, all the way down to, of course, significant companies who are designing the chips and the architecture around those chips. I mean, I will say that, you know, as we come out of 2025, that breadth is reflected in the fact that we didn't have any 10% customers in 2025. You know, we have significant customers, but we have also a lot of breadth around that business. And so as our customers think about the forward potential, of AI I mean, I think there's a few factors. Number one is their investment plans are all going up. There's no doubt that there continues to be a very robust plan of continuing to drive accelerated computing at a very strong level. And there's upgrades of the technology embedded in those data centers which requires a higher technology, more complex, higher content degree of interconnect. We're also very excited that not only are we participating, you know, as we have traditionally bringing the power in, power to the racks and the like, the data communication within racks, within adjacent racks, but also now with CommScope participating in the broader fiber optic opportunity, associated with those data centers. And, you know, there's no doubt that that also creates a strong opportunity for the company going forward. Wamsi Mohan: Thank you. Operator: Our next question comes from Samik Chatterjee from JPMorgan. Please go ahead. Samik Chatterjee: Oh, hi. Thanks for taking my question, and Happy New Year. Adam, I'm wondering when you mentioned the sort of opening up their order books a bit when it pertains to your IT datacom business. Are you seeing anything similar for the CC business the reason I ask is we saw what what are the competitors in the space currently announced agreement with Meta Securing Supply. So are you seeing hyperscalers customers on that front come to you to sort of engage in those discussions to secure supply and what that what that would mean for your investment proof, sort of support for this business. Thank you. Adam Norwitt: Yeah. Well, thank you very much, Samik. Yeah. Look. No doubt. We had very strong orders, and I would tell you that the CommScope business, as we call it now, we're not calling it anymore CCS, It has also had very strong orders. And for sure, I mean, there have been plenty of announcements and, you know, by really wonderful companies out there, and, you know, we're really proud to be considered in the same breath as some of these amazing companies that have also been in the public eye late. And there's no doubt that the CCS is participating. I mean, we've talked about the fact that their exposure into the data center, their strong growth that they've seen in that area. You know, I would also just point out, you know, at the time we acquired we announced the acquisition then of CCS, we talked about acquiring a company of roughly $3.6 billion in sales at a 26% EBITDA margin, and that, you know, implied a of just over 11 times that we paid for it. By the time we closed, we're now talking about a business of more than $4 billion in annualized sales. That is a great momentum, strong orders, positive book-to-bill, and all of that. And, obviously, implies as well that, you know, on a at least on a current year basis here in 2026, we're we the this is a great deal for Amphenol and really the high single digits in terms of an EBITDA multiple. So I think it's a great company with a great prospects and, yes, does see those those same trends. In terms of investments, I mean, look. I we don't see any, you know, significant abnormal kind of things vis a vis investments with CTS. But I will say this, and that's something we've talked about in the past. It's a different thing for CCS to be a part of a company that, you know, for very obvious reasons was somewhat balance sheet constrained. And now they're part of Amphenol where we're more than willing to help them stimulate the virtuous cycle that so many of our companies are on by making prudent investments that allow great returns and allow them to capitalize upon the opportunities in the marketplace. And so it's not that we're just going to give them all blank checks here. But you can imagine that it's a different environment for CCS in terms of their ability to grow into the upper opportunities as part of Amphenol than maybe it would have been in the past. Samik Chatterjee: Thank you. Operator: Our next question comes from the line of Andrew Buscaglia from BNP Paribas. Please go ahead. Andrew Buscaglia: Hey. Good morning, everyone. Adam Norwitt: Good morning. Andrew Buscaglia: Or good afternoon. Adam Norwitt: How are you? Good aft Andrew Buscaglia: Yeah. Maybe shifting away from the AI and IT datacom story per minute. I think another underlying trend this quarter or a positive thing we're seeing is the momentum in, you know, a lot of other areas in your in your markets are pretty beat up. And I'm thinking, like, industrial, automotive, mobile devices, specifically. Just seem to start the markets seem to be turning a corner. Where are you say that's most pronounced? Maybe what surprised you in the quarter, if anything? Where do you see some of these sort of battered end markets going in 2026? Adam Norwitt: Yeah. Well, thanks very much, Andrew. I mean, there's no doubt. I mean, we saw really broad-based strength as we through the year and as we finish the year. And I mentioned in my prepared remarks that we're especially encouraged in if you take automotive and industrial as two pretty broad global markets, that we saw growth organically in both of those markets across all of the territories that they operate in. And I would highlight there, in particular, Europe. I mean, you know, the world has been so down on Europe for so long. And I think we've started to see in our company, especially in the second half of the year, that our teams in Europe who have held their heads high through this whole kind of malaise, if you will, have continued to pursue opportunities to gain market share, to enable our customers who are doing really amazing things you know, driving now, you know, robust organic growth in Europe in automotive and in industrial for the full year. And I would even say that in the fourth quarter, amazingly, our strongest organic growth in automotive was in Europe. So, you know, that's definitely a different thing than we've been talking about and that the world's been talking about for some time. And I think we're excited about our continued position there. And mobile devices, you know, it's a different thing. I wouldn't call that as much of a regional market, but there's just a lot of innovation. Look. I always start the year at the Consumer Electronics Show in Las Vegas, and I think I even had the chance to run across a couple of you guys who are on the call here today. In the lobbies of the Venetian or wherever. And I go to that show always because I find it so inspirational. To see what folks are doing. And what I find so interesting is everybody is talking about AI, and the build-out of the networks of AI. And the capability. But what I find long term maybe even more exciting or at least equally exciting, is what's gonna come from that. What's it gonna mean that we're gonna have this ubiquitous Star Wars as we come to the almost fifty-year anniversary. Will we each have our own C-3PO that'll have great AI capabilities? Who knows? I mean, these kind of things are possible. And I think the places like in automotive with autonomous driving, in industrial where you see so many different things happening on the edge where things get smart, robotics, the like, and mobile devices. You know, those three markets that you mentioned, think each of those stands to have a fundamental step function in their capabilities and their potential because of what's happening today in the build-out of this AI network. And I think long term, that's something that I'm really excited about. And I think back on the other revolutions, the microprocessor, the Internet, the mobile Internet, and the like, And each of those had later on a carry-on benefit to those markets. Automotive, industrial, mobile devices, and the like. And know, I'd be surprised if we don't see something like that in many years to come. Thank you. Operator: Our next question comes from Steven Fox from Fox Advisors. Please go ahead. Steven Fox: Hi. Excuse me. Afternoon. I guess I just was curious, big picture, Adam. You've obviously just completed a really strong growth year and generate cash flows. But with the orders now that you're looking at, can you just sort of talk about sort of the management challenges? You mentioned adding more automation. And I'm wondering about, like, higher metals prices, supply chain constraints. How do you look at this in terms of new challenges, especially as your demand is broadening out? Thanks. Adam Norwitt: Yeah. Well, thanks very much, Steve. Sorry. I didn't save my Star Wars reference, for you. Look. This is not an easy thing to do to grow a company by 38% organically. Let alone those operations within the company who have grown by so much more than that. I mean, you can imagine we've got folks who more than doubled the size of their individual operations. But what sets us apart and what has always been the core of why we are able to do hard things. Is that unique operating culture of Amphenol. The fact that we rely on what is now a 145 or so general managers 16 operating groups. You know? The CommScope, we talked earlier about the quote integration. Well, there's not an integration. The CommScope team is you know, the person who ran it is now a general manager of Amphenol, and he's running his team as he ran it before. So the quote the management challenges and, you know, you list a couple of things, supply chain, the cost of metals, which are extraordinary. Know, there the geopolitics, you know, whatever, shipping. I mean, there's so many things. And I think we don't fixate on one or another of those things. What I fixate on is making sure that if you're a general manager in Amphenol, you've got all the authority to deal with whatever comes your way. And that empowerment and enablement of people to go figure it out. And, yes, if they need some help, we're here. We've got this amazing organization driving collaboration. Communication, across the company. But the end of the day, the buck stops in a 145 desks. And if that means doubling the size of your business figuring out how to set up factories in four different countries, doing things with technology that have never been done before, ramping up automation machines that we've never built before but now can build extraordinarily probably one of the world's best automation companies that exist. They make it happen. They make it happen. And so I think when I think about growing the company as we have, doubling the size of Amphenol really in the last four years, for me, the biggest singular focus is how do we do that while still preserving that entrepreneurial culture. And I'm so proud that we've done it. If you think about a big change in the company four years ago, which I'm not gonna say is the thing that created that doubling, but it certainly enabled it. Was when we moved to three divisions with three division presidents when we expanded the number of operating groups in the company, all with the goal of securing, strengthening, and scaling that unique entrepreneurial culture of Amphenol. And I don't think it's a coincidence. That we took that step four years ago, and now here we are four years hence celebrating doubling the size of Amphenol. And so I do believe that the management challenges which are countless, on every day, thousands of challenges that our people face, they're equipped to deal with them no matter what they are. And that gives me not only a confidence for the future, but enthusiasm for the future. Because whatever comes along, we know for sure the world is not predictable. But what I can predict is that Amphenolians will be there, and we'll make it happen regardless. Thank you. Operator: Our next question comes from Mark Delaney from Goldman Sachs. Please go ahead. Mark Delaney: Yes, good afternoon. Thank you very much for taking the question and Happy New Year to all of you as well. I was hoping you could speak a bit more on the margin outlook. The company sustained a record high EBIT margin again in the fourth quarter at 27.5%. There's a number of factors as you go into 2026. You have some big deals, like CommScope. You also alluded to, but metals are up quite a bit, but then the company is growing quite fast. So any color you can share on how to think about incremental margins this year and some of the key puts and takes? Thanks. Craig Lampo: Yes. Thanks, Mark. Appreciate the question. Yes. I mean, I'll start off by just really quickening quickly addressing metals. I mean, Adam just mentioned kind of a bit about it. But from a margin perspective, I mean, certainly, we're working hard. I mean, metals are certainly something that we have as part of our cost of sales not a significant cost that when you kind of take into account the significant value we create within the facility, but certainly, it certainly has an impact. I mean, it's like any other cost you know, that we work through, and the general managers do a great job of working through kind of offsets to those cost increases, through anything from design of products to things in the factory to working with vendors to a whole host of different things. So I wouldn't say that, at least as of now, we see having any significant impact on kind of our margin outlook as we're moving into '26 and certainly hasn't had any evident impact, certainly with these record, you know, operating margins that we've seen here in the fourth quarter and for the full year. You know, as we move into the first quarter, I mean, the main puts and takes here, I mean, organically, we have a slight sequential decrease in our sales, which is normal seasonality that we typically see know, during the first quarter. And we're converting kind of in the mid-thirties. Even the lower mid-thirties in, you know, in regards to that organic change. And that's typical given our profitability levels and kind of where I would expect. So the company is really doing a great job managing, you know, a seasonal sequential decrease. And, you know, the bigger impact on our margins in the first quarter really is just the impact of CCS. We talked about CCS being in the high teens for the full year, and from an operating margin base to kind of where we expect. I would tell you in the first quarter, because of the seasonality of their sales and their lower sales in the first quarter, that their operating margins are just a bit under kind of that high teens rate. So they're having you know, a bit over a 100 basis point impact on our margins in the first quarter. You know, as we progress throughout the year, we're not guiding in '26, but certainly, we expect normal kind of, you know, operating margins. We expect that kind of 30% you know, kind of targeted conversion margins that we target on incremental sales. getting up to over time. As we grow. And, you know, with CCS, again, we target that up to the company average, and certainly, that will be an adder over time to our operating margin potential. So I'm really, you know, happy with you know, our operating margins that we've achieved in '25 and certainly very optimistic to where we are in '26. Operator: Thank you. Our next question comes from Asiya Merchant from Citigroup. Please go ahead. Asiya Merchant: Oh, great. Thank you very much. Just know, given the strong order book momentum and, you know, the AI momentum that you guys also talked about. Just if you could just talk about CapEx and how we should thinking about investments into 2026? As a result of that? Sorry if I missed that earlier. Craig Lampo: No. No. Thanks for the question. No. We didn't talk about specifically earlier. Yeah. No. From a capital perspective and as we talk about in 2025, we were certainly spending at a bit higher level. But, honestly, with the growth we have seen, we kind of ended the year just a bit over 4%, which, you know, three to 4% we say is our historic range. We ended the year just a bit over that 4%. You know? And I would say as we go into '26 and we continue to see you know, certainly opportunities for growth, and certainly we've had strong orders here we talked about in the fourth quarter. We expect that capital spending to still be certainly at that upper end of that 4% range. And certainly, we have quarters that certainly exceed that 4% for capital spending into the, you know, into '26. So I think that, you know, the fact that we're still spending kind of in our you know, historic range and roughly there is really just a testament to the just the discipline of the organization, the ability to, you know, to spend wisely and really support the growth, the significant growth that we're seeing. Still with, you know, pretty reasonable spending, I think. So and then I think I would expect you know, more of the same in '26. And as we continue to grow, I think that three to 4% range will continue to be that. And I think as we these growth rates are a little higher, I would say that will be probably that towards the upper end of that 4% and, you know, give or take in the quarter. Operator: Thank you. Operator: Our next question comes from Joe Spak from UBS. Please go ahead. Joe Spak: Just a quick one for me. Relating to circling back to CommScope and that business. I know it's still early days in being the official owners, but any sense of how large their order book looks here? Going forward? Adam Norwitt: Yeah. Thanks very much, Joe. I mean, I think I mentioned earlier that CommScope's also had a nicely positive book-to-bill. Over the recent quarters. And so I think it has a positive order book from that perspective. Operator: Thank you. Our next question comes from Guy Hardwick. From Barclays. Please go ahead. Guy Hardwick: Hi. Good afternoon. Just a quick one on the order book. Obviously, it's fantastic result. $8.4 billion. Just how do we square that with the Q1 revenue guidance of $7 billion which obviously, the Q4 order book didn't include CCS, but I assume it assumed Trexxon. Is it the orders, the window that you talked about? And is that 8.4% really kind of a sustainable number over the next few quarters? Adam Norwitt: Thanks very much, Guy. Mean, look, I think I talked about the fact that we have seen customers extend their order window. Craig mentioned that as well. And in addition, as we continue to ramp up for our customers' new programs, particularly related to AI, there is that kind of confidence that we like to get before making investments. That our customers can give us in a variety of ways, including through orders. I'm not gonna guide to what our orders are going to be in a given quarter. I mean, can imagine our sales folks are out there trying to pursue every order. Possible. But these are really outstanding orders, and they will carry through longer than just here in the first quarter. Operator: Thank you. Operator: Our next question comes from Scott Graham from Research Partners. Please go ahead. Scott Graham: Hey. Good afternoon. Congratulations on the print. My question is about defense. Obviously, the current administration's thinking is that some point we need to push the budget up to $1.5 trillion. Is there any part of your defense sales that are maybe not subject to, you know, whether it's just an upgrade, next-gen technologies, the golden dome. I don't know how much how closely you've looked at some of the you know, some of the articles that have come out on this, but is there anything that you see that, you know, maybe doesn't give you maybe full dibs or most dibs on that? And then on the other side of it, are you concerned at all about the administration's you know, sort of negative rhetoric around with the with NATO? And what that might do to some of your international sales. In defense. Thanks. Adam Norwitt: Well, thanks very much, Scott. Look. I think as the leader in defense interconnect, I wouldn't tell you that we take that for granted. But do we have dibs on this market? We got dibs on this market. I mean and we have that because of a broad array of technologies. And deep investments that we have made I mean, the one thing that I think sets us apart in particular related here to we'll talk about The US and then we'll talk global. Is that we have continued to double down, number one, on technology innovation, and number two, on scaling our capacity to enable the defense industry to continue to meet the levels that they need to. And so whether that means, you know, today's budget or higher budgets in the future, I can tell you that the breadth of our offering coupled with the depth of our capacity and capability is something that puts us in a really strong position across really all programs. And, you know, you mentioned a few programs. Our folks deep into every program that is involved. I will also add to that. With the acquisition of Trexon, while only, you know, just under $300 million in sales, But it really does expand the prominence of our value-add interconnect capabilities which is an enormous additional opportunity and additional growth potential for the company long term. We've always been a leader in the discrete connector solution well, broad array of them. I mean, you cannot imagine how broad that array is. But now being able to support the value-add products across programs, across applications, land, sea, air, and everything in between. I think Trexxon really rounds out our position and expands the potential what we can do to support this growth. Now relative to your question around NATO and international, our approach as a company has always been not to be a sort of US flag in the front of our factory kind of an operation when we operate around the world. We operate you know, 350 factories across more than 40 countries around the world. And we don't have expats. Period. We operate our company as a local company. So when we're in France, we're a local French company. When we're in The UK, we're a local UK company. In Denmark, in Germany, in Italy, or wherever that may be. And that focus on being a local provider in the defense market. And, you know, our defense position in Europe is very, very strong. We've had really outperformance in Europe here for a number of years. In terms of the strength of our business. You know, I'm never gonna say that you're insulated from anything. But the way that we've structured our company, the culture around our company, how we interact with our customers. Is as a local partner in those places. And we do that in all of our That's just how we run the company. But I will tell you that in a geopolitically interesting world, that we are in today. The way that we've always operated, is a pretty good way to operate in today's world. And I think that will, in many ways, protect us from any politics that could inject themselves into this. Our customers, at the end of the day, want the best product, and they want it at the time that they need it. And if we can focus on continuing to do that and do it locally, I think our defense business has a great future. Operator: Thank you. Operator: Our last question comes from Joe Giordano from TD Cowen. Please go ahead. Joe Giordano: Hey. Thanks for getting me in, guys. Appreciate it. Adam, you've mentioned CES, and I think one of the things coming out of there was an ultimate move at some point towards, like, 800-volt power for data centers. And, you know, there's major implications on what that means for copper and what that means for the ability to do things at different dimension at different diameters. Just curious as your portfolio broadens out and you have these fiber capabilities, what does, like, the know, if you think through the potential positives and negatives for such a dynamic, like, how do you do you think that nets out for you guys? Adam Norwitt: Yeah. Look. I think what we care about, Joe, is that there's more of everything. And so as folks make changes, they go to different voltages. They go to different speeds. Of transmission. They go to more nodes. They go to more tokens. They go to more density, whatever it is. The ultimate what comes out of that is more complexity. And so for us, you know, whether it's one type or another, I talked earlier about the fact that we today, especially with the CommScope acquisition, have the broadest offering in the industry and the broadest ability to enable our customers as they face these really challenging technological trade-offs. And so I think we're in a really great position to be able to do that and even stronger than we were before pre the CommScope acquisition. And, you know, whether it's different voltages or different speeds or different densities or all the various things that our customers are looking at, I think we're gonna have a great seat at the table working with them to enable these exciting next-generation systems. Operator: Thank you. Currently have no further questions, so I'll hand it back to Mr. Norwitt for closing remarks. Adam Norwitt: Well, thank you very much. And again, I'd like to offer my gratitude to everybody here for taking the time with us today. And we look forward to seeing you in ninety days. And I hope you all, at least those of you who are not far from us here in Connecticut, hope you're able to stay warm. Thanks. Craig Lampo: Thanks, everybody. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Good morning and good evening. Thank you all for joining the conference call for the LG Display earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on LG Display's Fourth Quarter of Fiscal Year 2025 Earnings results. Suk Heo: Good afternoon. This is This is Heo Suk, Leader of the LG Display IR team. Thank you for joining our fourth quarter 2025 earnings conference call. Joining us today are CFO, Kim Sung-Hyun; Vice President, Choi Hyun-Chul, in charge of Business Control and Management; Vice President, Kim Kyu Dong, in charge of Finance and Risk Management; Lee Ki-Yong, in charge of Business Intelligence; Vice President, Kim Yong Duck, in charge of Large Display Planning and Management; and Ahn Yoo-shin, in charge of Medium Display Planning and Management, Park Sang-woo, in charge of Small Display Planning and Management and Son Ki Hwan, Head of Auto Marketing. Today's conference call will be conducted in both Korean and English. For detailed performance-related materials, please refer to our disclosure or the Investor Relations section in the company website. Please refer to the disclaimer before we begin the presentation. Please be informed that the financial figures presented in today's earnings release are consolidated figures prepared in accordance with International Financial Reporting Standards. These figures have not yet been audited by an external auditor and are provided for the convenience of our investors. I will now report on the company's business performance in Q4 2025. Shipment of panels for TVs and notebook PCs in Q4 remained solid, but there were some changes to the mix in some small and medium OLED products that lessen the usual seasonality. As a result, revenue rose slightly Q-o-Q to KRW 7.2008 trillion. Operating profit declined Q-o-Q to KRW 168.5 billion. It is owed to lower shipments of certain small and medium OLED models Q-o-Q together with one-off costs related to strengthening the company's profit structure and future competitiveness. As noted in last quarter's earnings call, for the purpose of raising the efficiency of manpower structure, costs associated with voluntary retirement program for domestic and overseas employees exceeded KRW 90 billion. In addition, fourth quarter included incentive payments as rewards to employees for achieving the company's first annual turnaround in 4 years and as motivation to further bolster the company's competitiveness. Cost for activities such as reducing low-margin products and inventory rationalization were also included in Q4 results, which were part of the initiative to adjust the company's business and product portfolio. It was intended to strengthen our profit structure and operational efficiency. Operating performance in Q4, excluding these one-off costs, expanded both Q-o-Q and Y-o-Y, demonstrating continued improvement in our business fundamentals and profitability. There was net loss of KRW 351.2 billion down Q-o-Q, primarily due to foreign currency translation loss stemming from the higher year-end exchange rate. EBITDA in Q4 was KRW 1.162 trillion, with an EBITDA margin of 16%. Next is shipment area and ASP trends. What we are seeing recently is that panel shipments by product have diverged from traditional seasonality, reflecting instead the downstream conditions, customers' inventory levels and strategic panel buying trends as well as differences in customer and/or product strategies among panel suppliers, particularly for the company, as we maintain profitability-focused product portfolio, shipment of low-margin midsized LCD models continue to shrink. Specifically in Q4, shipment area for TV and notebook PC panels grew quarter-on-quarter, while shipment for monitor and tablet panels declined. As a result, despite the strong seasonality, total shipment area rose modestly Q-o-Q to 4.0 million square meters. ASP per square meter was $1,297, down 5% quarter-on-quarter largely because shipment of certain small and midsized OLED models were concentrated in Q3. Although it fell Q-o-Q, it is up 49% year-on-year, reflecting continued progress in upgrading the business structure toward OLED and supporting expectations at the high level will be maintained going forward. Next is revenue share by product group. Overall revenue share remained largely unchanged from Q3. First, mobile and others accounted for 40% of revenue, up 1 percentage point Q-o-Q, mainly due to shifts in the product mix. IT revenue share remained almost unchanged at 36%, down 1 percentage point Q-o-Q, reflecting the deferring shipments across product categories, as described earlier. TV share out of revenue rose slightly by 1 percentage point as shipments of white OLED panels for TV and monitor increased. Auto revenue share rose to 7%, down 1 percentage point Q-o-Q. OLED products accounted for 65% of total revenue in Q4, unchanged Q-o-Q and up 5 percentage points Y-o-Y. Year-to-date, OLED share rose to 61% from 55% last year, up 6 percentage points. The continued upgrade toward OLED center business structure is steadily broadening and strengthening our growth and profitability base. Next is our financial position and key indicators. Cash and cash equivalents at quarter end were KRW 1.573 trillion, largely unchanged Q-o-Q. As we wind down nonstrategic businesses such as LCD TV and improve operating efficiency, the level of required operating capital has remained lower than in the past. Inventory at quarter end declined Y-o-Y to KRW 2.546 trillion, reflecting progress from our efficiency improvement efforts. Total debt decreased by KRW 1.886 trillion from the end of 2024 to KRW 12.664 trillion. And net debt fell by KRW 1.437 trillion Y-o-Y to KRW 11.0910 trillion. Debt-to-equity ratio improved to 243% and net debt-to-equity ratio to 141%, lower by 20 percentage points and 10 percentage points, respectively, Q-o-Q and lower by 64 percentage points and 14 percentage points Y-o-Y, further strengthening our financial soundness. I will now move on to guidance for Q1. Shipment area is expected to fall across all categories in Q1 due to seasonality. While ASP per square meter is also expected to fall slightly Q-o-Q, it will be tempered compared to the same quarters in the past due to the strong and sustained upgrade to OLED-centric business structure. Total shipment area is projected to decrease by low 20% level from the previous quarter and ASP per square meter to decline by mid-single-digit percent. Notably, ASP per square meter is expected to remain above the $1,200 line even through the seasonality of Q1 up by more than 50% Y-o-Y. I will now hand over to our CFO, Kim Sung-Hyun. Sung-Hyun Kim: Good afternoon and evening to everyone. I am Kim Sung-Hyun, the CFO. Thank you very much for joining today's conference call. Looking back to last year's performance, our most significant achievement was delivering a meaningful scale of turnaround after 4 years, improving profitability by more than KRW 1 trillion Y-o-Y, thanks to the hard work and dedication of all our members. Despite elevated external uncertainty and volatility in global markets, we continue to expand OLED revenue share and persisted with intensive structural improvements. As a result, we reduced our loss by roughly KRW 2 trillion in 2024 versus '23 and further improved results by about KRW 1 trillion in 2025. OLED share out of revenue reached a record high of 61% for the year. It was only 32% when we began business structure upgrade in 2020 and rose to 44% in 2022, then again to 55% in 2024. We believe that we are moving much closer to the complete solidification of our OLED-centric business structure, having terminated the large LCD business with the sell-off of Guangzhou LCD plants in 2025. Allow me to explain the one-off cost in Q4. There were explanation and guidance for costs related to voluntary retirement program provided at last year's October earnings call. And the actual cost incurred roughly KRW 90 billion is largely in line with the guidance. These costs include besides workforce rationalization to strengthen our business fundamentals, local workforce adjustment costs that were incurred while trying to improve our overseas production strategies to proactively address changes in trade and tariff environment, as well as customers' production strategies. Financial impact from the voluntary retirement cost is unchanged from what we described at last quarter. The one-off costs will be offset from about 18 months after implementation and will contribute positively to future results. In addition, as mentioned as part of the Q4 performance briefing, incentive payments tied to last year's business performance were also reflected. It is to recognize our members' role in achieving the first annual turnaround in 4 years and to motivate them further going forward. The incentive is intended to further support our ability to shift towards a technology-centric company by focusing more on improving our fundamentals, build a sustainable profit structure and better achieve our future goals. Last item is the cost associated with the strengthening profitability and improving operating efficiency. It will enable the company to boost future profitability and broader push to improve operational efficiency, such as reducing low-margin products or consolidating inventory and is expected to strengthen business performance overall. Total nonrecurring cost impact in Q4 was in the high KRW 300 billion range, which is the result of the company's activities and work to strengthen our profit structure and future competitiveness. Excluding these items, Q4 operating profit was roughly mid KRW 500 billion, exceeding market expectations. It is an improvement Q-o-Q and Y-o-Y underscoring continued improvement in our business fundamentals and profit structure. Looking ahead, we expect external uncertainty and product level volatility in the downstream market to persist this year. While numerous factors persist in our business environment like macroeconomic-driven real demand, changes in the trade environment and supply chain stability, we will remain focused on stabilizing our business performance by growing our OLED business and driving cost innovation and operational efficiency activities. Next, let me briefly remark on our plan and strategy by business. For small mobile we will expand panel shipment, leveraging differentiated technological leadership and strengthened customer partnerships to enhance business performance and stability. At the same time, we will systematically execute R&D and new technology investments to grow our future opportunities. For medium-sized OLED, we will respond to high-end market demand across product segments by leveraging our technological leadership and mass production experience. We will also respond proactively to shifting market demand and customer requests by more efficiently utilizing existing infrastructure. As to the demand for OLED conversion by product, which is expected to grow, we will carefully assess market size and conversion pace to enhance competitiveness in ways that will differentiate us. For IT LCD, as reflected in recent quarterly shipment trends and results, we are keeping our focus on B2B and differentiated high-end LCD while continuing to reduce low-margin products. It is leading to meaningful profitability improvement every year. We will intensify execution of what is already underway to achieve possibility for a turnaround this year. For large panels, we will solidify our leadership in the premium market through our differentiated and diversified TV and gaming OLED panel lineup on the back of growing recognition of white OLED's competitiveness and close collaboration with strategic customers. We will expand business results and pursue rigorous cost improvement to maintain stable operations. And for automotive, we will sustain our competitive advantage and create customer value based on our market leadership and differentiated product and technology portfolio. Finally, on investment. We maintained a CapEx policy focused on investments in our future readiness and structural upgrade. After investment optimization activities, CapEx in 2025 was completed at mid KRW 1 trillion. In 2026, CapEx is expected at KRW 2 trillion level, up Y-o-Y. This includes execution of the planned investment to enhance OLED technological competitiveness and investment to strengthen OLED business and future readiness. For any new investment decision, we will communicate with the market without delay. This completes our report on Q4 business performance and review of 2025. Thank you very much. Suk Heo: This completes our presentation of business highlights for Q4 2025. We will now take your questions. Operator, please commence the Q&A session. Operator: [Operator Instructions] The first question will be provided by Kangho Park from Daishin Securities. John Park: First of all, congratulations on achieving a turnaround for the first time in 4 years. Now I would like to ask 2 questions broadly about the company overall. The first is, in 2025, the company sold off its LCD company in China and continue with the business upgrade, and it has also increased the share of OLED out of the total revenue. It has also -- which has then improved the business performance as well as the profitability. So looking ahead to this year, then it appears that the share of OLED appears to be set to keep growing, which is likely, hopefully, to keep driving up the revenue. So then my question is, what is the company's outlook for each business? And also what is the expected business performance for the year? And also for the short term, I believe what the company needs in order to quell the negative perception about LG Display is to sever the trend of entering into loss in the first half of the year. So can we expect a better trend in the first half of this year? And the second question is, the company for the past few years has been focused on improving financial soundness, for example, improving the cost efficiency and also lowering the facilities and lowering the inventory level and also improving the overall operational efficiency. Now then again, looking ahead to 2026 and also from a more mid- to long-term perspective, what is going to be the company's new strategic priorities or strategic tasks down the road? And especially for the CFO personally, what would be your priorities or what would be the important part of your action plan? Sung-Hyun Kim: Thank you very much for the question, which was quite specific and also appear to have the answers embedded in them already. I would just like to provide my response at once based on my own interpretation of the questions. Now, of course, so far, there have been work to upgrade our business structure and also improve our operational efficiency and the results or the performance out of that is, I believe, meeting up to the -- to our commitment to the market perhaps not 100% satisfactorily, but we have done the job. But that does not mean that we can put an end to the process or the efforts that we have carried on for the past few years. Rather, they need to continue with new tasks in new phases. Now for the mid to long term, what is important and fundamental to the company is that, first of all, we need to keep growing; and second, we need to be steadfastly profitable every quarter. Now, that would be my short answer to questions #1 and 2. But then now in order to enable the points that I have just made, then there are some points that we also need to reach and allow me to explain a bit more. Now today, an important theme for the company is to turn into a technology-centric company. But then looking around to our external environment, then again in 2026, as you would all know, the environment is still full of uncertainties and also unpredictable elements. So then what should be the end goal for the company is -- so what I envision is that we need to become a normalized and competitive company. And this is because as we went through some tough times in the past few years, I see that the company has become perhaps a bit not typical and also perhaps that has eroded our competitiveness somewhat. Well, as you would know, there were losses to our capital, which made it impossible for us to pay out dividends. And we were seeing large losses up until 2 years ago. Our financial position was quite bad so much so that we had to turn to our shareholders to go into a paid-in capital increase. Now looking at last year's performance, yes, we were profitable, but not in all businesses. And what we need to do now is complete a business structure where we will be profitable in each and every one of our businesses, and so that we can also revive trust from the market. So this means that we also need to reestablish our operations inside the company and across the company. And there is no other choice but for us to continue with our business structure upgrade and operational efficiency improvement. But although the work and the efforts have to continue, I would say that the purpose has slightly become different, whereas in the past, it was more for survival. Now it is more about improving our competitiveness. Competitiveness in our technology, competitiveness in our cost, competitiveness in our products and also competitiveness in our efficient operation. So once we hit all these targets, then I believe we can once again become the market leader. So once we finish that process, then we will once again become a normalized company, win back market trust and also win back the love from our shareholders. So I have been a little bit long winded, but I would say that this is a homework that I have assigned upon myself. Operator: The following question will be presented by [ John Hou Yoon ] from UBS Securities. Unknown Analyst: My questions are also twofold. Now first is about the mobile OLED. Now the number for the smartphone panel shipment for last year and also the target for this year. So could you share the information regarding these numbers? And also depending -- so there were some changes in the product launch cycle by the customers and also looking at the technological preparedness by competitors, what are some of the opportunity factors that the company can expect? And another question. The following question is with regards to the company overall. So following tariffs last year, this year, it appears as if the memory semiconductors trends are going to be the major factor that could affect the business performance of each business segment. So what is the company's perspective and intended response to this trend? Unknown Executive: This is [ Park Sang Yoon ], in charge of a Smart Size Panel. Now looking back to smartphone business performance in 2025. The first half saw meaningful growth in panel shipments, largely reducing the seasonal variation between the first and second halves. In the second half, while the actual demand varied by model, the diversified product portfolio enabled our annual panel shipment target of around the mid-70 million units as planned. And typically, panel shipment jump from the third quarter to the fourth quarter, but last year stood out in that panel shipments were relatively concentrated in the third quarter. Our smartphone business is generating stable results based on enhanced capabilities across our technology, production and operations. This year, we aim to further close the gap between the first and second half while outpacing last year's growth in panel shipment. Now please understand that I am not in the position to comment on details about our customers. But what is certain is that our smartphone panel development and production capabilities are proven and recognized, and we have accumulated sufficient know-how to fully address diverse technical need. And we believe that by efficiently utilizing our existing production infrastructure, we can address swiftly and flexibly both the increasing demand and new technology readiness and grow our achievements. Now I would like to respond to the question about the impact from the memory semiconductors. Largely, there are 2 types of impact. The first is with the increase in the memory price, then there would also be a pressure on the display pricing that it could also go up. And then this could also increase the -- and for the IT, it could also increase the set price, which could a dampen demand. And also the component price could also go up, meaning that there could also be pressure from customers to lower the panel price. Having said that, the impact on the company currently remains limited, but the volatility is quite high. So we are carefully monitoring any changes in the demand as well as the trend and we'll also try to address any impact that might arise. Thank you. Operator: The following question will be presented by Won Suk Chung from iM Securities. Won Suk Chung: They are also twofold. First, as was mentioned earlier, the rise in the memory semiconductor price could also bring some questions about the company's profitability. And so my question regarding the company's profitability is that now about the IT set, now it appears that the outlook for the downstream market for the IT set demand appears to be conservative. So what is the company's outlook for the IT business? And also what would be the possibility of seeing a turnaround? And a related second question is, now the competition appears to be investing or going into mass production with the 8.6 gen plant, but the company at this time appears to have no such plans. Then wouldn't that place the company at a disadvantage when it comes to customers' allocation? And also, what is the outlook for the IT PC OLED for this year. Unknown Executive: For this year, the company's midsized business focused on upgrading our customer structure around global high-end clients throughout 2025, while actively reducing low-margin products. At the same time, we sustained rigorous cost innovation activities, generating meaningful improvement in profitability Y-o-Y. We anticipate this trend to continue into 2026. Now given the rising component prices driven by semiconductors, supply chain disruptions and lingering uncertainties in the broader external environment, full recovery in the market remains uncertain even in 2026, but we will strive to achieve differentiated results and profitability and future proofing. We will stick to our 2-track strategy with LCD focusing on profitability with high-end LCD and with OLED responding to new demand and preparing for new markets with Tandem OLED-based differentiated products. We are closely monitoring the potential for OLED market expansion in IT. So we are closely monitoring the OLED market expansion in IT, but there is still insufficient visibility into demand to justify an 8.6 gen investment decision and external uncertainties remain high, that could also affect demand. So for now, the company intends to monitor market conditions before making investment decisions. In the tablet OLED market that is -- that continues to open up, we have solidified our leading position based on the differentiated competitiveness of Tandem OLED technology at our 6 gen OLED fab. Monitor OLED is actively responding to the growing demand for high-end applications like gaming by leveraging our 8th Gen OLED fab. For notebook PC OLED, we are monitoring the OLED market size and the pace of demand shifting from LCD to OLED, maximizing existing infrastructure while developing future-ready technologies and mass production capabilities to retain a cost advantage even in competitive situation. Operator: We will take one last question. The last question will be presented by [ Sung Kim ] from Kiwoom Securities. Unknown Analyst: My question is with regards to the large OLED. Now thanks to the cost improvement as well as lower depreciation and amortization cost, it appears as if the profitability has been improving since the second half of the year. So then what is going to be the outlook for the TV and monitor OLED this year? And so based on the higher demand for the TV and monitor OLED as well as the lower depreciation and appreciation -- depreciation and amortization, does the company expect the profitability to continue to improve this year? And then also, the next question is now for the TV set companies, they are continuing to see sluggish differentiation and also worsening profitability. So there may also be some pressure to lower the price, but then what would be the company's response and also what would be the company's strategy down the road to continue to secure profitability in the large panel business? Duck Yong Kim: This is Kim Yong Duck, in charge of Large Display Planning and Management. Now our large panel business, despite the external uncertainties and market volatility, achieved the intended panel shipment of approximately mid-6 million level in 2025, growing nearly 8% Y-o-Y. Now the white OLED for both TVs and monitors is recognized by the market and customers for their differentiated value compared to LCD. And that is why I believe that we were able to maintain such business. Now coming into this year, we see that the uncertainty remains and also the market growth potential still remains a bit limited, but the high-end market that we are targeting with OLED maintains a 10% share of the overall market. So then in 2026, based on this projection, we plan to continue strengthening our W OLED, the white OLED lineup for TV and monitors based on partnerships with global strategic partners. And on the back of such partnership. The target for panel shipment in 2026 is set at just over 7 million to grow by around 10% Y-o-Y. And for the mid to long term, OLED TV is expected to maintain unwavering leadership in the market while expanding our performance. And for -- especially for OLED monitors, it is also expected to see continued steep growth compared to other businesses. So we will continue to effectively respond to market trends and also reach an optimal production share between TVs and monitors to continue to expand our business performance. And again, for the short term, this year, there is some positivity expected from some sporting events. But at the same time, some side effects are also expected, especially coming from the supply-demand situation of components, especially semiconductor. So for the company, as we look ahead to continued market growth, our priority lies in securing stability in our production as well as supply. Now for our large panel business, we expect the competition to continue to intensify and it is incumbent upon us to continue to strengthen our technology and also differentiate our products so that we can keep expanding our business performance. So to that end, we will continue to work closely with our customers in close partnership to make sure that we can bring about win-win to all the companies involved with improved profitability. So we will continue to discuss our strategy to that end with our customers. Suk Heo: Thank you very much, and that concludes LG Display's Q4 2025 Earnings Conference Call. We thank everyone for joining us today. Should you have any additional questions, please contact the IR team. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
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.
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.
Tony Sheehan: I'm Tony Sheehan and I'm joined by Tom Russell, Executive Director. So similar to our webinar format Tom and I will run through a presentation. And then take Q&A at the end. As a reminder, if you have any questions, please submit them through the chat function on the webinar. So what do we do at Change Financial? Many of you who have been on our webinars before will have seen this slide, so we will keep it pretty brief. But for those of you who are new to our webinars or new investors, I'll go through it pretty quickly here. So what do we do? We provide innovative and scalable payment solutions for over 150 clients across more than 40 countries. We are a B2B business with 2 core products. The first 1 is Vertexon, which is our payments as a service or PaaS offering, which provides card issuing, card management and transaction processing. Vertexon supports prepaid debit and credit card issuing and there are 2 main models under Vertexon. The first 1 is processing only under this model Change provides the technology, which is a card management system to clients to run their card programs, so the clients hold the necessary scheme, typically Visa or all Mastercard and regulatory licenses to issue cards. Processing only is available globally and supports all the major schemes and we have clients using Vertexon in Southeast Data and Latin America, including 2 of the largest banks in the Philippines running over 45 million cards on the platform. The second model is processing and issuing. So this is only available in Australia and New Zealand. And under this model, clients utilize Vertexon for processing capabilities and also leverage Change's regulatory. So we have an AFSL in Australia, and we are a financial service provider in New Zealand and scheme licenses. So we're a MasterCard principal issuer, and they leverage our issuing capabilities for the card. So under this model changed the card issuer of record, and we provide treasury, fraud and compliance services. Vertexon has generated 85% of the group's revenue year-to-date. Our other core product is PaySim, which is software, which enables end-to-end testing of payment platforms processes and scheme rule compliance. The PaySim software is based on global messaging standards and can be sold globally. You do not need any licenses to sell PaySim. So PaySim is the default testing standard for FPOS in Australia and has a blue chip client base, including 5 of the top 10 global digital payments companies globally. PaySim contributed 15% of the group's revenue year-to-date. Importantly, both Vertexon and PaySim are proprietary payments technology platform. So they are owned and developed in-house by Change. So it's really important from a value and control perspective for the company that we own our technology. In terms of key highlights for Q2. So another really strong financial performance in the quarter. So with Q2 delivered record quarterly revenue result of USD 4.7 million. That's up 34% on prior year. Year-to-date revenue is up 29% on prior year with 70% of revenue derived from recurring sources. That provides a really solid base of revenue to grow from. Our one-off revenue being licenses and professional services are still really important drivers of overall financial performance, and they have been key contributors to the strong financial performance during the half. Our rolling 3-year revenue CAGR of 31 December is now 25%, and we are on track to have doubled the size of changes in revenue over the last 3 years by the end of FY '26. Underlying EBITDA for the quarter was $900,000, so taking total underlying EBITDA for H1 to USD 1.8 million. So as a reminder, and for context in FY '25, we delivered our maiden positive underlying EBITDA result for the whole year, which was $200,000. So you can see the operating leverage pull through that we've been talking about, and that's the combination of revenue growth and a stable fixed cost base driving materially improved bottom line performance. The cost out from the U.S. exit are also making a material difference. So as a business, and we've talked about this before, we are scaling, we're not at scale. So we want to continue to drive operating leverage moving forward to generate that bottom line margin expansion. PaaS is a key driver of our growth, and we have seen strong growth in the PaaS metrics across the board, which I'll talk more about on the following slide here. So on our PaaS metrics, we now have more than 110,000 cards active in Australia and New Zealand. So the increase in cards was driven by the Sharesies debit card program in New Zealand, which launched in October. And also significant growth in 1 of our existing fintech clients in the prepaid card space. It's just worth noting prepaid cards as a portion of our active cards has increased from 20% at June 2025 to 41% at December 2025. And why is that important? It's well, generally, debit cards drive higher transaction activity, enhance revenue as they are often used for everyday purchases. So there is a different sort of profile, revenue profile, usage profile between prepaid cards and debit cards. We will continue to drive revenue growth through new clients already signed. We're currently onboarding 2 clients and further client wins. As a business, we are laser-focused on growing the PaaS platform to drive scale benefits. So we have the product and team in place to add significantly more clients and volume without having to increase our fixed cost base. I won't go through the PaaS revenue source in detail. We have covered this 1 previously, but happy to take any questions if there are any at the end. On our PaaS time line, so looking at the time line, you can see that steady cadence of new client wins and a significant shortening of time frames between signing clients and launching programs we've been signing clients. Before we had the platform fully live and operational, and we continue to sign clients. You can see on the top right of the slide, Sharesies launch in early Q2, which has started to contribute monthly revenue during the quarter. We also have those 2 more PaaS clients that are currently onboarding and they will contribute monthly revenue once the program's launch. As I mentioned on the previous slide, a key focus for the business is new client wins and particularly in Australia, given the size of the market. So we want to increase the number of new client wins, onboard them quickly and get them transacting to drive volumes and revenue across the business. Thanks, Tom. I'll hand over to you. Thomas Russell: Thanks, Tony. So again, we've had another great revenue quarter, which Tony touched on USD 4.7 million or USD 7 million for the quarter, which is up 34% on Q2, FY '25. PaaS revenues from our Australian and New Zealand clients are up 19% on a quarter 12 months ago, so that's good to see. We've had Sharesies going live, which we're getting a lot of questions about as we come to those at the end, and we can answer them specifically. But these programs when they go live, they can take a little while to build to a meaningful revenue and transaction volume. So Sharesies without giving out too much specific information about the client. They had about 40,000 people on their wait list. I believe that was public information. They've sent cards now to the people. They've fully released that wait list. They only did that a couple of weeks before Christmas. And they've sent physical cards out to the people of that wait list that wanted them. They've got a little bit over sort of 10,000 active cards now. A lot of those have gone active very recently or very late in the quarter. So it takes time for those cards to actually get into people's hands and then for them to start transacting. So that's why there's a bit of this -- the lead indicator is the active cards, but the transactional revenue is transactional volumes, sorry, and therefore, the revenue is not literally aligned to the active cards. The other part, which Tony also mentioned was the prepaid card amount has increased, and it's a different revenue model, if we can talk about all at the end. We're also currently ongoing 2 additional already contracted PaaS clients. One of which will go live in the next month or so and has an existing program. So that's the embedded finance client, and we'll talk more about that maybe in the next quarter once they've gone live. We also continue to see the benefits of our recurring revenue base, which we've been building, our PaaS and support and maintenance revenue -- for the quarter, our recurring revenues totaled USD 3.3 million, which is approximately 70% of our revenue. In terms of the nonrecurring revenue, we continue to generate from professional services and licenses. During the quarter, we delivered $1.4 million in one-off revenue -- over the last couple of quarters, we've flagged, we've had a very strong focus on this revenue and a significantly -- a significant growing pipeline of those opportunities. And again, we've seen those efforts from the sales team where those deals are dropping through our teams delivering them and then we're also refilling the pipeline. So we've had our best half in the history of the business in H1, which we'll talk about in a second as well in terms of one-off revenue, and we still maintain a strong pipeline into H2, but we do need to unlock that revenue as we go into timing and that can be a little bit difficult. That does help us build confidence in our guidance we've provided by the way. In terms of EBITDA, very pleasingly after delivering a main positive result last year of a $200,000. We've now delivered 2 consecutive quarters of USD 900,000. So $1.8 million for the first half. So we're at a key inflection point as we've been flagging for EBITDA and profitability in the business. Cash receipts for the quarter are up -- up 4% to $3.9 million versus the prior corresponding period. That cash payments operating activities were broadly in line with Q2 last year, up only 5%, which was driven by an increase in COGS from increased transactional activity and revenue and payment of bonuses attributable to FY '25 performance. As we say every update, we have the key roles and staff in place to add significant revenue without a lot of new hires. CapEx has also remained steady as expected, and capitalized software development is tracking in line with FY '25. We have a healthy cash position of $2.6 million and hold an additional $1.4 million in cash -- in cash back security deposits. We also have a very healthy accounts receivable look at the end of the quarter, so USD 3 million, which is about $900,000 higher than it was the same time last year. And that's due to a number of client payments that were collected like the days before Christmas and New Year 12 months ago have fallen into January this year around the festive season. This half is the first time in the history of the company that we've been cash flow neutral in H1. And as we see in previous years, H2 from a cash flow perspective, given the billing cycle of some of our larger on-premise Vertexon clients and PaySim clients. Cash flow is typically significantly improved in H2, let alone any other growth, and we expect that to be the case in FY '26 as well. Back to you, Tony. Tony Sheehan: Thanks, Tom. So just looking at our outlook. So on the back of the strong H1, we have upgraded our guidance for FY '26 earlier this week. So revenue now expected to come in between $17.5 million and USD 18.5 million. So the increased quantum of recurring revenue provides a very solid base for the business. We talked around that the 70% of our revenue coming from recurring sources. We want to continue to increase that. But as we've mentioned, we also had a very strong one-off revenue half as well. So that's also important to continue to drive our revenue. Underlying EBITDA now expected to come in between USD 3.1 million to $3.8 million. So that's a 15% increase at the midpoint compared to our previous guidance. Tom mentioned before, we've maintained around our cash. We've maintained our guidance of being cash flow positive for the year. Historically, that sort of stronger cash flow in the second half of the year, we expect that to be the case in FY '26 as well. Overall, a really great start to FY '26. We're really pleased as a team as to where the business is. Our focus which I'll reiterate, which is what we've been really drilling in across the business here is on growing the business and executing on our operating plan to deliver on our targets for the year. Tom, I think that's the end of our sort of formal presentation. There are some questions that have come in, so we might open that up now for Q&A. Thomas Russell: Yes, I'll start reading those out, Tony. So as I said before, we -- and I'll touch on it just again because we've had a few questions here around the difference in active cards and volumes and why aren't transactions scaling with new cards -- can you explain the large difference between the card growth and transaction volumes? Is this related to Sharesies and when they were delivered, how many Sharesies cards went out. So yes, it is. So again, prepaid cards, just to reiterate, less transactional activity, a slightly different revenue model and usage case to our debit cards. Sharesies is a debit card. They're trying to drive their customer base to not use whatever bank they might be using and come over and use their Sharesies cards their everyday card -- that will take time. Again, a lot of those cards went out late in the quarter. They were physical cards because Sharesies rolling out the digital pays, Apple and Google Pay as well this quarter, I believe, is their plan. So those sort of things will help give access to that particularly millennial and sort of more tech-driven client base as well. So that's probably answers that, I think. And next question here. Customer receipts of $3.9 million, up 4% versus revenue up 34%, any issue of collecting those receivables? No, no issues collecting it. It's just a lot of those payments. So November and December are very, very large invoicing months for us relative -- and you can see that throughout the history of the business. What happened last year, there's a few clients actually paid earlier than they usually paid. So it made last year's quarter 2, sort of a high cash collection quarter than usual, and you can see that in the trend. Have you seen slowing of growth from existing card issuers? No, we haven't. Our financial institutions are -- they're a lower growth profile. They've got a very sort of stable base of cardholders that use their cards religiously every day. But Credit Unions and sort of building societies, as you would know, are not fast-growing organizations, the fintechs, such as Sharesies and the embedded finance company that will be going live in the next couple of weeks, they're fast-growing fintechs that can really add volume and we can scale with them. Does the new fintech client have an existing card program? Yes, it does, and we'll relate some more details on that when we can. Tony Sheehan: And Tom, just on that as well, those -- that those existing card programs are across Australia and New Zealand as well. Thomas Russell: They are. Yes, good point. So there's a lot of questions here in 1 go. The company also entered into an additional BIN sponsorship, strategic partnership with the global processor payment. Can you provide a little more detail and explain a little further what this means. Tony I'll throw that 1 to you. Tony Sheehan: I'll take that. Thanks, Tom. So we provide in sponsorship services as part of our offering. So we can be the processor and issuers. So we provide the technology. We provide the card issuing capabilities. There are some instances where you've got clients that are based overseas entering into Australia, they might use a processor that is a global processor from overseas that needs card issuing capability. So what we decided to do was to offer the BIN sponsorship capabilities where we are the card issuer of record, but they are using another process technology. So for us, it's actually broadening or expanding the pie of opportunities that we can actually provide card issuing capability. So we always talk around that scale game in payment. So it's more volume for us. Our preference where we really generally target as a business is to be a processor and issuer, but we are also more than happy to provide BIN sponsorship capabilities to clients entering the market as well. So those partnerships are important to us to sort of expand our reach in market. Thomas Russell: Thanks, Tony. There's another question from this person around transaction volumes in cards. I think we've answered that one, so I'll leave that. Can you please describe the client regions of the license and professional services contribution. Tony, do you want to take that 1 as well? Tony Sheehan: Yes. So most of that, I would say, and Tom keep me -- correct me, if you've got a different view on that, I would say that probably 75% of that would come from -- would have come from Southeast Asia during the quarter. We picked up some licenses and professional services from Latin America as well and a little bit in the Oceania region, but the vast majority of that has come from clients in Southeast Asia. A lot of that is on the Vertexon side. And then we've got some PaySim clients as well. Thomas Russell: Which can be global, but not a material as the Vitexon thing, obviously. Thank you. I'll hook first 1 to you as well. Can you expand on what the pipeline looks like in each of Australia and New Zealand for PaaS? Tony Sheehan: Yes. So look, we often get a lot of questions around the sales pipeline. I'll tie that in with another question that has -- that I've seen that's come in around when can you expect to -- I think it was when can you expect to sign another large client to move the share price. So I think as a business, we've demonstrated over the last few years that we continue to sign PaaS clients. I think we've signed probably 12-plus PaaS clients, since launching the platform and going live. We've got a pipeline of opportunities there. Do we want to accelerate the sort of velocity of how many clients we're in? Absolutely. That's a key focus. I mentioned that in the presentation there is to sign more clients and get more volume onto the platform. What we are seeing is in terms of our sales pipeline, the Australian pipeline is continuing to build given our focus with our new BDMs in that region. So there's some really good deals that are progressing through that pipeline and moving down to the bottom of the funnel. They're still going to go through to get finalized, obviously, which is so still a way to go before they sign. But the top of the pipeline has continued to expand. That is progressing through the pipeline. We're very pleased with where that is at the moment. New Zealand is going well as well. We've seen that with the launch of Sharesies, which is a great program, late last year in October. And we also have that fintech client that has their existing programs. that are moving over to us in Australia and New Zealand as well. So some really good clients and some great volumes coming across to us. In terms of that pipeline, we're comfortable, we're very happy with where it is. We just want to be signing more of those clients. There is some lead time as a B2B business. There is sort of quite a lengthy sales cycle as well. So with those changes that we've made in the sales team as well, we're seeing those deals progress through the funnel. Thomas Russell: And it is a bit of a snowball just to add to that. You've seen it in New Zealand where we signed those first clients and then we sign in other Credit Union, another Credit Union and then we signed a large a fintech, large Sharesies. People are starting to come to us in New Zealand as the top of mind option for card issuing. We're probably not quite there yet in Australia, but we've signed a couple of deals now, the client that's going live this quarter, when we're able to say who that is they're a meaningful client from a brand perspective with big growth aspirations. And I think that, that reputation that settling every day, that goes a long way to just building the momentum. And as Tony said, B2B sales are lumpy, and this business has the ability now and always has to sign big clients like we signed Credit Union a couple of years ago now, but that was a big deal for a small business and the business can sign those kind of deals at any point. We just can't -- we're not going to sit here and tell you they're coming next week or whatever else that take time to come through. Another question, Tony. What about potential customers switching from Visa to MasterCard. Does it take longer to onboard them? Tony Sheehan: Yes. So good question. Generally, the market is -- it doesn't really matter whether you're a Visa or a Mastercard. And I think most of the people on this webinar kind of probably got a Visa and Mastercard card in their wallet. I think in terms of switching where we've switched 1 of our major Credit Union clients in New Zealand over to Mastercard a couple of years ago. So that sort of -- they were on a different scheme moved over to Mastercard. That went smoothly. There's generally that people fairly open in terms of the different schemes. We have it down, we have the process down pat pretty well. We'll have another client that we can swap them over quite easily between the different schemes. I think part of the sales cycle in terms of talking to financial institutions as well as they are with the alternate scheme being Visa, and we want to try and swap them to Mastercard. There's obviously more conversations because they're more familiar with that certain scheme as opposed to Mastercard, even though a lot of the functionality is very similar between the 2. So -- it doesn't really take any longer to onboard them. Sometimes, particularly in the financial institution space, there's probably more conversation that needs to be had, if there is a scheme switch involved. Thomas Russell: Okay. I have -- I'm not -- the end of the question that I've seen here, Tony. Tony Sheehan: That's right. I'm just checking another screen time. I've not seen any other -- I think we've answered most of those. I think we've answered them all actually that have come through. Thomas Russell: Perfect. All right. Well, thank you, everyone, for joining again. We really appreciate you taking your time to jump on the results webinar for the quarter, and we will have our half year out as well at the end of February. So we hope to see you all again when we do the webinar for the half year. Tony Sheehan: Thanks, everyone. Thanks for taking the time.
Operator: Greetings, and welcome to the GCC Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Sahory Ogushi, Head of Investor Relations. Please go ahead. Sahory Ogushi: Good morning, everyone, and thank you for joining. With me today are Enrique Escalante, our Chief Executive Officer; and Maik Strecker, Chief Financial Officer. The earnings release detailing this quarter's results was released yesterday after market close and is available on GCC's IR website. This conference call is also being broadcast live within the Investors section at gcc.com, and both the webcast replay of the call and transcript will be available on the same site approximately 1 hour after the end of today's call. Before we begin, I would like to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in yesterday's press release and in our quarterly report filed with the Mexican Stock Exchange. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. With that, let me now turn the call over to Enrique. Hector Enrique Escalante Ochoa: Thank you, Sahory, and good morning, everyone. At GCC, we manage the company with a long-term view. Our markets are cyclical and can move quarter-to-quarter, but our strategy is firm and gives us flexibility to adapt to short-term conditions without changing our mid- and long-term view. We focus on disciplined execution, operational reliability and capital allocation across cycles. And this approach guided our decisions throughout the year. During 2025, we operated in an environment where external conditions influenced the pace and timing of customer decisions. As conditions evolve, we revised our expectations in the summer. From that point forward, our focus sharpened with an increased emphasis on cost management and operational discipline, and we delivered record sales for the full year of USD 1.4 billion, reflecting the strength of our operational model, disciplined execution across the network and particularly strong performance in the U.S. These results demonstrate the resilience and demand across our markets. From an earnings standpoint, it is also important to keep perspective. 2024 set a record benchmark for margins and returns, and that level remains the reference point for where we expect the business to operate over the cycle. While we did not replicate those record levels in 2025, we came very close, and we continue to position the company to move closer over time as efficiencies, cost actions, commercial initiatives and network investments take us to near records. The fourth quarter did not introduce new dynamics. Instead, it confirmed the trajectory we have outlined earlier in the year. Our operations were reliable, customer [indiscernible] the same mix and activity dynamics we managed through 2025 with improved execution translating into record quarterly results. Our people strategy remain a constant source of strength in 2025. We continue to invest in safety, training and leadership development, reinforcing a culture of operational discipline and accountability. Safety performance improved again in the fourth quarter and full year results reflected continued progress across key indicators with recordable incidents, including lost time incidents declining 10.5% year-over-year. Our continued recognition as a Great Place to Work further reflects the strength of our culture and employee engagement and the consistency with which we have integrated these values across the organization. Training is embedded across the company with structured programs aligned to specific plant and functional needs. Through the GCC Training Institute, we delivered more than 15,000 hours of training during the year. This investment supports reliability today and prepares our teams for the ramp-up of Odessa and the next phase of growth. Progress on our planet strategy continued steadily. In 2025, we increased blended cement production, expanded the share of alternative fuel in our fuel mix and continue to reduce our clinker factor. These actions support cost efficiency and operational resiliency while contributing to incremental progress in environmental performance. In addition, our Pueblo and Rapid City plants once again received ENERGY STAR certification, placing them among the top 25% of cement facilities nationwide for electricity efficiency. As we move into 2026, our focus remains on executing these initiatives pragmatically, prioritizing efficiency, reliability and long-term value creation. Turning now to our growth strategy. Our focus on execution and network strength is reflected in how the business performs across our key markets. In the United States, ready-mix was the primary driver of growth in 2025, supported by strong project activity. This project-led demand generated consistent downstream pull for cement and reinforce the strength of our integrated operational model. Ready-mix volumes reached record levels in 2025, increasing 31.5%, while cement volumes increased 2.6% during the year. As a result, we outperformed the U.S. cement market in 2025, driven by disciplined project execution and commercial management. Operationally, this translated into high utilization across our operations, supported by investments in mobile capacity and execution capabilities. Energy-related projects, including wind farm and associated transmission continue to provide volume support throughout the year. Infrastructure activity remained stable through the quarter and continues to provide visibility into 2026, supported by multiyear funding programs and ongoing execution at the state and local level. As we enter the new year, we remain proactive and focused in identifying project opportunities, reinforcing the depth and visibility of our commercial pipeline. Residential construction remain under pressure. Mortgage rates have not sustainably broken below 6% since September 2022. As a result, we do not expect a meaningful improvement in residential activity during the first half of 2026. Oil and gas activity softened during the year and continued to soften in the fourth quarter, reflecting the current oil price environment. This segment is expected to soften further in the near term before improving. While this affects mix, it does not alter our long-term positioning within the network as we rely on the flexibility of our plants to ship different types of cement and adapt to market demand. Throughout the year, our commercial focus remains on protecting margins and returns. While market conditions limited pricing momentum during 2025, the pricing increases announced entering 2026 reinforce our focus on offsetting cost inflation and improving profitability over time. In Mexico, fourth quarter performance was in line with our expectations. Residential demand and bagged cement continues to provide stability, supporting margins. The federal housing initiative is beginning to take shape in certain regions. And as projects move into execution, we expect to be able to quickly increase shipments as its impact materializes during the first quarter of 2026. Infrastructure in Mexico, it's an area of growing optimism. Historically, the first year following election is complex. But during the quarter, we saw projects advance with a more meaningful contribution expected in 2026 as execution accelerates. In addition, mining-related comparisons normalized in November, removing a headwind that affected volumes last year. We expect the segment to perform broadly in line with 2025 levels going forward. Industrial customers remain cautious, advancing projects gradually and using this period to prepare to move more decisively as visibility improves. We're cautiously optimistic about the industrial activity improving in the second half of 2026 as trade discussions become clearer. Capital allocation in 2025 remain consistent with our long-term priorities. We continue to focus on ensuring that recent investments in cement distribution and aggregate operations across our network reach their full potential, allowing us to ship product to more destinations, easing the pressure to rely on single markets with a larger volume. In parallel, the Odessa expansion continues to progress on schedule and within budget. Our M&A posture remains unchanged. We continue to evaluate opportunities that strengthen the existing network and meet our strategic and financial criteria while maintaining balance sheet strength and flexibility. As we look ahead, 2026 will be a pivotal year for GCC. With Odessa completing construction and entering ramp-up, the company moves into a new phase focused on integrating capacity, optimizing logistics and strengthening earnings power across the network. With that, let me turn the call over to Maik for a review of the financial results. Maik Strecker: Thank you, Enrique, and good morning to everyone. For the full year 2025, we delivered record consolidated sales of USD 1.4 billion, an increase of 3% year-over-year, driven primarily by volume growth in the United States. Fourth quarter sales totaled $360 million, up 7% year-over-year, consistent with the operating trends discussed earlier. During the year, the depreciation of the Mexican peso created some headwinds, which reduced consolidated sales by approximately $80 million on a reported basis. In the United States, ready-mix volumes increased by 31% for the full year and 27% in the fourth quarter, driven by strong activities tied to wind farm and infrastructure-related projects. Cement volumes increased 2.6% for the full year and 1.4% in the fourth quarter, supported by strong ready-mix activity and contributions from infrastructure and commercial projects across our network. Average cement pricing in the U.S. decreased by 1.2% during the year, reflecting product, project and geography mix dynamics. The aggregate business performed well and delivered the results we expected when we acquired the assets, contributing positively to our EBITDA generation and reinforcing the strategic rationale for advancing our aggregates growth strategy. In Mexico, cement volumes decreased 3% for the full year, however, increased 11% in the fourth quarter, supported by normalized demand in the mining segment and early execution of infrastructure and housing projects. On the cost side, full year cost of sales as a percentage of sales increased by 2.5 percentage points, reflecting factors discussed earlier in the year, including the absence of the natural gas liability benefit we recognized in 2024, higher fuel and power costs, a lower contribution from the [indiscernible] segment and increased transfer freight as we ship products to new terminals. In addition, during the year, we incurred higher freight costs as product was supplied from the Pueblo cement plant to support customers during the period in which the Rapid City cement plant was offline. While this resulted in higher transfer costs, it allowed us to meet customer commitments, preserve volumes and demonstrate the flexibility and competitive advantage of our distribution network. In the fourth quarter, cost performance benefited from disciplined inventory management, which offset the unfavorable inventory impact we recorded during the first 9 months of the year. SG&A expenses declined modestly as a percentage of sales for the full year, reflecting a reduction in consulting services as part of our cost and expense optimization initiatives, partially offset by higher operating expenses. As we move into 2026, we're placing renewed emphasis on cost discipline, particularly third-party spend, fixed cost and staffing optimization while maintaining our standards for reliability and safety. As a result, full-year EBITDA totaled $492 million with an EBITDA margin of 34.9%. Importantly, the fourth quarter delivered record EBITDA margins of 39.6%, up 3.4 basis points with EBITDA increasing to $142 million, reflecting improved operating execution as the year progressed. The depreciation of the Mexican peso reduced EBITDA by approximately $6 million on a reported basis during the year. Free cash flow for the full year totaled $349 million, representing a conversion of 71% of EBITDA with a strong fourth quarter contribution of $156 million, driven primarily by higher EBITDA generation. On capital allocation, we returned $45 million to shareholders through a combination of share buybacks and dividends. During the fourth quarter, we deployed $7 million in buybacks. We remain disciplined and opportunistic in balancing shareholder returns with investments for growth and keeping our financial flexibility. Strategic capital expenditures totaled $309 million in 2025, reflecting continued investment in our Odessa project and logistics across our network. As of year-end, we have invested approximately $600 million in the Odessa project and associated logistics capabilities with the remaining $150 million planned for 2026. We ended the year with a strong balance sheet with cash and equivalents of $969 million and a net debt-to-EBITDA ratio of negative 0.7x, preserving flexibility as we prepare for the next phase of growth and the ability to act decisively on future opportunities. In summary, 2025 reflects a year in which we delivered record sales, observed mix and one-off impacts, maintained strong operating discipline and continued to invest in strengthening our network. With that, I will turn the call back to Enrique. Hector Enrique Escalante Ochoa: Thank you, Maik. As we look ahead, our guidance reflects a year focused on stabilization and execution, consistent with our strategy. We are entering 2026 with a clear operating backdrop, a stronger network and defined levers within our control. In the United States, we expect cement volumes to grow at a high single-digit rate, driven primarily by the contribution from new markets and the initial ramp-up of Odessa. Cement pricing is expected to be flat, reflecting product, project and geography mix dynamics. In ready-mix concrete, volumes are expected to decline at a high single-digit rate, reflecting a high comparison base in 2025, while pricing is expected to be flat, reflecting product mix and the broader distribution of volumes across new markets. In Mexico, cement and concrete volumes are expected to grow at a low single-digit rate, supported by increased infrastructure and residential activity. Pricing for both products is also expected to increase at a low single-digit rate. At the consolidated level, EBITDA is expected to grow at a mid-single-digit rate, driven primarily by higher sales volumes. During the year, the one-off incremental logistics costs associated with the ramp-up will continue to weigh on margins, while cost discipline and efficiency initiatives will help manage the transition. Turning to capital allocation. Capital expenditures in 2026 are expected to be $270 million as the Odessa expansion nears completion, and we will continue with logistics investments across the network. Free cash flow conversion is expected to remain strong and consistent with historical levels. In closing, we remain focused on restoring margins towards the levels achieved in 2024, executing the Odessa ramp-up in a controlled manner and maintaining financial flexibility. While the pace of improvement will vary by segment and geography, we believe the actions we are taking position GCC to deliver resilient and improving performance through the cycle. Thank you for your continued support. We will now open the call for your questions. Operator: [Operator Instructions] Our first question today is coming from Alejandra Obregon from Morgan Stanley. Alejandra Obregon: Perhaps the first one is for you, Enrique. So you mentioned 2026 will be a pivotal year for GCC. And of course, Odessa plays a big role, and if you've provided a little bit of color on that. But just wondering if you can walk us through the different milestones that you think that will make 2026 a pivotal year? Is it kind of like a new distribution setup, savings, energy growth? Anything that you think we will be seeing throughout the next quarters? And so that's the first question. And the second one is perhaps for you, Maik, on CapEx. So you mentioned $150 million of strategic CapEx for, if I understood correctly, new investments on distribution. Just wondering if I got that right and if you can be a little bit more granular on where you think those $150 million are going in 2026. Hector Enrique Escalante Ochoa: Number one, in your question about 2026 pivotal comment. Of course, I mean, bringing a new cement line online in a challenging market is in itself a challenge, right? But we have a strong experience from what we did exactly under even worse conditions when we started up the Pueblo plant during the Great Recession. So we have to obviously manage initially, I mean, a good start-up of the plant. It's a challenging business. It's always -- there are always things in those big equipment that we need to be in control of, and we expect to do that successfully. So that's the first part of this pivotal change. And of course, as we ramp up, we need to have a very good coordination of how we start returning volume that Samalayuca is shipping into the region back as we start, I mean, switching customers, I mean, to the cement produced in the new country. And this, of course, also has to have a good coordination with the series of terminals that we're setting up in several cities and towns to precisely have a more controlled entry into the market, I mean, cautiously, slowly, but with a firm mid strategy of how we will position that increased capacity over time in different markets. So there's a lot of moving parts at the same time as we introduce the new Odessa line during the year. Maik Strecker: Very good. Alejandra, thanks for your question regarding the CapEx. So the $150 million, that is really primarily driven by the project, Odessa, and that's the heavy lift there. However, there's also some additional logistics capabilities that we're building out, starting at the plant level with rail and truck capabilities really to be able to ship that incremental volume and distribute that. That was always part of the scope, and it's now just the time to execute on that. And then what Enrique just said, right, we're looking at several markets where we plan to distribute the volume. And for that, we need some logistics capabilities as well, smaller terminals, access again to rail and so on. So that's kind of the scope of that $150 million for Odessa. In addition, as you saw, we guided for some additional growth CapEx as well. The total is $200 million, which is related to energy-related alternative fuels, continue to invest in the aggregates business to unlock potential there and so on. Operator: Your next question today is coming from Garrett Greenblatt from JPMorgan. Garrett Samuel Greenblatt: I was wondering if you could give a little more color on the regional demand drivers, specifically around U.S. cement volumes up high single digits as opposed to pricing flat. I guess just wondering how those dynamics play out and then for Mexico as well. Hector Enrique Escalante Ochoa: Garrett, yes, as I mentioned, I mean, in my answer to Alejandra, it's a challenging year with a lot of different market or segment performance, right? I mean we are relying on the infrastructure segment more than anything to offset further decreases in short-term in the Oil Well cement market as that industry, I mean, gets more stability and more visibility going forward. So that's one offset. That's why one is growing and the other one is decreasing and one is offsetting each other, right? Residential, as we mentioned, it's weak. It's continued at the same level, I mean, for us this year. There are some other segments like, I mean, obviously, everything that is commodities in the agricultural, I areas where we participate are having, I mean, a strong -- normal to strong, I mean, performance. So that's good for us that we have this mix of segments all the time. So we think that overall, I mean, there is going to be, of course, compensation from some segments with others. And that's why I mean we're basically projecting I mean a flat volume for the year. Mexico, on the contrary, we're seeing some increases overall, pretty much, I mean, driven by housing. The federal government initiative, it's taking off now. I mean it seems like there is clear, I mean, funding and direction to build, I mean, the houses on that federal program. And we're already experiencing projects in several of our locations in Mexico. And we're already shipping volume specifically for that segment. And as we mentioned, the mining segment, I mean, it's stable now. I mean we already stimulated. I mean, the volume loss from the couple of mines that ended operations, I mean, last year. So the conversion is, of course, it's going to be better. And at the local level, I mean, municipal projects, especially some state projects are taking off now. And obviously, I mean, with some growth over last year, it's also going to help, I mean, the improvement in the Mexican market. Garrett Samuel Greenblatt: Great. And maybe just a quick follow-up just on what you're expecting in terms of pricing in the U.S. Have you sent out any letters? Or do you plan to do midyear increases as demand trends progress through the year? Hector Enrique Escalante Ochoa: We are always, I mean, committed to recover at least our cost inflation through pricing in every market where we operate. We're very disciplined in that respect and very consistent. We announced an $8 price increase in the U.S. for January. There are always, I mean, conversations with the different individual customers about, I mean, their ability to take on, I mean, the price at this moment or delays a couple of months and then obviously, one-on-one conversations about, I mean, the total amount, I mean, to increase. Everything I will say, so far, it's going well in those conversations, pretty normal, and we expect, obviously, to execute the majority of that price increase in the first quarter of this year. So that's a very good news. Now in our case, specifically, I mean, we're not in our guidance reflecting directly that price increase that we're going to execute because of several factors that we alluded to during our comments here. Of course, we have a big -- I mean, mix effect here with, again, more cement going to construction segments and less to Oil Well cement, which obviously command different prices. And so that mix doesn't help in terms of the increase. We also have a lot of project work related to infrastructure mean that we mentioned. And in some cases, that project work also has, I mean, a lower pricing than the regular ready-mix precast, I mean markets that are usually very stable. And of course, I mean, there's one third, I mean, factor here that is geography, right? With the start-up of Odessa, and as I mentioned, we're going to do this, I mean, slowly and cautiously. Dispersing more cement to further away locations in smaller volumes, that commands higher freight, of course, and somehow that is reflected on a lesser, I mean, net price because one has to compensate on that incremental freight to be competitive in distant markets. So that's the third factor, I mean, that we have there. And finally, I think that we had, some one-offs in last year that affected in our pricing strength with some segments and some markets derived from things that we disclosed, I mean, last year with some problems in the Rapid Plant during the winter of last year to start up on time because of an accident with there and then an issue with the ball mill that were in the Odessa plant that also delayed us a little bit. So we needed to make some adjustments, I mean, to recover market share that we lost during those incidents. And we did that successfully, I mean, last year. That's why, obviously, we're running much better than the industry as a whole in terms of cement growth. And also comparing our own region, we accomplished that recovery of market share, and we got back basically to our normal levels of share. We're going to, I mean, now run constant there. I mean we don't see any more need to continue, I mean, pressing on prices because of that reason. That's already behind us. So with all that said, with all those -- a combination of all those 4 factors, that's why we're seeing a flat price in our guidance. I see -- I personally see this as a very positive, I mean, ironically because, I mean, I think that it takes us back to a very good solid platform, and it's only building up from this, what I call one-off because of all these reasons at the start of the first 6 months of 2026. So we're very -- I mean, pleased and confident that this is the right strategy for GCC and it's going to be successful for us. Operator: Next question today is coming from Carlos Peyrelongue from Bank of America. Carlos Peyrelongue: I joined a bit late, so I apologize if you have answered this already, but I just wanted to get a bit more color on the status for demand for cement from oil -- from the Texas, in particular, from Oil Well cement. If you could comment a bit on that would be helpful. Hector Enrique Escalante Ochoa: Yes, Carlos, thank you for the question. Yes, we already comment on that, as you were pointing out. I mean, obviously, we're seeing still more pressure in the Permian Basin on demand for Oil Well cement. I mean, given the uncertainty and lack of clarity of where, I mean, the oil price -- international oil prices and the segment is going to end this year. We believe, of course, it's transitory and cyclical as has demonstrated throughout history. And that's why we feel very confident that we really prepare a good, I mean, expansion of Odessa, taking those cycles into account and being able to capitalize on construction cement when the Oil Well demand is slow. So having said that, that's why we're shifting more to, I mean, infrastructure projects. That's where we're concentrating, I mean, for the rest of this year, I mean, as our driver for demand in the U.S. So it's work project, infrastructure, I mean, everything, I mean, related to that segment. And that's how we plan to set the decrease in Oil Well demand. Carlos Peyrelongue: Understood. And have you given some guidance as to your expectation to utilize the new capacity that you build in Odessa in terms of what's the expectation for this year or next year to get to higher utilization rates on that new capacity? Hector Enrique Escalante Ochoa: Yes. Definitely, we lower our expectations compared to what we planned when we were, I mean, planning I mean the construction of the plant. The market conditions are totally different. If you remember at that time, I mean, all U.S. markets were basically sold out and so the conditions were very different. And so that's why we're adjusting our ramp-up of the plant to a much more slower and careful introduction of the plant. The line is going to run at full capacity itself, the new line. So we capture there the decreases in variable cost compared to the current, I mean, [indiscernible] in Odessa. And of course, the line run at full capacity will substitute all that Oil Well cement that is produced currently in that plant, plus the imports that we're bringing from Samalayuca into the area. So that's a way of optimizing, I mean, our cost structure and our network. Where we're going to feel the pain, of course, of this slowdown is going to be in the Samalayuca plant that it's going to have to slow down its shipments to West Texas. And so we're, again, going slowly in the introduction based on those factors. But I think that's the best strategy for us at the moment. Operator: Next question is coming from Marcelo Furlan from Itaú BBA. Marcelo Palhares: My question is related now to capital allocation going forward. So you guys are guiding now for this $270 million of total CapEx for this year. So I'd like to understand if we could expect this level of CapEx, let's say, below the $300 million levels as the new normal for the company at least for the medium term. And my next question regarding to capital allocation is regarding M&A. You guys have provided some color that the likelihood of guys likely seeking M&As in the aggregates business in the U.S. and so on and so forth would be likely to be the main driver. So I'd like to understand if this strategy continues in terms of pursuing this type of M&As. And if you guys could give a little bit more color on potential size if you guys are expecting only small bolt-on acquisitions or if you guys could likely reach to larger M&A activities after due completion. So these are my questions. Maik Strecker: Yes. Thanks for the question. Regarding capital allocation, as I already mentioned, out of the $200 million growth CapEx, $150 million is really allocated to finishing Odessa and the related logistics capabilities. Then the remaining $50 million also already mentioned, but we have some very high-return projects around fuel and energy that we want to execute. Again, and that's in the context really to optimize these very important input costs for the company. A third element here is aggregates, right? We have the first year of the new aggregates business under our belt. We see some opportunities to optimize, to grow, to expand that will require some level of CapEx. And we have some, again, very high return quick projects to execute on. So that kind of comprises the $200 million in growth. And then the $70 million in maintenance, it's in line with our previous years to really keep the cement plants, the network in new light conditions to really perform well for the market that's in front of us. So that's on CapEx. Regarding M&A, yes, we are very active. We have a pipeline of more smaller midsized opportunities. I would call them bolt-ons to, again, the existing aggregates network that we now have within the cement network that we're operating. Again, those are small and midsized acquisitions similar to what we have done in 2024. And again, now that we know pretty well how these markets perform and where the opportunities sit, you will see us throughout the year '26 being very active and focused on that. That's kind of the most actionable part. Nevertheless, as we always stated, we remain very focused also on cement, looking at options for cement to grow the network across the United States, and that remains to be part of the focus as well. Operator: Next question is coming from Emilio Fuentes from GBM. Emilio Fuentes De Leon: First of all, congratulations on the results. I have 2 questions, if I may. First of all, on CapEx during the quarter, is it correct to assume that the downtick on CapEx is related to a postponement on the ramp-up of the Odessa plant given the current market situation? And second, is -- are the extraordinary weather events seen during the beginning of first quarter 2026 in the U.S. already reflected on the guidance? Or is there any downside risk to the guidance given the rough start to the year given related to weather? Hector Enrique Escalante Ochoa: This is Enrique. I will take your second question first and then turn it to Mike for the CapEx. I think that the weather, even though it's been very severe in the U.S., it's not abnormal for us. So no, it does not affect our guidance at all. I mean, for us, I mean, this is, again, in the regions where we participate, pretty normal, I mean, weather pattern. So we'll be fine in terms of our shipments for the quarter. Maik Strecker: Yes. Enrique, regarding the CapEx for the quarter, it's a little bit of timing. The reason we came in lower than kind of what we had expected and also the Q4 of 2024 was purely timing. We're -- from an Odessa perspective, we're in execution phase and everything is towards the defined time line to be completed kind of Q2 of this year. So you saw a little bit of timing effect there on the strategic CapEx in the quarter. Operator: Next question is coming from [ Azeem Tori ] from Anfield Investment Research. Unknown Analyst: Maybe first a question on the ramp-up of Odessa. So you're adding a lot of capacity in the local market. Is it fair to assume that you will try to address some of the big urban centers of Texas like the Dallas Urban Center or the San Antonio Urban Center? And if you -- when you're talking about like new distribution or new terminal center, is it new terminal that you would develop to support the commercial strategy of this Odessa cement plant? That would be my first question. And then second question on the price increase that you've announced of $8. Is it $8 price increase that you have announced in every single state, including Texas? And a last question around the cost inflation that you're expecting in your cement business. I think we see a lot of data center being built around the United States. They are consuming a lot of electricity. Do you see a risk of electricity prices going up in the coming years in the U.S. that could potentially impact your margin? Maik Strecker: Yes. Let me start with the question around the network and the additional volume from Odessa. As Enrique already kind of walked us through, the plan really is to distribute through several markets, small and bigger. North Texas is a market that we see a lot of growth. And yes, we plan to participate in that growth. But we also see good levels of growth for Odessa closer to home. In that part of the country, there are some very interesting data centers planned. So we'll participate in that. And then as mentioned, we're looking at kind of small and midsized markets to establish distribution points agile with some level of CapEx, but not heavy CapEx load. And I think through that distribution, the goal is to have that very focused and measured introduction of the Odessa capacity. So that's on that. Regarding cost of inflation, as mentioned also, we're taking some proactive steps. We're investing in capabilities around power with solar projects. We're investing in some additional capabilities utilizing more natural gas, pipeline infrastructure and burning capabilities. So all of those, we see as kind of a proactive step to manage the future cost dynamics around fuels. So that's key for us. And I think with that, we should be able to manage accordingly what's ahead to come. Unknown Analyst: And the price increase... the $8 price increase, is it everywhere in every state? Or is there a difference from one state to another? Hector Enrique Escalante Ochoa: The price increase was announced in all the regions where we participate, including Texas. Unknown Analyst: And so far, the discussion is encouraging and you would expect to get part of this during the first quarter. Hector Enrique Escalante Ochoa: We will. I mean that's evolving dynamic and fluid, and we expect to get the majority of that announcement. Operator: Our next question is coming from Enrique Soho from Fundamental Capital. Unknown Analyst: Could you give us some insights into your and the Board's thoughts into potential corporate action or financial engineering to further unlock value and decrease the valuation gap between you and peers? Maik Strecker: Yes. Thanks for the question. I think, first off, our goal is really operationally to perform and to unlock the value by improving our margins. Again, our benchmark is 2024, the 36.6% and to get back to that level and to show that we get back to those very attractive margin levels, number one. Number two, when you look at our kind of cash flow conversion, we maintain a very high level and push that hard, again, to show the value. And then as you have seen, we're looking at kind of the overall shareholder returns with buyback program. We're more proactive on that. You've seen the dividends continuously to be increased over the years. So all those are elements, how we demonstrate the value of GCC and where we push for further investments from shareholders. And yes, strategically, we get the question. We're looking at what long term from a corporate structure, we should consider to further enhance kind of the value of the company and the value to all shareholders. That is a conversation that we have on a regular basis with the Board, with the team. And these topics are, for us, very long term and it's part of the tools and the portfolio of how do we increase the shareholder value for all participants. Operator: Your next question today is coming from Alejandro Azar from GBM. Alejandro Azar Wabi: Just a quick follow-up and to clarify something on my end. Regarding the Odessa plant, the start of the plant remains second and third quarter of this year. What you are delaying is just the ramp-up or you are delaying the start of the plant? And can you give us more color on delaying the ramp-up for you guys, what that meant before? Were you planning to reach full capacity in '28, '27, and that's where you're delaying? That would be my question. Hector Enrique Escalante Ochoa: I think that, I mean, the -- I mean, it's not delay the start-up of the plant. The plant is going to start up on time. We continue to run the project on schedule. So we should be, I mean, ramping up in the third quarter basically of. We're testing many of the equipment for commissioning, I mean, a good portion of the plant already. So things are progressing well there. So I think that what we are referring to here is entering at a slower pace, not delaying it on time, but entering at a slower pace overall for GCC. And I'd like to reemphasize overall because for us, it's managing the whole network through the start-up of the Odessa new line. Again, I mean, I mentioned we plan to, I mean, as quickly as we can run the line at full capacity. That means probably shutting down both of the other [indiscernible] today at the plant in order to favor, I mean, running the more modern and efficient plant. And the effect of that because we cannot put all that cement in the market today, the effect of that is a slowdown in other parts of the network in GCC, more specifically the Samalayuca plant. So again, I mean, where we're going to feel the pain or take the burden of the start-up of the line in Odessa is going to be in Mexico and part of the shipment that, that plant was doing in West Texas and other markets. Alejandro Azar Wabi: That's very clear. Just another clarification on my end, and that's implicitly in the 5% growth in the guidance, right? Hector Enrique Escalante Ochoa: Yes, sir. Operator: Our next question today is coming from [ Matias Ostrowicz ] from Citibank. Unknown Analyst: I joined a bit late, so I apologize if you have already replied to this. But I'm just wondering about your price guidance in the U.S. market. Was your guidance relatively flattish considering your volumes are in the high single digits. Is it a mix situation? Or is it just softness in the market? Hector Enrique Escalante Ochoa: Well, I would say derived from the softness in the market, I mean -- and there are many factors that I already mentioned, Matias, of why we are going to experience a mix effect between segments. Again, I mean, more construction cement and less Oil Well cement that affects negatively the average price. And geography, with more shipments to further markets precisely of that new, I mean, production in Odessa going to further different markets in every direction. So we keep it a smaller impact in dispersed market. So that's, again, another factor that is affecting obviously our price, our average mix price to be competitive in longer destinations or further away destinations. And again, I already talked about, I mean, other effects, but it's basically, again, a mix and geography effect that it's putting pressure or that it's compensating the price increase that we're doing in every U.S. market. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to Ms. Ogushi for any further or closing comments. Sahory Ogushi: Thank you again for your time and continued interest in GCC. We look forward to speaking with you again soon. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Welcome, everyone, to UMC's 2025 Fourth Quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within 2 hours after the conference has finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section. Now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin. Jinhong Lin: Thank you, and welcome to UMC's conference call for the fourth quarter of 2025. I'm joined by Mr. Jason Wang, President of UMC; and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the fourth quarter financial results followed by our President's key message to address UMC's focus and the first quarter 2026 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors Financial section. During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company's control. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC security authorities. During this conference, you may view our financial presentation material, which is being broadcast live through the Internet. Now, I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's fourth quarter 2025 financial results. Chi-Tung Liu: Thank you, Michael. I'd like to go through the 4Q '25 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page 4, the fourth quarter of 2025. Consolidated revenue was TWD 61.81 billion, with a gross margin around 30.7%. The net income attributable to the stockholder of the parent was TWD 10.06 billion and the earnings per ordinary shares were TWD 0.81. Utilization rate in the fourth quarter is stayed the same as the previous one, around 78%. For the sequential comparison, revenue grow 4.5% quarter-over-quarter to TWD 61.8 billion. Gross margin improved to over 30% to now 30.7% or gross margin of TWD 18.95 billion. And the non-operating income remained similar to that of last quarter. And the net income overall contributed to shareholder of the parent is around TWD 10.05 billion or EPS of TWD 0.81 in Q4 of 2025. For year-over-year comparison, on Page 6, revenue grew by 2.3% to reach TWD 237.5 billion for the whole year of 2025. Gross margin rate is around 29% or TWD 68.9 billion. And for the net income attributable to the shareholder of the parent for year 2025, is around TWD 41.7 billion or 17.6% net income rate. EPS for 2025 was TWD 3.34, which is a decline compared to that of TWD 3.8 in 2024. On Page 7, our balance sheet at the end of 2025. Cash amounts still more than TWD 110 billion, with total equity of the company is now TWD 379.8 billion at the end of 2025. For ASP on Page 8, you can tell for the last three quarters or four quarters, it pretty much remained similar level for our blended ASP for throughout the 2025. For revenue breakdown on Page 9. For quarterly comparison, the change is mainly showing in the increase in Asia and Europe with now North America represents about 21% in Q4 of last year. For the full year breakdown on Page 10, the change is similar. We see North America dropped from 25% in 2024 to 22% in 2025. For Page 11, IDM for Q4 revenue still represent about 20%, almost no change. But for the full year number on Page 12, IDM account for 19%, increased by 3 percentage points to 19% in 2025. For quarterly revenue breakdown by application, it remains almost similar quarter-over-quarter on Page 13. For the annual performance on the application breakdown on Page 4 (sic) [ Page 14 ] consumer increased by 3 percentage points to 31% from 28% in the previous year. And we continue to see 22-nanometer to be our key driver of growth for the recent quarters and also forward-looking as well. So 22 and 28 nanometers revenue in Q4 '25 now represent 36% of the total revenue pool. On Page 16. For the full year, the increase of 22 and 28 nanometers revenue is 3 percentage points, and we also show about 2 percentage point increase in 14-nanometer on a year-over-year comparison. Capacity remained flat on a quarter-over-quarter comparison base, but it will decline by roughly 1% due to the annual maintenance schedule. On Page 18, our latest forecast for 2026 CapEx plan is around USD 1.5 billion, which is slightly declined from USD 1.6 billion in the year of 2025. The above is a summary of UMC's results for Q4 2025. More details are available in the report, which has been posted on our website. I will now turn the call over to President of UMC, Mr. Jason Wang. Jason Wang: Thank you, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's fourth quarter results. In the fourth quarter, our results were in line with the guidance with a flattish wafer shipments amid mild demand across most of the markets. The 4.5% revenue increase during the quarter was supported by favorable foreign exchange movements as well as a sequential growth in our 22- and 28-nanometer business, which continues to improve our product mix. With the 22- and 28-nanometer segment, 22-nanometer's revenue increased 31% quarter-on-quarter to a record high, accounting for more than 13% of total fourth quarter revenue. Looking at the full year, UMC delivered solid performance in 2025 with shipment increasing 12.3% and revenue in U.S. dollar up 5.3% year-on-year. Going into the first quarter of 2026, we expect wafer demand to remain firm. UMC is confident that 2026 will be another growth year as a tape-out on our 22-nanometer platform accelerate, and other new solutions continue to gain business traction. We have been working hard to lay the foundation for our next phase of growth, investing for the future in both capacity and technology. In 2025, we completed the new Phase III facility at our Singapore Fab 12i, which is already playing a central role in supporting customers to diversify supply chain. At the same time, we are striving to expand our footprint in the U.S. through an innovative yet cost-effective modes of partnership, such as our 12-nanometer collaboration with Intel and the recently announced MoU with the Polar Semiconductor. The leadership UMC has built over the past few years across specialty technologies, including embedded High Voltage, Non-Volatile Memory, and BCD, has and will continue to sustain stable business growth. Looking ahead to 2026 and beyond, we expect advanced packaging and silicon photonics to serve as a new growth catalysts, positioning UMC to address the evolving needs of a high performance of applications across AI, networking, consumer, automotive and more. Now let's move on to first quarter 2026 guidance. Our wafer shipment will remain flat. ASP in U.S. dollar will remain firm. Gross margin will be approximately in the high 20% range. Capacity utilization rate will be in the mid-70% range. Our 2026 cash-based CapEx budget will be USD 1.5 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions. Operator: Yes. Thank you, President Wang. [Operator Instructions] Now first question will be coming from Sunny Lin, UBS. Sunny Lin: So, I have a few questions. Number one, Jason, may we have your thoughts on overall market outlook for 2026. And then for semi versus foundry? And if UMC can continue to outgrow your adjustable market for this year? Jason Wang: Sure. Well for 2026, we expect AI-related segment remains as the primary growth driver in semi-industry. And furthermore, with the continuous commercial deployment of Edge AI applications, demand for chip using a general purpose server is also expected to rise. In contracts, the adverse effect of the memory supply imbalance could put some pressure on specific consumer electronics. But overall, the semiconductor industry is projected to grow by mid-teens in 2026. The question for foundry market, we believe that AI demand will remain strong and is the main contributor behind the low 20% growth projection in the foundry market this year. On the other hand, although the memory pricing may impact demand of the foundry market, at this time, we -- at UMC, we estimate that our addressable market will grow by low single-digit percentage. And UMC's growth was expected to outperform the average growth of our addressable market. Sunny Lin: Got it. So, then my second question is on pricing. Lots of discussions and obviously, Chinese peers are raising pricing. So how should we think about the pricing outlook for mature foundry and for UMC through 2026? Would UMC be able to start to reflect better value? And if yes, which product categories should we expect more upside from here? Jason Wang: Okay. Well, we do anticipate a more favorable ASP environment in 2026 versus 2025. This outlook really reflects our disciplined pricing strategy and the positive impact from multiple reasons, product mix optimization, loading improvement and reduced exposure to more commoditized market segment. As you're referring to China players, we expect the strong growth momentum in our 22-nanometer demand to support our product mix in 2026 as well. Overall, our pricing strategy remains consistent and is anchored to the value where we deliver technology differentiation and manufacturing excellence. So, we do think the 2026 pricing environment is more favorable now. Now the question about which product, and I mean, we don't comment pricing on specific product or any specific node. But in general, we do see the environment is more favorable now. Sunny Lin: No probolem. That's very helpful. And then a follow-up would be on the overall industry supply versus demand for the coming few years. TSMC on the recent earnings conference talked about the plan to optimize capacity for mature nodes to better support cloud AI demand in coming few years. So from your perspective, how should we think about the opportunity here? Are you starting to see more client engagement for new products in the coming few years? Jason Wang: We're always excited to see more customer engagement. So -- but more importantly is we need to prepare ourselves to cope with the market dynamics, and we welcome any opportunity to support our customers. So, we view this landscape shift as an opportunity to further optimize our product mix and gradually improve ASP and margin as well. Sunny Lin: No, got it. Got it. And then maybe lastly, just on your Singapore expansion. How quickly are you planning to ramp capacity in 2026 and in 2027? And how should we think about the differentiation of products that you have for Singapore versus the Taiwan capacities for 22- and 28-nanometer? And then with that, how should we forecast the depreciation in 2026 and 2027? Jason Wang: Well, first of all, for the year of 2026, the capacity increase will be around 1.2% year-over-year for us. And for our Singapore facility, the expansion will start in the second half of 2026. And with capacity deployment ramp from second half of 2026 will continue into the 2027. In terms of the node available in our Singapore facility, it's our strategy that we have a geographically diverse manufacturing booking between Taiwan, Singapore, Japan, U.S. and from a technology, no coverage standpoint, we would like to coverage most of the nodes. So the customer has a benefit of passing different sets of forecast. Chi-Tung Liu: As for the depreciation forecast, we are looking for some like low teen annual increase in the full year depreciation expenses. As for next year, we don't have the exact number here, but it's very likely to be the similar amount for 2026. So in a way, we will see the depreciation curve to peak either this year or next year with a very similar numbers. Operator: Next one, Haas Liu, Bank of America. Haas Liu: Congrats on the results. I would actually like to follow-up on the pricing. If we look at the like-for-like pricing environment, based on your current mid- to high 70 percentage of the utilization, if we strip out any of the consideration of the product mix improvement, are you able to improve or just to pass on your higher manufacturing costs or material costs to your customers at this stage? Or you still receive a meaningful pushback from your customers? Jason Wang: Well, I mean, the pricing discussion is always ongoing. The overall pricing strategy remains consistent, as I mentioned earlier. In 2026, we do see some market dynamic changes, so forth. Certain customers we do have some adjusted pricing upward. And so -- and for a certain customer, we still have some of the pricing -- I mean, the onetime pricing adjustment at the beginning of the year to support their market share expansion, as well as the competitiveness. So net-net, within the environment more favorable now in 2026. Haas Liu: Okay. Yes. So, when you talk about you are supporting your customers to gain market share by strengthening their cost structure. Do you mean you are actually adjusting down your pricing for those customers? Or is it actually up for this year? Jason Wang: We have a mix of that. For certain customers, we have adjusted pricing upward. And for certain customers, we will apply the onetime price adjustment downward, yes. Haas Liu: Okay. Got it. And then just on the near term, a couple of your Fabless customers recently talked about earlier and also stronger inventory restocking because of the memory price hike. I was just wondering what impacts your first quarter outlook here, if your customers are seeing stronger inventory pulling in the traditional low season. Why is your shipment for first quarter is still relatively flat? And then, what's your puts and takes for the first quarter overall business outlook? Just wondering whether -- which part of the business is actually relatively stronger and weak? Jason Wang: For Q1, by segment, we are actually in line with our addressable market seasonality. We didn't see a significant changes due to the inventory restocking. But if you're looking into by applications, we expect the revenue contribution from consumer segment to increase driven by the WiFi and DTV and set-up box, while the revenue from the communication and automotive will decline due to a softer demand of ISP and DDI products. Haas Liu: Okay. That's pretty clear. And then since you just mentioned about seasonality, are you expecting this year's seasonality to look pretty similar to the previous few years that first quarter could be relatively light and second quarter and third quarter, you will be able to see a relative strength into the year? Jason Wang: I can have -- probably provide you with this. If we look at the whole year, with the new project of a multiple specialty technology across the embedded high-voltage, non-volatile memory, power management, IC, RF SOI, it supports the end markets in communication, consumer, automotive and AI servers which will ramp in second half 2026. So, we're more looking at this year that our second half will outperform the first year -- first half, I'm sorry, the second half will be better than the first half. So that may be the deviate from the traditional seasonality. But as far as for us, we think the overall shipment for the year will be a growth year and as well as second half will be better than the first half. Haas Liu: Okay. Yes. And last question before I jump back in the queue is that, just based on the comment you had just now, what is the underlying market unit demand assumption you have right now? Is it smartphone -- is it the overall smartphone market will actually grow or decline based on your current base case scenario that second half will be better? Or it is actually already factoring a relatively more conservative expectation that smartphone TV, PC, this kind of consumer markets will actually see a unit decline? Jason Wang: Always with the current forecast from our customers. I mean, we do see gains on product segments, all applications. We do see some share gains on those applications. So right now, the forecast does show us that's more of a share gain in the market -- end market demand associated. Operator: Next one, Felix Pan, KGI. Junhong Pan: I just have a couple of questions about the future growth driver, particularly in the remarks, you mentioned about the advanced packaging and silicon photonics. So my first question will be besides the Interposer, what else we might have, some engagement for advanced packaging? And for Interposer, what's the capacity expansion plan for 2026? And my second question will be the silicon photonics, particularly in the Singapore fab, a lot of rumor about your potential customer. Is there any color, any client engagement or any contribution can generate from this segment? Any color will be grateful. Thanks. Jason Wang: Okay. A big question. So, let me see if I can cover -- cover that. And well, if I look back, I mean, I understand you asked for 2026. But let me look back this. We have delivered a very solid 2025 performance with a 12.3% shipment growth and 5.3% revenue growth, which outperformed our addressable market. This result is supported by our differentiated 22-nanometer technology and other specialty offering across both 12-inch and 8-inch amid a world-class market, a broad-based market demand recovery. And building on the 2025, we do view 2026 as a year of both continuity and evolution. We believe the UMC will once again taking shares and outperform its addressable market, and we will also see several positive inflation. First of all, as our guidance suggests, we are seeing a more favorable pricing environment. This will result of tighter supply globally as well as our differentiated technology and geographical footprint, which will drive our growth for the next few years. We are on track with our 12-nanometer cooperation with Intel, which should start see tape-out in 2027. Now that's the existing one. And your question about silicon photonics and advanced packaging. Secondly, we see 2026 as a pivotal year for those high performance, high potential opportunities such like the silicon photonics and advanced packaging. And we are making those deliberate choice, working with INEX to invest and scale them into a significant driver for our future. If you ask specifically about the advanced packaging. And there are two distinct opportunities for advanced packaging. One, we call enablers, the other we call 10 extenders. Major to explain this. I know it's long, but bear with me. So the fourth enabler, we are seeing the 2.5D and 3D packaging as well as the chiplet move well beyond just the data center and ultra high-end chip and start to spread across the broader market. Over time, we expect that advanced packaging to be adopted even on mature nodes. A good example is RF SOI. We have mentioned many times where we're already in production. In addition to the RF SOI, we are also exploring other applications with leading partners and believe we are at least 2 to 3 years ahead of our competition. What this really means for customers is better power efficiency, small form factor, and differentiated products. And for UMC, it is a strategic win-win. We believe our leadership in advanced packaging will enable us to capture more shares, sustain our higher ASC and drive better margin in many of our already established business in the long run. On the 10 extenders, we also believe that advanced packaging will help UMC address new opportunities. For example, customers are coming to us for AI-related applications. This is not necessarily just the XPU related, but we are adding value by stacking memory with the logic, adding DTC to the stack or selling the discrete DTC. We are also working with our partners to enable a total solution. Meanwhile, we are working with more than 10 customers in advanced packaging currently and expand more than 20 new tape-outs in 2026. We foresee revenue in 2027 will be a significant year for us. And the capacity question you have that capacity plan will be aligned with the customer ramp plan and market outlook. You also asked about silicon photonics. For silicon photonics, we are developing solutions, which includes ASIC, OIO, OCS, and CPO. Our collaboration with INEX allow us to deliver industry standard PDK to our customers in 2027. In addition to platform preparation, we also work with the customer on captive technology of 12-inch PIC aiming for possible product, which is expected to ramp this year. We will also combine our advanced packaging know-how with the silicon photonics as many of the applications require the integration and different substrates, process, technology and materials. Looking ahead to achieve 1.6T bandwidth and beyond, we're working with both customers and vendors for the test finding on heterogeneous material such as the TFLM. Those technologies could also be used in additional applications such as quantum computing. Again, we hope to integrate the new material the advanced packaging technology as well. So those are all integrated altogether. That's why I gave you a bit of a longer answer. I hope that explains it. Junhong Pan: Yes. Okay. But just -- let me just a quick follow up and rephrase my question. So for silicon photonics, what's the earliest timetable we can see the revenue contribution, like most likely? Jason Wang: For the 12-inch PIC, for the pluggable product, we'll be expecting to ramp this year. Junhong Pan: Okay. And about the -- because as I know about the Interposer, currently is the -- Interposer is also the bottleneck for our partner to expand their capacity. So, is there any color we can give -- how much capacity growth for the Interposer, like how much year-on-year growth or something like that? Jason Wang: Well, right now, the capacity planning will be aligned with the customer for the 2027 ramp. So, we will probably provide you some clarity when that comes. Right now, in 2026, we will focus on the tape-out. Operator: Next one, Gokul Hariharan, JPMorgan. Gokul Hariharan: Could you go a little bit deeper into that advanced packaging comment that you made? What is the involvement level of UMC in some of these advanced packaging solutions? Are you doing full stack? Or is it basically like previously where you were largely focused on the Interposer side of the equation? And in terms of the tape-outs that you have, what are the nature of these tape-outs? Are these mostly data center ASIC-related products? Or is this a much wider array of products other than just data center ASIC? Jason Wang: Sure. Well, first of all, we have reported in our advanced packaging space. We have building up some of the capability from wafer-to-wafer stacking and TSC as well as Interposer, the 2.5D and the many different capabilities. And then the way we see it, like I explained, for the enabler is we can apply those to many of the current products that we currently serve. And then -- and one example I mentioned is the RF SOI. So we have wafer-to-wafer hybrid bonding with the RF SOI solution for the mobile space already. And then, some of the capability can be built for the DTC for the stacking as well as some of the customers looking at discrete DTC already. And we are combining some of the capability into segments, the logic and the memory. Of course, we do not provide memory ourselves. So the customer will have to provide memory wafer to us. And so then we can provide wafer-to-wafer hybrid bonding on those. So on one hand, the way we see it is advanced packing is a capability per se, and it implies to the product and then we call it enabler and also expander. And the -- meanwhile, the product coverage is all the way from the mobile space, power management discussion, the AI-related -- AI-related product and also for the BCD application as well. So they were -- it's our belief is for a better reason or for the higher performance reason, and many different applications will start adapting the advanced packaging. So we think this is going to be a broad success on the advanced packaging space. Gokul Hariharan: Got it. And any plans to further expand your Interposer capacity? I think we had expanded, I think up to 6,000 and then kind of stopped it there. Now some of that demand seems to be kind of coming back for some of -- one of your customers in China. So, is there any plans to expand the capacity further? Jason Wang: There are discussions around that. Right now, if you look at the technology itself, we have some common tools in place already, which that we can leverage of our 40-nanometer capacity, of our 65-nanometer capacity. From those common tool space, we're already allocating to this area. Now for the unique tools, then we will put in the plan for the future expansion and for the customer ramp profile. And we believe that will probably happen in 2027. Gokul Hariharan: Got it. Understood. That's clear. Another question I had is on the -- just your expectations for the communication, consumer segment which is north of 70% of revenue, given all these concerns about smartphone, PC. How are you budgeting for this? Are your customers telling you that they are really concerned about this memory cost inflation? Or right now, you still don't really hear that from the customers that that's going to be a big issue from a unit perspective going through the year? Jason Wang: Well, we're also cautious about that topic. As of today, we have not observed any demand impact on our customers' forecast for the year, despite the recent surge in that price. And our technology predominantly supported customers addressing the higher end of the market segment, where the demand tends to be more resilient in the past and in the period of memory tightness. So, because the supply usually typically prioritize in such high-end higher-value device. While we remain attentive to the potential impact on the memory market and our current assessment is that any potential headwinds are probably manageable, and we will continue monitoring the situation properly with our customers together. Gokul Hariharan: Got it. My last question is on the geographic split of revenues. I think, could you talk a little bit about the Intel 12-nanometer progress? And any color on how you will be booking revenues or profits from this partnership given the fabless, Intel fab, while you are essentially the provider of customers and some degree of IP as well into it? And secondly, on the Xiamen's fab, what's the strategy for the Xiamen's fab medium to long term, given many of your semiconductor peers in Taiwan have kind of progressively exited capacity in Mainland China? Jason Wang: Well, for the 12-nanometer project with Intel, overall, the 12-nanometer cooperation project with Intel continues to advance smoothly. We remain on schedule to deliver the PDK and associated IP to customer in 2026. Furthermore, we anticipate the product tape-out will commence in 2027, making the significant step towards to commercialized deployment and future revenue growth. Right now, UMC and Intel are working closely to ensure successful tape-outs and an efficient ramp up for the mass production. As the project advance, it is expected to further strengthen USD position in the U.S., right, for customer as well for us. Because the geo diversification manufacturing. Right now, the application on the 12-nanometer cooperation, including products on digital TV, WiFi connectivity and high-speed interface products. In terms of the business model, and it's probably not available for us to comment. But it is a win-win strategy that we see and will be very synergetic for both parties as well as for our customers. And we have very high confidence this will be a win-win model. Gokul Hariharan: Okay. And any thoughts for the Xiamen capacity? Jason Wang: Yes. For the Xiamen, I kind of touched that earlier as well. I look at Xiamen, not just Xiamen itself, our core part of our competitive advantage is our geographically diverse manufacturing footprint. And the Xiamen play one of the important space for us and particularly for the local customer. So -- and at this point, the fab is actually at a full capacity. We are running at a full utilization as well. And we see -- we continue seeing many different engagements coming to this and we will across regionally optimize it from the customer engagement and product loading standpoint. Gokul Hariharan: Okay. Just one more on blended ASP. I think, Jason, you mentioned that the ASP environment is more favorable this year. But overall utilization is still in the mid-70s as of Q1, right? So do you expect that this year, we could see a scenario that we could see blended ASPs moving up meaningfully like 5% to 10% or something like that, like we have had in the past or that requires a much higher level of utilization that is probably not happening this year, given your low single-digit foundry growth expectation? Jason Wang: Sure. I mean, the high utilization is one of the important factors, but that's not the only factor. We want to make sure the pricing strategy is enabled not only ourselves and our customers to be competitive as well. So -- but we do see the pricing environment is getting more favorable to foundry because of the loading reason. And so -- but the magnitude of that, we probably have to continue to manage it. And if we have a clarity, we will share that with you. Operator: Next one Alex Chang, BNP. Alex Chang: I just have a very quick one. I just saw the company announced that they started the mass production of SuperFlash Generation 4. So just wonder how much revenue contribution from the non-volatile memory business in the past quarter or maybe past year? And also how much revenue is contributed by the power management ICs for the server-related applications? Jason Wang: I mean, we don't have a breakdown to provide. And the way that we break it down is based on specialty technology that includes the high-voltage and non-volatile memory and the PCB space. Right now, the specialty revenue representing about 50% of our overall revenue. And I can let you know the high voltage is about 30% of that. And the rest of that, I would say, is a combination of the non-volatile memory as well as the DCB. Operator: Next one is Laura Chen from Citi. Chia Yi Chen: I just want to follow up on the deterioration rate and also the gross margin outlook. Jason, you mentioned that the pricing environment seems to be improving more favorable. And together with firm shipment and better product mix as well as the utilization rate, so how should we think about the gross margin trend? You guided that will be high 20% for Q1. But with these favorable factors, how should we think about the margins throughout the year? That's my first question. Chi-Tung Liu: Yes. Gross margin can be highly dependent upon utilization rate, ASP, product mix, depreciation and foreign exchange rate. So there's a lot of variables. So beyond this quarter, it's difficult for us to give a firm outlook. For the first quarter guidance, which is high 20s, is mainly due to the higher cost, especially the higher depreciation expenses. As I mentioned, it will grow by low teens in the full year of 2026. As for 2026, we will continue to cope with higher depreciation expenses as well as the other inflationary pressure for our production, raw material and other costs. To mitigate and cope with the headwinds, we will continue with our cost reduction efforts and also all the activities to improve our productivity and drive operation efficiency. And these measures hopefully will help UMC to deliver a stable EBITDA margin and ensure our long-term financial resilience to remain intact. As a matter of fact, our 2025 EBITDA margin is actually a good improvement compared to that of 2024. Chia Yi Chen: Yes, sure. And also, I think for the advanced packaging and as well as the silicon photonics is one of the key things that UMC may have a great opportunity. We know that UMC has already working on advanced packaging, previously on Interposer, probably now we'll see more various different design. So could you share with us what's about the revenue contribution of your advanced packaging right now? And how would that look like in 2, 3 years? Jason Wang: Currently, the Interposer was exposed to very limited customer base and also narrow application. While we have engaged with more than 10 customers and expecting more than 20 new tape-outs in 2026, we do foresee that revenue of packaging -- advanced packaging growth in 2027 will be significant. Chia Yi Chen: So, significantly means that, could that be like 5%, 10% or higher? Jason Wang: I am expecting more than that. But I mean, if you're referring to the overall revenue contribution, we'll probably give you more guidance later. But if you're looking at the packaging itself, it's going to be significantly larger than what we're shipping today. Operator: Next, we'll have Bruce Lu, Goldman Sachs for questions. Zheng Lu: I want to go a little bit deeper for the silicon photonics. I mean, as you might know that your peers like GlobalFoundries, Taiwan Semi, pretty vocal about that. Can you tell us how big do you think the addressable market for silicon photonics for you guys in 2 years? And how do you win market? What is the competitive advantage for you in this business? I mean, other than working with INEX? Jason Wang: Well, I mean, the Singapore facility is not going to only serving the silicon photonics. Singapore facility is one of our important manufacturing site, they serve our worldwide customers, all different applications. And so it's part of our geographical diverse manufacturing strategy. So... Zheng Lu: No, no, no, my question is for silicon photonics, our business strategy? Jason Wang: The silicon photonics strategy in Singapore. Okay. Zheng Lu: No, no, no, no. I'm sorry, let me rephrase my question. So the growth driver for UMC, one of it is the CPO, I'm assuming having more business in the silicon photonics. In -- for your peers like GlobalFoundries or Taiwan Semi, they are pretty vocal about the silicon photonics and have meaningful revenue contribution already. For UMC perspective, what is your competitive advantage for UMC to win this business? And how much business you can win or how big is the addressable market for you in 2 years? Jason Wang: Got it. So, for the silicon photonics, our strategy is simple. Our cooperation with INEX allowed us to deliver the industry standard PDK to our customer in 2027, particularly in 12-inch. So many of our competitors is today at 8-inch and we are focused on this in 12-inch. And as we believe the 12-inch will have that advantage. And right now, we already have certain products that have proven that performance is a better and a pluggable product, and which we will expect to ramp this year. And meanwhile, we're also combining the silicon photonics with our advanced packaging know-how, so for many different type of applications then we can integrate that. So by doing that, we think we will be even providing even more value from advanced packaging combining with silicon photonics at 12-inch. I think that's where we believe we are competitive. Zheng Lu: But that's mostly for plug-in, right? Because if you don't have the EIC, the pure CPO product might not be your key growth driver? Jason Wang: You're correct. We're not looking at a completely CPO package. We're looking at particularly in the PIC and OIO and OCS. Zheng Lu: I see. I understand. That's very clear. Next one is -- and we see that the progress for the Intel project for 12 nanometers is pretty smooth. I just want to know what is the next step? I mean, when we can see a further collaboration in 10, 7 nanometers and beyond? I mean, obviously, whatever you said, the advantage at 12-inch, you can also use the same argument for 7-nanometer. What's stopping you to do that? Jason Wang: Well, you're also right on that. And our focus right now is on delivering the 12-nanometer platform to customers. In the future, should it make sense for both UMC and Intel as well as our customers, we will surely consider expanding our collaboration to other derivatives as well as the technologies. Yes. Zheng Lu: But what is stopping now? What is the show stopper now? Jason Wang: It's not -- I won't call it stopping. I think the focus is a focus on 12-nanometer. We have to deliver a 12-nanometer today, and make sure that we deliver that program. We execute it well. And I think anything that makes sense on that, unlike you said, I think there will be a discussion, yes. Zheng Lu: I see. Because we already assumed that you can deliver something in '27. So given that working for 7 nanometers, maybe you need 2, 3 years, we want to see the project kickoff as soon as possible. Operator: [Operator Instructions] Now we'll have our last question, [ Sappho ] Neuberger Berman. Unknown Analyst: It's been a while. And congrats on the progress you've made throughout this couple of years. I just have a few questions. The first one is, on the market dynamics, I think previously, Sunny has asked about the TSMC is shrinking or defocusing on this mature foundry process. And it looks like not just TSMC, but also the other foundries are -- seems to be doing some leading-edge logic foundry seems to be doing the same thing. And also Powerchip recently just reached agreement with Micron as well as Intel fab, which means they're trying to streamline and re-org some of the foundry process, too. So it seems like there's a lot of supply is kind of being taken away because of the rolling out effects from the AI and crowding out some of these older nodes. On the supply side, it seems to be that actually decreasing. And on the demand side, if you look at, I think, TI just to report overnight. I think it seems like that there's been more obvious recovery on the analog MCU space. So on demand side, that's also improving. But the supply side, that's actually decreasing. So it looks like supply-demand dynamics is moving to a more favorable situation. I think that's the point why you were mentioning the pricing dynamics favorable this year. So I'm just curious about your view, if we try to compare the current like the mature foundries dynamic situation right now versus, I mean, back in 2021 when there is a severe shortage back then. How would you compare this time around versus last cycle? Jason Wang: I mean, that's a really good question. I mean, we saw on the market movement, the changes. And we also deep dive on this demand and supply outlook. And we think whether this is short term or long term. If you look at the driver behind us, we see -- you mentioned this is truly more of the AI phenomenon ripple effect. And so we see that AI remains to be very strong, at least in the foreseeable future. And I think this momentum will continue driving the overall demand. And meanwhile, in many of this -- the capability -- AI capability we portfoliating to even the other end market devices in the Edge AI as well. So as in this will continue. And from an economic standpoint, building any of the mature facility is not justifiable. So we do think that this could last longer compared to the over time. And I think the situation could be more of a structure going forward. And -- but again, this is at a very early stage of this market movement. So we'll pay attention to it, and we'll continue monitoring the progress. Meanwhile, like I said earlier, I think it is more a favorable pricing environment. But more importantly is we need to prepare ourselves to cope with this market dynamic. So we are welcoming all the opportunity that for us to engage in supporting the customer. And -- but the important focus today is we have to get ourselves ready to capture those opportunities. Unknown Analyst: Got it. Another question I have is your earlier comments on the pricing. I think the -- you offer some of the annual -- maybe some discount to some of our strategic clients for their share again, but also net-net wise, also seems to be pricing is going up for a majority of the clients. So net-net, it's going to still be the -- ASP still be positive. But I'm just curious about, for those clients that you're offering some discount at the beginning of the year, when it down the road is, if the next few months or quarter situation has become tighter -- and would you be able to reprice with these customers? Jason Wang: Those discussions will be ongoing. We're always working with our customers to reflect the market dynamics as well as the cost increases. So I'm sure, and I believe this conversation will surely happen. It happened in the past, it will happen now and will happen in the future. So the pricing discussion will continue. And I think customers understand that. And we just have to continue monitoring the market dynamic and maintain our competitiveness on both the customer and ourselves. Unknown Analyst: Yes. Well, a thought on that because of some of the pricing that started to affect it on the January 1 this year, this was actually negotiated already in fourth quarter last year, right? Jason Wang: That's -- some alignment on that on both volume and the pricing. So if volume has changed, of course, that's a different topic. So, there are some volume dynamic in that as well. Unknown Analyst: Yes. My question is actually is that because a lot of the pricing that's effective on January 1, beginning of the year, it was actually communicated 1 or 2 months ago before that, toward the end of last year when the time that the supply demand dynamics haven't been really that tight as compared to some of the changes that happened in the just past couple of weeks. Am I getting that right? Jason Wang: Yes, you're right. Yes. But those also is on certain conditions. So given the condition has changed, the some of the pricing are dynamic. Unknown Analyst: Yes. Yes. Exactly, that is what I'm trying to discuss with you. Because we also saw a lot of the other different components, different subsectors within the tech or semi supply chain that such as memory, I think the pricing were still down in July, August, but all of a sudden, September prices going up. So I'm just curious about that because when you negotiate some of this discount months ago, the supply-demand dynamics was not the same as today. So things remain fluid, dynamic and it still continue to be flexible and it's going to be dynamic and open for changes down the road, if things are moving more favorably. Jason Wang: I think the core of the pricing strategy is that it has to be consistent, and it has to anchor with the value that we deliver and also the customers' competitiveness. That is the core. Then usually, that is how we're centering about the pricing discussion. So that core is not compromised. Now if the condition has changed, yes, they always have some flexibility to it. So, one is called pricing strategy and position, another is core pricing negotiation. So there will be some flexibility, yes. Unknown Analyst: Yes. And the condition has started to change now. Jason Wang: Yes. So we do think the pricing discussion will be more favorable now, yes. Operator: Ladies and gentlemen, we thank you for all your questions. That concludes today's Q&A session. I'll turn things over to UMC Head of IR for closing remarks. Thank you. Jinhong Lin: Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact ir@umc.com. Have a good day. Operator: Thank you. And ladies and gentlemen, that concludes our conference for fourth quarter 2025. Thank you for your participation in UMC's conference. There will be a webcast replay within 2 hours. Please visit www.umc.com under the Investors, Events section. You may now disconnect. Thank you, again. Goodbye.
Operator: Welcome, everyone, to UMC's 2025 Fourth Quarter Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within 2 hours after the conference has finished. Please visit our website, www.umc.com, under the Investor Relations, Investors, Events section. Now I would like to introduce Mr. Michael Lin, Head of Investor Relations at UMC. Mr. Lin, please begin. Jinhong Lin: Thank you, and welcome to UMC's conference call for the fourth quarter of 2025. I'm joined by Mr. Jason Wang, President of UMC; and Mr. Chi-Tung Liu, the CFO of UMC. In a moment, we will hear our CFO present the fourth quarter financial results followed by our President's key message to address UMC's focus and the first quarter 2026 guidance. Once our President and CFO complete their remarks, there will be a Q&A session. UMC's quarterly financial reports are available at our website, www.umc.com, under the Investors Financial section. During this conference, we may make forward-looking statements based on management's current expectations and beliefs. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company's control. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC and the ROC security authorities. During this conference, you may view our financial presentation material, which is being broadcast live through the Internet. Now, I would like to introduce UMC's CFO, Mr. Chi-Tung Liu, to discuss UMC's fourth quarter 2025 financial results. Chi-Tung Liu: Thank you, Michael. I'd like to go through the 4Q '25 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on Page 4, the fourth quarter of 2025. Consolidated revenue was TWD 61.81 billion, with a gross margin around 30.7%. The net income attributable to the stockholder of the parent was TWD 10.06 billion and the earnings per ordinary shares were TWD 0.81. Utilization rate in the fourth quarter is stayed the same as the previous one, around 78%. For the sequential comparison, revenue grow 4.5% quarter-over-quarter to TWD 61.8 billion. Gross margin improved to over 30% to now 30.7% or gross margin of TWD 18.95 billion. And the non-operating income remained similar to that of last quarter. And the net income overall contributed to shareholder of the parent is around TWD 10.05 billion or EPS of TWD 0.81 in Q4 of 2025. For year-over-year comparison, on Page 6, revenue grew by 2.3% to reach TWD 237.5 billion for the whole year of 2025. Gross margin rate is around 29% or TWD 68.9 billion. And for the net income attributable to the shareholder of the parent for year 2025, is around TWD 41.7 billion or 17.6% net income rate. EPS for 2025 was TWD 3.34, which is a decline compared to that of TWD 3.8 in 2024. On Page 7, our balance sheet at the end of 2025. Cash amounts still more than TWD 110 billion, with total equity of the company is now TWD 379.8 billion at the end of 2025. For ASP on Page 8, you can tell for the last three quarters or four quarters, it pretty much remained similar level for our blended ASP for throughout the 2025. For revenue breakdown on Page 9. For quarterly comparison, the change is mainly showing in the increase in Asia and Europe with now North America represents about 21% in Q4 of last year. For the full year breakdown on Page 10, the change is similar. We see North America dropped from 25% in 2024 to 22% in 2025. For Page 11, IDM for Q4 revenue still represent about 20%, almost no change. But for the full year number on Page 12, IDM account for 19%, increased by 3 percentage points to 19% in 2025. For quarterly revenue breakdown by application, it remains almost similar quarter-over-quarter on Page 13. For the annual performance on the application breakdown on Page 4 (sic) [ Page 14 ] consumer increased by 3 percentage points to 31% from 28% in the previous year. And we continue to see 22-nanometer to be our key driver of growth for the recent quarters and also forward-looking as well. So 22 and 28 nanometers revenue in Q4 '25 now represent 36% of the total revenue pool. On Page 16. For the full year, the increase of 22 and 28 nanometers revenue is 3 percentage points, and we also show about 2 percentage point increase in 14-nanometer on a year-over-year comparison. Capacity remained flat on a quarter-over-quarter comparison base, but it will decline by roughly 1% due to the annual maintenance schedule. On Page 18, our latest forecast for 2026 CapEx plan is around USD 1.5 billion, which is slightly declined from USD 1.6 billion in the year of 2025. The above is a summary of UMC's results for Q4 2025. More details are available in the report, which has been posted on our website. I will now turn the call over to President of UMC, Mr. Jason Wang. Jason Wang: Thank you, Chi-Tung. Good evening, everyone. Here, I would like to share UMC's fourth quarter results. In the fourth quarter, our results were in line with the guidance with a flattish wafer shipments amid mild demand across most of the markets. The 4.5% revenue increase during the quarter was supported by favorable foreign exchange movements as well as a sequential growth in our 22- and 28-nanometer business, which continues to improve our product mix. With the 22- and 28-nanometer segment, 22-nanometer's revenue increased 31% quarter-on-quarter to a record high, accounting for more than 13% of total fourth quarter revenue. Looking at the full year, UMC delivered solid performance in 2025 with shipment increasing 12.3% and revenue in U.S. dollar up 5.3% year-on-year. Going into the first quarter of 2026, we expect wafer demand to remain firm. UMC is confident that 2026 will be another growth year as a tape-out on our 22-nanometer platform accelerate, and other new solutions continue to gain business traction. We have been working hard to lay the foundation for our next phase of growth, investing for the future in both capacity and technology. In 2025, we completed the new Phase III facility at our Singapore Fab 12i, which is already playing a central role in supporting customers to diversify supply chain. At the same time, we are striving to expand our footprint in the U.S. through an innovative yet cost-effective modes of partnership, such as our 12-nanometer collaboration with Intel and the recently announced MoU with the Polar Semiconductor. The leadership UMC has built over the past few years across specialty technologies, including embedded High Voltage, Non-Volatile Memory, and BCD, has and will continue to sustain stable business growth. Looking ahead to 2026 and beyond, we expect advanced packaging and silicon photonics to serve as a new growth catalysts, positioning UMC to address the evolving needs of a high performance of applications across AI, networking, consumer, automotive and more. Now let's move on to first quarter 2026 guidance. Our wafer shipment will remain flat. ASP in U.S. dollar will remain firm. Gross margin will be approximately in the high 20% range. Capacity utilization rate will be in the mid-70% range. Our 2026 cash-based CapEx budget will be USD 1.5 billion. That concludes my comments. Thank you all for your attention. Now we are ready for questions. Operator: Yes. Thank you, President Wang. [Operator Instructions] Now first question will be coming from Sunny Lin, UBS. Sunny Lin: So, I have a few questions. Number one, Jason, may we have your thoughts on overall market outlook for 2026. And then for semi versus foundry? And if UMC can continue to outgrow your adjustable market for this year? Jason Wang: Sure. Well for 2026, we expect AI-related segment remains as the primary growth driver in semi-industry. And furthermore, with the continuous commercial deployment of Edge AI applications, demand for chip using a general purpose server is also expected to rise. In contracts, the adverse effect of the memory supply imbalance could put some pressure on specific consumer electronics. But overall, the semiconductor industry is projected to grow by mid-teens in 2026. The question for foundry market, we believe that AI demand will remain strong and is the main contributor behind the low 20% growth projection in the foundry market this year. On the other hand, although the memory pricing may impact demand of the foundry market, at this time, we -- at UMC, we estimate that our addressable market will grow by low single-digit percentage. And UMC's growth was expected to outperform the average growth of our addressable market. Sunny Lin: Got it. So, then my second question is on pricing. Lots of discussions and obviously, Chinese peers are raising pricing. So how should we think about the pricing outlook for mature foundry and for UMC through 2026? Would UMC be able to start to reflect better value? And if yes, which product categories should we expect more upside from here? Jason Wang: Okay. Well, we do anticipate a more favorable ASP environment in 2026 versus 2025. This outlook really reflects our disciplined pricing strategy and the positive impact from multiple reasons, product mix optimization, loading improvement and reduced exposure to more commoditized market segment. As you're referring to China players, we expect the strong growth momentum in our 22-nanometer demand to support our product mix in 2026 as well. Overall, our pricing strategy remains consistent and is anchored to the value where we deliver technology differentiation and manufacturing excellence. So, we do think the 2026 pricing environment is more favorable now. Now the question about which product, and I mean, we don't comment pricing on specific product or any specific node. But in general, we do see the environment is more favorable now. Sunny Lin: No probolem. That's very helpful. And then a follow-up would be on the overall industry supply versus demand for the coming few years. TSMC on the recent earnings conference talked about the plan to optimize capacity for mature nodes to better support cloud AI demand in coming few years. So from your perspective, how should we think about the opportunity here? Are you starting to see more client engagement for new products in the coming few years? Jason Wang: We're always excited to see more customer engagement. So -- but more importantly is we need to prepare ourselves to cope with the market dynamics, and we welcome any opportunity to support our customers. So, we view this landscape shift as an opportunity to further optimize our product mix and gradually improve ASP and margin as well. Sunny Lin: No, got it. Got it. And then maybe lastly, just on your Singapore expansion. How quickly are you planning to ramp capacity in 2026 and in 2027? And how should we think about the differentiation of products that you have for Singapore versus the Taiwan capacities for 22- and 28-nanometer? And then with that, how should we forecast the depreciation in 2026 and 2027? Jason Wang: Well, first of all, for the year of 2026, the capacity increase will be around 1.2% year-over-year for us. And for our Singapore facility, the expansion will start in the second half of 2026. And with capacity deployment ramp from second half of 2026 will continue into the 2027. In terms of the node available in our Singapore facility, it's our strategy that we have a geographically diverse manufacturing booking between Taiwan, Singapore, Japan, U.S. and from a technology, no coverage standpoint, we would like to coverage most of the nodes. So the customer has a benefit of passing different sets of forecast. Chi-Tung Liu: As for the depreciation forecast, we are looking for some like low teen annual increase in the full year depreciation expenses. As for next year, we don't have the exact number here, but it's very likely to be the similar amount for 2026. So in a way, we will see the depreciation curve to peak either this year or next year with a very similar numbers. Operator: Next one, Haas Liu, Bank of America. Haas Liu: Congrats on the results. I would actually like to follow-up on the pricing. If we look at the like-for-like pricing environment, based on your current mid- to high 70 percentage of the utilization, if we strip out any of the consideration of the product mix improvement, are you able to improve or just to pass on your higher manufacturing costs or material costs to your customers at this stage? Or you still receive a meaningful pushback from your customers? Jason Wang: Well, I mean, the pricing discussion is always ongoing. The overall pricing strategy remains consistent, as I mentioned earlier. In 2026, we do see some market dynamic changes, so forth. Certain customers we do have some adjusted pricing upward. And so -- and for a certain customer, we still have some of the pricing -- I mean, the onetime pricing adjustment at the beginning of the year to support their market share expansion, as well as the competitiveness. So net-net, within the environment more favorable now in 2026. Haas Liu: Okay. Yes. So, when you talk about you are supporting your customers to gain market share by strengthening their cost structure. Do you mean you are actually adjusting down your pricing for those customers? Or is it actually up for this year? Jason Wang: We have a mix of that. For certain customers, we have adjusted pricing upward. And for certain customers, we will apply the onetime price adjustment downward, yes. Haas Liu: Okay. Got it. And then just on the near term, a couple of your Fabless customers recently talked about earlier and also stronger inventory restocking because of the memory price hike. I was just wondering what impacts your first quarter outlook here, if your customers are seeing stronger inventory pulling in the traditional low season. Why is your shipment for first quarter is still relatively flat? And then, what's your puts and takes for the first quarter overall business outlook? Just wondering whether -- which part of the business is actually relatively stronger and weak? Jason Wang: For Q1, by segment, we are actually in line with our addressable market seasonality. We didn't see a significant changes due to the inventory restocking. But if you're looking into by applications, we expect the revenue contribution from consumer segment to increase driven by the WiFi and DTV and set-up box, while the revenue from the communication and automotive will decline due to a softer demand of ISP and DDI products. Haas Liu: Okay. That's pretty clear. And then since you just mentioned about seasonality, are you expecting this year's seasonality to look pretty similar to the previous few years that first quarter could be relatively light and second quarter and third quarter, you will be able to see a relative strength into the year? Jason Wang: I can have -- probably provide you with this. If we look at the whole year, with the new project of a multiple specialty technology across the embedded high-voltage, non-volatile memory, power management, IC, RF SOI, it supports the end markets in communication, consumer, automotive and AI servers which will ramp in second half 2026. So, we're more looking at this year that our second half will outperform the first year -- first half, I'm sorry, the second half will be better than the first half. So that may be the deviate from the traditional seasonality. But as far as for us, we think the overall shipment for the year will be a growth year and as well as second half will be better than the first half. Haas Liu: Okay. Yes. And last question before I jump back in the queue is that, just based on the comment you had just now, what is the underlying market unit demand assumption you have right now? Is it smartphone -- is it the overall smartphone market will actually grow or decline based on your current base case scenario that second half will be better? Or it is actually already factoring a relatively more conservative expectation that smartphone TV, PC, this kind of consumer markets will actually see a unit decline? Jason Wang: Always with the current forecast from our customers. I mean, we do see gains on product segments, all applications. We do see some share gains on those applications. So right now, the forecast does show us that's more of a share gain in the market -- end market demand associated. Operator: Next one, Felix Pan, KGI. Junhong Pan: I just have a couple of questions about the future growth driver, particularly in the remarks, you mentioned about the advanced packaging and silicon photonics. So my first question will be besides the Interposer, what else we might have, some engagement for advanced packaging? And for Interposer, what's the capacity expansion plan for 2026? And my second question will be the silicon photonics, particularly in the Singapore fab, a lot of rumor about your potential customer. Is there any color, any client engagement or any contribution can generate from this segment? Any color will be grateful. Thanks. Jason Wang: Okay. A big question. So, let me see if I can cover -- cover that. And well, if I look back, I mean, I understand you asked for 2026. But let me look back this. We have delivered a very solid 2025 performance with a 12.3% shipment growth and 5.3% revenue growth, which outperformed our addressable market. This result is supported by our differentiated 22-nanometer technology and other specialty offering across both 12-inch and 8-inch amid a world-class market, a broad-based market demand recovery. And building on the 2025, we do view 2026 as a year of both continuity and evolution. We believe the UMC will once again taking shares and outperform its addressable market, and we will also see several positive inflation. First of all, as our guidance suggests, we are seeing a more favorable pricing environment. This will result of tighter supply globally as well as our differentiated technology and geographical footprint, which will drive our growth for the next few years. We are on track with our 12-nanometer cooperation with Intel, which should start see tape-out in 2027. Now that's the existing one. And your question about silicon photonics and advanced packaging. Secondly, we see 2026 as a pivotal year for those high performance, high potential opportunities such like the silicon photonics and advanced packaging. And we are making those deliberate choice, working with INEX to invest and scale them into a significant driver for our future. If you ask specifically about the advanced packaging. And there are two distinct opportunities for advanced packaging. One, we call enablers, the other we call 10 extenders. Major to explain this. I know it's long, but bear with me. So the fourth enabler, we are seeing the 2.5D and 3D packaging as well as the chiplet move well beyond just the data center and ultra high-end chip and start to spread across the broader market. Over time, we expect that advanced packaging to be adopted even on mature nodes. A good example is RF SOI. We have mentioned many times where we're already in production. In addition to the RF SOI, we are also exploring other applications with leading partners and believe we are at least 2 to 3 years ahead of our competition. What this really means for customers is better power efficiency, small form factor, and differentiated products. And for UMC, it is a strategic win-win. We believe our leadership in advanced packaging will enable us to capture more shares, sustain our higher ASC and drive better margin in many of our already established business in the long run. On the 10 extenders, we also believe that advanced packaging will help UMC address new opportunities. For example, customers are coming to us for AI-related applications. This is not necessarily just the XPU related, but we are adding value by stacking memory with the logic, adding DTC to the stack or selling the discrete DTC. We are also working with our partners to enable a total solution. Meanwhile, we are working with more than 10 customers in advanced packaging currently and expand more than 20 new tape-outs in 2026. We foresee revenue in 2027 will be a significant year for us. And the capacity question you have that capacity plan will be aligned with the customer ramp plan and market outlook. You also asked about silicon photonics. For silicon photonics, we are developing solutions, which includes ASIC, OIO, OCS, and CPO. Our collaboration with INEX allow us to deliver industry standard PDK to our customers in 2027. In addition to platform preparation, we also work with the customer on captive technology of 12-inch PIC aiming for possible product, which is expected to ramp this year. We will also combine our advanced packaging know-how with the silicon photonics as many of the applications require the integration and different substrates, process, technology and materials. Looking ahead to achieve 1.6T bandwidth and beyond, we're working with both customers and vendors for the test finding on heterogeneous material such as the TFLM. Those technologies could also be used in additional applications such as quantum computing. Again, we hope to integrate the new material the advanced packaging technology as well. So those are all integrated altogether. That's why I gave you a bit of a longer answer. I hope that explains it. Junhong Pan: Yes. Okay. But just -- let me just a quick follow up and rephrase my question. So for silicon photonics, what's the earliest timetable we can see the revenue contribution, like most likely? Jason Wang: For the 12-inch PIC, for the pluggable product, we'll be expecting to ramp this year. Junhong Pan: Okay. And about the -- because as I know about the Interposer, currently is the -- Interposer is also the bottleneck for our partner to expand their capacity. So, is there any color we can give -- how much capacity growth for the Interposer, like how much year-on-year growth or something like that? Jason Wang: Well, right now, the capacity planning will be aligned with the customer for the 2027 ramp. So, we will probably provide you some clarity when that comes. Right now, in 2026, we will focus on the tape-out. Operator: Next one, Gokul Hariharan, JPMorgan. Gokul Hariharan: Could you go a little bit deeper into that advanced packaging comment that you made? What is the involvement level of UMC in some of these advanced packaging solutions? Are you doing full stack? Or is it basically like previously where you were largely focused on the Interposer side of the equation? And in terms of the tape-outs that you have, what are the nature of these tape-outs? Are these mostly data center ASIC-related products? Or is this a much wider array of products other than just data center ASIC? Jason Wang: Sure. Well, first of all, we have reported in our advanced packaging space. We have building up some of the capability from wafer-to-wafer stacking and TSC as well as Interposer, the 2.5D and the many different capabilities. And then the way we see it, like I explained, for the enabler is we can apply those to many of the current products that we currently serve. And then -- and one example I mentioned is the RF SOI. So we have wafer-to-wafer hybrid bonding with the RF SOI solution for the mobile space already. And then, some of the capability can be built for the DTC for the stacking as well as some of the customers looking at discrete DTC already. And we are combining some of the capability into segments, the logic and the memory. Of course, we do not provide memory ourselves. So the customer will have to provide memory wafer to us. And so then we can provide wafer-to-wafer hybrid bonding on those. So on one hand, the way we see it is advanced packing is a capability per se, and it implies to the product and then we call it enabler and also expander. And the -- meanwhile, the product coverage is all the way from the mobile space, power management discussion, the AI-related -- AI-related product and also for the BCD application as well. So they were -- it's our belief is for a better reason or for the higher performance reason, and many different applications will start adapting the advanced packaging. So we think this is going to be a broad success on the advanced packaging space. Gokul Hariharan: Got it. And any plans to further expand your Interposer capacity? I think we had expanded, I think up to 6,000 and then kind of stopped it there. Now some of that demand seems to be kind of coming back for some of -- one of your customers in China. So, is there any plans to expand the capacity further? Jason Wang: There are discussions around that. Right now, if you look at the technology itself, we have some common tools in place already, which that we can leverage of our 40-nanometer capacity, of our 65-nanometer capacity. From those common tool space, we're already allocating to this area. Now for the unique tools, then we will put in the plan for the future expansion and for the customer ramp profile. And we believe that will probably happen in 2027. Gokul Hariharan: Got it. Understood. That's clear. Another question I had is on the -- just your expectations for the communication, consumer segment which is north of 70% of revenue, given all these concerns about smartphone, PC. How are you budgeting for this? Are your customers telling you that they are really concerned about this memory cost inflation? Or right now, you still don't really hear that from the customers that that's going to be a big issue from a unit perspective going through the year? Jason Wang: Well, we're also cautious about that topic. As of today, we have not observed any demand impact on our customers' forecast for the year, despite the recent surge in that price. And our technology predominantly supported customers addressing the higher end of the market segment, where the demand tends to be more resilient in the past and in the period of memory tightness. So, because the supply usually typically prioritize in such high-end higher-value device. While we remain attentive to the potential impact on the memory market and our current assessment is that any potential headwinds are probably manageable, and we will continue monitoring the situation properly with our customers together. Gokul Hariharan: Got it. My last question is on the geographic split of revenues. I think, could you talk a little bit about the Intel 12-nanometer progress? And any color on how you will be booking revenues or profits from this partnership given the fabless, Intel fab, while you are essentially the provider of customers and some degree of IP as well into it? And secondly, on the Xiamen's fab, what's the strategy for the Xiamen's fab medium to long term, given many of your semiconductor peers in Taiwan have kind of progressively exited capacity in Mainland China? Jason Wang: Well, for the 12-nanometer project with Intel, overall, the 12-nanometer cooperation project with Intel continues to advance smoothly. We remain on schedule to deliver the PDK and associated IP to customer in 2026. Furthermore, we anticipate the product tape-out will commence in 2027, making the significant step towards to commercialized deployment and future revenue growth. Right now, UMC and Intel are working closely to ensure successful tape-outs and an efficient ramp up for the mass production. As the project advance, it is expected to further strengthen USD position in the U.S., right, for customer as well for us. Because the geo diversification manufacturing. Right now, the application on the 12-nanometer cooperation, including products on digital TV, WiFi connectivity and high-speed interface products. In terms of the business model, and it's probably not available for us to comment. But it is a win-win strategy that we see and will be very synergetic for both parties as well as for our customers. And we have very high confidence this will be a win-win model. Gokul Hariharan: Okay. And any thoughts for the Xiamen capacity? Jason Wang: Yes. For the Xiamen, I kind of touched that earlier as well. I look at Xiamen, not just Xiamen itself, our core part of our competitive advantage is our geographically diverse manufacturing footprint. And the Xiamen play one of the important space for us and particularly for the local customer. So -- and at this point, the fab is actually at a full capacity. We are running at a full utilization as well. And we see -- we continue seeing many different engagements coming to this and we will across regionally optimize it from the customer engagement and product loading standpoint. Gokul Hariharan: Okay. Just one more on blended ASP. I think, Jason, you mentioned that the ASP environment is more favorable this year. But overall utilization is still in the mid-70s as of Q1, right? So do you expect that this year, we could see a scenario that we could see blended ASPs moving up meaningfully like 5% to 10% or something like that, like we have had in the past or that requires a much higher level of utilization that is probably not happening this year, given your low single-digit foundry growth expectation? Jason Wang: Sure. I mean, the high utilization is one of the important factors, but that's not the only factor. We want to make sure the pricing strategy is enabled not only ourselves and our customers to be competitive as well. So -- but we do see the pricing environment is getting more favorable to foundry because of the loading reason. And so -- but the magnitude of that, we probably have to continue to manage it. And if we have a clarity, we will share that with you. Operator: Next one Alex Chang, BNP. Alex Chang: I just have a very quick one. I just saw the company announced that they started the mass production of SuperFlash Generation 4. So just wonder how much revenue contribution from the non-volatile memory business in the past quarter or maybe past year? And also how much revenue is contributed by the power management ICs for the server-related applications? Jason Wang: I mean, we don't have a breakdown to provide. And the way that we break it down is based on specialty technology that includes the high-voltage and non-volatile memory and the PCB space. Right now, the specialty revenue representing about 50% of our overall revenue. And I can let you know the high voltage is about 30% of that. And the rest of that, I would say, is a combination of the non-volatile memory as well as the DCB. Operator: Next one is Laura Chen from Citi. Chia Yi Chen: I just want to follow up on the deterioration rate and also the gross margin outlook. Jason, you mentioned that the pricing environment seems to be improving more favorable. And together with firm shipment and better product mix as well as the utilization rate, so how should we think about the gross margin trend? You guided that will be high 20% for Q1. But with these favorable factors, how should we think about the margins throughout the year? That's my first question. Chi-Tung Liu: Yes. Gross margin can be highly dependent upon utilization rate, ASP, product mix, depreciation and foreign exchange rate. So there's a lot of variables. So beyond this quarter, it's difficult for us to give a firm outlook. For the first quarter guidance, which is high 20s, is mainly due to the higher cost, especially the higher depreciation expenses. As I mentioned, it will grow by low teens in the full year of 2026. As for 2026, we will continue to cope with higher depreciation expenses as well as the other inflationary pressure for our production, raw material and other costs. To mitigate and cope with the headwinds, we will continue with our cost reduction efforts and also all the activities to improve our productivity and drive operation efficiency. And these measures hopefully will help UMC to deliver a stable EBITDA margin and ensure our long-term financial resilience to remain intact. As a matter of fact, our 2025 EBITDA margin is actually a good improvement compared to that of 2024. Chia Yi Chen: Yes, sure. And also, I think for the advanced packaging and as well as the silicon photonics is one of the key things that UMC may have a great opportunity. We know that UMC has already working on advanced packaging, previously on Interposer, probably now we'll see more various different design. So could you share with us what's about the revenue contribution of your advanced packaging right now? And how would that look like in 2, 3 years? Jason Wang: Currently, the Interposer was exposed to very limited customer base and also narrow application. While we have engaged with more than 10 customers and expecting more than 20 new tape-outs in 2026, we do foresee that revenue of packaging -- advanced packaging growth in 2027 will be significant. Chia Yi Chen: So, significantly means that, could that be like 5%, 10% or higher? Jason Wang: I am expecting more than that. But I mean, if you're referring to the overall revenue contribution, we'll probably give you more guidance later. But if you're looking at the packaging itself, it's going to be significantly larger than what we're shipping today. Operator: Next, we'll have Bruce Lu, Goldman Sachs for questions. Zheng Lu: I want to go a little bit deeper for the silicon photonics. I mean, as you might know that your peers like GlobalFoundries, Taiwan Semi, pretty vocal about that. Can you tell us how big do you think the addressable market for silicon photonics for you guys in 2 years? And how do you win market? What is the competitive advantage for you in this business? I mean, other than working with INEX? Jason Wang: Well, I mean, the Singapore facility is not going to only serving the silicon photonics. Singapore facility is one of our important manufacturing site, they serve our worldwide customers, all different applications. And so it's part of our geographical diverse manufacturing strategy. So... Zheng Lu: No, no, no, my question is for silicon photonics, our business strategy? Jason Wang: The silicon photonics strategy in Singapore. Okay. Zheng Lu: No, no, no, no. I'm sorry, let me rephrase my question. So the growth driver for UMC, one of it is the CPO, I'm assuming having more business in the silicon photonics. In -- for your peers like GlobalFoundries or Taiwan Semi, they are pretty vocal about the silicon photonics and have meaningful revenue contribution already. For UMC perspective, what is your competitive advantage for UMC to win this business? And how much business you can win or how big is the addressable market for you in 2 years? Jason Wang: Got it. So, for the silicon photonics, our strategy is simple. Our cooperation with INEX allowed us to deliver the industry standard PDK to our customer in 2027, particularly in 12-inch. So many of our competitors is today at 8-inch and we are focused on this in 12-inch. And as we believe the 12-inch will have that advantage. And right now, we already have certain products that have proven that performance is a better and a pluggable product, and which we will expect to ramp this year. And meanwhile, we're also combining the silicon photonics with our advanced packaging know-how, so for many different type of applications then we can integrate that. So by doing that, we think we will be even providing even more value from advanced packaging combining with silicon photonics at 12-inch. I think that's where we believe we are competitive. Zheng Lu: But that's mostly for plug-in, right? Because if you don't have the EIC, the pure CPO product might not be your key growth driver? Jason Wang: You're correct. We're not looking at a completely CPO package. We're looking at particularly in the PIC and OIO and OCS. Zheng Lu: I see. I understand. That's very clear. Next one is -- and we see that the progress for the Intel project for 12 nanometers is pretty smooth. I just want to know what is the next step? I mean, when we can see a further collaboration in 10, 7 nanometers and beyond? I mean, obviously, whatever you said, the advantage at 12-inch, you can also use the same argument for 7-nanometer. What's stopping you to do that? Jason Wang: Well, you're also right on that. And our focus right now is on delivering the 12-nanometer platform to customers. In the future, should it make sense for both UMC and Intel as well as our customers, we will surely consider expanding our collaboration to other derivatives as well as the technologies. Yes. Zheng Lu: But what is stopping now? What is the show stopper now? Jason Wang: It's not -- I won't call it stopping. I think the focus is a focus on 12-nanometer. We have to deliver a 12-nanometer today, and make sure that we deliver that program. We execute it well. And I think anything that makes sense on that, unlike you said, I think there will be a discussion, yes. Zheng Lu: I see. Because we already assumed that you can deliver something in '27. So given that working for 7 nanometers, maybe you need 2, 3 years, we want to see the project kickoff as soon as possible. Operator: [Operator Instructions] Now we'll have our last question, [ Sappho ] Neuberger Berman. Unknown Analyst: It's been a while. And congrats on the progress you've made throughout this couple of years. I just have a few questions. The first one is, on the market dynamics, I think previously, Sunny has asked about the TSMC is shrinking or defocusing on this mature foundry process. And it looks like not just TSMC, but also the other foundries are -- seems to be doing some leading-edge logic foundry seems to be doing the same thing. And also Powerchip recently just reached agreement with Micron as well as Intel fab, which means they're trying to streamline and re-org some of the foundry process, too. So it seems like there's a lot of supply is kind of being taken away because of the rolling out effects from the AI and crowding out some of these older nodes. On the supply side, it seems to be that actually decreasing. And on the demand side, if you look at, I think, TI just to report overnight. I think it seems like that there's been more obvious recovery on the analog MCU space. So on demand side, that's also improving. But the supply side, that's actually decreasing. So it looks like supply-demand dynamics is moving to a more favorable situation. I think that's the point why you were mentioning the pricing dynamics favorable this year. So I'm just curious about your view, if we try to compare the current like the mature foundries dynamic situation right now versus, I mean, back in 2021 when there is a severe shortage back then. How would you compare this time around versus last cycle? Jason Wang: I mean, that's a really good question. I mean, we saw on the market movement, the changes. And we also deep dive on this demand and supply outlook. And we think whether this is short term or long term. If you look at the driver behind us, we see -- you mentioned this is truly more of the AI phenomenon ripple effect. And so we see that AI remains to be very strong, at least in the foreseeable future. And I think this momentum will continue driving the overall demand. And meanwhile, in many of this -- the capability -- AI capability we portfoliating to even the other end market devices in the Edge AI as well. So as in this will continue. And from an economic standpoint, building any of the mature facility is not justifiable. So we do think that this could last longer compared to the over time. And I think the situation could be more of a structure going forward. And -- but again, this is at a very early stage of this market movement. So we'll pay attention to it, and we'll continue monitoring the progress. Meanwhile, like I said earlier, I think it is more a favorable pricing environment. But more importantly is we need to prepare ourselves to cope with this market dynamic. So we are welcoming all the opportunity that for us to engage in supporting the customer. And -- but the important focus today is we have to get ourselves ready to capture those opportunities. Unknown Analyst: Got it. Another question I have is your earlier comments on the pricing. I think the -- you offer some of the annual -- maybe some discount to some of our strategic clients for their share again, but also net-net wise, also seems to be pricing is going up for a majority of the clients. So net-net, it's going to still be the -- ASP still be positive. But I'm just curious about, for those clients that you're offering some discount at the beginning of the year, when it down the road is, if the next few months or quarter situation has become tighter -- and would you be able to reprice with these customers? Jason Wang: Those discussions will be ongoing. We're always working with our customers to reflect the market dynamics as well as the cost increases. So I'm sure, and I believe this conversation will surely happen. It happened in the past, it will happen now and will happen in the future. So the pricing discussion will continue. And I think customers understand that. And we just have to continue monitoring the market dynamic and maintain our competitiveness on both the customer and ourselves. Unknown Analyst: Yes. Well, a thought on that because of some of the pricing that started to affect it on the January 1 this year, this was actually negotiated already in fourth quarter last year, right? Jason Wang: That's -- some alignment on that on both volume and the pricing. So if volume has changed, of course, that's a different topic. So, there are some volume dynamic in that as well. Unknown Analyst: Yes. My question is actually is that because a lot of the pricing that's effective on January 1, beginning of the year, it was actually communicated 1 or 2 months ago before that, toward the end of last year when the time that the supply demand dynamics haven't been really that tight as compared to some of the changes that happened in the just past couple of weeks. Am I getting that right? Jason Wang: Yes, you're right. Yes. But those also is on certain conditions. So given the condition has changed, the some of the pricing are dynamic. Unknown Analyst: Yes. Yes. Exactly, that is what I'm trying to discuss with you. Because we also saw a lot of the other different components, different subsectors within the tech or semi supply chain that such as memory, I think the pricing were still down in July, August, but all of a sudden, September prices going up. So I'm just curious about that because when you negotiate some of this discount months ago, the supply-demand dynamics was not the same as today. So things remain fluid, dynamic and it still continue to be flexible and it's going to be dynamic and open for changes down the road, if things are moving more favorably. Jason Wang: I think the core of the pricing strategy is that it has to be consistent, and it has to anchor with the value that we deliver and also the customers' competitiveness. That is the core. Then usually, that is how we're centering about the pricing discussion. So that core is not compromised. Now if the condition has changed, yes, they always have some flexibility to it. So, one is called pricing strategy and position, another is core pricing negotiation. So there will be some flexibility, yes. Unknown Analyst: Yes. And the condition has started to change now. Jason Wang: Yes. So we do think the pricing discussion will be more favorable now, yes. Operator: Ladies and gentlemen, we thank you for all your questions. That concludes today's Q&A session. I'll turn things over to UMC Head of IR for closing remarks. Thank you. Jinhong Lin: Thank you for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact ir@umc.com. Have a good day. Operator: Thank you. And ladies and gentlemen, that concludes our conference for fourth quarter 2025. Thank you for your participation in UMC's conference. There will be a webcast replay within 2 hours. Please visit www.umc.com under the Investors, Events section. You may now disconnect. Thank you, again. Goodbye.
Operator: Good morning, everyone, and welcome to the National Bank Holdings Corporation 2025 Fourth Quarter Earnings Call. My name is Rachel, and I will be your conference operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now turn the call over to Emily Gooden, Chief Accounting Officer and Director of Investor Relations. Emily Gooden: Thank you, Rachel, and good morning. We will begin today's call with prepared remarks, followed by a question-and-answer session. I would like to remind you that this conference call will contain forward-looking statements, including, but not limited to, statements regarding the company's strategy, loans, deposits, capital, net interest income, noninterest income, margins, allowance, taxes and noninterest expense. Actual results could differ materially from those discussed today. These forward-looking statements are subject to risks, uncertainties and other factors which are disclosed in more detail in the company's most recent filings with the U.S. Securities and Exchange Commission. These statements speak only as of the date of this call, and National Bank Holdings Corporation undertakes no obligation to update or revise these statements. In addition, the call today will reference certain non-GAAP measures which National Bank Holdings Corporation believes provides useful information for investors. Reconciliations of these non-GAAP financial measures to the GAAP measures are provided in the news release posted on the Investor Relations section of www.nationalbankholdings.com. It is now my pleasure to turn the call over and introduce National Bank Holdings Corporation's Chairman and CEO, Mr. Tim Laney. Tim Laney: Well, thank you, Emily. Good morning, and thank you for joining us as we discuss National Bank Holdings' Fourth Quarter and Full Year 2025 financial performance. I'm joined by John Steinmetz, our Executive Vice Chair and Executive Managing Director of Strategic Initiatives; our President, Aldis Birkans; John Finn, our Chief Enterprise Technology Officer; and of course, our Chief Financial Officer, Nicole Van Denabeele. I'll begin this morning by extending a very warm welcome to our new Vista teammates who joined the NBH family earlier this month. Turning to the fourth quarter and full year 2025. While the fourth quarter was noisy, we ended the year having grown tangible book per share by 10%, and we grew our CET1 capital ratio to 14.89%. I'm pleased with our swift closure of the Vista Bank acquisition and believe our combined organization will produce powerful results, results that Nicole will guide us through when she presents. It was a noisy fourth quarter with onetime acquisition costs, the strategic sale of securities and a move to put any lingering problem loans behind us. Our goal was to enter 2026 with a clean slate and with a focus on profitable growth. I'll touch on 2UniFi later in the call, but share for now that we're pleased to have completed Phase 1 of the 2UniFi build. And we're joined by John Finn, who co-leads 2UniFi, and he'll cover our progress in detail in just a bit. Before I hand off to Nicole, I also want to complement our bankers on their deposit and loan pricing discipline, which led us to close out the year with a net interest income margin of 3.97%. I believe we are set up for a beautiful 2026. Nicole? Nicole Van Denabeele: Thank you, Tim, and good morning. Today, I'll review the fourth quarter and full year 2025 financial highlights and provide guidance for 2026. Our guidance reflects the combined organization, and consistent with past practice, excludes the impact of any future Fed rate decisions. In 2025, we executed on key strategic priorities. We announced and have now closed the Vista acquisition within 4 months, grew tangible book value by 10% and delivered a full year net interest margin of 3.94%. Fourth quarter's results were impacted by elevated provision expense and onetime items, including $4.1 million in after-tax acquisition costs and a $2.6 million after-tax loss on the strategic sale of investment securities to remain below $10 billion in assets at year-end. As a reminder, this action will preserve approximately $10 million in interchange income for 1 more year. Excluding onetime items, fourth quarter net income totaled $22.7 million or $0.60 of earnings per diluted share. As Tim shared, we addressed the specific set of problem loans during the quarter. This resulted in $9.1 million of provision expense related to charge-offs and specific reserves. For the full year 2025 on an adjusted basis, net income totaled $117.6 million or $3.06 of earnings per diluted share. Return on tangible assets was 1.3%, and return on tangible common equity was 12.2%. During 2025, we maintained a top quartile full year net interest margin of 3.94%, generated $1.6 billion of new loan originations, executed share buybacks and added to our robust capital base. We are pleased to have added a number of experienced bankers to our team through the Vista acquisition. We kick off the year with a combined loan portfolio of approximately $9.4 billion and are projecting 2026 loan growth to be approximately 10%. At acquisition closing, we added approximately $2.4 billion of earning assets from Vista to our balance sheet. As we optimize the total cash and investment portfolio mix, we project the combined bank to generate earning asset growth of 7% to 10% during 2026. Our goal is to hold approximately 15% of total assets in cash and investments and maintain a loan-to-deposit ratio of approximately 90%. Fully taxable equivalent net interest margin for the fourth quarter was 3.89% and was impacted by variable rate loans repricing well ahead of Fed rate cuts. However, we cut deposit rates in tandem with the Fed, creating a lag effect in our cost of deposits. Most of this has now worked its way through our balance sheet, and December's margin returned to a strong 3.97%. Similarly, Vista's December margin was 4%. As a result, we project 2026 fully taxable equivalent net interest margin to remain right around 4%, excluding the impact of future rate moves. Turning to credit. Our nonperforming asset ratio improved 11 basis points during 2025 to end the year at a low 36 basis points of total loans. The criticized loan ratio improved 73 basis points during the year. Net charge-offs were 34 basis points of loans for the year, and the allowance to total loans ratio ended the year at 1.18%, consistent with the prior quarter. We continue to hold $16.8 million of marks against our acquired loan portfolio as of December 31, providing an additional 23 basis points of loan loss coverage if applied across the NBH legacy loan book. We will be adding marks from Vista's loans during the first quarter of this year. We project the provision expense in 2026 to cover net charge-offs and new loan growth at a rate consistent with the current 1.2% allowance to total loans ratio. Fourth quarter noninterest income was $14.4 million and included $3.3 million in pretax securities losses. For 2026, we project total noninterest income to be in the range of $75 million to $80 million. Fourth quarter noninterest expense totaled $72.4 million, including $5.4 million of acquisition costs. Also included in the fourth quarter's expense were investments made in bankers in our resort markets. Full year noninterest expense was $265 million, including $7.2 million in acquisition costs and $22 million related to 2UniFi. For 2026, we project noninterest expense of $320 million to $330 million, reflecting a full year of Vista expenses. We project expenses during the first half of the year in the range of $165 million to $170 million. This means lower expenses in the back half of the year, reflecting cost savings from operational efficiencies generated by the combined organization following the completion of system integration. During 2026, we expect to incur onetime expenses associated with the acquisition and rebranding. In addition, we may recognize CECL day 1 provision expense depending on our final purchase accounting approach. As Tim shared, we are pleased to have completed the initial phase of 2UniFi in 2025 with the launch of our fully automated SBA loan offering last quarter. With the core technology infrastructure now in place, we expect a substantial reduction in capital expenditures for 2UniFi in 2026. This shift positions us to begin realizing operating leverage from the platform. For 2026, we expect $2 million to $4 million in 2UniFi revenue contribution, which is included in my fee income guidance. Importantly, we expect to maintain flat year-over-year 2UniFi expense, even with 2026 reflecting a full year of capitalized asset depreciation, which is approximately half of 2UniFi's 2026 expense. This means significantly lower cash spend in 2026. Turning to income taxes. The 2025 effective tax rate was 18%. With the integration of Vista and the resulting shift in the mix of taxable versus nontaxable income, we expect our effective tax rate to be approximately 20% for 2026. Capital levels remain strong, and we continue to grow our excess capital. We ended the year with a TCE ratio of 11%, Tier 1 leverage ratio of 11.6% and a strong common equity Tier 1 ratio of 14.9%. We project a 2026 share count of 45.8 million shares, reflecting the Vista-related share issuance. On a final note, bringing this all together, we believe we are well positioned to deliver earnings in excess of $1 per share in the fourth quarter of 2026, which sets the stage for full year earnings exceeding $4 per share in 2027. With that, I'll turn the call over to John Steinmetz. John Steinmetz: Thank you, Nicole, and good morning. On behalf of the Vista team, our state and our NBH family, I am pleased to have successfully merged our organization with National Bank Holdings Corporation and honored to be joining you on today's call. As the newest member of National Bank Holdings, I am fired up about the future of our combined companies. We have partnered with a dynamic, high-performing team and platform, and I believe there is a tremendous potential for our combined organization. It hasn't taken long to have my instincts confirmed that our companies are ideal partners for our shareholders and team members alike. With its strong leadership, consistent discipline around credit, and a vision to create one of the most respected and profitable financial institutions in the country, NBH has built a platform that is uniquely positions our company for strong continued organic and strategic growth. As a part of the NBH family, we are excited to have the opportunity to offer expanded services, such as wealth management and trust services and enhanced treasury management offering, added mortgage products, and a bigger balance sheet to support the growth of our valued clients. This broader product set will strengthen our relationships, deepen wallet share and enable our exceptional bankers company-wide to better serve our clients through their financial life cycle. We are also honored that Tim and the Board made the decision to adopt the Vista name as the go-forward brand in our diversified markets. It provides our combined teams a unified front and is a name that works well in both English and Spanish, further enforcing our commitment to taking the long view of better serving our clients in the future. With $2.7 trillion GDP, Texas is one of the fastest-growing economies, larger than most countries and consistently outperforming national averages. Texas' diversified high-growth economy provides unlimited opportunities for our combined organizations. That said, I'm also equally excited about the growth opportunities in the various resort markets we serve currently, such as Jackson Hole, Aspen, Vail, Telluride, and Palm Beach, Florida. Since the transaction, we have already added 3 presidents with over 45 years combined experience at their previous banks prior to joining NBH. These communities, once seen as primarily secondary home destinations, are now primary residents for wealthy baby boomers. This shift presents an opportunity to offer our white glove concierge private client and wealth management services, further setting our bank apart in a very crowded industry. Additionally, I am pleased to share with you that we are already seeing early momentum in our combined pipeline, fueled by the energy of our seasoned team members and enhanced capabilities, creating a clear path to value creation through relationship-driven profits. Equally significant is the cultural fit between our two organizations. Over the past several months, the Vista Bank and NBH teams have united around a shared velocity, putting people first, a focus on the value of teamwork and meritocracy, all while delivering exceptional results and building long-term relationships. These value drive results and further increase shareholder value. The legacy Vista team has been together for nearly 2 decades, and I -- and my commitment remains unwavering: To finance the American dream for those entrepreneurs brave enough to pursue it. We invest in our communities, and we compete to win and while striving to create the best place for our associates to call work. Having deep respect for Tim, Aldis and the entire NBH team have built, we couldn't be prouder to join the NBH family. I truly believe the best is yet to come. All that said, we are confident that our contributions will enhance NBH's growth profile, strengthen its market presence and further expand shareholder value. I'll close my remarks by thanking you for your trust and support. And now I'll hand off the call to my friend, Aldis. Aldis Birkans: All right. Thanks, John, and good morning. I'll begin by highlighting what was a strong loan production quarter. We originated $591 million in total loans, the second highest loan production quarter in our company's history. I believe that performance is a direct reflection of our franchise strength and capability of our bankers. What I'm most proud of is the composition of that production. $429 million of that came from commercial loan originations, a new record for us. This drove our commercial loan portfolio growth to nearly 8% annualized. This is high-quality, relationship-driven business that proves we are winning in our core markets. During the fourth quarter, we continued to see pressure on our commercial real estate loan balances. This decline was mostly driven by accelerated payoffs as clients move toward alternative funding like private credit, REITs and life insurance companies. As a result, we improved our nonowner-occupied CRE to capital ratio to a low 127%. And when we factor in the Vista balance sheet, we are starting the year comfortably below the 200% threshold, which gives us meaningful runway for growth moving forward. From a credit perspective, Tim and Nicole have already walked you through the actions we took during the fourth quarter, so I'll just simply add this. My expectation is that our asset quality metrics will continue their positive trends, returning to top quartile performance in 2026. I'm also very pleased to be working alongside John Steinmetz as we expand our footprint in Texas and key resort markets. And together, we expect to deliver our 2026 targets, driven by profitable and prudent growth. When you combine the Vista merger with our planned organic growth across all markets and recognize that we have reached our turning point for 2UniFi, the stage is set for a very compelling 2026. With that, I will turn it back to Tim. Tim Laney: Thank you, Aldis. I'll share a few thoughts on 2UniFi before handing off to John Finn. First, I want to congratulate the 2UniFi team on completing the Phase 1 build. Second, make no mistake. During 2026, there will be an intense focus on new client activation and growing revenue. And finally, our goal is before year-end to have entered into a partnership that will meaningfully reduce NBH's 2UniFi investment run rate. With that said, I'll turn the call over to John Finn. John? John Finn: Thank you, Tim. Today, I'm pleased to share more about the journey of 2UniFi as we unlock the future of small business banking. Last quarter, we reached a significant milestone with the launch of our SBA working capital loan, integrated seamlessly into our platform alongside our innovative business suite deposit account. This achievement is a key moment in Phase 1 of our multiyear strategy. Imagine a world where a small business owner can log in once and see their entire financial landscape, accounts, cash balances and lending options, all in 1 unified view. We are revolutionizing the client experience well beyond traditional online banking, creating a seamless platform that helps a small business owner manage financial products and services across multiple banks and fintechs. With our integrated digital passport, we have transformed the application and onboarding process. Clients can provide their information once and eliminate the need to reenter it for additional products, whether opening an interest-bearing account or applying for a loan. Our innovative passport will ultimately enable business owners to effectively shop for financial services across a broad set of financial service providers. Now that our foundational infrastructure is in place, we are shifting gears from constructing systems to activating services. We're launching with 2 essential capabilities that small business owners need, beginning with a convenient access to SBA working capital loans, as well as an automated nightly suite that earns interest on excess deposits, which is functionality typically reserved for larger mid-market clients. Our custom middleware and microservices architectures enables us to deliver advanced features like real-time event notifications and tailored communications. Clients receive faster decisions with clear and concise updates, saving time and reducing stress for business owners. Our vision has always been clear: To build an integrated and seamless technology platform, not just another digital bank. Operating with a full-service banking charter, our scalable and secure architecture is supported by industry leaders like [ Finxact ], [ Savana ], Visa and [ Marqeta ]. This ensures we have the best tools at our disposal to serve our clients effectively. Leveraging our technology with Snowflake and Microsoft Azure positions us to enable enterprise-grade data insights in upcoming releases. Our data architecture will support AI-driven, customizable data sets, enabling 2UniFi to provide valuable cash flow insights and proactive product recommendations based on clients' activity. This architecture also creates opportunities to develop new insight-based products and analytics-enabled services based on aggregated, anonymized data alongside deeper client analytics. As Tim has shared, we are optimistic about the formation of a partnership in 2026 that will accelerate our distribution and scale. Our full-service banking charter provides the partner with access to a tech forward platform, including the ability to offer FDIC and shared deposit solutions nationwide. As we move forward beyond Phase 1, our investment in 2UniFi will become more targeted with a step down in our capital expenditure run rate as the build phase gives way to more efficient operating profile. Importantly, we're scaling 2UniFi deliberately. We will onboard clients responsibly and optimize our controls, which we believe will translate into quality conversions and more durable relationships over time. We are prioritizing a high-quality onboarding experience with robust fraud mitigation because, as you know, building trust is foundational to long-term value creation. With a more efficient cost profile and a growing set of capabilities, we remain committed to building 2UniFi into a marketplace that we believe will compound value for small business owners and our shareholders alike. I appreciate the opportunity to provide this update on 2UniFi. I will now turn it back to Tim. Tim Laney: All right. Well, thank you, John. We've covered a lot of ground this morning. So Rachel, I'll go ahead and ask you to open up the call for questions. Operator: [Operator Instructions] Our first question comes from Jeff Rulis with D.A. Davidson. Jeff Rulis: Nicole, that was a whirlwind of updates. If I could just rattle through a couple. Just to confirm, you said 10% loan growth in '26 off the combined $9.4 billion balance, a margin for the full year near 4%, earnings over $1 in the fourth quarter and over $4 in '27. Is that right? Nicole Van Denabeele: That is correct. Jeff Rulis: Okay. And on the 2UniFi front, I think you said $2 million to $4 million in revenue this year. What was the cost again for '26? Nicole Van Denabeele: Yes. So that's correct, $2 million to $4 million 2UniFi revenue projection for 2026, and we will be holding 2UniFi expense flat in 2026, consistent with 2025, which was $22 million. Jeff Rulis: Got it. And then it sounds like the partnership developing to sort of reduce those investment costs. I guess the leverage of the model into '27 is a little bit TBD, but I guess the focus is as you scale it up, that's more of a breakeven-type climate in '27. Just -- I know that were -- all this is developing, but trying to get a sense for what the '27 economics look like? Tim Laney: Look, I think what we should share with you is that right now, we are incredibly focused on Phase 1 product activation with clients and driving revenue and really testing the market with those services. Number two, as I shared, we are very focused on working to establish a partnership that frankly could have the effect, amongst other options, of moving this off the NBH financials altogether, where we would remain a meaningful investor as shareholders, but it would be treated in a very different fashion financially. But I'll come back to the first point, which is our focus today is on client activation and scaling this business, and we'll come back to you. It's just too early to come back to you with any kind of definitive targets on '27. Jeff Rulis: Yes. No, that's helpful, Tim. Just the range of options, including moving the -- off the financials of the bank entirely, we'll stay tuned. Maybe the -- just to pivot on to the credit side, the 3 loans that made up the bulk of the net charge-offs. Could you kind of identify the sort of category and why that group? Any systemic -- it sounds as if you expect credit metrics to further improve in '26. Just trying to get a sense for what was charged off. Tim Laney: If you'll recall, at the beginning of '25, we literally were dealing with less than a handful of relationships that had emerged as problems. We really were in the belief that over the course of '25, they would work their way through the judicial process, and we would have them resolved, and that simply wasn't the case. The decision -- we believe a prudent decision was to address these as aggressively as we could in '25 and have a clean runway for '26. We're just not believers in letting problems like this linger. And the Board and I felt like this was the correct and prudent action to take, even though it obviously was painful to take here in the fourth quarter of last year, but it feels good -- very good to put it behind us. Operator: And we will take our next question from Kelly Motta with KBW. Kelly Motta: Maybe to kick it off with growth. I know we talked about 2025 year being -- working through some credits and impacted by some payoffs and refinancings, but it sounds like the outlook for '26 is really strong in part with your Vista partnership that you just brought on. As you look to, I think it was 10% loan growth, can you speak to the drivers of that growth, if that's significantly Texas and other markets where you're seeing opportunities just given the acceleration from what we've seen in the past several quarters? Aldis Birkans: Yes, this is Aldis. I'll kick off, and then I'll have John chime in. But yes, it's a combination of all the markets and certainly, the continuation of the strong production we saw in the fourth quarter. As I mentioned, it was our second highest loan production quarter for NBH stand-alone basis. In our company's history, we did really well on originating commercial loans. If you look at the C&I in the table, that grew north of 10% annualized. So we do see a very good momentum going into this year. And certainly, adding markets like Texas and the expertise and teammates that we are adding through this acquisition is great. And John, maybe you can add on that front as well as touch on the resort markets. John Steinmetz: Sure. Thanks, Aldis. And yes, Kelly, we're really excited about the future growth potential, not only in Texas, but the resort markets, in all the markets, candidly. I'm looking forward to getting to know the team members throughout all of the NBH markets. And we believe in Texas that this platform that was built at NBH provides us not only the balance sheet that we need to continue to grow with our valued clients, but support our exceptional bankers. And to Aldis' point, we also have always believed that NBH has an incredible opportunity in the resort markets. Resort markets that, again, were once seen as second homes, but are now becoming primary residents in places where people want to have their local bank. And I hope at this time next quarter, you'll see some performance-driven metrics and increase shareholder value around that. But the platform that we have at NBH as a team is going to provide -- not only allow us to support the continued 20-plus percent CAGR on deposits and loan growth that we've historically had, but it's also going to allow us to overcome a lot of the lack of fee income which Vista Bank has historically struggled with. Kelly Motta: Got it. That's really helpful. Maybe bouncing to a question on the margin. It was down this quarter a bit more than I had expected. With the loan yields, were there any interest reversals given what you had with credit? And I appreciate the guide in the mid-3.90s too is ex rate cuts, but just -- if you could refresh us on -- clearly, I think there was some initial asset sensitivity, so how we should be thinking through that? Nicole Van Denabeele: Yes. Kelly, this is Nicole. Yes, I'll just reiterate. So our December margin did come in at a strong 3.97%. We have managed, in our view, very well through 75 basis points of rate cuts in 2025. We experienced -- we drove 9 basis points of margin expansion even with those rate cuts this year. There wasn't any interest reversals in the fourth quarter, and the loans that we worked through were already on nonaccrual. But I will just -- just to reiterate, we've done a nice job with our deposit pricing for prior rate cuts. We cut deposit price -- we cut our deposit rates ahead of the Fed. This time, we held and we waited until we knew exactly what the Fed was going to do. And so that did cause that lag and drag effect, but we have overcome that and finished the year with a strong margin of 3.97%. Kelly Motta: Great. Last one, if I could slip in just one more. On the 2UniFi guide, the expense guide that -- flat at $22 million. I just wanted to confirm because you alluded to a potential partnership that could change the economics here, that, that didn't bake in any potential impacts of maybe offloading some of those expenses, one? And then two, with it flat, I imagine getting -- increasing the user base is an important part of driving those revenues higher. And so I'm surprised it's flat. So I guess, if you could kind of speak to how you guys are thinking about that line item, given that we're not really seeing a change from last year? Nicole Van Denabeele: Yes. I appreciate you asking that question. I think it's important to note, we see 2026 as a turning point for 2UniFi. And as I shared, we are seeing operating leverage from 2025 from 2UniFi in 2026. So the revenue guide is an increase from last year. So $2 million to $4 million revenue guide, positive impact from 2025. And then holding expenses flat, it's actually very significant that we're holding expenses flat because we will have a full year of capitalized asset depreciation in 2026. And so that expense flat includes that uptick in depreciation, which is half of the 2026 expenses. And then to your point on the partnership. So no potential -- the partnership really from a financial perspective is all upside, and none of that has been included in our guidance for 2026. Operator: And we will take our next question from Andrew Terrell with Stephens. Andrew Terrell: First one, just to clarify, Nicole. On the margin, was the 3.97% -- was that spot at the end of the year or 3.97% for the full month of December? Nicole Van Denabeele: 3.97% was for the full month of December. Andrew Terrell: Okay. And then do you have the -- it sounds like there was a lag here where assets reprice quite a bit quicker than deposits. Do you have where deposits, either spot or interest-bearing -- I mean, either total or interest-bearing were either in the month of December or on a spot basis at the end of the quarter? Aldis Birkans: Yes. This is Aldis. It was [ 182 ] is the spot deposit cost at the end of December for NBH. But I recall now starting in Q1 or starting now, obviously, we're incorporating all of the Vista deposit base as well. So it will change into Q2. But I think what you're getting at is how spot margin is around 4% if you incorporate all of the benefit from deposit bleed through in December. Andrew Terrell: Yes. Yes. Got it. Okay. If I could ask just around the 2UniFi, specifically the partnership. If I go back to October, Tim, when we talked about on the call, it sounded like you were maybe pretty close on announcing something from a partnership standpoint. It sounds like now, that's still likely but maybe delayed a bit. I guess I'm curious what's kind of causing a delay here or if there is a delay in your mind? Tim Laney: I may have made a mistake in sharing as much as I did at that point candidly. It perhaps even reflected too much optimism, and I could kick myself for that. I believe we were further along in consummating a partnership there. But frankly, when you're involving 2 parties, you can have different needs, expectations on either side that may not come together in the time frame that you expected. So what you need to hear from me today is that we are intensely focused on bringing the right partnership together and moving 2UniFi ahead. And frankly, we are proud to be targeting a $4 run rate in our earnings in '27. But imagine what that looks like if we're pulling those expenses of 2UniFi in all or in part off of our income statement. So we're highly motivated to see something happen there. Andrew Terrell: Yes. Got it. And last for me, was there any -- I appreciate that 2UniFi guide, but was there any revenue in the fourth quarter realized? And then just on the buyback that you guys announced, maybe Tim, if you could speak to kind of the appetite there? Nicole Van Denabeele: Yes. I can touch on the 2UniFi revenue question. So we did have some revenue related to 2UniFi in the fourth quarter, but it wasn't meaningful. And then the second part was the appetite for share buyback. Tim Laney: We have a strong interest in share buybacks. I believe, you know, we literally just announced a $100 million buyback authorization. And we have a -- frankly, we would consider it a priority at this point. Operator: And we will take our next question from Brett Rabatin with Hovde Group. Brett Rabatin: Wanted to -- I joined a little bit late, Tim, but I wanted just to go back to -- you guys have had really strong loan originations, particularly here lately. But again, obviously, the net growth has been limited due to payoffs. Can you talk maybe a little bit about what you've experienced -- or what you experienced during 4Q in terms of payoff activity and how that played out? And then just your confidence for '26, if I heard correct, 10% loan growth. Is there a net and gross assumption there? Or any thoughts on confidence on payoffs diminishing relative to what you experienced the past few quarters in particular? Tim Laney: Aldis did touch on what we were seeing with insurance competition in the private debt market. But let's be candid. All banks -- or most banks would be facing that competition. I'll tell you, there were just a number of situations where the kind of structures that were being put together and the pricing related to those deals just simply did not fit within our risk management framework. And so we're more than willing to let that business move along. But I think the broader context is the whole year, where we entered 2025 with, frankly, a risk-off mindset, having concerns about tariffs, having concerns about where the economy would land. And I would tell you that, that risk off position that we took was somewhat pervasive throughout the year to a point where when it was time to really turn things back on, I'm proud of the team's production, but I would tell you it was being done in a very, very conservative atmosphere. We come into '26 really with the combined forces of form a Vista and NBH. And as we lay out these growth plans that we shared for you, Aldis and John have expressed nothing but very high confidence that we will meet, if not beat them. So with that, I'll open it up first. Maybe you, Aldis, just for more detail on the fourth quarter. But then in terms of growth here in '26, John, Aldis, feel free to jump in on that as well. Aldis Birkans: Yes. Brett, what I would add is, looking ahead in 2026, one thing that is a bit different in addition to what Tim was mentioning in terms of, again, like transportation or trucking is a segment we definitely exited, and that was a headwind. We are where we want to be. So that's not going to be a headwind in 2026. The other thing I'll say is -- and again, this is on NBH's legacy book side, but we have approximately $0.25 billion to almost $300 million of less scheduled maturities this year than it was last year. So that's less of a, call it, headwind return that we have to overcome to again, grow even with the same production results. So John, anything that you'd add on from legacy Vista side? John Steinmetz: Sure. Well, Brett, thanks for the question. And let me say, I'm optimistic and very excited about '26. We have consistently put up a 23% CAGR in loan growth without the balance sheet that NBH provides us. And so we think that this was the perfect partnership. We see tremendous opportunities in these resort markets. But I am very confident and have always believed that the reason people first matters is because the best clients follow the best bankers, and we are committed to continuing to not only augment and support our exceptional team members at Vista and the entire NBH family, but also recruit and retain through the disruption that we see not only today, but throughout Texas. This was a merger of two incredible teams, and I'm incredibly optimistic and expect to win. And with respect to a question that was asked earlier, I believe, by Jeff with D.A. Davidson, I want you all to know that we take great pride in our credit quality. And for, I hope, our credit team that is listening today at Vista -- legacy Vista, I'm still getting used to this -- they know how much pride we take in pricing with credit quality second to none, and I have an extraordinary amount of confidence in Rick, Danny and the credit team at NBH. We did our reverse diligence and examined NBH's because I assure you, they did theirs on us, much like a proctology exam. And I am very proud to be partnering with this excellent credit quality minded organization because I don't think they kick the can down the road, and I'm fired up about '26. Brett Rabatin: That's really helpful. I'm sorry? John Steinmetz: I was just saying as a shareholder and team member. Brett Rabatin: Yes. Okay. That's all really helpful. And I think most investors are going to give you guys credit for the credit situation as being truly one-off. So I don't think anybody is concerned about that. The other question I wanted to ask you, John, was just I think you're kind of known as a recruiter and you got this deal with NBH, but there's been significant disruption in a lot of the markets of the core operating pro forma company. Just wanted to hear if you had offers out or if there was a hiring effort pro forma, or if it's too early, and you're just still trying to combine everything before you maybe go too much on offense with market share opportunities related to disruption? And just any thoughts on how you see that playing out? John Steinmetz: And Brett, I appreciate that question. And I'll tell you, this is my first public earnings call, and Tim told me not to make promises I can't keep, but I'll tell you this. We are actively recruiting, but I'll tell you, we are actively retaining. Like I said, most of our team members have been together for 20 years, and I take so much joy in knowing that we have the best bankers providing these. The opportunities and the inbound calls that we're receiving, not from recruiters, but from bankers at the organizations in Texas and beyond to be a part of a culture that puts their people first is something like I've never seen. And I'm excited for my friends in Texas that announced the deal today, but I can assure you, I am recruiting. And I think we all should be in this incredibly crowded industry, where we all eat out of each other's dog bowl. So I think that '26 could be a really good year if we're willing to dig in. And I'm excited about digging in with the team that we've had in the past, and more importantly, getting out and getting to know the NBH team that I have had a deep level of respect. This merger took place over 5 years of getting to know Tim, Aldis and the entire NBH team. And for -- if you would, Brett, just allow me to thank the team at Vista for their patience as we explore various opportunities. But we think this is a perfect partnership because of the way that they manage credit, much like we do. Operator: Thank you. And I am showing we have no further questions at this time. I will now turn the call back to Mr. Laney for his closing remarks. Tim Laney: I'll just simply say thank you for your time today. And if you have any follow-up questions, do not hesitate to reach out directly. Have a good day. Operator: And this concludes today's conference call. If you would like to listen to the telephone replay of this call, it will be available in approximately 24 hours, and the link will be on the company's website on the Investor Relations page. Thank you very much, and have a great day. You may now disconnect.
Alex Ng: Good afternoon, and welcome to Stolt-Nielsen's earnings call for the final quarter of 2025. As always, the earnings release and related materials are available on our website. We'll be recording this session and playback will be available on our website from tomorrow. Included in this presentation are various forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, and we refer you to our latest annual report for further details. I'm Alex Ng, Vice President of Corporate Development and Strategy. Joining me today are Udo Lange, our CEO, and Jens Gruner-Hegge, our CFO. At the end of our presentation, there will be a Q&A session where we'll be taking questions in the room and online. [Operator Instructions] Thank you, and over to you, Udo. Udo Lange: Yes. Thank you so much, Alex, and welcome, everyone, here in London and of course, on the call as well, and thanks for joining us today for our fourth quarter results. The presentation will follow the usual format. I will begin with an overview of the group's results for the quarter and the full year, and then Jens will cover the financials before handing back to me to run through the performance of our divisions, our view of the market outlook and a few concluding remarks. In an unpredictable and challenging market context, I'm really pleased that overall, Stolt-Nielsen has delivered a solid finish to 2025, achieving EBITDA of $186 million for Q4. This completes the year with $776 million in EBITDA, which was at the upper end of our guidance and the second highest EBITDA result achieved in our history. We continue to communicate that Stolt-Nielsen is not a shipping company, but a logistics business. Non-Stolt Tanker operations account for 57% of our asset base and 45% of our EBITDA. We are building our non-tankers earnings base through our capital investment program to continue to grow long-term sustainable cash flow for our shareholders. For this quarter, while Stolt Tankers EBITDA fell 18% from the same quarter last year, the resilience of the other areas of our business resulted in a 13% drop for the group overall. Optimizing value creation from our portfolio is the driver of our M&A activities. In the period, we acquired 100% of Suttons, a U.K.-based ISO tank operator through which we can leverage the scale and flexibility of Stolt Tank Containers' global platform to expand our service offering for our customers. Aligned to our strategy to grow Avenir whilst preserving balance sheet flexibility, we have also very recently announced that we are in discussions to sell down a portion of our equity in Avenir. We also issued a new Norwegian bond. It was one of the tightest spreads for a logistics company achieved in the Norwegian bond market, showing our good access to markets and the credit investors appreciate our portfolio, and the master of the bond is in the room, Julian, thanks for the outstanding work there. You'll remember that last year, we evolved how we communicate our earnings potential, aligning our EBITDA guidance with our business model for the full year. In 2025, we came in towards the top of our range, and we hope you find our transparency in this regard helpful, and we are committed to continuing with this approach. Based on what we know today, we expect that our 2026 EBITDA will be in a range of $600 million to $750 million. Jens will elaborate on this more a bit later, but I wanted to flag a couple of key points here. We are excited about integrating Suttons into our core business. However, there will be some integration costs this year and positive EBITDA impact from the Suttons business is not expected until 2027. This also assumes that the de-consolidation of EMEA is completed in line with our announcement on Monday, and that is, of course, relevant for the like-for-like year-over-year comparison. And we expect to be able to refine this range as the year progresses. Let's now turn the page to review our financial highlights. I'm really pleased with the results achieved in the quarter in a complex market backdrop. Operating revenue was down 4% or $29 million year-on-year, which is predominantly on account of weaker freight rates in Stolt Tankers. EBITDA before the adjustment for fair value came in at $186 million, down $27 million on last year due to lower rates in Stolt Tanker and in Tank Containers, partially offset by performance in our Gas operations. Operating profit was down year-over-year by $35 million, mainly due to the performance in Tankers and Tank Containers, plus additional depreciation from the consolidation of the Hassel Shipping 4 and Avenir. Net profit was also down, driven by the same factors as well as higher interest expenses. Free cash flow was down EUR 38 million year-over-year, driven by higher CapEx, including from the acquisition of Suttons International and new building deposits in our NST joint venture. Net debt-to-EBITDA has increased to 3.12x as a result of the investments we have made over the year. I will talk more about how we are investing for long-term growth a bit more later. Over the page, we look at some of the key drivers of performance. Looking at the snapshot of the whole year, we have delivered a solid performance with the second highest EBITDA result in the company's history despite demand headwinds from a weak global chemical market as well as geopolitical uncertainty and tariffs impacting sentiment. We have remained focused on our strategy and on supporting our businesses to maintain their leading market positions. Stolt Tankers earnings were impacted by ongoing geopolitical uncertainty with lower freight rates weighing on performance whilst volumes remained stable. Over the last 18 months at Stolthaven, we are focused on optimizing for higher-margin business. This strategy has delivered success in certain markets, and we end the year with average utilization for the year up slightly, a positive outcome in a difficult market. Tank Containers have also been navigating a highly competitive market and performance here has been impacted mainly by lower transport margins. For the year overall, the mix of EBITDA generated outside of Stolt Tankers increased to 43% from 35% last year. This is $40 million more than last year as investments across our portfolio, help diversify our earnings. Our global teams are doing a fantastic job of working together to help our customers keep their supply chains moving in a safe and reliable way. And I want to thank all our people for their dedication across the year. They truly live our purpose of moving today's products for tomorrow's possibilities. In November, we announced the acquisition of Suttons International, a U.K.-based ISO tank operator. I wanted to give you a bit of additional color on the rationale for the acquisition and how it supports the Tank-Container strategy. We acquired Suttons in November, adding over 11,000 ISO tank containers to the fleet, growing our fleet by around 20%. The acquisition is aligned with our corporate strategy to accelerate growth in one of our asset-light businesses, leveraging Stolt Tank Containers' global platform to support customers with efficiency, reliability and flexibility across their supply chains. We have been investing in creating a scalable global platform for Stolt Tank Containers, driven by a strong focus on digitalization and efficiency, and we aim to drive sustainable growth, operational consistency and improve customer outcomes by leveraging this platform to successfully embed Suttons within our business. Suttons not only brings tank capacity, but also enhances our customer offering as we bring in specific expertise in gas distribution, domestic short sea and China domestic services. With an expanded fleet, global reach, a more comprehensive service offering and an improved digital experience, customers will benefit from our scale, efficiency and global network. As we talked about it on our Capital Markets Day, the ISO tank container market is highly fragmented. As you can see here on the chart, this transaction cements Stolt Tank Containers' position as a leading ISO tank operator and gives us potential for further profit margin growth. As well in this market, we see low levels of new tank production and ongoing capacity rationalization, which we expect to lay the foundation for an eventual market recovery and Stolt Tank Containers will be well positioned to take advantage of a potential upturn. Our strategy puts our three most important stakeholders at the heart of everything we do, our shareholders, our customers and our people. We focus on developing our people to continuously improve our customer experience and on value creation for shareholders through our unique market leadership across liquid logistics and other business investments. We paid an interim dividend of $1 per share in December, which takes shareholder distributions since 2005 to over $1.4 billion. Our commitment to balancing distributions, conservative balance sheet and investing into our business is key to delivering long-term shareholder returns. Our unique position in liquid logistics benefits customers as they build and optimize robust supply chains in uncertain and demanding markets. 70% of our top 50 customers use more than one of our service, and we continue to outperform industry norms with respect to Net Promoter Scores. This year, the average Net Promoter Score of our Logistics businesses was 52, up from 40 in 2024. Our people are the beating heart of our business and their passion and commitment drive our success. This year, employee engagement remains strong. Our employee engagement survey showed a sustainable engagement score of 86%, outperforming industry's peers in all benchmark categories with also a record response rate of 91%. We have created a workplace where our people want to stay and the average tenure for Stolt-Nielsen employee is over 9 years. To support our strategy, we have been making targeted investments to position our business for long-term growth and to ensure our Liquids Logistics Solutions remain compelling for the future. We spent approximately $500 million in 2025 and increased our asset base to $5.8 billion. In 2026, we have plans to extend this further by around $380 million investments. We strengthened our market position and customer value proposition in all 3 logistics businesses. In Stolt Tank Containers, we continue to invest in assets to maintain our network, acquiring the remaining 50% in the Hassel Shipping 4 joint venture and ordering 2 additional modern fuel-efficient 38,000 deadweight new-builds with our joint venture partner, NYK. At Stolthaven terminals, we started construction of a new terminal in Turkey, while our terminal in Taiwan advanced towards operational status. And we invested to expand capacity in the U.S., Korea and New Zealand. I touched upon the rationale for the Suttons acquisition and that investment sits in the FY '25 Tank Container figures in addition to new tanks in our core business. We also acquired the remaining shares of Avenir in 2025, reflecting our excitement in continuing to capitalize on the growing need for LNG bunkering as announced this week. We are now exploring a partial sell-down of this holding for an additional value creation opportunity while still having commitment to grow Avenir's fleet in the future. Based on project approved to-date, we will reduce our CapEx spend by around $130 million year-on-year while both sustaining our current operations and driving future growth opportunities and innovations. We will see the full impact of these investments over the coming months and years. And I'll now pass on to Jens for the financials. Jens Grüner-Hegge: Thank you, Udo. And great to see everyone. Good morning to those of you calling in from the United States, and good afternoon to everyone here. As Udo did, I will compare fourth quarter of '25 with fourth quarter of 2024. And just as a reminder, our fourth quarter runs from September 1 through November 30, every year. To reiterate what Udo has talked about, the company's performance is resilient in a challenging environment. But let's dive into the numbers. Now we talked about a lot of transactions that happened in the last 12 months. So since I'm comparing fourth quarter of '24 with fourth quarter '25, we have added a column here to take out the impact or to normalize the impact of the three major transactions, which was the acquisition of 100% of Hassel Shipping 4, 100% of Avenir and now lately also the Suttons acquisition. So comparing those to the normalized with the current -- with the last quarter last year, the drop in revenue was driven by Tankers, reflecting the lower freight rates, which were partly offset by a 6.9% increase in volume following additions to the fleet over the last 12 months. Terminals revenue was flat and STCs was down by about $5 million, excluding the Suttons impact, while Stolt Sea Farms revenue was marginally up. The reduction in operating expenses partly offset the reduction in revenue and was driven by lower TCE hire costs and lower owning costs in tankers. Excluding the impact of Hassel Shipping 4 and Avenir, depreciation expense was only marginally up, and that was reflecting really additional leases that we've taken on and additional terminal capacity that has been delivered and become operational. The equity income from our joint ventures was up substantially, and that was driven by a prior year impairment that we took at HIGAS of about $5 million and past operating losses at Avenir that has since now seen a significant improvement in the operations in the last quarter. A&G expense was up compared to last year, mostly reflecting annual inflation adjustments as well as a consequence of the weaker U.S. dollar because a lot of our A&G expenses are in non-dollar, Euros, Pounds and Asian currencies. Also, last year, we reversed an over accrual for profit sharing in the fourth quarter of last year, which had a negative impact of about $11 million. So you normalize for that, the increase is more normal. Adjusted operating profit for the quarter was, therefore, $88.5 million. That's down from $130.4 million in the fourth quarter last year. And as you can see from the difference between the reported numbers and the adjusted numbers, the acquisition that we talked about contributed about $7 million to that operating profit. And as you can also see, about 40% of the increase in the reported net interest expense was due to an increase in the net debt related to the acquisitions and other capital expenditures that we had during the year. While the rest was due to lower interest income as we reduced the holding of cash on hand compared to last year, and you will see that on the subsequent slide. Other relates to dividends from our equity instruments, so dividends that we have received on investments. And income tax was down, reflecting an insurance-related tax provision taken in the fourth quarter of '24 as well as prior year tax adjustment at terminals, offset by higher taxes at corporate due to improved profitability that we've seen at Avenir and Stolt Sea Farm. And consequently, the net profit for the quarter ended up at $59.6 million, as Udo said, with EBITDA of $186 million. Let's take a look at the cash flow. So cash from operations was down this last quarter, predominantly reflecting the weaker earnings, but still at healthy levels. If you compare to previous years, still a very strong cash-generating quarter. Dividends from JVs were down, but this was offset by positive working capital from the prior year and cash spent -- if we move to capital expenditure, cash spent on capital expenditure was substantially up, reflecting the acquisition of Suttons as well as increased progress payments on our new buildings and as well terminal capital expenditures for the ongoing expansions that we have. Offsetting this was the net cash receipts for repayments of advances from our joint ventures, as you can see. There was a lot of debt activity -- funding activity, and Julian has done a tremendous job in keeping the company with a very strong liquidity position. During the fourth quarter, we raised $297 million in new debt, and that was to refinance expiring facilities and as well to fund the capital expenditures that we have ongoing. And I'm tremendously grateful both to Julian and his team, to the rest of the company has been working hard on making this possible as well as to all our banks and financiers. After adjusting for FX, we had a reduction in cash of $16.1 million, and we ended the quarter with cash and cash equivalents of $144.6 million. If you look at the bottom right of this slide, you see our total liquidity position, which at the end of the fourth quarter was $477 million, that includes revolving credit lines of $332 million, committed lines that is and slightly up from last quarter. I mentioned the significant reduction in cash on hand last -- of the fourth quarter of '24, we had $335 million in cash, which, of course, generated a lot of interest income, and that's why you see that sort of half of the interest expense increase that we saw in the last 12 months. Talking about capital expenditures. During the quarter, it totaled $138 million. That was of course, led by the STC acquisition of Suttons also the ongoing terminal expansions and as well progress payments that we have ongoing on the new-buildings that we have. And therefore, overall, for '25, we spent $511 million on CapEx, slightly below what we had indicated at the previous quarterly earnings release as some of it has been pushed out to 2026. For this year, we expect to spend $383 million with the focus being on tanker new-buildings, terminal expansions, Avenir new-buildings and Stolt Sea Farm expansions. Now expect this to probably change somewhat as the year progresses as it normally does as we commit to new projects, but this should be a good indication of what we expect to spend. And it's slightly down from last year, but we're also coming out of 2 years, '24 and '25, where we had significant capital expenditures. And whereas we intend to continue to invest strategically in our businesses, we also need to focus on integrating our added capacity into our operations for maximized long-term benefit, not only for our shareholders, but also for our customers. Moving over to our debt profile. It here reflects the refinanced debt that is mentioned in the bullet at the bottom right. So there was about $86 million that we have repaid since the end of the fourth quarter. So our current balance for 2026 remains at $351 million. As part of this financing, we also -- since quarter end, since what I showed here in the financials, we also added $145 million in additional liquidity, which is available for further debt reductions, progress payments and other capital expenditures. So we continue having a very strong liquidity position going forward. You see the two orange blocks. Those are the 2 bonds that we have, one maturing in '28 and $150 million, the one that we just did in September maturing in 2030. And if you look at the bottom left of this slide, you can see the increase in gross debt in the first quarter reflects the consolidation of Hassel Shipping 4 and Avenir and then again, a slight increase in the fourth quarter of '25, reflecting the Suttons acquisition, and on average, our interest rates have come slightly down from 5.6% in the previous quarter to 5.39% in this quarter, reflecting general interest movements as well as tightening of margins that we have achieved on new financing. The continued steady performance of the company supports our covenants and covenant compliance. The increase in debt and therefore, net debt to tangible net worth as well as a net debt to EBITDA seen in the first quarter was really -- in the fourth quarter was really due to Hassel Shipping 4 sorry, in the first quarter was due to the Hassel Shipping 4 acquisition, and Avenir. And in the fourth quarter, you can see that same impact from the Sutton's acquisition. Debt to tangible net worth is now at 1.04x. That's well below our covenant limit, which is 2.25x. So we have plenty of headroom, slightly up from the prior quarter where we were at 1.01x. I mean with the lower EBITDA that we have seen in this last quarter compared to previous quarters, the EBITDA fell slightly to $788 million, and with that, we have seen the EBITDA to interest expense go slightly up to 5.6x and the net debt to EBITDA increased from 2.94x to 3.12x, as you can see at the bottom left graph here. So overall, we're in a very comfortable position relative to our covenants, a good liquidity position, a good balance sheet position. So the company is well prepared for what lies ahead. We gave today guidance of $600 million to $750 million and wanted to talk a little bit more about what that entails. So why are we doing this? Firstly, we want to offer insight into our outlook for the year, what we see ahead. We believe it is aligned to the nature of our businesses and our business model to promote a longer-term view of the company, not a short-term quarter-to-quarter, but really give you the longer-term view that we work towards. We also want to facilitate fair pricing of the company as a diverse logistics business rather than as a shipping company. So taking into account everything that we know today, what we believe will happen over the next 12 months, we expect EBITDA for the full year 2026 to be within a range of $600 million to $750 million. Now this guidance is underpinned by a number of key assumptions. As you can see some of them here on the slide, relating both to global macroeconomic picture generally and specific factors affecting the liquid logistics market. And particularly, that there are no substantial geopolitical changes versus what we see today. So we are expecting this to continue. More specifically, the guidance is before fair value of the biological assets, before any gains or losses on sales of assets and other onetime noncash items. And it also excludes any 2026 EBITDA contribution from Avenir LNG. We've taken that out because of the announcement that we made earlier in the week and the consequential de-consolidation that, that will have. So I just want to make sure that everybody understands the basis for our guidance. It does include, however, the potential Suttons integration costs that will be incurred during '26. As such, the guidance is provided -- that we have provided is subject to some uncertainty beyond our control due to the current operating environment that we're in. And with that, I would like to hand it over to Udo, and he will cover the segment highlights as well as the market outlook. Many thanks. Udo Lange: Let's first start with Stolt Tankers. The chemical tanker markets have continued to soften this quarter as the market uncertainty around geopolitics and tariffs continues unabated. Demand is there and spot volumes, in particular, are elevated, but freight rates are weaker than the prior year. Operating revenue declined by 14% as the rate decline was only partially offset by a 4% increase in operating days due to additions to the fleet. COA renewal rates were down in line with our expectation. And we expect to see the COA ratio increase over the coming quarters. Operating profit was likewise down, predominantly driven by the decline in spot freight rates for regional and Deep Sea, which was largely offset by lower trading expenses and lower time charter expense. However, further impacting the operating profit was higher owning expenses and depreciation and lower joint venture equity income. Maren and her team continue to work hard to navigate this highly complex and unpredictable macro environment with a laser focus on delivering for our customers, and I really want to thank them for all their efforts. Looking more closely at Tanker rates. We are seeing some early signs of rates beginning to stabilize. While the TCE for the quarter was around $24,500 per operating day, showing a decline of 19% year-over-year, on a quarterly basis, the gradient of decline has flattened and TCE was just 1% down versus Q3. As things stand today, we are seeing the usual winter strengthening in crude and product tanker markets, which could be supportive for spot rates within the chemical segments as well. However, at the risk of being repetitive, we are not just a chemical tanker business. We encourage the market to consider our performance across all the areas of our diversified portfolio. And I want to remind you that we have moved to full year EBITDA guidance for the business as a whole. Thanks to Guy and the Stolthaven team who have maintained steady utilization and kept operating revenue stable year-on-year in an uncertain market. EBITDA saw a modest decline of 4% with operating profit down 8% with these declines driven by investments in IT alongside some inflationary impacts and slightly less equity income from our joint ventures. Looking ahead, we expect the storage markets to remain stable, notwithstanding some caution and delayed decision-making on tank rental commitments from our customers. And so Stolthaven Terminals will continue to focus on optimizing margins and utilization. In response to the challenging demand drivers for storage, we are actively adopting our approach to specific market dynamics to better adapt to local conditions, and our investments in additional capacity at existing sites in the U.S. will start to come into play towards the end of the year. We expect to benefit from additional capacity in Houston and New Orleans coming online in a staggered fashion during Q3 ramping up and reaching full effect in 2027. The tank container market continues to be challenging. And in this context, Hans and his team have done a great job to drive revenue at Stolt Tank Containers up $5 million or 3%. This result has been driven by stronger shipment volumes, which offset the impact of lower ocean carrier freight rates. EBITDA and operating profit declined due to lower transportation margins and cost inflation. I now want to cover our view of the market and concluding remarks before we open for Q&A. This time last year, we spoke about the impact of geopolitical events on global trade flows. We highlighted a number of areas of macro uncertainty and discussed how these might play out through 2025. Today, the list of macro factors driving global uncertainty remains similar with the addition of two factors affecting our underlying markets. Geopolitical risk has not abated. Whilst we see some international players starting to selectively transit the Red Sea, there appears to be no clear resolution on events in the area, and we see new risks in international relations, especially in the Middle East. Risks and opportunities related to global tariffs and sanctions remain with trade policy changes impacting customer sentiment. The shadow fleet continues to impact around the edges of our markets and fluctuations in the crude oil market continue. We also continue to face a subdued global chemical market, which is struggling from production-underutilization. The timing of new build deliveries will also have a supply side impact over the next 2 to 3 years. In the face of these risks, we are well positioned to continue to deliver our value proposition for our customers across the supply chain. We are laser-focused on this, planning strategically and operationally so that we can be flexible and react with agility to macro events. We have strong relationships with our customers, and we are working closely with them to navigate these challenges and keep liquid chemicals moving around the world. Despite these market risks, supply and demand fundamentals are currently supported by a tight MR market. GDP growth is expected to be around 3%. Seaborne trade growth is expected to be muted this year with a return to growth expected in 2027. We are watching developments carefully with some caution, but we expect volumes to remain relatively stable year-on-year. MR rates have been trending gently upwards through 2025 and are predicted to remain at a high level, which has typically kept them operating in the CPP market, limiting the potential for swing tonnage in our market. As mentioned previously, we do expect some new-builds to enter the market in 2026 and 2027, and this creates some uncertainty on the supply side. However, the aging global fleet means that there remains high potential for retirements of vessels to manage global supply if necessary, with around 30% of tankers aged 20 years and older by 2027. To wrap up, we are focused on leveraging our diversified logistics businesses to steer them through global supply chain complexity and delight our customers by executing our liquid logistics strategy. To support both our core liquid logistics businesses and explore new opportunities and innovations, we are positioning ourselves for long-term growth through targeted strategic investments. We invested strategically through 2025 and will continue to do so through 2026. This disciplined capital allocation strategy translates into balance sheet flexibility and headroom to meet all our obligations. Our investments will convert into EBITDA-generating assets given time. And despite the market turmoil continuing, we expect the full year EBITDA to fall within a range of $600 million to $750 million. As we look to the year ahead and beyond, our strong strategic foundations position us well to navigate future challenges and opportunities. Our people, clear purpose and diverse portfolio provides the resilience and quality required to deliver long-term value for our shareholders, customers and other stakeholders. Thank you for your attention, and I will now pass you back to Alex for Q&A. Alex Ng: Thank you very much, Jo. So we will start Q&A with questions in the room. [Operator Instructions]. Thank you very much. And then we'll take questions from the Internet as well. Please? Unknown Attendee: Just on the guidance, you did mention on the '25 results, the split between tankers, non-tankers. You have a bit of a range in your '26 guidance. Can you give some color on your expected split and also perhaps on the sort of which segment is going to cause that variance in the range? Jens Grüner-Hegge: Okay. So if you look at the other businesses, the non-tanker businesses, they tend to be more stable. We know that there's a cyclicality in the tanker markets. Now looking at the performance that we've seen so far through the year, the third and the fourth quarter of 2025, we saw that was pretty stable from quarter-to-quarter. The reduction was really early in the year. Going forward, we mentioned also that we see that there is a certain short-term floor because we've seen the strengthening in the MR markets recently, which is lending some support. But I think it's worthwhile noting that as we get into the second half of 2026, you will see more of that order book that we showed being delivered. So we see more of a risk in the tanker market as you get into the second half than in the first half. And we know that these new-buildings will be delivered sort of second half '26 into first half of '27. So if you take that into consideration of what we saw in the fourth quarter, I would expect for the next few quarters that mix to be relatively stable with the exception of capital expenditures becoming operational. And that will be gradual. Again, I think most of that we expect to happen also towards the second half of the year when we're looking at the terminals business. So you'll probably start seeing more of a non-tanker growth in EBITDA in the second half of the year and potential challenges for the Tanker segment in the second half of the year. So you will start seeing that balance shifting towards more non-tanker business. Did that answer your question? Unknown Attendee: Yes, that's really good color. Also on the Red Sea, sort of -- this is a tricky one, but at what point do you expect to return? I mean there's a lot of talks about Maersk now entering the Red Sea again. What's sort of your point of action on entering the Red Sea? Udo Lange: Yes. So I can take that. So of course, chemical tankers is among the most risky vessel-type that you can navigate through the Red Sea, because a drone attack on that hitting the wrong tank has a significant bigger impact than when you have a conventional ship. So we are really very, very cautious, and we monitor that. So of course, it's good to see that Maersk is taking that effort, but we normally look really more towards the tail-end. And of course, what's currently going on in the Middle East and the U.S. fleet coming in. So we don't expect this to happen anytime soon. Alex Ng: Any additional questions in the room? Okay. Then we will move to the questions coming from those online. There's a couple of themes that maybe we can club together. I think the first one really goes to our liquid logistics strategy. So maybe one for you, Udo. How successful has the liquid logistics strategy been so far with customers? Udo Lange: Yes, I would say I'm really excited about how it latches more and more on. And that, of course, has to do with the increasing complexity globally. So if I take the amount of strategy sessions that we have now with customers versus 2 years ago, it's a complete different ballpark. But it has also to do with the capability that we are building in our own team. So of course, this -- remember, we come from very strong three divisions and now they need to collaborate more together, more and more people need to understand how do I really position all of Stolt-Nielsen in front of the customer. And that is really remarkable to see how deep that actually goes. So we have now not only sessions where we look at large customers, we also look at sessions that we have with medium, with small customers, and we do this around the whole world. So it's pretty exciting. The development is really exciting. And we are getting better and better at it and the customers appreciate it actually more and more. And we see most important, of course, it's not the activity, and we see business out of it. So we have met a customer that didn't have Tank Container business with us before talked about the whole portfolio, and we got Tank Container business. Met another customer we were very small on the tank container side. So the beauty is because we are market leading really in all 3 segments, each of the businesses is actually strong also with different customers. Sometimes it's the same, sometimes it's different ones. And it allows us to take our strong relationship and then introduce the other businesses as well. And don't forget what is also unique is, we are the only player who has end-to-end shipping where we have a deep sea fleet, we have regional fleets and we have barging fleets. And then we have terminals and then we have tank containers. And now the Suttons, we even have gas and short sea and China domestic. So that's just really beautiful because you just we have one page now where we put this all together and you sit in front of sea level. And they, of course, not necessarily know Stolt-Nielsen, but then they are like, "oh, that's really interesting. You're building a terminal right now in Taiwan, and we need to talk about our Southeast Asia logistics strategy". Maybe how can that all come into a hub-and-spoke system. And so that's really nice how the capability that we have, A, add value for the customer, gives us more business, but also how our organization is more and more capable to position this. Alex Ng: Questions for you, Jens, related to how we triangulated the EBITDA guidance. And the first one was, can you share any information from what the EBITDA contribution was from Avenir in 2025? Jens Grüner-Hegge: Yes. If you look at -- it's related to the guidance, it might be more relevant to us what we're expecting there. But '25 was a transition year for Avenir. As you will have seen in the comparison with '24 was that it was a -- 2024 was a drag. We've seen that turn into an improvement, a positive contribution. For '26, you're looking at about mid-$20 million EBITDA contribution that would be expected. And with this separation out, we are actually looking to be able to grow that faster than what possibly could have done on our own. So it is a -- it's about mid- $20 million in 2026 in the number if you want to have that in the back of your mind when you look at the guidance. Alex Ng: Thank you, Jens. And then another question related to guidance. You mentioned that Sutton won't contribute EBITDA until 2027. But do you expect it to be EBITDA-negative during '26 or just close to breakeven? Jens Grüner-Hegge: If we look at the year overall, our expectation is it won't be a drag. It will -- the benefit that we get from the additional volume, the additional tanks, there will be some integration costs as we -- as there always is with an M&A. But we expect a neutral impact in '26, and then we should see that really start taking off in '27. Udo Lange: Yes. I think on the base business, but of course, the integration cost year-over-year, it is a drag. Jens Grüner-Hegge: The cost is there, so yes. Alex Ng: A question related to strategy. Avenir is you announced the partial sale of that asset. Can there be any read across to whether Stolt Sea Farm will be on the table in order to clarify the strategy around liquid logistics? Udo Lange: No, these are completely two different strategic conversations. So you know we are since more than 50 years in agriculture. We are the market leader in the premium segment. And the business is developing quite nicely. We are investing. We are super happy with the returns that we are seeing. What is different on Avenir, remember, we had a joint venture and -- but we also realized that while we believe in the strong future of that market, that the other partners were -- for them, it was less strategic. So we then remember, we acquired 100% for Avenir, but well knowing that, that, of course, would have a significant capital expenditure exposure for us. So -- but we felt we believe we can grow in this market. But then at the same time, of course, we also looked at, well, now let's look for strategic partners where we then really can join forces and actually stronger lean into that market without actually dragging down our balance sheet too much. And so one of the key reasons, of course, you see also that our CapEx goes down year-over-year by $130 million is, well, we will benefit from the growth in the LNG market, but we are not as heavy exposed anymore in this segment. So two very, very different strategies. So Sea Farm is core to us and Avenir is an opportunity for us to capture a nice market together with a strategic partner. Alex Ng: And then the final questions we have on the -- for now relate to the CapEx that you talked about and the expansions, Udo. First question is related to Stolthaven. How should we quantify the investments in terminals in relation to added capacity and how it evolves over the year? Udo Lange: Jens, why don't you take the Stolthaven? Jens Grüner-Hegge: Yes. So we talked a bit about the different investments that we have ongoing in Stolthaven. We have the terminal in Taiwan, which is about to become operational, and that will have a positive impact as we go into 2026. We have the expansions that are ongoing in Houston and New Orleans, where we're adding about 170,000 cubic meters combined, and that will start coming on as we get into the third and fourth quarter of 2026. So you probably won't see much of an impact in this year, but it will come and be fully operational and have a full impact as we get into 2027. The other projects that we have sort of like the Turkey project, that's a long-term investment that will come in later years. It's a joint venture structure. So you will see that not necessarily in consolidated fashion, but more in an equity income from a joint venture in future years. Alex Ng: Thank you, Jens. And then the final question is, if we could share the delivery schedule for the new-builds in Tankers. Maybe I can just add a comment there. So we expect the first vessel to be delivered towards the end of this year. It's kind of on the edge of this year or next year, but it gives you an idea on that delivery. And then during the course of 2027, there will be a further additional 9 ships. And then in '28, there will be approximately 3 ships, and then the final one is due for delivery in 2029. So hopefully, good for your models. That concludes all of the questions. So thank you very much. We'll post a recording of this call on the website tomorrow. Udo, back to you. Udo Lange: Thank you very much for joining us today, and I look forward to talking to you again when we present our results in the first quarter of 2026 in April. We continue to be very excited about the business. We launched our strategy 2.5 years ago. We are executing nicely on the strategy. And I think you can see the benefits for our shareholders, our customers and our people as well. So thanks for all your support, and wish you a nice day.
Operator: Press 0, and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Please standby. Your meeting is about to begin. Welcome to the Lennox International Inc. Fourth Quarter Earnings Conference Call. All lines are currently in listen-only mode. As a reminder, this call is being recorded. I would now like to turn the call over to Chelsey Pulcheon from Lennox Investor Relations. Chelsey, please go ahead. Chelsey Pulcheon: Thank you, Madison. Good morning, everyone, and thank you for joining us as we share our 2025 fourth quarter and full year results. Joining me today is CEO, Alok Maskara, and CFO, Michael P. Quenzer. Each will share their prepared remarks before we move to the Q&A session. Turning to slide two, a reminder that during today's call, we will be making certain forward-looking statements which are subject to numerous risks and uncertainties as outlined on this page. We may also refer to certain non-GAAP financial measures that management considers an indicator of underlying business performance. Please refer to our SEC filings available on our Investor Relations website for additional details, including a reconciliation of GAAP to non-GAAP measures. Please note that the results being presented today reflect the FIFO accounting adopted by the company as of Q4 2025. The rationale and the financial impact of this change are summarized on slides 15 through 18 in the appendix. The earnings release, today's presentation, and the webcast archive link for today's call are available on our Investor Relations website at lennox.com. Now please turn to slide three as I turn the call over to our CEO, Alok Maskara. Alok Maskara: Thank you, Chelsey. Good morning, everyone. I am pleased with how our team executed throughout 2025, especially given the level of disruption the industry faced. It was a year marked by regulatory changes, software demand, and broad market headwinds. Yet, the team remained resilient and delivered solid results. Most notably, we achieved full-year margins above 20% for the first time in our history. This meaningful milestone reflects the structural improvements we have made in our production company and operational efficiency. I'm grateful for the continued support of our dealers, distributors, and contractors whose partnership played an important role in helping us navigate such a difficult year. Their loyalty, along with our team's commitment to excellence, continues to create value for our shareholders. Let's turn to slide three for an overview of our fourth quarter and full-year financials. Revenue was down 11% in the quarter due to weak residential and commercial end markets. The impact was further amplified by deeper channel destocking and soft residential new construction activity. Our segment margin was 17.7% in the quarter, driven by volume declines and expected absorption headwinds. Operating cash flow was $406 million. Adjusted earnings per share for the quarter was $4.45. Full-year revenue was down 3%, driven by volume headwinds from destocking and softer end markets. However, the team still delivered a record 20.4% segment margin despite tariff impact and other inflationary pressures. Operating cash flow was $758 million, down from last year due to temporarily inflated inventory levels. Overall, 2025 was a complex and challenging year, and I'm proud of the team delivering $23.16 in adjusted earnings per share. This is 2% higher versus last year's comparable $22.70. Now let's turn to slide four for an overview of end market conditions. 2025 was an eventful year for the North American HVAC industry and Lennox International Inc. We safely and timely converted our product portfolio to meet the low GWP requirement. However, the industry volume for residential products declined significantly, primarily impacted by channel destocking. The situation was further complicated with low dealer and consumer confidence and the lack of housing recovery. On the commercial side, we fully ramped our emergency replacement growth initiative in several metro regions while the light commercial HVAC industry declined for the seventeenth consecutive month by December 2025. We are cautiously optimistic that the industry backdrop is going to shift favorably in 2026 as one-step channel destocking is nearly complete and two-step channel destocking is anticipated to be complete in the second quarter of this year. In addition, unique challenges from 2025, such as the canister shortages, have been addressed, and we expect housing to improve given lower mortgage interest rates. Our internal growth initiatives, such as parts and services growth, commercial emergency replacement coverage, and ductless product penetration, are also expected to accelerate our growth this year. Now let us turn to slide five to review our investments that support our strategy of delivering differentiated performance. Our confidence in the outlook is reinforced by the strategic investments made over the past several years. Since 2022, we have deployed an incremental $300 million to broaden our capability, streamline our operation, and strengthen our competitive position. These investments are now embedded in how we run the business and are reflected in our financial statement. At the same time, the benefits they unlock are only beginning to materialize and will continue to build as we move forward. We focus first on elevating front-end excellence to create a more efficient and responsive operating model. As part of this effort, we have expanded and reorganized our sales team to ensure alignment around pricing and improve coordination across the organization. This approach gives our team clearer priorities and strengthens the connection between how we engage with customers and how we generate profitable growth. We also expanded our portfolio through joint ventures that increase our share of wallet and allow us to offer more comprehensive solutions to customers. In addition, our AI-enabled tools and updated e-commerce platform are making it easier to do business with Lennox International Inc. by improving our dealers' code, order, and receive support. Operationally, we have made meaningful progress. Our expanded distribution facilities enable a hub-and-spoke network designed to improve speed, reliability, and fill rates. We enhanced this with new IT systems for warehouse and transport management that reinforce network productivity and efficiency. On the manufacturing side, we doubled the square footage dedicated to our commercial operation, completed a major product redesign to meet regulatory requirements, and continue to advance our heat pump portfolio for long-term electrification trends. Looking ahead, we will continue to invest strategically to support future growth. In 2026, we will add new customer training and engagement centers and build our digital tech stack to enhance customer experience. We will also invest in automation across our existing labs, build new test chambers to in-source certification, and expand our engineering capability through new R&D centers. We anticipate these investments will carry attractive returns, expedite innovation, and improve customer support. In summary, Lennox International Inc. is positioned to respond with agility as demand recovers while continuing to accelerate growth and improve margins well into the future. With that, I will turn it over to Michael to review our 2025 financial results and 2026 guidance. Michael P. Quenzer: Thank you, Alok. Good morning, everyone. Please turn to slide six. As Chelsey mentioned, we updated our 2024 September year-to-date results to reflect the change from LIFO to FIFO inventory accounting. The appendix includes quarterly adjustments for both 2024 and 2025. Overall, adoption of FIFO increased our 2024 full-year EPS by approximately $0.12 and raised EPS for 2025 by approximately $0.55. Full-year 2025 EPS impact was approximately $1. We've also included a page in the appendix outlining the rationale for this change, which is driven by three key benefits. First, FIFO simplifies our accounting processes by eliminating the direct detail held in layers. Second, it aligns cost increases more closely with the timing of price realization. Third, FIFO is the predominant method used by industry peers and better reflects the physical flow of goods. Moving to our quarterly results, overall performance can be attributed to ongoing destocking, softer than expected residential end markets, along with better cost productivity in response to inflation. We continue to execute well on price, cost, and expense management. This helped EBIT declines to 16% despite a 23.3% decrease in revenue. Please turn to slide seven. In all, we noted that market reports were worse than anticipated. Organic volume was down 40% due to continued destocking into the channels. Using warranty registration, we built in all test television. In the one-step channel, all destocking in the two-step channel is expected to continue in Q2. Can utilization and manufacturing, which helps manage all incremental costs, were a $20 headwind through Q1. Disciplined actions resulting in a $19 million SG&A reduction partially offset the higher product costs. Please turn to slide eight for an overview of the Building Climate Solutions segment. BCS delivered another strong quarter with organic sales growth in down markets and continued margin expansion. Revenue grew 8% as favorable mix and pricing actions offset lower organic sales volumes. The completed acquisition contributed approximately 7% revenue growth. Light commercial industry shipments remained below normal levels, but strong execution in emergency replacement and national accounts limited organic volume declines to mid-single digits. Like HCS, product cost headwinds reflected absorption pressure and the timing of inflation expense recognition under FIFO. With that, let's move to slide nine to review the full-year performance for Lennox International Inc. Overall, 2025 was a challenging year from an end market standpoint, with channel destocking, R-454B canister shortages, slowing new system adoption, and tariff-driven inflation. Despite these headwinds, we executed well, expanded profit margins to a record 20.4%, and delivered more than $75 million in cost productivity while continuing to invest in long-term growth. Please turn to slide 10 for cash flow and capital deployment. Free cash flow for 2025 was $640 million, above our prior guidance of $550 million. The team's focus on strong collections and disciplined payments helped partially offset temporary elevated inventory levels. FIFO inventory levels increased by $300 million compared to December 2024, partially to support key growth initiatives in commercial emergency replacement, Samsung ductless products, and improved equipment fulfillment. We also have about $200 million more inventory than seasonally, which will remain slightly elevated in the first quarter but is aligned to meet second-quarter peak demand. This inventory management strategy will create some additional absorption headwinds in the first quarter but minimizes the disruption on our factory employees and suppliers. During 2025, we repurchased $482 million of shares and deployed $545 million on bolt-on acquisitions and joint venture investments. All supported by a strong balance sheet that continues to enable repurchases, disciplined M&A, and a healthy leverage profile. Alongside these actions, we also invested $120 million in capital expenditures during 2025 to advance key strategic priorities. Looking ahead to 2026, we plan to invest $250 million in capital expenditures targeting strong return opportunities across innovation and training centers, digital technology, distribution network optimization, ERP modernization, and AI tools. Please turn to slide seven as I review our 2026 guidance. We are initiating our full-year 2026 guidance, which reflects stabilizing end markets, normalized channel inventories, and contributions from recent acquisitions and joint venture investments. For revenue, we expect total company growth of 6% to 7%. Organic volumes are expected to be down low single digits, net of approximately one point of growth from initiatives across parts and accessories, commercial emergency replacement, as well as Samsung ductless and ducted heat pump products. Sales volumes in the first half, especially the first quarter, are expected to be down more than the full-year decline, followed by growth in the second half. Combined price and mix are expected to contribute mid-single-digit growth driven by our 2026 price increase and carryover benefit from 2025 regulatory mix. M&A is expected to contribute mid-single-digit revenue growth reflecting the full-year benefit of recent acquisitions and joint ventures. At the segment level, expect approximately 2% growth in HCS, reflecting down but improving end markets and a low single-digit contribution from M&A. Alok Maskara: For BCS, we expect approximately 15% growth supported by industry shipments returning to growth, strong emergency replacement and national account performance, and a high single-digit contribution from M&A. On costs, inflation is expected to be up approximately 2.5% reflecting tariff carryovers and moderating price cost pressure. We plan to invest approximately $35 million in additional operating expenses to enhance our customer experience, ERP upgrades for recent acquisitions, and continued expansion of our training and innovation centers. M&A-related amortization is expected to increase by approximately $15 million. Productivity and cost actions are expected to deliver approximately $75 million in savings driven by material and factory initiatives, distribution network efficiencies, and SG&A productivity. Interest expense is expected to be approximately $65 million reflecting the impact of our M&A activity and share repurchases. We expect the tax rate of roughly 20%. Michael P. Quenzer: Based on these assumptions, we expect adjusted EPS of $23.5 to $25. Free cash flow is expected to be between $750 million and $850 million driven by inventory normalization and higher profitability. Overall, we are cautiously optimistic for 2026 as we expect to return to revenue growth and build on our momentum to deliver our fourth consecutive year of EBIT margin expansion. With that, please turn to slide 12, and I'll hand it back to Alok. Alok Maskara: Thanks, Michael. I want to highlight the progress we have made on our self-help transformation plan, which is now entering its final phase. From 2022 through 2024, the team focused on stabilization and consistent execution. During that period, we reinforced pricing discipline, restored commercial margin, and built the organizational and operational foundation for sustainable growth. In 2025, our priority shifted to diversifying the portfolio and strengthening our market position. The Samsung Ariston joint ventures, along with Durodyne and Subco acquisition, broadened our product offering and will increase our share of wallet. The new commercial manufacturing capacity improved product availability, especially for the emergency replacement market. By addressing constraints at our existing Stuttgart factory, we also created an opportunity to grow our commercial national account business. Beginning in 2026, we will move into the expansion phase of our self-help transformation plan. This stage focuses on scaling our footprint, broadening our product portfolio, and extending our reach across residential and commercial end markets. It includes adding training centers, customer experience centers, and new distribution capabilities. From an innovation perspective, we will invest in testing and certification labs, digital and AI solutions, and a heavy pipeline of new products. We remain on track to deliver on our most recent long-term commitments, and we will share updated long-term targets at the 2026 Lennox Investor Day on March 4, where we will also provide deeper visibility into our strategic growth initiatives. Now let's turn to slide 13 for why I believe Lennox International Inc. leads the industry. Lennox International Inc. remains a highly attractive long-term investment. Our market benefits from strong replacement fundamentals, and we operate a direct-to-dealer model that differentiates our customer experience. Our margin profile is resilient, driven by disciplined pricing, operational excellence, and a portfolio aligned to the evolving needs of contractors and consumers. These trends are reinforced by a high-performing culture centered on advanced technology and execution, which positions us well as we embark on the next phase of our strategy. I'm confident in our strategic direction and remain committed to delivering sustained value for our customers, employees, and shareholders. I believe that we are building meaningful momentum and that our best days are still ahead. We will be happy to answer your questions now. Thank you. Madison? Let's go to Q&A. Operator: Thank you. If you'd like to ask a question, please press *1. Our first question comes from Ryan Merkel with William Blair. Please go ahead. Your line is now open. Ryan Merkel: Everyone, thanks for the questions. I wanted to start with HCS revenue in the fourth quarter. Down 21% was a little worse than I was thinking, and clearly, it was hard to call. So two questions. First, how did HCS trend through the quarter? My feeling is November and December were maybe a little worse than October. And then secondly, where was the surprise? Was it more the one-step or the two-step? Alok Maskara: Sure, Ryan. Great to speak with you. Thanks for your question. Yes, November and December were worse than where October was trending, so I think that's a fair assumption. I think the surprise for us was more on the residential new construction side, which I think performed worse than we expected. But I think the one-step channel and two-step channel behaved similarly, both undergoing destocking. So while the two-step impact was more, that was expected. But I think they both went through destocking in Q4. That was more than we expected. Ryan Merkel: Got it. Okay. That's helpful. And then slide four is really helpful. Thanks for that. A few tailwinds in 2026. But Alok, can you square those tailwinds with the guide for HCS, you know, up to because it implies volumes are down maybe 3% plus don't know if there's M&A in there. But just square that up for us, how you're thinking about that. Michael P. Quenzer: Sure. I'll take that. So, yeah, within the HCS guide, we have about a mid-single-digit decline in volume for the full year. Down more in the first half as we're gonna see continued destocking into the first quarter, specifically on the two-step channel, a little bit on the one-step. But we get into late Q2 into Q3 into Q4, that's when we start to see growth that will kind of normalize us and be a positive inflection in the second half of the year by year. But the first quarter, we'll try it down on the full year. Ryan Merkel: Got it. Alright. Thank you. Pass it on. Operator: Thank you. We'll move on to Amit Mehrotra with UBS. Please go ahead. Your line is now open. Amit Mehrotra: Thanks. Good morning, everybody. Hope you're all well. I wanted to ask about inventory levels and obviously, they're up a lot year over year in dollar terms. And trying to understand when you expect those to normalize and maybe you can talk about it from the perspective of both one-step and two-step. Michael P. Quenzer: Yeah. And I mentioned that in the script that we have about $200 million more than seasonally normal at this point. We have another $100 million in there for just investments to get better experience with our customers. Within that $200 million, you'll see some continue to go down a little bit in the first quarter. But we also need to make sure that we have the right level as we hit summer season in the second quarter. And right now, those inventory levels in December approximately align with what we'll need in summer season. A little bit of work to do in the first quarter of the ramp factories down to get some absorption. But overall, we think going to be in a really good spot in the second quarter without having to do a ton of disruption on our factory by ramping it down significantly and then ramping it back up. We found that this is the best approach to mitigate some of these destocking industry issues that we're fighting through. Alok Maskara: And, Amit, if I could just add to this. First of all, welcome to the Lennox International Inc. coverage universe. Great to have you on the call. Amit, your question was answered by Michael on our inventory levels. On the channel perspective, Michael also mentioned, we think one-step is completing the destocking and largely done in Q1. And two-step destocking will be done by Q2. That kind of inventory outside our four walls. Amit Mehrotra: Yeah. Makes sense. Thank you. And then just a follow-up. I know price mix has guided up to mid-single digits this year. Be curious if you just give a little bit of a sense of how much of that is kind of the carryover effect and how much of that is prospective increases. Obviously, you make regular price increases this year. Just trying to understand the bifurcation between those two. Would be helpful. Thank you. Michael P. Quenzer: Yeah. A little bit of a carryover in the first half. So, on the mix benefit of point-ish. Maybe close to two points in the first half of the carryover mix, then the rest is new price initiatives that we're gonna start to launch into this quarter and into Q2. Amit Mehrotra: Thank you very much. Operator: Thank you. We'll now move on to Joseph John O'Dea with Goldman Sachs. Please go ahead. Your line is open. Joseph John O'Dea: Hey, guys. Good morning. Can we just maybe just talk a little bit about seasonality and cadence of EPS and how to think about the first quarter just given all of the moving parts? Just any guidance that you can give us around 1Q would be helpful. Alok Maskara: Sure. You know, obviously, it's been quite cold recently, Joe. So that may impact a few things. But in general, remember on the HCS side, we're gonna be facing pretty tough comps. There was a lot of stocking up going on as some of the 454 items had just been launched, but people are still buying 410A. On the BCS side, we had a tough quarter with our own production move and some of the key account challenges. But net-net, we would expect Q1 to be down. We would expect the first half to be down and the second half to be up overall. But, yeah, we don't expect a great first quarter right now. Joseph John O'Dea: Okay. That's helpful. Thank you, Alok. And then just going back to your assumptions for Resi volume this year. I think you said that you had it down mid-single digits for the full year, down more in the first half. I guess as you're kind of thinking through, like, the swing factors as you progress through the year, like, maybe just talk through some of your key assumptions on the mid-single-digit number as you progress through '26? Alok Maskara: Sure. I mean, I think obviously, like, you know, we got more than eleven months still to go. But from where we are, we're gonna be closely watching consumer confidence, which, like, you know, remains uncertain. Interest rates and housing, both existing home sales and new home sales, something we'll be closely watching. Obviously, be closely watching our dealer confidence as well, which was shaken last year by the transition and the lack of canister shortage. Which I think is improving. So they can only outline on page four. Those are the key things we'll be watching for. You know, from our perspective, Q4 and Q3 were significantly impacted by destocking. And we remain fairly confident that that's going to be behind us in the second half. So that's probably shaping our overall view. On the largest factor on 2025 performance was destocking. And the fact that it's gonna be behind us that's gonna help us get to a better number this year. Michael P. Quenzer: And, Joe, I'll just add to that. I mean, we'll watch the seasonal demand. I mean, if it turns into a hot summer early and there's a lot of, you know, replenishment of inventory that happens, that could happen very quickly. And we're in a really good position for that. So I think that's one thing we'll start to watch the season play out as we get into March and April as well. Joseph John O'Dea: Okay. Thank you, guys. Operator: Thank you. We'll now move on to Thomas Allen Moll with Stephens. Your line is now open. Thomas Allen Moll: Good morning, and thank you for taking my questions. Alok Maskara: Good morning, Tommy. Thomas Allen Moll: Alok, on pricing last quarter, this is specifically to Resi, if I recall correctly. Last quarter, there was conversation about maybe a mid-single lift increase in your deal, something in the low single digits range. Is that still a reasonable bogey to use for this year? Alok Maskara: Yeah. I think for a new pricing, that's still a reasonable bogey. And then Michael mentioned there's a carryover effect. Right? So it can be too precise, I mean, I look at our mid-single digit as a combination of new pricing, which we have announced already across the entire business portfolio. And then carry over. Remember last year, we talked about the mix was gonna be roughly forty percent 410A, sixty percent 454B. So that forty percent 410A is gone, and it's all gonna be 454B. Think the price mix lift from last year used to be overall number of mid-single digits that we have. Put in our guide. Thomas Allen Moll: Great. Thank you. And then, King, on Resi here for volumes. And even more specific on the one-step, it sounds like destocking is nearly entirely in the rearview mirror here. So in the Outlook you've provided for resi volumes, would one-step be implied up for the full year, or are you still assuming even without destocking headwinds that there may be some additional headwinds. Thank you. Alok Maskara: I would say, listen, I mean, 70% of our business is one-step. So I think the way we would look at it, one-step is gonna be flattish to maybe slightly up. Two-step's gonna be down. I think that's as much precision as we have in our forecast at this stage. But, yeah, one-step will do better than two-step, especially given that two-step would be going through destocking or to second quarter. Now at the same time, if something changes, and Michael said, we're landing an early start and a hard start to summer. Then, you know, two-step might come back and start holding more normal level inventory. But current assumption is exactly what you said. Thomas Allen Moll: Okay. Alright. Great. Thank you. I appreciate the insight, and I'll turn it back. Alok Maskara: Thank you. Operator: We'll now move on to Jeffrey David Hammond with KeyBanc Capital Markets. Your line is now open. Jeffrey David Hammond: Hey, good morning. Can you hear me? Alok Maskara: Yeah. Yeah. Maybe just starting with BCS. The 15% growth, if you could unpack similarly like you did for the res business, price volumes, M&A in there. And then just maybe I think you were saying that you know, you thought that would maybe start to turn and, you know, what you're seeing just real-time on the commercial unitary business? Michael P. Quenzer: I'll give some guide points within that. So we expect within the 15 high single-digit growth from the acquisition, most of that M&A kind of leans toward that segment with the DuraDyne business. From a volume perspective, we expect up mid-single digits with recovering end markets share gains, then price mix combined are gonna be kind of more in the low single digits on that side of the business. Alok Maskara: Yeah. And I think from what we are seeing in the market is, it's gone through seventeen straight months of decline per the HRI data by December. So, I think just comps get better, and we are seeing good uptake in quotations and good uptake in the backlog as well. So while it's not boom years, I think it's gonna become less of a bearish as we go into 2026. Jeffrey David Hammond: Okay. And then just on the repair-replace dynamic, how are you building that into your path? As you talk to more of your contractors? You know, the view that the consumer's tight and this persists, or it was mostly a, you know, a tan or issue and, you know, it kinda goes away. Alok Maskara: Sure. I mean, first of all, we look at that dynamic more as deferred replacement. Because anything that you repair will come back for replacement typically in twelve to twenty-four months. So I think that's the way we would look at it. When we speak to our contractors, we find that the dealer confidence on the new product, the dealer confidence on upselling to a replacement, the dealer confidence because of canister shortage was a large part of the impact. Clearly, there's consumer sentiment there as well. Now the fact that the dealer sentiment has turned to more positive going into the year makes a little bit more favorably inclined to what that trend this year. But so far, like, you know, what we have assumed is it's not gonna get any worse. We haven't assumed that's gonna get better either. We think it'll remain at the 2025 level. Which, you know, had heightened repair versus previous replaced. Jeffrey David Hammond: Okay. Appreciate the color. Operator: Thank you. We'll now move on to Noah Duke Kaye with Oppenheimer. Your line is now open. Noah Duke Kaye: Good morning, and thanks for taking the questions. I think Michael, you mentioned a couple of times the absorption factor for 1Q. Can you expand on that? And would that lead decrement on volumes in 1Q to be kind of worse than the typical 30-ish percent decline? Michael P. Quenzer: I think we have some cost actions that we're trying to mitigate within that you saw. We did some really good cost and A cost productivity in the fourth quarter. Some of that's going to repeat into the first quarter. A lot of material cost reduction programs are on tariff mitigation and other things are going to soften it. But Q1 is kind of a light quarter from a volume perspective. So if you think about 10 to 15 million of absorption that can have a pretty big impact within the decremental. But we think as you get through Q1, that absorption goes away and we get back into cost productivity across factory material and our distribution network. But little headwind as we get the inventory to the right spot for Q2. Noah Duke Kaye: Okay. That's helpful. And then I believe I heard you say the CapEx number will be $250 million for the year. Michael P. Quenzer: Correct. Yes. It's normally about $150 million of just normal recurring CapEx, and then we have a $150 million of strategic innovations that we're doing and a good proven track record of ROIs and organic investments. I think we have a good pipeline of these projects that have really strong ROIs for the next several years and gonna keep investing in them and spot the customer experience. And that's where we're focused on both digital and, at our physical, distribution network. Noah Duke Kaye: Yeah. I think the second part of the question was just to ask whether we should view those, you know, growth organic investments in CapEx as something more permanent? Or should we think about kind of reversion more towards the typical maintenance CapEx range? Alok Maskara: No. I would not think of those as permanent. I think our maintenance slash regular CapEx remains in the $125 million range. $125 to $150. You know, three years earlier, we had called out Saltillo estimate, and we had said if any other big investments, we'll call it out. So now we're just calling out that we're gonna be spending like, your additional $100 million or so. And those are really good projects. Many of these projects are deferred because all our engineering and other resources were tied with each web. So but, no, I would say after that, we go back to our usual maintenance type CapEx. Noah Duke Kaye: Very helpful. Thank you. Operator: Thank you. We'll now move on to Christopher M. Snyder with Morgan Stanley. Your line is now open. Christopher M. Snyder: Thank you. I wanted to follow-up on company inventory and the associated absorption headwinds that come from that. It seemed to me that inventory was kind of flattish quarter on quarter in Q4 when normally it would step down, maybe to like the mid-single-digit level. So I guess, you know, has there not been any destocking yet? And maybe that's the first part of the question. And the second part is, you know, why did the absorption headwinds end after Q1? It seems like this $200 million excess inventory will be sold into peak summer demand. But I would think that that means underproduction up in those summer months, and I would expect that I would have thought that the absorption headwind, you know, comes through on a lag as it flows off the balance sheet into the P&L. Michael P. Quenzer: Sure. Because the sales came in much lower than expected in Q4. So now we have to ramp like, you know, even more in which we did towards the end of the quarter. The second question on absorption, Q1 will have the largest impact because this is the time you start ramping up for selling product into Q2. So now the manufacturing for sales into Q2, plan that happening in Q1. Just given the lead time from when the product is manufactured to when it's sold. Hence, we called it up. Will be some impact of absorption in Q2, but most of it will be in Q1. Christopher M. Snyder: Thank you. I appreciate that. And then maybe just following up on the cost inflation. The 2.5%, came in below what I was expecting just kind of based on some of the tariff wrap and then the metal inflation and other cost inflation we're seeing in the market. So can you maybe just kind of help us unpack that number? How much is tariff wrap? How much is new cost inflation? And I think it seems like there's maybe some offsets there in mitigation that's perhaps keeping that number a little bit lower than we would have thought. Thank you. Michael P. Quenzer: Yeah. That's a correct interpretation of the guide. So right now, what we apply is the two and a half percent to our total cost. Would be manufacturing cost, distribution cost, and SG&A cost. Not all are going up the same. We are seeing a little bit more inflation on the commodity side, but we also have a hedging program that delays some of that cost increase. And we've significantly moved away from copper and have more of an aluminum product. So that's softening at least from the metals perspective why it's not as heavy within the guide. Tariffs, there will be kind of some wraparound impact of tariffs. It's about $125 million full year 2025. We'll have a little bit of carryover in the first half of that. Assuming the tariff structure stays the same, which is what we've built within the guide. But overall, we assume that inflation, and then we're gonna drive productivity and investment actions against that inflation number. Alok Maskara: If I could just add to that, we have significant cost reduction that went into effect in 2025. We have a thousand fewer employees than we had before we went into the cost reduction spree. And we are not gonna bring all of that cost back. Some of the benefit that you see is from our perspective, the productivity aspect of it both on materials, manufacturing, and SG&A is something that we have baked in going forward. Christopher M. Snyder: Thank you. I really appreciate all that color. Operator: Thank you. We'll now move on to Julian C.H. Mitchell with Barclays. Please go ahead. Julian C.H. Mitchell: Hi. Good morning. Maybe just wanted to start with overall operating margins. I don't think that's been fleshed out too much yet, but just wondered, is it fair to say the full-year guide is embedding operating margins down slightly maybe year on year. And then you've got between the segments anything you'd flesh out, perhaps BCS up for the year, and anything you could help us around kind of first half versus second half year on year on the margin front, please? Michael P. Quenzer: Yes. So overall, the guide implies EBIT ROS expansion of about 20 basis points. I mentioned that in the script. We're looking at the fourth consecutive year in a row of margin expansion. Within BCS, it's going to be up more. Within HCS, it's going to be flat to slightly down as end markets there are down. So that the volume leverage in BCS, you'll start to really see that within their margin expansion. Within the seasonality, we'll talk a little bit about that. But when you look at 2025, the seasonality first half to second half from a revenue perspective was about fifty-fifty. As we think about next year or 2026, it'll be, you know, three or four points less than 50% in the first half. Three or 4% higher in the second half. Normal incrementals on the volume that we talked about at 35% of the decremental and incremental plus the cost inflation and productivity initiatives. So overall, a little bit more headwind in the first half. But the margin expansion will definitely start to show in the second half. Julian C.H. Mitchell: That's helpful. Thank you. And just wondered kind of any perspectives on the market in HCS. You know, maybe last year, the market was I don't know, seven three seven four million units, and the sellout just under 8 million. Just wondered your thoughts around how we're thinking about those very big moving parts for '26. And what degree of repair normalization you're expecting this year in the industry? Alok Maskara: Yeah. Julian, we get in trouble every time we try and predict the number of units in the market, and I know you guys have pretty sophisticated models just like we do. I think from our perspective, the assumption has been that the sell-in number was heavily impacted by destocking. And the end of destocking leads to automatic improvements. Our assumption is that the repair versus replace activity is stabilized going forward. We're not expecting it to turn back, but we are expecting it to stabilize at least going forward. So net-net, I mean, on a sell-in basis, you will see higher numbers than where we ended the year, as you said. Seven three, seven four. And on a sellout basis, I mean, those numbers are really not that reliable, so we focus less on that. What we have seen in our own one-step channel is that the confidence of the dealer has come back and people are now looking at 2026 as a fresh start with R-454B. That's probably the best news out there, Julian. Given all the other potential headwinds, consumer confidence and numbers that don't seem to be improving. Including yesterday's number where consumer confidence was very, very low. Julian C.H. Mitchell: That's great. Thank you. Operator: Thank you. We'll now move on to Jeffrey Todd Sprague with Vertical Research. Your line is now open. Jeffrey Todd Sprague: Hey, thank you. Good morning, everyone. Hey, look, maybe just coming back to the piece of that last point. Just on repair versus replace, stabilizing, that is sort of a thesis at this point, or do you think there's actual evidence of that? And I guess, maybe a lie to that point is within the mix any evidence that people are trying to mix lower? Obviously, you got the mix carryover on the refrigerant coming through, and I guess it's getting harder to mix lower as all the SEER levels have continued to move up. But, you know, is there any evidence of just consumer distress on, you know, what kind of units they're buying and whether it's a replacement or a repair? Alok Maskara: Yeah. So the first one, it's supported by our own research and data now. We don't have like, your data on all the dealers, but we do serve quite a few of the dealers that have a direct conversation with them. Is it statistically relevant? I mean, that goes down to a geeky road that I won't go to, but I'd say it's more than just a hypothesis. It's definitely something that we have printed out on it stabilizing. On the second part of mix, I mean, remember 70% of the sales are now to the lowest SEER at minimum SEER has gone up. Are they trade downs that are happening? Yes. Are they gonna be meaningful impact to us? Unlikely given that 70% of it's already the minimum SEER numbers. Now it comes down to single stage, variable speed, and some of those things that we are continuously looking to refine and put forward. You will see overall that, you know, from our perspective, mix will improve because 454B were versus 410A. That's a carryover effect. Coming forward. Michael P. Quenzer: Jeff, I'll just add on the repair side. We expect the input cost there to be up significantly more than systems starting this year and into the next few years. The 410A gas is going to be up. The cost of the technician complexity is going to continue to go up. So we expect that equation within the repair, breaks, replace to lean more toward a system replaced over the next year to two as well. Jeffrey Todd Sprague: Yeah. No. Understood. And then maybe just on capital deployment. Obviously, you've become a bit more active on the M&A side here. Is there an active pipeline? Should we anticipate more in 2026? What are your thoughts there? Alok Maskara: Yeah. You know, we maintain a pipeline. Like, we obviously have to digest what we bought and make sure the integration goes well. But if you're bolt-on acquisition, ask for a consistent strategy. Remains a focus. I would say over the next couple of years, you should expect more. Can be definite about anything in this year? But, you know, the style of what we bought is something we like. You know, something we would look at similar size, maybe slightly smaller acquisitions in the pipeline. And I know our focus will remain on things that we can ensure two plus two is gonna be greater than four. So, like, I think that we can apply our stores network, things that they can apply our national account team. And that's where we're very happy with the Durodyne and Subco acquisition. Because it's a net add to us and a significant room for improvement on the margin side as well. Jeffrey Todd Sprague: Mhmm. Okay. Great. Thanks. I'll leave it there. Operator: We'll now move on to Nicole DeBlase with Deutsche Bank. Your line is now open. Nicole DeBlase: Yeah. Thanks. Good morning, guys. Alok Maskara: Hi, Nicole. Nicole DeBlase: Just to circle back on the question about quarterly cadence, I think Michael, you answered that with respect to revenue. When we think about that one half to two half split, is that kind of reflected in EPS as well? Or is it maybe a bit more pronounced because of the under absorption in the first quarter? Michael P. Quenzer: Definitely into the first quarter, you'll start to see that, but there's also gonna be some more cost productivity as we get into the second quarter to mitigate some of that resource. So first quarter is gonna be tougher, but from a revenue perspective, that's the main thing that drives the margins at 35% decrementals then offset with some productivity and or absorption. That's the main driver of our... Nicole DeBlase: Okay. Okay. Understood. And then just coming back on price as well, when you guys kind of look out over the competitive landscape, we've heard some noise around maybe some price competitiveness particularly in the new construction channel recently. I guess, what are you guys seeing out there in the market? And do you think that your competitors are kind of aiming for a similar level of price increase for 2026 as you are? Thank you. Alok Maskara: Yeah. Based on everything we have seen so far, yes, we see our competitors aiming at similar price increases. So not surprised. Yeah. We have seen some of the low-end RNC business get more competitive, and we talked about that earlier. You know, we have chosen some of those not to go down that path. And instead focus on our core dealer network and get the right kind of customer experience there. But nothing is surprising nor is it any major deviation from the past. If I believe on one salesperson in one small territory, they will tell me that they're facing significant price competition. That's probably true for all our competitive scenarios. But if you look at broad-based across US full basis, industry remains very disciplined. Industry remains very focused. And we compete on technology. We compete on availability and service. And that's how we compete. Nicole DeBlase: Thanks a lot. I'll pass it on. Operator: Thank you. We'll now move next to Joseph John O'Dea with Wells Fargo. Your line is now open. Joseph John O'Dea: Hi. Good morning. Can you elaborate a little bit on the price mix trends in HCS over the past few quarters? I think we saw that step down a small amount from Q2 to Q3. Q4 was a few hundred bps below the Q2 level. On similar comps. And so just in terms of what you're seeing on the price side or the mix side that's been contributing to that. Michael P. Quenzer: Yes, Joe. It did step down a little bit in the fourth quarter third quarter. It's mostly related to just the bigger decline in condenser sales where we saw the bigger mix lift up. So we had a bigger proportion of furnace and parts and accessories and things that didn't have that same big mix lift up in the fourth quarter, the same proportion as the third quarter. That's the main driver. Besides that, mix continues to stick within each product channel. Joseph John O'Dea: Makes sense. Thank you. And then, you just talk about, like, what you're doing, with your dealers, to help kind of position them for, you know, posturing toward more selling of replace over repair, you know, understanding that last year and kind of the introduction of a new refrigerant had its challenges along with canisters. But just, you know, entry-level economics and what the message is, as well as any color on what is an entry-level cost today versus what it was five years ago? Because I think that's something that, you know, seems like face value. It's a, there's a little bit of shock value with it, but how the economics are compelling on sort of the replace versus repair side and what your messaging helping on the marketing side with dealers. Alok Maskara: Sure. I'll start by saying contractors and dealers are naturally inclined to focus on replacement versus repair. Because a, it's a higher margin to them, and, b, they are of the clear understanding that repairing is just deferring replacement. They try and communicate that to their own consumers and make sure that they make the smart choices. Remember, repairs are hard to finance. And replacements we help them with financing, we help our dealers with training, help them with the sales collateral and material, and run appropriate promotions with them, when it comes to financing and rebate. To incentivize replacement versus repair. We clearly didn't do a lot of that last year given the transition, I think they're all back to that mode now. That the dealers have good confidence in it. On your price perspective, you know, compared to sort of pre-COVID level up to now, the price from manufacture to the contractor or the channel has definitely gone up. But the price on the channel to the consumer has gone up even more. Some of it reflects the higher and grows across US labor cost as the skilled labor shortage persists. Some of it also reflects the fact that consumers were not getting as many cores. And we see now consumers are getting many more cores. And that's coming more back to normal. So I see any price pressure is gonna play out between the consumer and the channel versus the channel and the manufacturer. And then finally, as we look at this going forward, what I started by saying was true is any repair is simply deferred replacement. So a lot of things that were patched up and then repaired last year may come back again for replacement this year. If not definitely next year. So we feel very good about the long-term trend despite some short-term disconnect that we all saw last year. Michael P. Quenzer: Joe, I'll just add to that. We expect, or if you believe, that electricity costs are going to continue to increase. There's a potential monthly savings in utility bills that homeowners can get with the new system. The minimum system efficiency has increased significantly over the next last few years, and there's a lot of cost savings that a homeowner can get the new system out as well. Joseph John O'Dea: Helpful details. Thank you. Operator: Thank you. We'll now move on to Stephen Tusa with JPMorgan. Your line is now open. Stephen Tusa: Hey, guys. Good morning. Thanks for all the details as usual. Alok Maskara: Morning, Steve. Stephen Tusa: Just on these other items from slide 10 from the last quarter where you had growth in the value tier? I know Jeff touched on the repair versus replace, but the rationalization of low margin RNC accounts. Any change in those? I don't see them on the head tailwinds, you know, headwinds slide. Any change in those dynamics? Alok Maskara: Back in Q4 already. No. No change in those dynamics. And we talked about the RNC. So I think that continues. So move towards trade down, we touched on the Q&A. But, no, nothing changed. What we highlighted on slide four this time was our comparison to what we think things are gonna improve or be different in 2026. Those two factors remain the same, Steve. Stephen Tusa: Okay. And then just lastly on this accounting change. How would that have kind of impacted the shape of the year? And I guess you guys hedge as well on copper, maybe a little more aluminum. Like, what kind of would we have seen in maybe when does that, you know, kind of recouple to, you know, wherever these commodities are moving? Michael P. Quenzer: You mean the 2026 year or a 2025 year? Stephen Tusa: Yeah. '26. I mean, you gave us the differences in '25. So just did how would the shape of '26, I mean, it all normalizes in the end. Right? But, like, would the shape of '26 maybe been a bit different? Michael P. Quenzer: Yeah. I think it leans to that absorption comment and making first quarter where some of that's gonna come into the '26. You're gonna see some variations in the fourth quarter of 2026 go to 2027. Just that's the natural timing of FIFO versus LIFO. But net kind of neutral impact for the change FIFO to LIFO in 2026. Stephen Tusa: Okay. Great. Thanks a lot. Operator: Thank you. We'll now move on to Brett Logan Linzey with Mizuho. Your line is now open. Brett Logan Linzey: Hey. Good morning all. Just wanted to follow-up on the repair replace one more time here. Did you actually see positive parts growth in the fourth quarter? And then are there any regional or efficiency level observations where the trade down might be more pronounced? Alok Maskara: The answer to the second question is no. We don't see any specific regional differences that could, like, drive repair versus replace or trade downs. On the first part, yeah, I mean, parts have been growing more than equipment and pretty much most of 2025. Now you see that in the HRI data. We also see it in our own data. So, yeah, I mean, we do have actual data to support the fact that parts grow more. And we heard that from other conference calls and our distributors as well. Brett Logan Linzey: Got it. And then just a follow-up on NSI in the part strategy. Maybe an update on how NSI is now tracking organically and pulled in the And then as you continue to build out that parts pull-through strategy, do you better throughput, how do we think about incrementals in the context of better branch flow and volumes going forward? Alok Maskara: Sure. So, yeah, I think, and as acquisition overall we remain very pleased with it. We only have sort of like, two months of data from last year. But I think the sales performance is as we expected. It is just like other parts businesses. Growing. I mean, they obviously have some destocking impact too. Going forward, I think this year is obviously gonna be focused on integration, and we have expenses and all that associated with that. And Michael referred to that as part of some of our ERP conversion cost in there. But we would expect both through on an SI to be at or better than our overall margin levels. Going forward. And by 2027, I think you'll definitely be on the better side compared to our usual incremental. Michael P. Quenzer: And I'll just add to that. Yeah. We're really excited about the platform that that brings. It brings culture and experience around partnerships that we didn't have. We had about $500 million of legacy and accessories within our existing business. And joining that with that existing parts and accessory business is going to help us really get that attachment rate into the 2025% of our sales currently. It's only about 15% in the HCS segment. So really excited about the opportunities that we have around that acquisition, helping our existing parts and accessories business as well. Brett Logan Linzey: Appreciate the details. Operator: Thank you. We'll now move on to Nigel Edward Coe with Wolfe Research. Your line is now open. Nigel Edward Coe: Thanks, guys. Good morning. We cut a lot of ground, but I did want to go back to the two-step versus one-step for both the quarter and FY 2026. Obviously, we've got the HRI data through to November. Looks like 4Q was trending down I don't know, 40%, 45%. Is that what you saw in your two-step, which would imply one-step down with 20 to about percent in units. Then in '26, Alok, you mentioned one-step up low singles. Just wanna make sure you're inferring that two steps down probably mid-high single digits. Alok Maskara: Yeah. So I think let me start with the Q4 number. Right? I mean, obviously, December data is still to come. But, yeah, we saw similar behavior. On the two-step, and that gives you the right calculation to interpret what happened on the one-step. For us in Q4. And I'll let Michael answer the right question. Michael P. Quenzer: For look talking to the full-year revenues. If you break the volume down, volume down mid-single digits, slightly less down and indirect. That business will come back a little stronger. And then on the direct, we've got a little bit of headwind in there from RNC as well just being weaker on that side of the channel. Nigel Edward Coe: Okay. But you still think you'll grow low singles with the RNC headwind. Is that fair? Michael P. Quenzer: Correct. Once you take an... Nigel Edward Coe: Okay. And then just a quick one on the $75 million of productivity. In '26. That's a big swing in the bridge. I think you've got some compensation benefits in '25. I'm assuming would impact that number as well. So just unpack the $75 million in a bit more detail. And maybe just if you could just clarify my I think this is Michael. Material productivity is in the 2.5% inflation number. And so that this $75 million would not include that. Michael P. Quenzer: Right. Yeah. So we start with basically cost inflation of two and a half percent, and then from there, we draw activity against it. So we have $75 million of productivity against that overall inflation. It's really across several things. It's within the factory. We're gonna finally start to leverage a lot of the within the VCS factory that's gonna be fully up and running throughout the year. We're gonna see distribution investments we've made on the efficiencies on our network, you saw in the fourth quarter, we recognized a lot of SG&A cost actions, the low talk about the headcount reductions. That'll carry out into 2026. As well as technology and AI investments around systems that will help drive some of that cost productivity. And then finally, it's about tariffs. We've seen a lot of tariff costs within 2025 and we know path to mitigate some of that. But the new cost pool that we can drive productivity against. But we feel real focused on that productivity number and hope to exceed it. Nigel Edward Coe: Great. Okay. Thank you. Operator: And we will move to our last question from Deane Michael Dray with RBC Capital Markets. Your line is now open. Deane Michael Dray: Morning, Dean. Hey. Just a couple of quick ones for Michael. It looks like you all did a really good job at containing your decrementals. Quarter, you know, that benchmark to try to keep it in a down market to know, a decremental 25% looks really well done. I just was curious. Are you managing to that number or is this more of an outcome? Because it looks like you took out a lot of SG&A at the right time to hit that decremental. But just love to hear kind of behind the scenes how you're managing that. Michael P. Quenzer: Yeah. Definitely. We manage two main things within that. First, it's the price cost equation to make sure we're positive on that. So that helps in the decremental. And two, as we saw end markets deteriorate in 2025, both BCS and ACS took some cost actions and you to see those in there to help mitigate the decrementals that we know temporary. And we believe that we've restructured the organization in a way that the volumes come back into Q2, that we'll be able to drive strong incrementals at the 35% with the cost structure in place now. Alok Maskara: Yeah, and I think Dean, we have every year strategic planning process and during that we have ABC cost items that we would pull if markets go down. Last year was a year we had to pull all ABC and maybe some BB items as well. Given how steep the volume decline was. So it's not that we're managing to a number. We just have a strategy and a set of processes that we leverage to make sure that costs flow in line with our growth or revenue. Deane Michael Dray: That's really good to hear. And just a quick one on free cash flow, which was a real strong point in the quarter despite carrying incremental... Alok Maskara: You would say that, Deane. The whole thing was the design of telling my this morning. I hope Dean notices this. Deane Michael Dray: Okay. Well, I noticed. And just the idea, you carried more inventory. So that would've worked against you. But looks like you really came through on the receivable side. Just were there any one-timers in there? Did you pull any, those receivables forward? Just, you know, some color there would be helpful because it was a really standout quarter in free cash flow. Alok Maskara: I would give Michael full credit for it. I think he's done a really good job centralizing our APAR teams, consolidating accounting, moving things to shared services, and driving some really good processes, especially around collection and timely. So there's a lot of process improvement. And you would see there's a good trend of us managing APAR in a more disciplined fashion than we have done in the past. So I wouldn't say there's any one-time there. Deane Michael Dray: Good to hear. Thank you. Operator: Thank you. Thank you for joining us today. Since there are no further questions, this concludes Lennox International Inc.'s 2025 fourth quarter conference call. You may disconnect your lines at this time.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I'd like to welcome you to the Provident Financial Holdings' Second Quarter of Fiscal 2026 Earnings Call. [Operator Instructions] I will now turn the call over to Donavon Ternes, President and CEO. You may begin. Donavon Ternes: Thank you, Colby. Good morning. This is Donavon Ternes, President and CEO of Provident Financial Holdings. And on the call with me is Peter Fan, our Senior Vice President and Chief Financial Officer. Before we begin, I have a brief administrative item to address. Our presentation today discusses the company's business outlook and will include forward-looking statements. Those statements include descriptions of management's plans, objectives or goals for future operations, products or services, forecasts of financial or other performance measures and statements about the company's general outlook for interest rates, economic and business conditions. We also may make forward-looking statements during the question-and-answer period following management's presentation. These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ from any forward-looking statement is available from the earnings release that was distributed yesterday, from the annual report on Form 10-K for the year ended June 30, 2025, and from the Form 10-Qs and other SEC filings that are filed subsequent to the Form 10-K. Forward-looking statements are effective only as of the date that they are made, and the company assumes no obligation to update this information. To begin with, thank you for participating in our call. I hope that each of you has had an opportunity to review our earnings release that we distributed yesterday, which describes our second quarter fiscal 2026 results. In the most recent quarter, we originated $42.1 million of loans held for investment, a 42% increase from the $29.6 million that were originated in the prior sequential quarter. During the most recent quarter, we also had $46.7 million of loan principal payments and payoffs, which is an increase of 35% from the $34.5 million in the September 2025 quarter. Lower mortgage rates have driven stronger loan origination activity but also has led to higher prepayment activity. We are continuing to make prudent adjustments to our underwriting requirements within certain loan segments to promote disciplined, sustainable growth in origination volume. Our loan pipelines are moderately higher than last quarter, suggesting our loan origination volume in the March 2026 quarter will be within the range of recent quarters which has been between $28 million and $42 million. For the 3 months ended December 31, 2025, loans held for investment decreased by approximately $4.1 million with a decline in multifamily, commercial business and commercial real estate loans, partly offset by an increase in single-family and construction loans. Current credit quality continues to hold up very well. And you will note that nonperforming assets were just $990,000 or 8 basis points of total assets at December 31, 2025, a decrease from $1.9 million at September 30, 2025. Additionally, there were no loans in the early stages of delinquency at December 31, 2025, indicating an absence of emerging credit issues. We continue to monitor commercial real estate loans, particularly loans secured by office buildings, but are confident that based on the underwriting characteristics of our borrowers and collateral that these loans will continue to perform well. We have outlined these characteristics on Slide 13 of our quarterly investor presentation, which shows that our exposure to loans secured by various types of office buildings is $36.7 million or 3.5% of loans held for investment. You should also note that we have just six CRE loans, that total $2.8 million, maturing in the remainder of fiscal 2026. We recorded a $158,000 recovery of credit losses in the December 2025 quarter. The recovery recorded in the second quarter of fiscal 2026 was primarily attributable to a decline in the expected life of the loan portfolio due to lower mortgage interest rates. The allowance for credit losses to gross loans held for investment was 55 basis points at December 31, 2025, a slight decrease from 56 basis points at September 30, 2025. Our net interest margin increased 3 basis points to 3.03% for the quarter ended December 31, 2025, compared to the 3% for the sequential quarter ended September 30, 2025, the net result of a 5 basis point decrease in the cost of total interest-bearing liabilities net of a 2 basis point decrease in the yield of total interest-earning assets. Our average cost of deposits decreased to 1.32%, down 2 basis points for the quarter ended December 31, 2025, while our cost of borrowing decreased 20 basis points to 4.39% in December 2025 quarter compared to the September 2025 quarter. The net deferred loan cost amortization associated with loan payoffs in the December 2025 quarter compared to the average of the previous 5 quarters negatively impacted the net interest margin by approximately 5 basis points in contrast to no impact in the September 2025 quarter. New loan production is being originated at higher mortgage interest rates than the weighted average rate of the existing loan portfolio. The weighted average rate of loans originated in the December 2025 quarter was 6.15% compared to the weighted average rate of 5.22% for loans held for investment as of December 31, 2025. In the March 2026 quarter, our adjustable rate loans are repricing at interest rates that are slightly lower than their current interest rates. We have approximately $112.2 million of loans repricing in the March 2026 quarter to an interest rate that we currently believe will be 14 basis points lower to a weighted average interest rate of 6.85% from the current interest rate of 6.99%. However, in the June 2026 quarter, we have approximately $125.2 million of loans repricing to an interest rate that we currently believe will be 38 basis points higher to a weighted average interest rate of 6.49% from 6.11%. Many of these loans are already in their adjustable phase of the loan term with rate resets every 6 months. I would also point out that there is an opportunity to reprice maturing wholesale funding downward as a result of current market conditions, where interest rates have moved lower across all terms. Excluding overnight borrowings, we have approximately $109 million of Federal Home Loan Bank advances, brokered certificates of deposit and government certificate of deposit maturing in the March 2026 quarter at a weighted average interest rate of 4.12%. Additionally, we have approximately $79.5 million of Federal Home Loan Bank advances, brokered certificates of deposit and government certificates of deposit maturing in the June 2026 quarter at a weighted average interest rate of 4.15%. Given the current interest rate outlook, we would expect to reprice these maturities to a lower weighted average cost of funds. All of this currently suggests that there continues to be an opportunity for net interest margin expansion in the March 2026 quarter. Our FTE count at December 31, 2025, was 163 compared to 162 1 year ago. We continue to look for operating efficiencies throughout the company to lower operating expenses. Operating expenses were $7.9 million in the December 2025 quarter, an increase from $7.6 million in the September 2025 quarter. Operating expenses for the December 2025 quarter included a $214,000 pre-litigation voluntary mediation settlement expense related to an employment matter. For the remainder of fiscal 2026, we expect a run rate of approximately $7.6 million to $7.7 million per quarter. Our short-term strategy focuses on disciplined balance sheet growth by expanding our loan portfolio. We believe this approach is well suited to the stable economic environment and the ongoing normalization of the yield curve. During the December 2025 quarter, we were partly successful in the execution of this strategy with higher loan origination volume, but higher loan prepayments more than offset that growth. As a result, the overall composition of our interest-earning assets and interest-bearing liabilities were essentially consistent with the prior quarter. We exceed well-capitalized capital ratios by a significant margin, allowing us to execute on our business plan and capital management goals without complications. We continue -- we believe that maintaining our cash dividend is very important. We also recognize that prudent capital returns to shareholders through stock buyback programs is a responsible capital management tool and we repurchased approximately $96,000 of common stock in the December 2025 quarter. For the second quarter of our fiscal year, we distributed $906,000 of cash dividends to shareholders and repurchased approximately $1.5 million worth of common stock. Accordingly, our capital management activities represent a 170% distribution of the December 2025 quarter's net income. We encourage everyone to review our December 31 investor presentation that has been posted on our website. You will find that we included slides regarding financial metrics, asset quality and capital management, which we believe will provide additional insight on our solid financial foundation supporting the future growth of the company. Colby, we will now entertain any questions that others may have regarding our financial results. Operator: [Operator Instructions] Your first question comes from the line of Timothy Coffey with Janney. Timothy Coffey: Given the puts and takes that you just described on the loan portfolio, what is the probability that your portfolio is flat with -- the next 4 quarters? Donavon Ternes: Well, it's kind of a loaded question that I could answer if I knew what loan payoffs looked like for the next few quarters. What we've been focusing on is increasing our origination volume each and every quarter. We've been able to do so essentially for the last 5 quarters or so. We have pipelines that are built that suggest the March 2026 quarter will also be a higher origination-volume quarter, but it's very difficult to discern what loan payoffs look like, which will ultimately then drive what the loan balances look like at the end of the quarter and whether or not we grew those balances or essentially were somewhat flat. Timothy Coffey: Do you see the loans repricing in the June quarter as a potential headwind to loan growth? Donavon Ternes: Not necessarily, Tim. When we think about where those loans are repricing, and we compare to current market conditions with respect to new loan production, it looks like they're a bit higher than new loan production, but they're not substantially higher from where new loan production is coming in. So that could have an impact, there could be implications with respect to that. But ultimately, if they are not repricing substantially higher than current market conditions, I would not expect that driver alone to be the driver of accelerated loan payoffs. The other thing to think about, Tim, with respect to accelerated loan payoffs, it's kind of a double-edged sword. On the one hand, we obviously have trouble growing the loan portfolio to a large degree if those payoffs are higher or those payoff volumes are higher. But secondarily, those payoffs generally carry net deferred loan costs that get accelerated in as a debit or a decline to net interest income over the quarter. And the most recent quarter, those payoffs essentially impacted our net interest margin by a negative 5 basis points, in contrast to no implications or no impact in the September quarter, if we look at those net deferred loan costs on average for the prior 5 quarters. So the implications of loan payoffs are twofold, difficulty in growing loan portfolio and secondarily, there are implications to our net interest margin. Timothy Coffey: Right. Okay. And then the government -- federal government has recently discussed -- [ floated ] ideas on how to make housing more affordable. If some of those plans come through, would that be a net positive for your business? Donavon Ternes: Well, I think ultimately, if you look at -- particularly in California, where we lend, if you look at housing stock or available inventory, you find that there is much more demand than available inventory over time. And I think that has exhausted many would-be purchasers particularly as it relates to affordability. And what that housing stock pricing has done, even though pricing has slowed, it is still advancing a bit in the state of California, not at the rate that it was advancing, nonetheless, it's still advancing. Interest rates are a bit favorable with respect to affordability. As those rates come down, affordability goes up. But ultimately, in the state of California, available housing is far outstripped by demand. And so anything that is done, I guess, by local, state or federal governments that would expand available housing, lowering new construction costs and the like would be helpful. And that would ultimately drive more buyers, I believe. Operator: [Operator Instructions] And with no further questions in queue, I'd like to turn the conference back over to Donavon for closing remarks. Donavon Ternes: Thank you, Colby, and thank you, everyone, for attending our second quarter earnings call, and I look forward to the next call for -- with our third quarter earnings. Have a good day. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, and welcome to the WesBanco Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Iannone, Senior Vice President of Investor Relations. Please go ahead. John H. Iannone: Good day, and welcome to the WesBanco Fourth Quarter 2025 Earnings Conference Call. Leading the call today are Jeff Jackson, President and Chief Executive Officer and Dan Weiss, Senior Executive Vice President and Chief Financial Officer. Today's call, an archive of which will be available on our website for 1 year, contains forward-looking information. Cautionary statements about this information and reconciliations of non-GAAP measures are included in our earnings-related materials issued yesterday afternoon as well as our other SEC filings and investor materials. These materials are available on the Investor Relations section of our website, wesbanco.com. All statements speak only as of January 28, 2026, and WesBanco undertakes no obligation to update them. I would now like to turn the call over to Jeff. Jeff? Jeffrey Jackson: Thanks, John, and good morning. On today's call, we will provide an overview on fourth quarter performance and provide our initial outlook for 2026. Key takeaways from the call today are: successful execution on our growth-oriented business model, while maintaining strong credit quality measures. Full year pretax provision earnings growth of 105% year-over-year and full year earnings per share of 45% to $3.40 when excluding merger-related charges. Loan growth fully funded by deposit growth, both year-over-year and quarter-over-quarter, helping to drive our fourth quarter net interest margin to $3.61. Continued focus on operational efficiencies and cost control, as demonstrated by our fourth quarter efficiency ratio of 52%. 2025 was another strong year for WesBanco and a clear demonstration that our growth-oriented business model continues to deliver results while maintaining disciplined credit and expense management. For the full year, we generated pretax pre-provision earnings growth of more than 100% year-over-year and earnings per share growth of 45% to $3.40 when excluding merger-related charges. Importantly, that performance was driven not by onetime actions, but by core strategic execution, including loan growth, fully funded by deposit growth, expanded net interest margin and continued efficiency gains. For the fourth quarter ending December 31, 2025, we reported net income, excluding merger and restructuring expenses available to common shareholders of $81 million and diluted earnings per share of $0.84, which increased 18% year-over-year. On a similar basis and excluding day 1 provision for credit losses, we reported full year net income of $309 million and diluted earnings per share of $3.40. Furthermore, the strength of our 2025 financial performance was reflected in our fourth quarter return on tangible common equity of 16%. Nonperforming assets to total assets of 0.33%. Our capital position remains solid with a CET1 ratio of 10.3%, giving us flexibility to support growth and navigate the operating environment ahead. We also achieved several strategic milestones in 2025. Chief among those was a successful acquisition and integration of Premier Financial, transforming WesBanco into a $28 billion asset regional financial services partner. With this historic acquisition, we now rank among the top 50 publicly traded U.S. financial institutions based on assets. At the same time, we continue to invest in organic growth. expanding into new markets through the opening of loan production offices in Northern Virginia and Knoxville, launching our new health care vertical and optimizing our financial center network and digital banking capabilities, to support evolving customer preferences, and we will soon be celebrating the opening of a new financial center in Chattanooga, our first in Tennessee. Underlying all of this is the consistent focus on relationship banking that sets us apart from others. That approach drove record treasury management revenue of $6 million and a record total wealth management assets under management of $10.4 billion. Turning to operational topics. Disciplined execution remains the theme. Our dedicated teams, supported by continued strong customer satisfaction drove deposit growth that fully funded loan growth both year-over-year and quarter-over-quarter. Our third quarter deposit campaign delivered strong second half results with total deposits increasing 5% annualized or more than 6% for core deposit categories as we strategically allowed higher cost certificates of deposits to run off. We have continued to see a significant pickup in commercial real estate project payoffs, which totaled $415 million during the fourth quarter and over $900 million for the year, $100 million more than we had anticipated last quarter as developers continue to take advantage of the current operating environment for permanent financing or sale of properties. This increase in payoffs created a 4% headwind to loan growth for both the year-over-year and quarter-over-quarter comparisons. Despite these elevated payoffs, we delivered solid fourth quarter organic loan growth as total loans increased 6% annualized from the third quarter and 5% year-over-year, driven by our commercial teams converting pipeline opportunities. Since year-end 2021, we have achieved a strong compound annual loan growth rate of 9% without sacrificing credit quality as our key measures have remained consistent the last several years and favorable to the average of all banks with assets between $20 billion and $50 billion. As of both year-end and mid-January, our commercial loan pipeline stood at over $1.2 billion, with more than 40% tied to new markets and loan production offices. Despite anticipated elevated CRE payoffs through the at least first half of the year, we continue to expect mid-single-digit year-over-year loan growth during 2026, given the current loan pipeline and the strength of our markets. During the fourth quarter, our new health care vertical team refinanced a major skilled nursing provider in Virginia, serving as the lead bank in the syndication and sole lender for the working capital line of credit. This new relationship includes all operating reserve and payroll accounts for their properties as well as a 6-figure treasury management fee relationship. This win highlights the momentum of our health care vertical and the cross-team collaboration that helps us deepen relationships and deliver exceptional service. Before turning the call over to Dan to walk through the financials and outlook, I want to recognize our team members for their exceptional execution throughout the year. Their efforts were reflected not only in our results, but also in national recognition we continue to receive for soundless stability workplace culture and trust. Dan, I'll turn it over to you. Daniel Weiss: Yes. Thanks, Jeff, and good morning. For the fourth quarter, we reported GAAP net income available to common shareholders of $78 million or $0.81 per share. And when excluding restructuring and merger-related expenses, fourth quarter net income was $81 million or $0.84 per share. On a similar basis, when excluding the day 1 provision for credit losses on acquired loans, we reported $3.40 per share for the year as compared to $2.34 last year, representing an increase of 111% from the prior year. To highlight a few of the fourth quarter accomplishments, we generated strong year-over-year pretax pre-provision core earnings growth of 90%. We funded strong loan growth with deposits, improved the net interest margin to 3.61% and reduce the efficiency ratio to just under 52%. Our balance sheet reflects the benefits of both the premier acquired balance sheet and organic growth. Total assets of $27.7 billion increased 48% year-over-year and included total portfolio loans of $19.2 billion and total securities of $4.5 billion. Total portfolio loans increased 52% year-over-year due to the acquired PFC loans of $5.9 billion and organic growth of more than $650 million, driven by commercial teams across our footprint. Commercial real estate payoffs increased more than anticipated during the fourth quarter and totaled $905 million for the year, roughly $100 million more than we anticipated on our third quarter earnings call and 2.5x last year's level. Despite this headwind, though, we delivered solid organic loan growth for both the quarter and the year. We anticipate CRE payoffs to remain elevated during 2026 and currently estimate them to be between $600 million and $800 million for the year, but weighted more towards the first half. Deposits increased 53% year-over-year to $21.7 billion due to acquired PFC deposits of $6.9 billion and organic growth of $662 million which fully funded our loan growth. On a sequential quarter basis, total deposits increased $385 million due to the efforts of our consumer and business teams during the recent deposit campaign which more than offset the intentional runoff of $55 million of higher cost certificates of deposit and the pay down of $50 million in broker deposits. Turning to capital. Credit quality continues to remain stable as key metrics have remained low from a historical perspective and within a consistent range throughout the last 5 years. As expected, our criticized and classified loans continued to decrease during the fourth quarter to 3.15% and net charge-offs declined to just 6 basis points of total loans. The allowance for credit losses to total portfolio loans was 1.14% of total loans or $219 million consistent with the third quarter as increases related to loan growth were mostly offset by macroeconomic factors and reductions in qualitative factors. The fourth quarter margin of 3.61% improved 58 basis points on a year-over-year basis through a combination of higher loan and security yields and lower funding costs. The margin increased 8 basis points from the third quarter, which was above last quarter's guide of 3 to 5 basis points of improvement, primarily due to exceptional deposit growth which allowed us to replace higher-cost Federal Home Loan Bank borrowings with lower cost core deposits. Total deposit funding costs, including noninterest-bearing deposits declined 13 basis points year-over-year and 8 basis points quarter-over-quarter to 184 basis points. For the fourth quarter, noninterest income of $43.3 million increased 19% year-over-year due primarily to the acquisition of Premier and for the year, we reported record noninterest income of $167 million, once again, due to the acquisition of Premier and organic growth, including strong treasury management revenue. We again saw a nice improvement in gross swap fees, which increased $2.1 million year-over-year to $3.4 million in the fourth quarter and doubled to $10 million for the full year reflecting both the interest rate environment and traction within our newest markets. Trust fees were also at record levels for both the fourth quarter and the year. Noninterest expense, excluding restructuring and merger-related costs for the fourth quarter of 2025 was $144.4 million, an increase of 44% year-over-year due to the addition of Premier's expense base, higher core deposit intangible asset amortization that was created from the acquisition and higher FDIC insurance expense due to our larger asset size. On a similar basis, operating expenses were down slightly from the third quarter reflecting our focus on managing discretionary expenses. As I mentioned, our fourth quarter efficiency ratio came in just below 52%. I'd like to highlight here that we have updated our methodology for calculating our efficiency ratio to exclude both net security gains or losses from the denominator and amortization of intangibles from the numerator. This update makes our ratio more consistent with how our peers and other organizations calculate efficiency ratio and the ratios for all periods reported in our fourth quarter earnings release reflect this change and a reconciliation can be found in the non-GAAP measures section of the release. Turning to capital. During the fourth quarter, we redeemed $150 million of our outstanding Series A preferred stock on November 15 and $50 million of sub debt acquired from Premier on December 30, using the proceeds from our Series B preferred stock offering. As noted in yesterday's earnings release, preferred dividends reduced earnings available to common shareholders by $13 million, which represented the overlapping quarterly dividends on both the Series A and Series B preferred stock as well as the Series A redemption premium. Our CET1 ratio as of December 31 improved 24 basis points to 10.34% and we anticipated to build 15 to 20 basis points per quarter on a go-forward basis. Turning to our outlook for 2026. We are currently modeling two 25 basis point Fed rate cuts in April and July. Reflecting our exceptional fourth quarter deposit growth, which accelerated margin expansion, we anticipate our first quarter net interest margin to be roughly consistent with our fourth quarter margin of 3.61% and then increase 3 to 5 basis points in the second quarter and then modestly grow into the high 3.60% range in the back half of the year. This assumes, among other things, that loan growth is fully funded by deposits and a slightly steeper yield curve. Generally speaking, we modeled first quarter fee income overall to be consistent with the fourth quarter. Trust fees should benefit modestly from organic growth and influenced by equity and fixed income market trends. And as a reminder, first quarter trust fees are seasonally higher due to tax preparation fees. Securities brokerage revenue is anticipated to grow slightly from the range of the last few quarters due to modest organic growth. Mortgage banking should grow modestly over 2025 beginning in the spring, driven by improved market conditions and recent hiring initiatives and total treasury management revenues should see increases from 2025 as the compounding effect of our services continue to expand. Gross commercial swap fee income, excluding market adjustments, should be in the $7 million to $10 million range. Fully debt benefit income added $700,000 to the fourth quarter, which is not expected to repeat during 2026. And similarly, the fourth quarter loss on the sale of assets is not expected to repeat. We remain focused on delivering disciplined expense management to drive positive operating leverage and we will continue our efforts throughout 2026. As previously disclosed, we successfully closed 27 financial centers on January 23rd and the anticipated annual savings of approximately $6 million will begin to be realized midway through the first quarter of 2026 hoping to offset the impact of inflation. Occupancy expense should be flat to slightly down as compared to 2025 due to branch optimization efforts, while equipment and software expenses are expected to increase somewhat as compared to $25 million as we continue to invest in products, services and technology to improve the customer experience and drive revenue growth. Marketing is expected to increase approximately $800,000 per quarter due to targeting new customers, general campaigns to increase brand awareness in our newer markets and deepen relationships with existing customers with a focus on deposit gathering campaigns. Based on what we know today, we expect our expense run rate during the first quarter to be roughly consistent with the fourth quarter increase in the second quarter from midyear merit increases, revenue-producing hires and marketing initiatives and then grow modestly in the back half of the year from the full effect of annual merit increases and investment initiatives in revenue-enhancing technology. The provision for credit losses will depend upon changes to the macroeconomic forecast and qualitative factors as well as various credit quality metrics, including potential charge-offs, criticized and classified loan balances delinquencies, changes in prepayment speeds and future loan growth. Beginning with the first quarter of 2026, the dividends on our Series B preferred stock will be $4.24 million per quarter. And lastly, we currently anticipate our full year effective tax rate to be between 20.5% and 21.5%, which is slightly higher than 2025 due to a lower percentage of tax-exempt income to total income. And so overall, we were pleased with our growth during 2025 and excited about the opportunities in 2026 as we continue to execute growth initiatives to deliver shareholder value. Operator, we're now ready to take the questions. Would you please review the instructions? Operator: [Operator Instructions] Our first question comes from Daniel Tamayo with Raymond James. Daniel Tamayo: Yes. Maybe just to start off, Jeff, on the loan growth expectation and the payoffs expectation embedded in that. I guess if you're thinking about the -- I think you said $600 million to $800 million in '26 weighted to the first half of the year. I'm assuming that implies kind of a step down from the fourth quarter number, which was really elevated to $415 million. But maybe just walk us through how you're thinking about the pace of payoffs through the year? And what's driving that assumption in your modeling? Jeffrey Jackson: Yes, sure. So obviously, we had a tremendous amount of payoffs last year. We do think some of that will continue, especially in the first half of the year. What we've been seeing, as we've mentioned, is large CRE payoffs, whether they're selling or whether they're refinancing to the permanent market. The pipelines continue to remain really strong. So I think that will be an offset to the payoffs. But if you think about looking back when people refinanced projects when rates were much lower prior to rates getting elevated. Normally, we would do a construction loan and then it would become stabilized and then it would typically roll off our and all banks' balance sheets. I think what you had was because rates elevated and went up so quickly, these loans stayed on ours and other banks' balance sheets for a lot longer period of time. Now that you've seen rates slightly come down and permanent marketing is really opening up we've seen these elevated payoffs. We're no different than, I think, many other banks who do a lot of CRE. But as far as this year, we do believe, just based on our current forecast and talking to customers that it should slowed down, especially compared to fourth quarter. And with putting that together along with our pipelines continuing to remain incredibly strong on top of just the other opportunities we have, with the LPOs and health care, and I can get into that more later. But that's why we feel like loan growth should be in the mid single digits. And depending on how the back half of the year goes, could be even better. Daniel Tamayo: That's great. And you actually took my next question or you started to, which is perfect. Maybe you can give us some more details on that health care vertical. Jeffrey Jackson: Yes. Yes. It was a tremendous lift for us last year. The team, I believe, did around $500 million in new loans. We had a tremendous amount of deposits and fees. I believe they accounted for about $3 million of the swap fees that we did last year as well. So we feel like that will be one of the main growth engines of us for this year and feel like that is a great offset to many of the CRE payoffs that we should see in the first quarter even. Also kind of following up with the LPOs, those are really going well. Also, Chattanooga, Knoxville, Northern Virginia has really started to take off. And we're really continuing to look at other cities. I've mentioned Richmond before, but also looking at Atlanta and maybe even other southeastern cities as we move forward. We really kind of feel like we perfected the LPO strategy. And we're seeing it in our results, we're seeing it in our pipelines, and we're going to continue doing that, I would say, the rest of this year. Operator: Our next question comes from Russell Gunther with Stephens. Russell Elliott Gunther: I wanted to start on the expense guide. I appreciate the color there. It sounds like you're going to be flat in 1Q, step up a bit in 2Q. We had the branch closures kind of early in the quarter. So fair to say that that's all captured in this guide, the full savings from that. And then you guys tend to evaluate the branch network on an annual basis, typically in the back half of the year. Is that something that you would look to do again this year? And is any of that reflected in your 2026 commentary, Dan? Jeffrey Jackson: Yes, I'll take the branch piece. Absolutely. So as you know, we always evaluate the branch network, just throwing out that since 2019, we've closed about 93 branches. So I would anticipate us to continue to evaluate that. It is not in any of these numbers, just to be clear. But yes, I think it's safe to say we will definitely evaluate it, and that would be potential addition to reduce our expenses at some point in time this year. Russell Elliott Gunther: Okay. Excellent. And then just a follow-up question or second question for me, switching gears to the margin outlook. Maybe, Dan, if you could just address the puts and takes behind the cadence of the NIM, flat in the coming quarter, a nice step up 2Q and then the moderation. What's sort of underpinning your expectations for that glide path? Daniel Weiss: Yes. Sure, Russell. I think first, what I would say is if you think about the guidance that we've been providing 3 to 5 basis points of margin improvement per quarter. What we really saw here, and I mentioned this in the prepared commentary, in the fourth quarter was just extraordinary growth in deposits, particularly noninterest-bearing. And that deposit growth occurred pretty early in the fourth quarter and was at time $500 million plus intra-quarter. And so we were able to pay down Federal Home Loan Bank borrowings during a good maturity of the quarter, which kind of provided a really nice lift to margin. So that's how we kind of picked up 8 basis points of margin improvement or expansion over the third quarter versus kind of that 3% to 5% that we were projecting. But what I would say is we really kind of effectively pulled forward, I would say, the next 3 to 5 basis points that would have otherwise been projected for the first quarter into the fourth quarter, and that's how we get kind of a flatter margin just on a linked quarter basis when we look towards the first quarter. I would also tell you, typically, we see deposit flows like outflows in the early half or the first half, really the first quarter. And we've seen those. And so that's another like kind of what we see as like a headwind, something that normally would -- if it's very normal from history. But at the same time, whenever you've got as much deposit growth as we had intra-quarter throughout the fourth quarter and then kind of some of those deposits pulling back some for the first half of the first quarter, that also kind of -- you're borrowing for the Federal Home Loan Bank at 4% instead of holding noninterest-bearing assets or liabilities that are funding at 2%. So I think that's really what is driving for the most part, that flattish margin compared to the first quarter. But then whenever we look forward into the second quarter, kind of 3 to 5 basis points is what we're guiding to, recognizing once again kind of the benefit -- of the continued benefit and the grind of loan and security repricing, loan growth, et cetera. We continue to see and expect to see reduction in cost of funds. We'll continue to see quick kind of downward repricing of our short-term Federal Home Loan Bank borrowings. Of our $1.2 billion, $1.1 billion is kind of 6 weeks or less. And so that -- all of this kind of will help drive that margin improvement. It's happening in the background in the first quarter as well. It's just not as apparent. The other piece I would just say is that the CD book will continue to reprice, particularly it becomes more evident in the second quarter. We have about $2.1 billion in CDs that are going to be repricing here in the next 2 quarters. About $1 billion is repricing here in the first quarter from kind of 3.75% downward 25 to 50 basis points and then another $1.1 billion in the second quarter. And really, the repricing of CDs here in the first quarter from that 3.75% down into the, say, 3.25% range is where we also see some nice lift in terms of margin as we're going to continue to see funding cost accelerate downward relative to the reduction in loan yields. So I think that's kind of how we look at it. And then again, that continued grind into the back half of the year gets us as we model today, somewhere in the high 360s. Operator: Our next question comes from Manuel Navas with Piper Sandler. Could you just speak to. Manuel Navas: Could you just speak to within the NIM, if there's a little bit of back book repricing that is helping on the loan yields? I know that the floating rates will come down a bit. And also, what are kind of new loan yields coming in at? Just trying to get some more on the asset side dynamics in the NIM... Daniel Weiss: Yes, sure. So we do have about $400 million of loans -- fixed rate loans that will be repricing over the next 12 months off of -- with a weighted average rate of about 4.5%. And so I would anticipate those to be replaced or refinanced, et cetera, somewhere in that like low 6%, high 5% range. I would tell you that if you look at within the presentation, you can see that the weighted average yield on new loans originated in the fourth quarter was right around 6.15%. I would tell you the spot rate for the month of December was just above 6% to kind of 6.01%, 6.02%. So that's kind of where we're at and what we're projecting more or less here for the first quarter. The other thing I'll mention is just if we think about margin benefit longer term is the securities book continues to reprice as well. So we've got about $250 million of cash flows kicking off of that securities portfolio. Those yields are about 3.3%. And right now, we're investing at about 4.7% roughly. So picking up between 125 and 150 basis points in yield on $250 million of cash flows coming in. Manuel Navas: Is that $250 million per quarter? Daniel Weiss: Per quarter. Manuel Navas: Yes. Okay. And then shifting over to capital for a moment. I appreciate the commentary. Just shifting over to capital. As you build and TCE has gotten over 8%, CET1 is at 10.3%. Can you discuss your kind of capital deployment priorities, growth, but also just kind of where would M&A or buybacks fit in? Jeffrey Jackson: Yes, sure. First, we'd start with the dividends, obviously committed to the dividend. Then we would go to loan growth and making sure we can obviously fund the loan growth with our strong capital levels. Then I would put in buybacks. We've talked about our targets being 10.5% to 11% CET1 around those ranges, we would look to buy back. And then I would put M&A at distant fourth. Right now, there -- we don't see that happening this year. We're really focused on the first 3. And specifically, when it looks at growth, obviously, we have a lot of opportunities, but we are also seeing really tremendous opportunities to acquire bankers and talented individuals to come on our team. But those would be the capital priorities. Glad to dig into any of the 4. But once again, dividends, growth, buybacks and then fare distant M&A. Daniel Weiss: Yes. And I would just add on to that, that we're growing CET1 right now at about 15 to 20 basis points a quarter. So the print that we had for the fourth quarter, 10.34% CET1, that pretty comfortably gets us over that 10.5% by the end of the second quarter. And so that does offer, as Jeff said, some flexibility there as we think about where organic growth is relative to, say, maybe beginning to explore buyback to the extent that growth opportunities are slower. Operator: Our next question comes from Catherine Mealor with KBW. Catherine Mealor: One follow-up on the margin, and I apologize if I missed this, but any indication on just what you're expecting for the cadence of fair value accretion over 2026? Daniel Weiss: Yes. So I would say, I believe we had about 27 basis points of accretion here in the fourth quarter. And we were modeling about 25 basis points for the first quarter. And then as I've said in the past, it kind of -- it's a basis point or 2 per quarter, and it runs off over the next 6 years. Catherine Mealor: Okay. Great. That's helpful. And then the reduction in borrowings was great to see this quarter. How should we kind of think about the size of the balance sheet outside of loans and deposits kind of maybe growth in the bond book relative to what we should see from your borrowing base over the course of '26? Daniel Weiss: Sure, yes. So we're going to keep that bond book right around that, call it, 15% to 17% of total assets, it's 16% and we -- that's kind of where we feel is the sweet spot to maintain a nice level of liquidity, but also make sure that we're generating as much return on equity as possible through the higher-yielding loan book. Catherine Mealor: Okay. Great. And then maybe if I could slip one more in on just kind of big picture profitability. It feels like we've got some nice operating leverage coming into '26 6 with the revenue growth the NIM expansion and then growth in fees and your balance sheet, which kind of feels like more -- of a more stable expense base. Are there any kind of profitability target that you would look to as we move through '26? Daniel Weiss: Yes. I mean I would say at a high level, what we've continued to talk about is kind of that ROA being right around that [ 130% ] mark, average tangible common equity somewhere in the high teens. And so that's kind of what I would tell you, what we expect and what we're modeling. Operator: Our next question comes from Karl Shepard with RBC Capital Markets. Karl Shepard: My line cut out a little bit, so I apologize if you covered this. But just on the margin again, so the 3 to 5 basis points, are you saying that sort of burns out as we get later in the year and then maybe that high 3.60% range is kind of appropriate way to think about longer term without giving guidance for '27 or anything like that? Daniel Weiss: Yes, Karl. I would say '27 is a long way away, and it's probably -- it could be difficult to even project the back half of '26. But what we can see, and like I said, in the nearer term, is that continued 3 to 5 basis points of benefit in 2Q. Where it goes in the back half of the year is really going to be dependent on a number of things, including loan pricing, loan competition, deposit pricing, deposit competition, how well we're able to fund our loan growth with deposits and what the cost of those deposits are. So I think all of those things kind of play into the calculus here. So what we can -- we do -- we can see though that the back book, the assets are repricing upward, and that grind continues -- will continue to benefit margin. And like I said, we feel pretty comfortable based on everything we know today that we can get into that high 360s in that back half of the year. Karl Shepard: Okay. That's helpful. And then, I guess, maybe more of a strategic question. So the LPO strategy has been out there for a few years now. You're adding a financial center in Chattanooga. Can you just maybe talk about how these things mature and get to where you want to be and then just opportunity to continue to do new LPOs or, I guess, strengthen some of those markets with additional talent? Just kind of big picture, how you're thinking about that, Jeff? Jeffrey Jackson: Yes, sure. Very excited about the LPOs. So Chattanooga, we should open the first branch in Tennessee. We're anticipating in April. That group has done in over $0.5 billion in loans and has done really great job with full relationships, just to be clear, some deposits and different things, treasury fees, swap fees, et cetera. So what we typically look at is depends on the mass of the team we bring on, the size of the assets and those things. So my goal would be to continue to grow Knoxville in that similar range, add a branch there. Nashville, we're looking to add to that team, but we'll also be looking to add a branch once they get around that $0.5 billion. And then as it relates to future LPOs, once again, that is what we're really focused on this year. We are seeing a tremendous amount of opportunity based on the other M&A going on or leadership changes, et cetera. And so I think that's what you'll be seeing us do this year, expanding in other markets. But most likely, we would start with the LPO offices get a little bit of a loan balances, fee businesses going and then look to at a branch. Obviously, if we took on a much larger team potentially, then we would depending on where it would be, we could add a branch immediately. Obviously, funding for these LPOs is really critical. And having a single branch in those markets, we feel like it gives us a great advantage to add more funding when we start up these LPOs. But once again, I can't tell you what tremendous opportunities we have in some of these markets in the Southeast. And I think you'll be hearing more about that from us in future quarters. Operator: Our next question comes from Dave Bishop with Hovde Group. David Bishop: Jeff, you noted the loan pipeline holding up pretty nicely here. Now you're getting traction from the new production offices and the LTOs. Just curious, and you may not have this number here, but Jeff, any line of sight maybe into the deposit pipeline into the first half of the year, first quarter of the year and maybe what spot deposit costs were exiting the quarter? Jeffrey Jackson: Yes, I'll comment on the pipe and I'll let Dan talk about the cost. But yes, they're still pretty strong. Once again, as Dan mentioned, we kind of go back and look over the last several years. Seasonally, January usually is a down month for us in deposits, but then February builds back up. And usually, we finished with some nice growth at the end of March. So I would say the deposit pipeline still is very good. And for us, we're always looking to bring in full relationships and then our retail employees are doing a great job driving home those deposits as well. So I would imagine that we should still show pretty good growth this year in deposits based on everything I'm seeing. Daniel Weiss: I would just add spot deposit rates at least for the month of December relative to the full quarter's average. Full quarter average is right around 2.45%, December 2.38%, so down about 7 basis points relatively speaking. David Bishop: Got it. Appreciate that color. Then Jeff, maybe a follow-up. You talked about -- I appreciate the color on the new loan offices, especially in Tennessee and Northern Virginia. Are the types of loans you're seeing in those markets different than some of your core legacy markets, size, types of borrowers and such, especially in Northern Virginia, which is a big GovCon market. Just maybe speak to maybe the types of loans you're doing and size relative to the legacy market? Jeffrey Jackson: Yes, sure. Great question. They're pretty similar, to be honest. Once again, we have not changed our credit culture, any policies at all. So we're seeing some CRE, a lot of C&I, some health care. We did a big health care deal in Virginia. But yes, GovCon is part of Northern Virginia and D.C. area, but I can't really say we've done almost none of that. It's really been more CRE, C&I, health care, just similar things that we're doing in all our markets. The great thing that really helps our LPO strategy is we take our existing kind of credit culture and just get great talented bankers in all these markets that can operate within what we like to do, and it's working extremely well. Operator: Our final question today comes from Manuel Navas with Piper Sandler. Manuel Navas: I just wanted to follow up on the fee initiatives and the commercial lending team. You brought up the $6 million in treasury management. Swaps are doing well. And just kind of go into those in a little bit more detail in terms of what could be the growth next year? And what is the uptake in the Premier team using your fee products as well? Jeffrey Jackson: Yes. No, we're very excited about that. So I can tell you that 1.5 years ago, just starting with our treasury management fees, let me take you back a couple of years ago. So I believe in '23, we did about $2 million in treasury management fees. 2024, we did about $4 million. And then last year, we topped $6 million. I think that can continue to grow double digits this year. from a percentage perspective, if you just look at our purchase card, we basically had 5 customers back in, I believe, March of last year. Today, I believe we've got over about 130 customers with about another 45 in the pipeline. We've gone from, call it, $100,000 a month in spend to I believe we've topped $7 million a month in spend, and we think we can get it up to $10 million plus this year, as it relates to the purchase card -- commercial purchase card, multi-card. Then as it relates to swaps, I do believe we were around $9 million in just gross production last year. I think that could easily grow a good amount this year as well to be above $10 million plus depending on how the year goes and what interest rates do. So I think there is some tailwinds in both those fee businesses along with our wealth business, too. We just topped over $10 billion in assets under management when you combine our trust and securities business. So we feel like that's really going to be another driver for our profitability this year, and we could see some tremendous growth. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Jackson for any closing remarks. Jeffrey Jackson: Thank you. 2025 was another year of disciplined growth and strong execution for WesBanco. We strengthened our financial metrics, advanced our strategic priorities and position the company well to continue delivering value for our customers and our shareholders. Thank you for joining us today, and we look forward to speaking with you at one of our upcoming investor events. Have a great week. Operator: Thank you for attending today's presentation. The conference has now concluded. You may now disconnect.
Operator: Good morning, and welcome to Southern Copper Corporation's Fourth Quarter and Year 2025. With us this morning, we have Southern Copper Corporation, Mr. Raul Jacob, Vice President, Finance, Treasurer and CFO, who will discuss the results of the company for the fourth quarter and year 2025 as well as answer any questions that you might have. The information discussed on today's call may include forward-looking statements regarding the company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions to not place undue reliance on these forward-looking statements. Southern Copper Corporation undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All results are expressed in full U.S. GAAP. Now I will pass the call on to Mr. Raul Jacob. Raul Jacob: Thank you very much, Gigi. Good morning, everyone, and welcome to Southern Copper's Fourth Quarter and Full Year 2025 Results Conference Call. At today's conference, I'm accompanied by Mr. Oscar Gonzalez Rocha, CEO of Southern Copper and Board member; as well as Mr. Leonardo Contreras, who is also a Board member. In today's call, we will begin with an update on our view of the copper market and then review Southern Copper's key results related to production, sales, operating costs, financial results, expansion projects and ESG. After this, we will open the session for questions. Our performance in year 2025 delivered new company records for net sales, adjusted EBITDA and net income. These milestones are a testament to the strength of our strategy, execution and commitment to sustainable growth. This strong performance was primarily driven by a rise in by-product production and improved metal prices for all our products. Mined zinc production rose 36% year-on-year, bolstered by an additional 52,500 tons from the Buenavista zinc concentrator. Mined silver production increased 15% in this year -- in last year primarily driven by higher production at all our mines. Molybdenum production was 31,200 tons in 2025, which was 7% above the figure in 2024. The combination of higher production volumes and better copper and by-product prices enabled us to achieve record sales of $13.4 billion. This is 17% more than in 2024, a record high for EBITDA of $7.8 billion, that's 22% on top of 2024 and net income of $4.3 billion, which is 28% higher than 2024. We remain firmly committed to enhancing productivity and cost efficiency driven by strategy anchoring in discipline and focus on achieving a long-term goal to produce 1.6 million tons of copper at the lowest possible most competitive cost per pound. Looking into the metal markets and prices. For copper, the London metal copper price increased 21% from an average of $4.16 per pound in the fourth quarter of 2024 to $5.03 per pound this past quarter. For the COMEX market, we saw a 22% increase, averaging during the past quarter $5.15 per pound. Based on current supply and demand dynamics, we're currently estimating a copper market deficit of about 320,000 tons for 2026. Copper inventories worldwide, the sum of the London Metal Exchange, COMEX and Shanghai and bonded warehouses, where as of January '26, this past Monday, approximately 14 days of global demand. Let's look at Southern Copper's production for the past quarter. Copper represented 75% of our sales in the fourth quarter of 2025. Copper production registered an increase of 1.4% in the fourth quarter of last year on a quarter-over-quarter terms to stand at 242,172 tons. Our quarterly result reflects higher production at our La Caridad, Toquepala, Cuajone and IMMSA mines, which was attributable to better ore grades and recoveries. These positive results were partially offset by a decrease in production at our Buenavista operations. For 2025, copper production decreased 1.8% to 956,270 tons. This figure is 1% lower than our 2025 plan of 965,000 tons. Our year-on-year result reflects lower production at our Buenavista and the Peruvian mines, partially offset by a rise in production at our IMMSA and La Caridad mines. For 2026, we expect to produce 911,400 tons of copper, which represents a decrease of 4.7% compared to 2025 annual trend. This slight drop was primarily attributable to lower ore grades at our Peruvian operations. For molybdenum, it represented 8% of the company's sales value in the fourth quarter of 2025 and is currently our first by-product. Molybdenum prices averaged $22.75 per pound in the quarter compared to $21.61 in the fourth quarter of 2024. This represents an increase of 5%. Molybdenum production increased 10% in the fourth quarter of last year compared to the fourth quarter of 2024. This was mainly driven by an increase in production at Toquepala and Cuajone mines due to higher ore grades at both operations. These results were partially offset by a decrease in production at the Buenavista and La Caridad mines. Molybdenum production increased 7.4% year-on-year in 2025 after production grew at Toquepala and Caridad and was partially offset by lower production at Buenavista and Cuajone. In 2026, we expect to produce 26,000 tons of molybdenum. For silver, it represented 9% of our sales in the fourth quarter of last year with an average price of $54.48 per ounce in the quarter, which is reflected in an increase of 74%. Silver is currently our second by-product. Mined silver production increased 15% in the fourth quarter of 2025 versus the same period of the prior year. This was boosted by production growth at all our mines. Refined silver production increased 10% quarter-over-quarter driven mainly by increased production at all our refineries. In 2025, we produced 24 million ounces of silver, which represents an increase of 15% over the 2024 production level. This was due to higher production at all our mines. In 2026, we expect to produce 24 million ounces of silver, a slight decrease of 2% compared to 2025. For zinc, it represented 4% of our sales in the fourth quarter of 2025 with an average price of $1.44 per pound in the quarter. This represents a 4.3% increase compared to the fourth quarter of 2024. Zinc is currently our third by-product. Zinc mined production increased 7% quarter-on-quarter and total 46,223 tons. Growth was mainly driven by higher production at the Buenavista zinc concentrator and by an increase in production at San Martin mine. Refined zinc production increased 2% in the fourth quarter vis-a-vis the fourth quarter of 2024. Zinc production for the full year 2025 increased 36% due to additional production of 52,500 tons from Buenavista zinc and an upswing in production at our Santa Barbara mine. This was partially offset by lower production at our Charcas and San Martin operations. For 2025, we expect to produce 165,500 tonnes of zinc. Financial results. For the fourth quarter of 2025 sales were $3.9 billion. This is $1.1 billion higher than sales in the fourth quarter of 2024. Copper sales increased 39% and volume was up 3%, supported by better prices. In the case of LME it was 21% higher and in the case of COMEX 22% higher. Regarding our main by-products, we reported higher sales for molybdenum of 6% due to an increase of volume of 10% and better prices. Zinc increased its value -- the value of sales in 23% due to higher volume for 21% and better prices. Silver increased its value in -- 106% due to an increase in volume of 11% and better prices. 2025 net sales hit a record high of $13.4 billion, topping the 2024 net sales by 17%. This expansion was mainly driven by higher sales volume for molybdenum, zinc and silver. Growth in sales volumes remain -- for copper, growth in sales volume remained stable in [ 2025 ]. Operating cost. Our total operating cost and expenses increased $282 million, that is a 19% when compared to the fourth quarter of 2024. The main cost increments were in workers' participation, purchased copper, inventory consumption and operation contractors and services. We have also, in the quarter, a onetime adjustment of $60 million for asset retirement obligations at the Mexican operations, mainly at the Buenavista one. These cost increments were partially compensated by labor -- lower labor costs at the Peruvian operations. The fourth quarter 2025 adjusted EBITDA was $2.3 billion which represented an increase of 53% with regard to the $1.5 billion registered in the fourth quarter of 2024. The adjusted EBITDA margin in the fourth quarter was 60% versus 54% in the fourth quarter of 2024. For the year 2025, adjusted EBITDA hit a record high of $7.8 billion, reflecting a robust 22% increase over the figure in 2024. The adjusted EBITDA margin in 2025 was 58% versus 56% in 2024. Cash cost. Operating cash cost per pound of copper before by-product credits was $2.29 per pound in the fourth quarter of 2025. This is $0.06 higher than the value for the third quarter of $2.23 per pound. This 3% increase in the operating cash cost was driven by higher cost per pound from the production cost, administrative expenses and lower premiums, which were partially offset by lower treatment and refining costs. Southern Copper operating cash cost including the benefit of by-product credits was $0.52 per pound in the fourth quarter of last year. This cash cost was $0.10 higher than the cash cost of $0.42 for the third quarter of 2025. Regarding by-products, we have a total credit of $920 million or $1.77 per pound in the fourth quarter of 2025. These figures represent a 3% increase when compared to a credit of $895 million or $1.81 per pound in the third quarter of 2025. Total credits have increased for zinc, silver and sulfuric acid and decreased for molybdenum. 2025 operating cash cost per pound of copper before by-product credit was $2.17 per pound. And this was higher than the $2.13 per pound that we reported in 2024. This is a $0.04 increase. Net of by-product credit 2025 cash cost was $0.58 per pound. This $0.31 reduction in the cash cost compared to the $0.89 per pound reported in the fourth quarter for the full year -- excuse me, for the full year 2024, and this was mainly attributable to a $0.34 increase in byproduct revenue credits. Net income in the fourth quarter was $1,038 million, which represents a 65% increase with regard to the $794 million registered in the fourth quarter of 2024. The net income margin in the past quarter was 34% versus 29% in the fourth quarter of 2024. 2025 net income hit a record high of $4.3 billion, which is 28% above the figure in 2024. These improvements were driven by an increase in net sales and by our strict cost control measures. The net income margin in 2025 was 32% versus 30% in 2024. Cash flow from operating activities in 2025 was $4.8 billion, which represented an increase of 8% over the $4.4 billion posted in 2024. This result, which was mainly fueled by higher net income, was partially offset by an increase in net operating assets, particularly accounts receivables. For capital investments, our current capital investment program for this decade exceeds $20.5 billion and includes investments in projects in Peru and Mexico. In 2025, we spent $1.3 billion on capital investments, which reflected a 29% increase year-on-year and represented 30% of net income in 2025. Given that there is a description of our main capital project in Southern Copper's press release, I'm going to focus on updating new developments for each of them. Regarding the Peruvian projects and focusing on the Tia Maria project currently under construction at the Arequipa region in Peru. This project represents a landmark investment for Peru and the Arequipa region. The current estimated capital budget is $1.8 billion. As of the end of 2025, the project was 24% complete. At current copper prices, Tia Maria will generate $20.2 billion in exports and $4.6 billion in taxes and royalties over its first 20 years of operation. The project has already created 3,589 jobs, with strong focus on local hire. When operations begin in 2027, Tia Maria will provide 764 direct jobs and nearly 6,000 indirect jobs, demonstrating our commitment to sustainable growth and long-term regional development. As of December, 31st of last year, the company had committed about $800 million to different project activities. Large-scale earthmoving works have mobilized 1.7 million tons of material from the La Tapada deposit. Purchase orders to acquire metallic structures for secondary and tertiary crushing has been issued for the dry area. At the SX-EW process level, state-of-the-art technology has been selected for our main equipment. Access roads and platforms as well as temporary contractor camp has been completed. Regarding energy supply, all earthworks for the electrical main substation has been completed. Foundation works are currently underway, and the transmission line is being built. Next efforts will focus on developing the main and secondary components of the project's dry and wet areas and setting up a temporary camp. For Los Chancas in Apurimac, as of December of last year, we continue to implement environmental and social programs in the communities of Tapayrihua and Tiaparo, which are located within the direct area of influence of the Los Chancas Mining Project. Despite these efforts, the presence of illegal miners within the project area has prevented the project from advancing. In this context, the company continues to take actions with the relevant authorities to regain control of the project area. For the Michiquillay project in Cajamarca, also in Peru, this is a world-class greenfield mining project that we expect to produce 225,000 tons of copper per year, with an estimated investment of about $2.5 billion. The comprehensive review of the geological information to estimate the project's mineral resources has been duly audited in accordance with the SEC's mining disclosure standards and the Regulation S-K 1300. Subsequently, the company intends to use this information to estimate mineral reserves and develop the corresponding mine plan. Regarding environmental, social and corporate governance, or ESG practices, the company in recognition of our efforts in the ambits of prevention and minimizing risk, our Buenavista mine in Sonora, in Mexico as well as our Toquepala and Cuajone mines in Peru, received the accreditation from The Copper Mark for compliance with the Global Industry Standard on Tailings Management set forth by the International Council on Mining and Metals. These accreditation guarantees that best international practices are followed to provide authorities, the community neighboring our operations and other stakeholders with assurances that operations are safe. For the SX-EW plant at the La Caridad Unit in Sonora, Mexico, this unit has been awarded with the Casco de Plata, the silver helmet, in the category of metallurgical plant with up to 500 workers. This is in recognition of its status as one of the country's safest operations. This recognition, which was bestowed by the Mexican Mining Chamber known as Camimex, it was handed during the opening ceremony of the 36 International Mining Convention in Mexico. And this attests to the company's commitment to risk prevention and employee safety. In the case of the Peruvian branch, Southern Peru was recognized by the Peruvian government as a mining company with the largest number of projects awarded under Public Works for Taxes in 2025. The company is currently rolling out 4 investments for a total of $28 million that would benefit more than 5,000 people. Over time, Southern Copper has worked on 40 projects through this mechanism and has invested more than $400 million in infrastructure to bridge social gaps. In 2025, also about 5,000 residents benefit from the health campaigns conducted in the communities near our mining operations and projects in the Peruvian regions of Moquegua, Arequipa, Apurímac and Cajamarca. Teams of specialists in internal medicine, ophthalmology, pediatrics, gastroenterology, among other disciplines, visited communities to provide comprehensive medical care. This is on the nearby communities of our operations. Regarding dividends, as you know, it is the company policy to review our cash position, expected cash flow generation from operations, capital investment plans and other financial needs at each board meeting to determine the appropriate quarterly dividend. Accordingly, on January 22, 2026, Southern Copper Corporation announced a quarterly cash dividend of $1 per share of common stock and a stock dividend of 0.0085 shares of common stock per share. This is payable on February 27 of this year to shareholders of record at the close of business on February 10. Ladies and gentlemen, with these comments, we end our presentation today. Thank you very much for joining us. And now we would like to open the forum for questions. Operator: [Operator Instructions] Our first question comes from the line of Timna Tanners from Wells Fargo. Timna Tanners: Wanted to start off with any updated thoughts on your cost guidance and how you're seeing that shape up in particular, given the currency inflation, your local currencies versus the dollar? Anything you can do to combat that. Raul Jacob: Well, we -- I think we have passed the most -- the worst part of the inflation that we had after COVID mainly. Our costs are currently being more affected by currency appreciation for the peso and the Peruvian sol than specific inflation from Mexico or Peru. Timna Tanners: Okay. Do you have any guidance on where we might see the cost before by-products shape up in the next quarter or the year ahead? Raul Jacob: Sorry, could you repeat it, please, Timna? Timna Tanners: Sure. Any guidance on how we could expect to see cost shaping up into the next quarter and the year? Raul Jacob: No. It's -- for operating costs, we believe it's going to be relatively flat on a per pound basis, since we will be producing a little bit less than last year, it may have some impact on that. And -- but then we have a very strong production of by-products, which is something that was considered as part of the -- as part of our mining operations for last year and this year. So that is going to help us on the credit for sure. Timna Tanners: Okay. Helpful. I'll ask one more and hand it off. This past year, you started out with a lower guidance for silver production and at the end of the year, we're able to exceed your expectations. And of course, silver has been quite hot. Any ability in light of these strong prices to maybe eke out some more tons of -- or ounces, I should say, of silver in 2026 than your initial expectations? Raul Jacob: Well, we already gave a guidance on the silver production for this year. Obviously, we would like to improve on that. But at this point, that's basically what we are expecting is -- it's in silver, about 24 million ounces. One thing that we have done in 2025, and we're still maintaining is that our new zinc concentrator of Buenavista that has right to -- the mine of -- the zinc area of the mine, we have found a pocket of very good ore grades for both zinc and silver and that has made us to focus this concentrator that can switch between copper and zinc to focus only on zinc. So that's one of the reasons why we have a much stronger silver production in last year regarding silver specifically and zinc. We're still working in that area. So that's why we were holding to a very good silver expectation on production and hopefully it could improve. Let me say, Timna, that if we were to have the prices that we're having for silver this year with the expectation of production that we have, silver may become our main by-product. Operator: Our next question comes from the line of Emerson Vieira from Goldman Sachs. Emerson Vieira: I have a couple of questions. First one on by-products, just trying to understand here better the reason why molybdenum production in 2026 should decline. I understand that you guys have been prioritizing zinc production at Buenavista zinc concentrator, but that production should also decline in 2026. So just trying to understand here the reason for the declining moly production for next year. That's the first question. And then I have a follow-up with the remaining ones. Raul Jacob: Okay. On the molybdenum production, you mean the production because it was a little bit cut when you speak, Emerson? You meant the molybdenum production? Emerson Vieira: Yes. I mean, yes, for 2025 [indiscernible]. Raul Jacob: We're getting into some areas of the operations where we have -- we have a lower ore grades for both copper and molybdenum. Usually molybdenum should -- could improve a little bit or -- usually in this kind of circumstances, we have a little bit more molybdenum but at this point, this is what we are forecasting. So hopefully, we will be improving on what I mentioned as our forecast for the year. Emerson Vieira: All right. And then second one on Cuajone's concentrator. Can you guys provide us with the latest update here? When you expect an investment decision to be made for instance? Raul Jacob: Well, we haven't -- we have to prepare all the information on a possible Cuajone expansion, and that has to be submitted to our Board. We haven't done it yet. We are still working on this project. We see it very positively, but we need to finish our work and present it to the board for a decision. Emerson Vieira: All right. And then the last one on Tia Maria. I mean the committed CapEx of $800 million. It's roughly the entire amount you guys should disburse this year. So just trying to understand here about the timing of this. Raul Jacob: I am so sorry, Emerson, there's some noise when you speak. If you could you repeat this? Emerson Vieira: Okay. I will repeat. On Tia Maria, you guys mentioned that there is already $800 million of committed CapEx, and that's roughly the amount you guys plan to spend this year at Tia Maria. So just trying to understand here the timing if this CapEx is more skewed towards second half of this year. And then in order to deliver the 30,000 tons in 2027, when should the construction be completed in your estimates? Raul Jacob: Okay. As I say, we are -- we have commitments of about $800 million of those. In terms of cash flow, we should be spending a little bit north of $500 million -- $508 million is our current forecast for cash out during 2026 related to Tia Maria. Construction should be finished by the end of the first half of 2027, and we are expecting to produce about 30,000 tons in the second half of 2027 and then in 2028 and on at full speed of 120,000 tons per year. Emerson Vieira: All right. So just to confirm my understanding here. You mentioned that you expect to disburse $500 million in Tia Maria in 2026. That's it? Raul Jacob: Yes. That's what I said, $508 million is our current forecast. Emerson Vieira: All right. And how does that compare to the roughly $900 million that was disclosed in the preliminary guidance? I mean what's the reason for this CapEx in about half? Raul Jacob: I'm so sorry, Emerson, could you repeat it, please? Emerson Vieira: Yes. I mean you mentioned that you guys plan to disburse $500 million for Tia Maria in 2026, right? But looking at the company's presentation, the prior guidance, you mentioned that it was expected to disburse almost $900 million actually instead of the $500 million. So just trying to understand what is the reason? Why the lower disbursement? Raul Jacob: We did -- when we put the specific purchase orders, which are the commitment of $800 million, we obtain better payment terms than what we were expecting initially, and that's why we have this positive reduction in our cash out for next year. In Tia Maria, obviously, the budget hasn't changed significantly. So we will be spending that money in [ 2027 ]. Usually, you kept a portion of your budget for final payments once the vendors has -- or once you have confirm that the equipment that you have acquired are producing what was offered at the time of the sale. Emerson Vieira: Right. And this doesn't imply any postponement of the projects start up, right? I mean it's just the cash outflow that is being delayed, where construction will follow at another pace, a faster pace, I would say, right? Raul Jacob: We're in line with our -- the pace of the investment. We believe it's going to be finished, as I say, basically a midpoint of 2027, we should be charging material to the system of Tia Maria and start producing in the second half about, as I say, about 30,000 tons of refined copper for that year and then 120,000 tons, which is the full capacity of the project. Operator: [Operator Instructions] Our next question comes from the line of Alfonso Salazar from Scotia Bank. Alfonso Salazar: I have 2 questions. The first one is going back to the cash cost question. If -- correct me if I'm wrong, but if production falls some 5% in 2026, then before by-products, we should expect an increase in cash cost by right now similar to that number, right? And the second is, can you remind us how much of your cost in the Mexican mines are in Mexican pesos and same for Brazil -- sorry, for the Peruvian mines, how much is solutions? Just to have a sense of how much it could impact the depreciation of the weakening of the U.S. dollar. And the second question is regarding your long-term production guidance. If we look -- first of all, it says that it will be updated in January, the last that you have already in the website. Just want to make sure that you have any of that or we can continue to work with this one. Raul Jacob: No, we are doing -- let me answer your questions as you did them. In terms of -- yes, we are having a reduction in copper production this year. So that will increase our -- yes, that alone should have an impact in the range of the 5% that you mentioned for our production cost. We are doing -- we're taking certain initiatives for us to control cost and, if possible, reduce maintenance expenditures and contractor services at both the Peruvian and Mexican operations, that should help. In terms of cost control, as you know, we are quite keen on maintaining costs under control. The cash -- the cost in Mexican pesos is 39% of our cost and the cost in Peruvian sols is 10% of our cost. So we have about 51% of our cost in U.S. dollars denominated. Okay. The next one is... Alfonso Salazar: Yes, regarding the guidance. Raul Jacob: Yes. The guidance is basically -- we are updating it. For this year, I already mentioned it's 911,400 tonnes. For 2027, a little bit north of 900,000 tons. We are being affected by lower ore grade simultaneously at Toquepala and Cuajone. In the case of Toquepala, it's a temporary thing. That's why we are expecting this to correct over time. In the case of Cuajone, we are considering an expansion of the Cuajone operation, so we can bring back the lower production that we're having given the current installed capacity of Cuajone. For -- I'm going to give you the forecast for the next 5 years. So 911,400 for this year, a little bit north of 900,000 about -- I believe, about the same that we're doing for 2026. In 2028, we will have the full year of Tia Maria that will bring in 970,000 tons of forecast. In 2029, 1,060 million tons and 2031 same number, 1,060 million. Alfonso Salazar: Around 160? Okay. That's helpful. Just one quick question. In your previous guidance, we can see that Buenavista and Caridad, the production in those 2 mines were in a downtrend. Is that going to continue after 2030? Or what are you expecting in these 2 mines? Raul Jacob: No. We will be taking different actions to put back on track our production on both sites. In some cases, it's finding new reserves, which is very likely the Caridad circumstance. And in the case of Buenavista, we may consider also an expansion of the capacity of the operation. But these are things that are still under review. So no -- nothing that I could -- we could report on that at this point. Operator: [Operator Instructions] Our next question comes from the line of David Feng from China International Capital Corporation Limited. Tingshuai Feng: Congratulations on the strong results. My first question is from a capital management perspective. With a much stronger cash inflow based on current copper price, is it possible to boost your growth plan with the extra cash? Or is it more likely for you to increase the portion of cash dividend over stock dividend? I'll come back with my second question. Raul Jacob: I think that in the case of dividends, it's up to the Board. The Board has been increasing the cash portion of the dividend as prices and results are coming in. And I guess that they may increase the cash portion of it if we have more better results, but that is up to them. So I can't comment on that much. Your next question, please? Tingshuai Feng: Okay. My second question is with the much higher copper price, for projects like Los Chancas, we know on one hand, the higher price will allow you to leverage more resources to solve issues related to the project. But on the other hand, the higher prices also provide stronger incentives for illegal miners to continue or even enhance their operations. So overall, does the higher copper price make the project development like for Los Chancas easier or more challenging? Raul Jacob: Obviously, you want to have better prices than worse prices to go with projects, but we have made this -- all of our projects has been evaluated with the prices significantly lower than the ones that we're seeing nowadays. I think that in general, we're happy of having very good returns with prices that I'd say it's more like an average long-term view for us. In the cases -- the specific case of Los Chancas, we have had some progress. We had some initiatives taken by the government that will be -- illegal mining. But so far, we haven't -- we don't have much to report at this point. We believe that the government -- the Peruvian government will take action and allow the company to move on with this important project. Operator: [Operator Instructions] Our next question comes from the line of Matheus Moreira from Bradesco BBI. Matheus Moreira: My first question is on copper markets. I just wanted to get your overall view here on copper markets. We've been seeing, of course, very supportive price environment for copper, right, with prices holding of near historical highs. However, demand in China appears to be deteriorating at a relatively fast pace, right? So just wanted to see how do you view these dynamics going forward? Do you expect the current price momentum to be sustained? So that's my first question, and then I'll come back for the second one. Raul Jacob: Okay. On the copper market, we are expecting a deficit of about -- we're expecting a deficit in the market. And that 320,000 tons is our current -- the view of our commercial team. In terms of price, it's hard to know. We are seeing that the copper demand is being hold by electric vehicles, artificial intelligence, power centers. And at the same time, we see that -- well, in several places, particularly in China, the real estate market is not doing well. So that -- those are the factors. We were not forecasting copper prices. That is not our business. Our businesses to focus on controlling costs and producing as much copper as we can on a competitive base and with high returns for our shareholders. That's our business. Matheus Moreira: Okay. Perfect. That's clear. And then my second question on the Buenavista concentrator. I mean I understand you continue to prioritize on the zinc production over copper given the stronger zinc grades in the areas you're currently mining. Should we expect the strategy to remain in place for 2026, especially considering these copper prices at these levels? And maybe the question here, is there a copper price level that would incentivize you to shift back your production towards copper? Raul Jacob: Okay. Just for knowledge of everybody on the call, we do have 2 concentrators in Buenavista. One is the concentrator that is -- that are producing a pure copper. Those are copper concentrator. And the other one is -- there is one zinc concentrator that can switch between zinc and copper. In this case, we did an analysis at a certain point at the beginning of the year, and with the prices that we have had and the prices are still holding in terms -- in relative terms between zinc, silver and copper. And we found that it was on the best interest of the company and our shareholders to focus on zinc production with more silver content coming with the zinc. Just to be clear, we do have 2 concentrators that produce -- that are copper concentrators and one zinc concentrator. I believe that I skip that when I explain this matter. So we're doing this on an ongoing basis. If there is a significant change in the relative prices between zinc, silver and copper, we will review our strategy. But for now and particularly on the areas that we are at the zinc production areas of the mine of Buenavista, it still makes sense to be producing silver and zinc rather than copper. But if there's a change, we'll do it in a way that we produce the best value for our shareholders and the corporation. Operator: [Operator Instructions] Our next question comes from the line of Alex Hacking from Citi. Alexander Hacking: Raul, I just have one question. Could you maybe discuss the cadence of your copper production next year? Should we expect 1Q to be the strongest and 4Q to be the weakest with grades in Peru kind of falling through the year or it's going to be more even than that? Raul Jacob: It's going to be more even, Alex. We will be reporting on that. But that's basically -- we're getting into low ore grade patch for Toquepala. Cuajone is more or less stable at the level that it is now. And the reason for that is that Cuajone has a new structural ore grade, which is lower, that's why we're considering an expansion on this operation. Operator: [Operator Instructions] Our next question comes from the line of Myles Allsop from UBS. Myles Allsop: Great set of numbers. Just maybe on Tia Maria to start with. How -- what is the lead time for an SX-EW operation and what do you see as the key risks in terms of achieving the time line of first production mid-2027? Raul Jacob: Well, the -- we do have about 5 SX-EW operations in the company currently that are -- that we're working with them. Obviously, where we have selected the newest and best technology that is available for SX-EW operations right now. Basically, we are expecting to have the whole plant assembly in operation at the second half of 2027. That's a little bit more than a year from now. We think that -- well, at this point, we don't want to have any delays on getting the production that we're looking for 2027. Our expectation is to have everything assembled and ready to initiate the tests by May or June of 2027. And with that occurring, we will be putting charge in the equipments and start producing refined copper, which is the final product of SX-EW operation. Myles Allsop: And does -- how is the sort of mood on the ground? I mean there's a few small process, I think, in December. I think there's some more planned for March ahead of the elections. I mean, what's the sense on the ground in terms of going full steam ahead with the project? Raul Jacob: You mean on the Peruvian elections? Myles Allsop: Actually around Tia Maria and obviously stepping up production aggressively given what happened last time and the disruption you suffered? Raul Jacob: Well, no, we believe that the work that we're doing with the local groups, the population in the area, it's -- well, we mentioned that we have -- our initial expectation was to have about 3,500 workers in Tia Maria. Now we do have more than that. 3,589 jobs have been created. We believe that the right number now is more in the range of having 5,000 workers when the project is at full speed in terms of construction. This has been very well received by the local population. I think we made our -- the points that this project is not going to be a problem for them, but a big opportunity for the people at the province of Arequipa. And what we're seeing is that they understand this and are focusing on getting either job opportunity or a business opportunity related to the company or the programs that the company has. As I mentioned, the company has been investing using the tax for works mechanism in Peru very heavily. $400 million has been invested using this mechanism plus all the other programs that the company has. So I believe that we're bringing in good news to the population and the locals are understanding that correctly. Myles Allsop: That's encouraging. Maybe just a couple of other small questions. In terms of percentage of COMEX sales, has that changed meaningfully since last year? Or is it broadly unchanged? Raul Jacob: We don't make comments on that, I'm so sorry. Myles Allsop: Okay. And maybe last question then just on Mexico and the ability to get licenses to move projects forward, has the atmosphere improved? Is it looking more probable we'll see investments in the mining industry in Mexico being announced during 2026? Raul Jacob: We're seeing a better -- generally speaking, a better environment in our relationship with the Mexican government. And I think that this is going to be also reflected in the speed that we can move on with projects. But so far, there's nothing specific to report. Myles Allsop: And have any open pits been approved over the last 12 months or last few years? Raul Jacob: I'm so sorry, I couldn't get what you said. Myles Allsop: So any open pit projects being approved in Mexico over the last few years? Raul Jacob: Well, there are some projects that have been moving on. And we have our own El Arco and some other projects that we will keep working on them. But so far, on this matter and on our projects, we have not much to report at this point. Operator: Thank you. At this time, I'm showing no further questions. I would now like to turn the conference back over to Mr. Raul Jacob for closing remarks. Raul Jacob: Thank you very much, Gigi. With this, we conclude our conference call for Southern Copper's fourth quarter of 2025 and full year results. We certainly appreciate your participation and hope to have you back with us when we report the first quarter of this year 2026 results. Thank you very much for being with us today, and have a nice day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Brad Chelton: Good morning. Welcome to The Scotts Miracle-Gro Company's First Quarter 2026 Earnings Webcast. I am Brad Chelton, Head of Investor Relations. Speaking today are Chairman and CEO, James S. Hagedorn, President and Chief Operating Officer Nate Baxter, and Chief Financial and Chief Accounting Officer Mark J. Scheiwer. Jim will provide a strategic overview, Nate will provide a business update, and Mark will follow with a review of our financial results. In conjunction with our commentary today, please review our earnings release and supplemental financial presentation slides, which were published on our website at investor.scotts.com prior to this webcast. During our review, we will make forward-looking statements and discuss certain non-GAAP financial measures. Please be aware that our actual results could differ materially from what we share today. Please refer to our Form 10-Ks filed with the SEC for details of the full range of risk factors that could impact our results. Following the webcast, Executive Vice President and Chief of Staff Chris Hagedorn will join Jim, Nate, and Mark for an audio-only Q&A session. To listen to the Q&A, simply remain on this webcast. To participate, please join by the audio link shared in our press release. As always, today's session will be recorded. An archived version will be published on our website. For further discussion after the call, please email or call me directly. With that, let's get started with Jim's update. James S. Hagedorn: Good morning, everyone. I am taking a slightly different approach with our call today. I am going to focus on the strategies we are employing to drive more value for The Scotts Miracle-Gro Company shareholders, along with a discussion around new, longer-term financial priorities we have established through 2030. Nate will take you through the progress on our plans, and Mark will close with his customary review of our first quarter results. I am really excited to share where the business is headed. There are a lot of great things happening at Scotts right now. Our company has real superpowers, our brands, R&D, supply chain, and sales. And we are investing them to greater levels, from innovation advertising, and digital marketing to automation and technology. We have unique and strong retail relationships. We are working with these partners to put more marketing and consumer activation dollars into driving purchases of our high-margin branded products versus lower-margin commodities. These investments, approaching $1 billion annually, are absolutely critical to engaging core and emerging consumers. We are delivering strong gross margin improvement through ongoing supply chain optimization, and by bringing new innovation to consumers. And we are in a way better place with our capital structure. We are on a path to leverage ratio between three and three and a half times, which is our sweet spot. We are comfortable in this range because of our ability to generate strong free cash flow. Our cost of capital works really well at this level too. Just as importantly, we are taking substantive shareholder-friendly actions that go well beyond our healthy dividend. In Q1, the Board of Directors approved a new multi-year $500 million share repurchase program that will begin later in '26, in a measured and disciplined manner. The ultimate goal is to get our share count to around 40 million shares. The bottom line is we are more focused than ever on being the best Scotts Miracle-Gro Company that we can be. We are advancing this concept at every turn. And it is having a positive impact on our results. We are on track with our key metrics and have full confidence that we will achieve the fiscal '26 guidance and potentially then some. That guidance is a conservative outlook that we projected at the end of last year. And since then, we have developed more aggressive longer-term targets to put our company solidly on a multiyear growth trajectory. That is the bigger story I want to discuss. My comments are less about the performance in this quarter and more about the future. I threw down a challenge to Nate earlier this year to deliver an incremental $1 billion in top-line sales and total EBITDA of $1 billion. I put no time frame on it. Nate came back with the framework of a plan that would have us reaching these targets around 2030 on the strength of a 5% annual top-line growth through innovation, pricing, volume, M&A—not crazy M&A, but modest tuck-ins that augment or fill in gaps in our lawn and garden portfolio. We are now implementing these growth targets, and Nathan and his operating team are putting together the building blocks that will unlock this level of growth. He will be ready to share that plan in more detail later this fiscal year at our Investor Day that we are planning for the summer. Mark and Nate are also anxious to meet with strategic shareholders who want to be part of this longer-term plan and hear more about it. Achieving these longer-term goals will require a growth rate that is more ambitious than the low single-digit gains we projected in our fiscal '26 guidance and mid-range goal through '27. I can help reconcile this for you. We are not changing our guidance. But we do believe there is a good probability that we will outperform it. Nate's operating plan for '26 establishes a path to a more accelerated growth rate. The better our performance in '26, the easier our long-term objectives come together. We have also built our incentive program this year on Nate's '26 operating plan, which includes strong branded sales growth and gross margin improvement that will drive higher EBITDA and lower leverage. To get 100% payout on the incentive plan, will require us to outperform the guidance. I am not only super excited by this, I am also energized by our commitment to significantly reduce our share count starting with the first tranche of $500 million. We believe our current share price does not reflect the true value of our business. Which is why our commitment to shareholder repurchases reflects our strong view of the long-term value of our company. Nate, Mark, and our Board of Directors are fully supportive. In addition, early feedback from key investors also shows support for this initiative. Upon full execution of the long-term objectives, we are looking at a potential shareholder return in excess of 50% with a share price well north of $100. Repurchases will begin in '26 as we get our leverage ratio comfortably below four. Reducing our share count to around 40 million shares over time will require an investment much greater than the $500 million. So this is a long-term commitment that will require future authorizations from the board. There is also flexibility in the plan. Mark is the gatekeeper. Repurchases will be made using free cash flow and modulated to ensure we stay within our leverage targets. If we fall short of our financial plan in any given year, we slow the pace of repurchases. The program is a win for shareholders all the way around. Being the best Scotts Miracle-Gro also requires us to be focused on lawn and garden. Free of distractions. The divestiture of Hawthorne will do just that. The pending sale of Hawthorne to Vireo Growth is good for Scotts Miracle-Gro and Hawthorne. It will allow each of us to do what we do best. While we expect to close the deal this quarter, we have already moved Hawthorne from our operating financials. Classifying it as a discontinued operation is having an immediate positive effect. It has contributed to a 40 basis point improvement in gross margin and further strengthens our balance sheet. It will eliminate the impact of the cannabis sector's volatility in our share price. There is a benefit to Hawthorne, too. Vireo's CEO is a guy named John Masarakis. A founder of the investment firm Chicago Atlantic, who is running the same play Chris and I sought to build in the cannabis space. He is driving much-needed consolidation and Vireo is on track to becoming a top operator with a terrific multistate map. He is treating many of the people who are part of those acquisitions as partners and retaining their expertise. Vireo was well-capitalized in acquiring Hawthorne, allowing it to expand into cultivation supply and open up more growth potential for Hawthorne. The sale of Hawthorne will be through an exchange of shares giving us a key investment in Vireo. Chris will also join the Board of Vireo. Chairing a newly formed Strategy Committee and joining the Comp nominating, and corporate governance committee. SMG will enter into customer agreements to continue providing R&D, transitional, and other services. Looking at the bigger picture, it is clear we found a good home for Hawthorne while further strengthening the most powerful lawn and garden franchise a category that is growing. Despite our delivering consistent positive performance quarter after quarter, we have not seen it show up in the stock price. There is one upside to being undervalued. It gives us even greater opportunities to buy more shares back and deliver improved results for long-term investors. We are not so much focused on quarterly results as we are on disciplined achievement of the milestones that will enable us to realize our financial goals. I hope everyone in this call is excited about what you are hearing today. We are at an inflection point. We are done looking in the rearview mirror. We have an aggressive, offensively driven plan for the future. And we are very confident about that future and its absolutely on the side of creating more value for our shareholders. Next up is Nate. Nate Baxter: Welcome, everyone. Jim laid out our strategy and financial priorities. And when it comes to delivering them, I view this as a three-stage approach to execution. The first involves our work to achieve the fiscal 2026 guidance. The second is what we are doing to accomplish our midterm financial priorities through fiscal 2027. And the third is the plan we are building for the longer-term goal of $1 billion in top-line sales growth and $1 billion in EBITDA. The message today is we are on track to deliver the '26 guidance and the mid-term priorities. And as Jim said, we see opportunities to outperform, but as you know, our season is just getting started. As for the aggressive longer-term priorities, my team and I are developing a comprehensive plan that we will share by our next Investor Day. This morning, I am going to talk mostly about fiscal 2026. Which is the building block to our mid- and long-term plans. Our growth algorithm is focused on these key areas. First, incremental listings, including new product introductions across all our categories. Second, e-commerce gains across our retailer base. Third, growth in our high-margin branded products and fourth, pricing. Path to achieving our targets is centered on the consumer. Period. Despite being the lawn and garden market leader, we have a clear opportunity to grow household penetration. In some of our biggest categories, it is as low as 10%. At the same time, our demographics are shifting. Our core consumer is the baby boomer and Gen Xer. But is evolving rapidly to the emerging millennial and Gen Z. The best news is the lawn and garden consumer is healthy and engaged in the category. Our products fit nicely in the space of small, affordable projects around the home. Consumers are increasingly spending time on their lawns and in their gardens, not just for the aesthetics, but for their physical and mental well-being too. All of this speaks to our opportunity. We must engage with a broader and more diverse group of consumers. You can expect us to increase household penetration and encourage greater in the use of our products. We will focus on expanding the channels in which we reach consumers. We are going to drive product development to expand our portfolio and include more organic, natural, and biological solutions. We are going to adapt our marketing to engage emerging consumers and enhance their experience, and we will seek M&A through strategic tuck-in acquisitions that can fill gaps or build out our portfolio. We are progressing in each of these areas. We have ramped up innovation across our categories. In lawns, a new granular turf builder lawn food with a formulation emphasizing safety for kids and pets will launch this quarter. We are also bringing to market the ten-minute long care program, an updated line of ready-to-spray liquid fertilizers that feature a new applicator tailored for ease of use. Expansion of our successful Miracle-Gro Organics line is also underway. And with Ortho, this month we introduced an indoor light trap for flying insects and new ant trap products. This builds on the success of last summer's Mosquito Kill and Prevent product launch. Frequency of purchase is also critical. We are doing more to educate consumers on the value of multiple feedings for both lawns and gardens. We have spoken in past calls how this effort boosted consumer takeaway with lawn fertilizers in 2025, and there is more to go get. We are taking a similar approach with indoor gardening to encourage gardening as a year-round activity. This is supported by our new Green Thumb indoor marketing campaign that launched in Q1, in conjunction with a new line of indoor gardening products. We have seen positive results with this effort. As for M&A, we are intent on finding innovative unique brands that resonate with consumers. And our initial focus is on licensing or distribution agreements to explore partnerships and test product strategies. Any tuck-in M&A we complete will be margin accretive and have no negative impact on leverage. Beginning in fiscal '27, we will be the exclusive national distributor manufacturer, and marketer of Black Cow products. This product line is led by black cow manure and organic soils. It is going to augment our Miracle-Gro organic line by appealing to a whole new consumer. Black Cow is a premium soil amendment product used primarily by gardeners who like to curate their own soils. Line reviews start next month with retailers. We have also entered into an agreement to become the primary representative for Murphy's Naturals. This partnership provides us access to a high-quality team focused on innovation in natural insect repellents, and will help enhance the current R&D, brand work, and products we offer in the naturals and organic space. Channel expansion continues to be a focus. Do it for me is an opportunity here. We are not interested in what we did in the past with the Scotts lawn service. However, we have the potential to be a key supplier of the best and most effective products for small and medium-sized professional lawn and garden service providers. We are testing this concept in two markets this spring, to gauge our full potential in this space. Looking at the online channel, more consumers across all age groups are turning to digital and e-commerce to learn about products, engage with companies, and ultimately make purchases. In Q1, we launched a robust digital platform where we consolidated all brands under scottsmiraclegrow.com with AI-driven consumer guidance, educational content, and e-commerce capabilities as well as the ability to offer loyalty programs in the future. With this enhanced website, we are better able to partner with our retailers as they look to sell more of our products online. It is one of the many ways we are enhancing the consumer experience. Overlaying all our initiatives is our ongoing work to drive down operating costs and optimize our organization while increasing investments in our franchise. This has contributed to the outstanding job the team has done on improving gross margin. We have budgeted an incremental $30 million in this year for a total of $130 million. We are planning Marysville plant upgrades to support fertilizer innovation. We are going to increase automation across our supply chain, expanding the capacity of our growing media network to stay ahead of growing demand in our branded soils business, and implementing transformational AI and technology company-wide. On the brand side, we will continue to increase investment to the tune of $25 million this year, focusing on key areas such as media, digital, and R&D. This incremental spend is enabled by the transformation work we completed last year coupled with thoughtful reallocation of resources to focus on our priorities. Some of this will include authentic marketing campaigns geared towards the growing Hispanic population. In addition, we recently secured the naming rights to the Columbus Crew Soccer Stadium, providing great brand recognition for the Major League Soccer season and upcoming World Cup events. Soccer is one of the fastest-growing sports, and its fans are a key demographic for us. As you can see, we are making progress on multiple fronts, and are on track to our guidance. Our '26 plan is solid and will serve as the stepping stone to the bigger financial goal. We have the best brands in a unique category, we are looking forward to bringing more consumers into the wonderful world of lawns, gardens, and green spaces. I am most excited about the momentum we are building. I see many more good things happening for our company and shareholders as our season gets underway, and the year unfolds. Here is Mark with the financial details. Mark J. Scheiwer: Thank you, and hello, everyone. Jim and Nate provided a great overview of our strategy. All the work we are doing to successfully execute upon it. We are making strong and consistent progress as we focus on actions that drive long-term value creation. We are off to a good start and optimistic for the year. We continue to strengthen our capital structure, advance our financial priorities, and invest in the growth of our core lawn and garden business. The new multiyear share repurchase program demonstrates our commitment to shareholder-friendly actions that go beyond a robust quarterly dividend. The repurchases will be executed in a measured manner, to ensure alignment with our capital allocation strategy, our focus on leverage reduction, and the guidance we established for fiscal '26. We anticipate a phased approach with the repurchases expected to begin in late 2026 and increasing over time as we further reduce our leverage ratio, to be in line with our financial goal of below 3.5 times. With this background, I will move to our performance, starting with the divestiture of our Hawthorne business. With our board's commitment and a pending sale transaction, starting this first fiscal quarter, we are classifying Hawthorne as a discontinued operation. We have removed Hawthorne from our ongoing operations and are reporting it separately as a single line item in the P&L called loss from discontinued operations net of tax. The prior first quarter result of operations has been updated to reflect this as well. We plan to recast the financial results to reflect Hawthorne as a discontinued operation for each of the quarterly periods in fiscal '24, and '25. This will occur within the next few weeks and will help with your financial modeling and comparisons when you look at the performance of our Consumer business these past two years. As part of the transaction, Vireo Growth will acquire Hawthorne in exchange for its equity. And moving forward, this equity will be reported as a minority investment in our financial statements. In connection with the classification of Hawthorne as a discontinued operation, we took a pretax asset impairment charge of $105 million recorded within the loss from discontinued operations representing the excess of Hawthorne's carrying value over its estimated selling price. Looking at our top-line sales this quarter, total company net sales, which exclude Hawthorne, were $354.4 million. US consumer sales of $328.5 million were ahead of expectations due to changes in the timing of early season load-in with certain customers. Our first quarter represents around 10% of our full-year sales, and mostly reflects load-in activities tied to the upcoming spring and summer lawn and garden season. We expect retailers to increase these load-in activities as we draw closer to the POS curve. In fact, retailer shipments in January picked up at a record pace. Making it one of the highest January shipment months ever. Moving to POS, I want to call out an update this quarter. To our reporting of U.S. Consumer POS activity to align more closely with our go-forward focus of driving growth in our branded product sales, broadening our customer base, and growing in e-commerce. We listened to your feedback and have taken steps to improve the clarity of our POS data we will use consistently in the future. Starting this quarter, we are providing a robust and comprehensive view of POS by expanding reporting from our previously reported three largest customers to include POS data from 15 of our largest customers including e-commerce. Reported POS will be for branded products only, excluding mulch, private label, and commodity items. In addition, POS by key business categories of lawns, gardens, and controls has been added to our supplemental financial presentation slides, posted on the website earlier this morning. This updated measure is more directionally aligned with our shipment activity and represents over 80% of our total US consumer sales activity. Under this new reporting approach, our fiscal '25 POS dollars were up 2%. Closely mirroring our plus 1% in US consumer sales. POS for the first quarter, which is less than 10% of our full fiscal year, was slightly down at 1% in both dollars and units compared to the '25. For context, the first quarter we just reported was comping against one of our strongest first quarters on record last year. Additionally, much of the fall season in calendar '25 was pulled forward due to favorable weather conditions and this showed up in our strong POS in August and September '25. Also, during the '26, we are starting to see POS dollars and units move more in line with one another compared to recent years due to a shift in our mix strategy. We expect this trend to continue. Some of the POS bright spots in Q1 included gardens, and Roundup. Nate explained the opportunities we see in indoor gardening, and this began to play out in Q1. POS and indoor gardening was up 7.7% in dollars and up 9% in units. In addition, Roundup saw strong consumer demand and was up 24% in dollars and 27% in units. We also saw good growth year over year in spreaders, weed, and insect control products. E-commerce was again a strong growth area. As we continue to drive substantial gains primarily through our retailer e-commerce sites. For the quarter, e-commerce POS dollars for our branded products were up 12%. And units were up 17%. Branded product e-commerce sales represented 14% of our overall POS in Q1, a 150 basis point increase over the prior year. Gross margin expansion is a financial priority and for the quarter, we delivered a GAAP gross margin rate of 25%, up 90 basis points over the prior year. The non-GAAP adjusted gross margin rate was 25.4%, compared with 24.5% a year ago. The improvement was primarily driven by ongoing supply chain cost efficiencies coupled with our planned pricing actions. Moving down the P&L, SG&A for the quarter decreased 7% to $106 million, the result of equity compensation decreases that were partially offset by an increase in media and marketing to support our brands. Looking at the non-GAAP adjusted EBITDA for the quarter it was $3 million ahead of our expectations due to the timing shift of U.S. Consumer sales tied to seasonal load-in activities of our retail partners. Below the line, interest expense continued to fall from lower debt balances and interest rates. Interest expense was $27.2 million, down 20% from the '25. We also reduced leverage nearly a half a turn ending the quarter at 4.03 times net debt to adjusted EBITDA, compared with 4.52 times in the '5. This was a result of continued deployment of free cash flow to debt reduction and improved EBITDA. Regarding free cash flow, it was favorable by $78 million in the quarter. Due to the timing of accruals, our continued focus on working capital management, including further supply chain optimization, and automation, making us more nimble during the seasonal inventory build. As for the bottom line, we delivered improvement here too. We typically report a loss in our first fiscal quarter. This quarter, the GAAP net loss from continuing operations was $47.8 million or $0.83 per share. Versus $66.1 million or $1.15 per share in the prior year. The non-GAAP adjusted loss for the first quarter was $44.6 million or $0.77 per share. Versus $50.2 million or $0.88 per share in the prior year. Overall, we are pleased with our first quarter performance. And have full confidence in our fiscal '26 financial guidance. Which includes US consumer net sales growth of low single digits, non-GAAP adjusted gross margin rate of at least 32%, and non-GAAP adjusted earnings from continuing operations per share range of $4.15 to $4.35 per share. Non-GAAP adjusted EBITDA growth of mid-single digits, and free cash flow of $275 million driving leverage ratio down to the high threes. As we continue to deliver, upon the key elements of our mid-range plan, through fiscal '27, we are shifting our sights to the long-term growth prospects for our company. Jim addressed the financial priorities through fiscal 2030 and you can expect us to share more details related to these priorities and the plan at an Investor Day event we are planning this summer. Thank you, and I will now turn it over to the operator. Operator: Star one one on your telephone and wait for your name to be in touch. To withdraw your question, simply press star one one again. As a reminder, the consideration of time, please limit yourself to one question and one follow-up. Please standby for our first question. Now first question coming from the line of Peter Grom from UBS. Your line is now open. Peter Grom: Great. Thank you, operator. Good morning, everybody. Maybe just going back to some of the original commentary around the work the team has been doing and I know we are going to get a lot more details at the Investor Day this summer. But the high degree of confidence that you can outperform the guidance this year. You maybe just talk about what is driving that? Or where you have increased confidence and visibility sales, margin, both at? You sounded quite optimistic. So any color, I think, would be helpful. Mark J. Scheiwer: Sure. Good to talk to you Peter. This is Mark Scheiwer. I will start with some of the bottom line confidence and then I will let Jim and Nate speak to some of the top line as they see it, as they work with the operators. You will see in the gross margin line, obviously, we announced the Hawthorne divestiture. So that, as Jim alluded to, provided 40 basis points of benefit on a full-year basis. In addition, given our track record and some of our planning as we have gotten further into the year, we feel comfortable as we navigate that you know, we should be able to outperform 32% as a number. So I feel, you know, as we guide further in the year, we will give our customary update after the second quarter. And we can provide a little more refined guidance around call it, margin. You did also see some good performance on interest expense down below the line as folks are navigating and managing cash flow really well. So I feel really good about how the team is navigating free cash flow on that side. And then just from my perspective on the finance side, on the top line, you know, as far as consensus and where we landed versus sales and what we have about on the last quarter call, you know, sales from retailers, it is a big load-in quarter for the quarter. And we saw really good positive momentum there. As we navigated the quarter. Maybe that exceeded some of our expectations initially at year-end. Nate Baxter: And I will just add real quickly, Peter. You know, between the innovation we are bringing to market and the focus that we have in partnership with our retailers on the branded products, there is a lot of bullishness about the season. So we think all those things together is what sort of gives us our confidence. James S. Hagedorn: And, you know, look, I would just throw in there from my point of view that when we put sort of the guidance together, and this is not unusual for us, it is really before our business plans are being finalized. Excuse me. And, you know, we are through the process of the work we do with our retailers. So, you know, I think that they were pretty conservative numbers. You know, I and I think that is what you guys would expect. I think everybody is saying, you know, under promise, over deliver. But between the guidance we gave and Nate and Nate's operating numbers, there is quite a big difference. And so Nate, I think, is feeling confident that you know, we are at least better than the plan that Scheiwer put together, which is kind of a safety plan. And so I think so far so good. And again, the part which is that at the consensus, and this goes to I think mostly confidence, in the numbers. We built an incentive plan that was approved by the board recently that is you know, the guidance numbers would not pay out at a 100%. And I think that is important to just know where the management team is because the incentive does matter. And so I think there is a lot of confidence. I think if sales were here, but is not talking at the moment. But if they were talking, they would say, we have got excellent programs in place for the year. And I think the operating part of the business is being very well managed. Peter Grom: Great. Thank you so much. I am going to pass it on. Operator: Thank you. And our next coming from the line of Christopher Michael Carey with Wells Fargo Securities. Your line is now open. Christopher Michael Carey: Hi. Good morning, everybody. Hey. Morning. Morning, Chris. So okay. So I I guess I sent some positive you know, early signs of, you know, retailer shipments both in the quarter and and perhaps even even quarter to date I believe the year is set up to be a bit more back half weighted from a growth standpoint. Can you just give us a sense of whether the early activity has evolved your view about, you know, the the the phasing through the year the timing of inventory loads? Or are these just weeks too small to read too much into and you are kind of still thinking the same thing? May maybe just give us a sense of how you are your thought process on on the cadence know, has has evolved through the year. And I guess that is really about your your ability to kind of shift to retailers and retailers receptivity. Thanks. James S. Hagedorn: Chris, I would just throw out that it is no joke that the direction that I am leading is going to be less focused on the quarters and you know, I I I think it is a really know, honestly shitty way to run a business. And I I know I think everybody probably say that knows our business and knows just generally, public companies would say, do not let the quarterly results drive you guys and make you nuts. And part of what I am trying to get the operating team is to say, look, let us go for our milestones. Let us let us you know, and so I I think the answer is Mark will will answer it, but I think the answer is yes. It is evolving and back to a more traditional kind of pattern. Than we had. But, you know, you get snow in in the Northeast and, you know, a lot of parking lots in the Northeast are going to be full. It will probably delay deliveries. And I think the the answer is it does not mean anything. You know? And so I I think the answer is yes. You are seeing evolution in that and maybe it is just back to kind of a more traditional Mark and I talked about this yesterday. It is like, what are you seeing on these patterns? You know, because I mean, think markets sort of I think it will get back to kinda fifty fifty. And, you know, I said, is that you see that really happening? And he is like, well, kind of. But I think the thing is we are we are looking for the fiscal year and making the sort of milestones that we need to get to to make like, I am going to say, our plan work. And so I think generally, the answer is yes. But what I do not want to do is get all freaked out over the fact that there is just no doubt that you will see deviation a lot of it depending on weather. Mark J. Scheiwer: Chris, just as a as a follow-up to what Jim said, I think going into the year when we talked to year-end, we we we kind of you know, had talked about effectively like a 2% shift in sales from call it, second half to first half unit. And I I would say we do not have a a a ton more data, you know, the first quarter is a small part of the quarter. But you know, could I see it being a little bit less than that? Yes. I think it could be potentially like a 1% shift. You know, first second half to first half. So it could could be a little bit less than our expectation. Just, you know, again, we are trying to navigate a few years being out from COVID now. And the sales patterns, but the retailers are really supportive of us. We have strong shelf space. And support, and and so that that that is very much the case. And so I I it could be less than what we had talked about at year-end. I think it could be but I think there will still be a little bit of a shift. Nate Baxter: Yeah. Just, you know, we ended last year in a really good place with retailer inventories where we were down call it, 5%. So I think this just signals a little bit of optimism from retailers you know, making sure they have the inventory they need as we get ready for spring. James S. Hagedorn: So I would I mean, you have talked to the retailers. You know? I do. You have out there, like, how are they feeling about this? Nate Baxter: Good. Good. And I think even some of them commented, you know, we loaded in a little more than we thought we would. And I think it is because of the healthy inventory level and the optimism you know, with the one big beautiful bill, we are expecting some tax refunds. And I think, you know, retailers are bullish on season. Christopher Michael Carey: Okay. Great. Thank you. Operator: Thank you. Our next question coming from the line of Andrew Carter with Stifel. Andrew Carter: Hey. Thank you. Good morning. Sorry. Was messing with the mute button. So if I understand it correctly, if you want to add a billion dollars from 2025 to the business, and you think about where '26 will land, which will be a good base of branded, I am getting, like, kind of a $6.06 kinda CAGR from '27 through or '26 through '30. Knows my math right? But if am I right range? And that would be kind of an acceleration at least a performance at the high end of what you expect the branded business to do this year. And how reliant is that on M&A? How reliant is some of these initiatives to be successful such as do it for me? And well as the e-commerce initiative. Nate Baxter: So I I I would look at it this way. First of all, a lot of the initiatives we talk about really will not be accretive '27 and beyond. So the M&A and some of the the do it for me and pro. What we are leaning into now is the e-commerce. And, you know, we saw Mark talked about it in his prepared remarks, but, you know, we we saw, call it, sort of flat to negative 1% growth overall. Most of that was brick and mortar, but we saw double-digit growth. In e-com. And from a market share perspective, while we were flat in brick and mortar, we saw almost two points of gain in e-com. So Jim said it, know, it is about 5%. And that is really the path we have to to to get to. And I think the sum you know, my operating plan for '26, as Jim said, is more aggressive. We can talk more when we when we do the investor day, you know, later this year, but definitely have a plan. We are we are willing to talk through with you guys. Andrew, as a follow-up, Mark Scheiwer here. You are right. You are in the ballpark as far as growth rates go. And, you know, on the finance side, as I kinda look at the building block, as as we set up this year for 26, pricing is a building block. Volume growth is a building block. And then innovation or new product listings are a building block. So if I was to break down that, call it five, 6% of incremental sales growth, you know, those three would be big components of that. We are introducing the tuck-in M&A as well. As part of that. So that would be a part of that growth. I think some of the partnerships we are looking at I think it is safe to assume they would add probably a point of sales growth in the future as we as we navigate those partnerships and and really like those, those businesses, in the future. So I those are probably the four biggest biggest blocks every depending on the year. You know, you may see you may see some of them outperform. And then underlying it all, obviously, would be the e-com growth. That that you are starting to that you have been seeing the past, call it, six quarters of our financial results. The second question, I know that getting back to share repurchase this year, you outlined 40 million shares, which would be down 30% from where you are right now. I want to make sure I understand that the commit to that and if that is flexible, like, if you if the right M&A target came, that that would be off the table. And I assume I am not I am not sure how that would be treated, given the trust ownership, but would the trust participate in that? I mean, it would it might hurt the the dynamics here. The trust moved up to, you know, 37%. So how are you thinking about all those things? James S. Hagedorn: Yeah. I, you know, I I put 40 million in you know, in this. So it is it is a long-term commitment. I frankly had a bigger percentage reduction in share count in mind but I thought this was a good sort of moderate to long-term target that I think people could get their head around and it it is it is sounded good to me. I think the limited partnership, not a trust, but the limited partnership would probably ride somewhere in the middle with you know, probably a little bit of liquidity selling into it, but majority accreting through that. So I I think that is what you are what you are likely just to see. And then, you know, I you know, it is where I am in my career. You know, I have got to look to my my partner that is sitting to my right side. Nate, and say, dude, I do not want you getting amnesia on this shit. I do not want you deciding like, to me this is a really good strategy for us. We you know, if you look at the investment we are making in the business, it is like three to one investment in the business relative to the repurchase. Okay? So I I think a lot of people have said, you sure you are investing sufficiently behind the business? And the answer is, absolutely. Nate is comfortable with that. He has got to drive these numbers. I think Mark is comfortable with it. I am comfortable with it. But you know, I I have got to say, I I have been the sort of architect of a lot of the M&A activity. And I think while putting Scotts together and sort of consolidating the United States lawn and garden market has been a good one for us. I think a lot of the other stuff you know, which would have re would have been billions of dollars, maybe it would have been better spent this is a super simple, easy to understand, not challenging, you know, it is a big deal for me to tell Scheiwer you got the keys on this and, you know, if you become uncomfortable, you you can delay or stop. And I do not want people to sort of get you know, just I am not going to use the word distracted, but to become convinced that some giant M&A deal is going to be the answer to it. I think that we like this company. And I think we think investing in this company and if we have to do M&A, like big M&A, billion plus M&A, we will do it in this company. And there is no integration risk. We can do it. We can maintain our leverage. So you know, I am not going to say never because I think in sort of Air Force multiple choice test, the answer was do not ever answer that one. That is definitely a trick. So I am not sure the answer is never, but I I did make Nate promise me like, you are not going to forget this commitment. Nate Baxter: Agreed. Yeah. No. And I look. I think when Jim shared his thoughts on the strategy, I think my response was something the effect of hell, yeah. I am all in. I mean, that is really why I came here. And we really believe in the business, and we think it is the best business around, so we will just invest in ourselves. And I am not worried about reinvesting in the business, like Jim said. 75% of that cash flow will be supporting growth in the business. So I am really comfortable with the plan. James S. Hagedorn: And it just by the way, like, I called Nate at five in the morning, at his home, and he lives in this loft thing in Columbus. So it is like a big room. And he was like, in the dark. And I and I sort of said, here is what I am thinking. And within ten seconds, he said, I am in. And so that really is kinda how this whole thing started is. Calling Nate, getting his view it was just that quick. I am in. And then we developed it. We started expanding it with the team, brought the board in. And people are people are pretty happy with this. My view is this is our plan. We are sticking with it. Andrew, what do you think? Andrew Carter: Well, I mean, I think that sounds like you got a nice opportunity cost filter for M&A now with a billion-dollar share repurchase commitment. That is my first blush. Nate Baxter: No. I think it forces us to be really careful. I think I said it in my prepared remarks, you know, consumer-friendly, tuck-ins that fill gaps or allowed us to expand adjacent and, you know, we will not allow them to be decretive in any way. I think it is a really smart approach. Andrew Carter: Thanks. I will pass it on. Operator: Thank you. Our next question coming from the line of Joseph Altobello with Raymond James. Your line is now open. Joseph Altobello: Thanks. Hey, guys. Good morning. A couple of questions on the e-com business. I think you mentioned it was up nicely double digits this quarter. And I think you said it was 14% of overall POS. How big can that business be? And I guess, maybe more importantly, what is the margin delta between e-commerce and and brick and mortar? Nate Baxter: Well, look. I think I think the business can be huge. The list that occurred across all of our retailers. You know, I I think that is an important point to make. They are really leaning into it. Very little of it comes from direct to consumer. So I think, you know, Joe, a cost I mean, look. The retailers obviously are highly competitive and trying to figure out how to continue to lower their costs. But we see less than five, you know, percentage point delta in some of the margins, and they are getting better, you know, every quarter. So as the the big guys and you know who they are, sort of invest in their infrastructure, we are riding along. And I think, you know, we are we are just seeing explosive growth, and it is it is not in just exclusive e-com. It is also in our traditional brick and mortar partners. We we see a lot of opportunity. It it will be a a big percentage of that billion will come from e-com, you know, from various retail partners. James S. Hagedorn: Look. I think that the e-com you know, if you look at I was at a top to top with with Nate and you know, e-commerce came up and Nate said we are underpenetrated. We have got to we have got to get to a level of you know, market share in e-com that we have in brick and mortar. And I nobody nobody argued the point. But if you just use that and say our share is the same and e-commerce that it is in and this is true across retailer sites. Everywhere. It it is a gigantic opportunity. More than half of that number. Yeah. So, I mean, that that is the that is the part. Now what is the challenge? To Nate and his operating team a lot of those SKUs are are different. You know, their packaging is different. And so it is a lot of work. I mean, we have talked about mean, part of this is our own fault. You know, in to some extent, which is where we are we are underpenetrated. That means other kind of hobos are overpenetrated. And that is a little hard to take. And I think in a world where brick and mortar was growing fast enough that you know, it just was not a great and it listen, we are simpletons here, I think, some ways. You know, you if you look at grocery, you look at e-commerce, we were doing incredible work in brick and mortar, and we have fabulous partnerships with with big retailers and they are absolutely you know, our our best friends. And they are building out this this this stuff too. But there is a lot of work for us to say, we we let us just say deserve to have market shares in e-commerce that we have in conventional retail. And that is going to require change. In Nate's organization and a level of entrepreneurship that says, we are going to get quite a bit more scrappy. And it because otherwise, you know, it just like everything else we have talked about whether it is grocery or e-com, like, if you want to succeed there, you have to have products and market and talk to people who are shopping there. Yep. Joseph Altobello: Very helpful. Maybe if I could follow-up on that. Obviously, we are here in late January. But how are are your retail partners thinking about the lawn and garden category this spring given all the, you know, the affordability issues and pressures on the consumer right now? Nate Baxter: Well, look. You know, I I I spend a lot of time with our retail partners. I think everybody is feeling bullish. I mean, it is, you know, it is the same story. It is a big part of bringing consumers back into the stores. And online. And I think they absolutely see those investments as worth it. I do not know, Josh, you want to make a comment on that? Josh Meihls: Yeah. Josh Meihls here. I would say retail partners are are very bullish on lawn and garden. To reiterate Nate's point, they see it as a traffic driver into the stores, a traffic driver to their e-commerce. In financial times like this. Relatively, you know, unburdened by small projects, paint, lawn and garden tend to overperform, and that is where our retail are leaning in to drive that traffic and that conversion for both in-store and online. Joseph Altobello: Got it. Thank you. Operator: Thank you. And our next question comes from the line of Jonathan Matuszewski with Jefferies. Your line is now open. Jonathan Matuszewski: Great. Good morning, and thanks for taking my questions. My first one was on supply chain. You have outlined a multifaceted plan here, you know, everything from automation to more capacity and and SKU rationalization. Any way to rank order some of these things as we as we think about kind of the the biggest opportunity for cost savings and and gross margin ahead? That is my first question. Thanks. Nate Baxter: Thanks, Jonathan. I you know what? Look. I think they are all important. I think if you look at the performance we delivered in last year, I think our team is pretty confident they can continue. As you recall, if we over-delivered, I think we ended up a $100 million out of supply chain, including commodities last year. Got $50 million to go in my original challenge. There will probably be another challenge coming. I it is a little bit of everything everywhere. So remember, the way we approach, for example, efficiency in our plants you know, a lot of these plants are 50 years old, and the equipment is nearly that old. Way Josh sort of manages that is when we have to replace a line, a bagging line, going to be a more modern, obviously, line that has probably at least a 20-30% improvement in throughput. So it is it is really the sum of a lot of small changes some of the bigger areas are automation in our distribution center. I think, you know, you know, we have been on a journey. So we will continue to deliver results there. And then you know, our our tech transformation. I mean, we are in the process of completely reimagining all of our business processes. Part of our ERP migration, but it is more than that. It is including do we reduce the number of touches on any given project, whether it is a finance project or a marketing one. So I I do not know if I can, rank order them for you, but I can say is I have a lot of confidence that these initiatives are going to continue to to help drive the bottom line. Mark J. Scheiwer: And, Jonathan, this is Mark Scheiwer. The other the other components of improving gross margin at the COGS line are going to be continue to be fixed cost leverage as we as we automate and get more efficient in our factories, we should be able to push more product through those, both distribution locations and factories. So we should get fixed cost leverage benefits going up. And then innovation as we look to continue to do cost out in our products and and continue to make them more eff stronger, better, all that. So I would say those two things also are part of that. That journey. Jonathan Matuszewski: That is helpful. And then just a quick follow-up here. Pro penetration continues to rise at your key retail partners. Just curious, what are you doing different to collaborate with the big retail partners of yours to, you know, move Scott to the the consideration sets of of more of their pro customers versus DIY Presumably, this would be something in addition to the DIFMF or you are pursuing in those pilot markets you mentioned. Nate Baxter: Yeah, Jonathan. I mean, I I I do not want to get into specifics, but clearly, big retail partners have big pro initiatives. And I would say the way we are addressing that is product development you know, looking at larger sizes, more value to bring to the pro side of the market. But as you point out, it is a it is a multipronged approach. We will work with retail partners. We will also work directly with small and medium-sized businesses. But at the end of the day, again, we are we are agnostic of where they get our product. So we would just want to make it available in channels that makes it easy for those pros and do it for me. Businesses to to thrive. And so it will it will be pretty broad. I think I will leave it there. We will probably have more to talk about this summer when we do our investor day in that space. Jonathan Matuszewski: Thank you. Operator: Our next coming from the line of William Reuter with Bank of America. William Reuter: Hi. I just have two. The first, Mark, when you were discussing M&A, you mentioned 1% growth. So is that to say that, that 5% annual growth target includes about 1% annually? Mark J. Scheiwer: That is correct. Yeah. That would be out in the not this year. But it would be focused on '27 and beyond. William Reuter: Got it. And then when we have been discussing the incremental 50 million of cost savings, in one of the most recent answers, we talked about the 50 million that we we still have. It seems like some of those are investments that are in the CapEx line. Will CapEx remain elevated in future years? Or is the elevated CapEx really related to the $50 million of cost savings we are targeting this year, and then we will move back towards maybe a $100 million or lower. Mark J. Scheiwer: We are still building out, I would say, like, our five-year road map as far as long-term plan. But I would expect our CapEx remain elevated at call it, a $130 million in '27 and beyond. And and be as we look to automate not only our factories, but also our back-office activities. But in in the near term, as as what I am seeing in the business and what we are working on, I would say for the next several years. That is that is correct. Nate Baxter: Plus there is the ERP component over the next, call it, two to three years. That will be part of that CapEx as well. William Reuter: Got it. That makes sense. Okay. Alright. That is all for me. Thank you. Operator: Yep. Last one. Thank you. Now last questioner will come from the line of Jakob Museven. From JPMorgan. Your line is now open. Carla Casella: Hi. This is actually Carla Casella from JPMorgan. Just your thoughts in terms of the longer-term capital structure. And you mentioned your leverage target, but how did you say how you are going to address the 2026 maturity? Mark J. Scheiwer: Sure. Hello, Carla. This is Mark Scheiwer. So the 2026 maturities, we plan to you you saw on our balance sheet, they they moved to current. Our expectation is we would leverage our free cash flow generation that we that we generate over the summer. That is built into our $275 million of free cash flow plan. Along with access to a revolver to to pay those to pay those off. You know, later this summer. You know, as they as they start to come due. So we will do that you know, at in the summertime. And leverage again free cash flow and then access to our revolving revolver. Carla Casella: Okay. Great. And then you mentioned you are going to post financials excluding Hawthorne. Can you just give us a goalpost for what EBITDA was last year with Hawthorne on kind of backing into like a $100 or sorry, $5.30. Does that sound like the right range? Mark J. Scheiwer: Yeah. So last year, we had adjusted EBITDA with Hawthorne of $581 million. We are still working through the finalization of the recast, but I would expect it probably decrease by approximately $11 million. When you back out the Hawthorne. So call it call it around $570 million from an EBITDA perspective for the 2025 fiscal 2025 recasted number. And we will we will provide you the 2024 number in those materials as well but that would be the 2025 number. Carla Casella: Okay. Great. Thank you. Operator: Thank you. And that is the time we have for our Q&A session. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. And you may now disconnect.