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Federal Reserve expected to hold interest rates steady in the 3.5%-3.75% range as FOMC navigates inflation concerns and softening job market in first 2026 meeting.
Plans for looser fiscal policy in Japan have triggered big moves in the yen and Japanese government bonds that have investors increasingly on edge around the world.
The WSJ Dollar Index, which tracks the U.S. currency against a basket of others, was recently down 1.1%, on track for its lowest close since April 2022.
The U.S. dollar fell about 1.3% on Tuesday, posting its worst day since April 10, 2025. It touched its lowest level since February 2022.
Bloomberg's Caroline Hyde and Ed Ludlow discuss stocks closing in on record highs driven by tech shares with earnings imminent. Plus, Bridgit Mendler, CEO and co-founder of Northwood, discusses the company's $100 million Series B to modernize space infrastructure on Earth.
A few stocks related to so-called soft commodities appear poised for their own potentially sizable moves.
David Boshoff: Good morning, everyone, and welcome. I'm David Boshoff, and with me is our CFO, Steve Fewster. We're pleased to be joining you today for this December 2025 quarterly update. You'll notice that we're both in our harness today as we'll be traveling to site directly after this call. Before we get underway, I'd like to mention that today's presentation should be read in conjunction with our December quarterly report, which is available on our website. As we move through today's session, please feel free to add your questions to the live Q&A tab on the right side of the screen. I will be responding to these questions at the end of the session. As we step into the new year, it's a good moment to reflect on the December quarter, not just on what we've achieved, but on how we've achieved it. The quarterly -- this quarter delivered solid progress with strong tangible momentum across operations, construction and financial performance. And that progress is underpinned by our values, which guide our decisions, shape our culture and influence the way we work with our partners and contractors. That brings me to our find a way value. I'd like to recognize one individual who truly embodied it. Thomas Huckstadt is an application specialist in our IT team. Tom delivered the first phase of our Mardie operating system on time, on budget and to scope. He successfully managed key contractors to implement the Mardie production reporting system and our laboratory information management system. When traditional delivery models threatened time lines, Tom adopted an agile approach to accelerate implementation. And in fact, the contractor has confirmed that this was likely one of the fastest implementation in their history. I'll speak more about the Mardie operation system shortly, but I want to begin by acknowledging Tom and recognize the values-driven approach of our people. And that values-driven approach is exactly what underpins the business we are building at Mardie. Mardie is already Australia's largest solar salt operation and the third largest globally. Our focus is clear: Delivering salt to our customers later this year and providing -- and proving up SOP as a next major revenue stream. Salt is now in operation and is set to ramp up to 5.35 million tonnes per annum. With its scale, coastal location and integrated port infrastructure, Mardie is exceptionally well positioned to meet rising demand across Asia. Our SOP pilot work is also progressing well and remains on track to support a production pathway targeting around 140,000 tonnes per annum. This represents an opportunity to leverage our investment in the salt business to produce made in WA value-add products. The port provides us connectivity to our customers, along with additional upside through its spare capacity, creating potential for third party revenue and strategic partnerships over time. Now I'd like to walk you through the highlights for this quarter. In safety, we continue to strengthen key fatality prevention controls and maintained our focus on field leadership, completing more than 400 Leadership in the Field safety interactions. We also completed 290 critical control verifications, and our 12-month rolling average total recordable injury frequency rate was 3.9. We continue to actively manage the complexity of concurrent activities and project activities on site for operations and projects. As mentioned earlier, we deployed the mine production reporting system and the laboratory information management system as part of the Mardie operating system. This, along with our digital twin that we call Poseidon enhances operational visibility and control, enabling us to make timely, data-driven decisions. Brine levels across ponds 1 to 9 remained in line with our operational targets. The pond brine density continued to increase as we have forecasted. Construction is also progressing well. With the project now 77% complete, we commence seeding the primary crystallizers, and progress is tracking to plan. Major earthworks for the salt wash plant, stockyard and nonprocess infrastructure were also completed during the quarter, readying us for construction of these 3 assets over the next 3 quarters. Significantly, another reflection on our Find a Way value, we secured all our primary approvals for the offshore placement of material from the dredging program at the Port of Cape Preston West. This is a key milestone for our port infrastructure, which also significantly derisks achieving our construction budget. Finally, we commissioned all the KTMS trial crystallizers as part of our SOP piloting work, achieving steady-state operations and performance in line with our expectations. I'll now hand over to Steve who will walk us through the corporate highlights. Steve Fewster: Yes. Thanks, David. With construction remaining within budget, BCI continues to be in a strong financial position. During the quarter, we drew $99.8 million from the syndicated debt facility. That takes total debt drawn at the end of December to $446.8 million. We also issued over 50 million new shares following the conversion of the Series 1 convertible note held by AustralianSuper Pty Ltd. And consequently, that reduced our borrowings by $29.1 million. We'd like to thank AustralianSuper for their ongoing support. On the corporate front, we formalized the 2-year capacity building program with Wirrawandi Aboriginal Corporation, and Dave will share more about that later on. I shall share more on cash flow shortly, but Dave will provide a more detailed update on our operations. David Boshoff: Thanks, Steve. Operational performance remained strong this quarter with ponds running at 96% utilization across more than 9,300 hours. All pond levels continue towards operational height, and brine density continues to increase in line with forecast. As you can see on the chart, we are -- we've got a marker there for 31st of December, and it's within the range that we predicted 2 quarters ago. Our focus is now on balancing density across the pond network as we progress towards crystallizer readiness. Key technical milestones were also achieved, including calcium carbonate ceiling in pond 6, gypsum formation across the ponds, that is, pond 7, 8 and 9. This process materially improves water retention, remove contaminants and are critical to achieving steady-state brine flow and high-quality salt production. We also welcomed the arrival of brine shrimp in pond 7. Brine shrimp helps to naturally clear nutrients and support salt quality. Looking ahead, Poseidon, our model, indicates that pond 9 is expected to reach target density in February, and this keeps us on track for first salt on ship in the December 2026 quarter. We're continuing to make good progress towards our construction milestones with cumulative expenditure totaling $1.043 billion. As we stated in September quarterly, activity during December was relatively lower, reflecting the completion of several large packages. We expect activity to pick up again this quarter as we now work on the salt wash plant, crystallizer sealing and dredging packages. Seeding of the primary crystallizer has also commenced with liners creating a safer, more predictable harvest environment and eliminating seepage. Brining began in November and remains on track with the first crystallizer cell scheduled for completion in February. 3 crystallizers lift stations were also completed during the December quarter, ready for commissioning of the transfer of high density brine from pond 9. Major earthworks for the salt wash plant, stockyard and nonprocess infrastructure were also completed, enabling concrete works to commence early this year. Engineering and design for the salt wash plant continues with major procurement items in the fabrication phase. The nonprocess infrastructure contract was awarded in December, and design work is now underway. Approval has also been received for the remaining section of the Pilbara Port, and that construction has also commenced. At the Port of Cape Preston West, construction of the marine packages progressed with electrical and mechanical installations advancing, and the overall completion is now 94%. Now that BCI has secured our primary approvals for offshore placement of dredging material in December, dredging of the berth pocket and navigation channel is expected to begin in April 2026. Steve will now take us through the financial highlights. Steve Fewster: Thanks, David. Total construction costs now sit at just over $1 billion, having spent $41 million during this quarter. The largest packages of work remaining include dredging, the balance of the crystallizer lining and the salt wash plant. Other than long lead items that have been ordered for the salt wash plant, these packages will be funded from the $351 million in uncommitted funds that we have. The progress made on these 3 major construction areas supports our confidence of remaining on budget. As mentioned earlier, we drew $99.8 million from our syndicated debt facility during the quarter. At the end of the quarter, BCI had available liquidity totaling $601 million. With construction costs at just over $1 billion and our pre-revenue operating expenditure of around $255 million, BCI has invested almost $1.3 billion in the Mardie salt operation. With approximately $400 million required to complete construction and available funding of $601 million, we remain fully funded to complete construction as well as meeting the working capital needs through ramp-up. To date, we have also successfully completed 8 drawdowns totaling $446.8 million. I'll now provide an overview of what we're seeing in salt market. The market fundamentals remain strong. While some Chinese chlor-alkali producers are seeing softer short-term demand due largely to a slowing in the real estate growth and domestic consumption, the medium-term outlook across Asia remains positive. India is the largest exporter of lower-grade industrial salt to China. And across the last 5 years, we've seen India export volumes expand from 12 million tonnes to a peak of 28 million tonnes in 2024. In 2025, however, Indian export volumes have pulled back to 26 million tonnes. Our expectation is these volumes will further reduce as the Indian chemical industries expand to supply their local market. The reason we remain confident about the outlook for high-grade industrial salt is that between now and the end of 2028, there are 16 new chlor-alkali and soda ash plants under construction in India, China and Indonesia. A proportion of this new Asian production is replacing chemical plants that are closing throughout Europe. These 16 new plants are forecast to increase demand for high-grade industrial salt by 10.2 million tonnes per annum. And this timing coincides nicely with the ramp-up at Mardie. So across the period, there is only 6 million tonnes per annum of new supply coming into the market, and that includes Mardie. The Port of Cape Preston West is a strategically valuable asset for BCI and the region. This is a multiuser port designed to expand and to export around 20 million tonnes per annum of bulk commodities such as salt, SOP and iron ore. At nameplate capacity, Mardie salt-only operational needs of around 5.5 million tonnes per annum, leaving approximately 14.5 million tonnes of surplus capacity. This presents a real opportunity to support other proponents in the West Pilbara who require access to port infrastructure. Pleasingly, BCI has received inquiries from potential third-party users in the region. By the end of 2025, construction of the marine package have progressed well with electrical, mechanic and the mechanical installations advancing. Remaining works now include the final piles and [ cat walk ] which is scheduled for completion in September 2026. During late September, BCI secured all primary approvals from the Commonwealth and state governments enabling offshore placement of material from our dredging program in line with the optimized dredging methodology. Subject to final approvals, including management plans and contracting -- contract finalization, dredging is expected to commence in April 2026. Thank you, and I'll hand you back to Dave to talk about SOP. David Boshoff: Thank you, Steve. SOP, or sulphate of potash, is a key product of our salt operation, an important revenue stream for BCI in the future. SOP is a high-value premium fertilizer. This is different to the more common muriate of potash, or MOP. Unlike MOP, SOP contains sulphur as well as potassium, making it ideal for high-value crops such as fruits, vegetables and nuts. It plays a key role in improving crop quality, yield and food security, particularly in regions with nutrient-depleted soils. During the December quarter, all KTMS trial crystallizers were fully commissioned, achieving steady-state operation and performing in line with expectations. This work is a key part of BCI's piloting approach, enabling us to refine processes, validate operational performance and derisk full-scale SOP production. Batch plant testing completed during the quarter has allowed us to finalize the pilot plant scope, and preparations are now underway to award the design package in this current quarter. This marks a major step towards construction and delivery of that facility, positioning BCI to unlock the value of SOP production alongside our salt operations. While our focus remains on safety -- safely ramping up our operations and completing construction, we continue to prioritize sustainability. This included -- in this quarter, this included monitoring our mangroves, sandfire and algal mats, marine turtle monitoring and migratory shorebird surveys to name just a few. We convened a co-designed workshop with the Wirrawandi Aboriginal Corporation to update our indigenous engagement strategy, ensuring alignment with their strategic priorities. We also formalized a 2-year capacity building program with Wirrawandi, providing $480,000 to strengthen governance, systems, financial management, leadership development and succession planning. On the community front, we established a new partnership with the Karratha Kangaroos Junior Rugby League. As a big rugby fan myself, this is especially exciting opportunity supporting youth sport and well-being in our region. As we close out this quarter, we do so by consistently applying our values and finding a way. We are well positioned to respond to forecast salt supply shortfalls in face of rising global demand, while creating sustainable multigenerational benefits for our shareholders, local communities and the broader Australian economy. This brings us to the end of our presentation, and we'll move to questions now. If you haven't already, please submit your questions in the live Q&A tab on the right side of your screen. Thank you. Unknown Executive: Thank you, David and Steve. Now I'll take the first question and pose this one potentially to you, David. Besides salt and SOP, are there any additional minerals that can be extracted from Mardie? David Boshoff: Yes. Thank you for that question. There are certainly numerous other products that are being extracted by other producers that uses sea brine as their primary source. We visited facilities that produces bromine. Actually numerous facilities use bromine as one of the products. We've also seen magnesium being produced in various areas. There's also a very good data that indicates pharmaceutical salt is a good potential to produce from seawater salt. So certainly, multiple other streams that provides a revenue upside for BCI and where we've already invested significant capital in our infrastructure at our site. Unknown Executive: Thank you, David. And just building on that, you mentioned earlier our progress on SOP. How confident are you in SOP based on the batch testing data received? And are there any learnings you can take away that can feed into the design of the pilot plant? David Boshoff: Yes, certainly. The -- as I mentioned during the presentation, the KTMS testing results so far has been exactly as to expectations. The key thing that we have to manage is on the trial ponds. We, of course, manage the chemistry. The laboratory information management system that I mentioned earlier is a very important ingredient, and we spend a lot of effort in setting up the lab to be able to test for chemistry properly. This is a key input that we've taken from some of the design partners that's helped us to set it up. And I'm very comfortable with where we are with the results. We have now also received test results back from our high temperature tests, both in China as well as here in Perth. And it's pleasing to see that the particular collectors that we are selecting to be able to do so performs well at temperatures well above 50 degrees Celsius. This is a key thing that I wanted to be sure of before we start into design phase for the pilot pond. Unknown Executive: Thank you, David. Now Steve, I've got one here for you about the port. Are you in a position to talk to the level of interest in the surplus port capacity? And if so, can you tell us a bit more about the revenue potential from this asset? Steve Fewster: Yes, thanks. So as I mentioned earlier, we certainly received interest in accessing the port. Those parties are looking at developing iron ore projects in the region. Our port is relatively close to where they're proposing to build their iron ore operations. And certainly, on a distance -- from a distance perspective, we're a lot closer to, say, the Ashburton Port and certainly a lot closer to their -- where they propose to have the operations compared to Port Hedland, if they can even get capacity or access at Port Hedland. So there's a couple of steps that they'll need to go through. They'll need to get their approvals in place, get their funding in place. So the interest is there, but I think that the critical part is without a port solution, they don't have a project. And the ability to get the product from the Pilbara, be able to mine it and then get it out through a port, we will play a critical role in opening up that area of the Pilbara where there's still a lot of high-grade, high-value iron ore deposits that are sitting with some of those junior players. So I think what we'll see is we'll have, probably not in the short term, probably not over the next 1 or 2 years, but as we look a bit further out, as companies are finalizing FID, we'll become much greater part of those conversations. In terms of revenue stream, we still need to work through what our pricing will look like. And in the past, what I've suggested is the Port of Ashburton, their [ considered ] rate is around [ $9, $10 ] for a tonne of bulk commodities to go through their port. That's one data point. We would need to look at the size of the investment we've made and make sure we get a reasonable return on that investment before we sort of set any pricing targets. Unknown Executive: Thank you, Steve. I've got a question here on BCI's longer-term plan. So does BCI have any plans to add additional salt ponds in the tenements held by BCI to the north of the current site? Steve Fewster: Thank you for the question. We have a number of leases that is available that we've already established in the last 12 to 28 months. Most of these leases are to the south, so between us and the Ashburton Port. There's some area to the north, but we are bordering up with an iron ore proponent just north of us. So there are certainly options available very close to as part of the Mardie project. These areas will require additional environmental approvals and will require, therefore, additional management plans such as groundwater management plans to be approved. So while this will be in our future thinking, what I would caution is that these things do have a long lead time as we've seen with the actual Mardie port so far -- Mardie operation so far. Unknown Executive: Thank you, David. Now back to construction progress. Can you talk to the build package for the salt wash plant? Tell us a bit about the complexity of this work package? And what's the time range for build and commissioning? David Boshoff: Well, so the salt wash plant, as I mentioned in one of the slides, we have completed all the earthworks that has started late last year. That's all done. We've already awarded the concrete package. So that's for all our concreting works for footings, floors, blinding work, all of that has already been commissioned, it has already been awarded. Fabrication is currently underway for all the rebar and reinforcement, and we expect batch plant and other works to be established in the coming weeks on site. At the same time, design has progressed really well on the main, what we call SMP works, the structural, mechanical and piping. We are expecting to award the fabrication of the actual main structure in the coming month or so. And then that will go into construction. And then eventually, of course, E&I, that's electrical and instrumentation, that will be the back end of that process. That package will be -- that package is still a fair few months away. Expectation is that we will start commissioning in perhaps late October. That will depend, of course, on when our salt is available to be able to go through into November and be ready for production in November for shipments in December. So all of those time lines are lining up, and the progress on the salt wash plant construction package is very much on track. Unknown Executive: Thanks, David. Now talking about on track. I've got a question here about operations. So over the recent years, the area generally experiences a fair bit of rain during March and -- through March to May. Assuming Mardie does experience rain during this period this year, are there any potential impacts to brine density, particularly in pond 9? And then if there are, is there any impacts to the FSOS, that time line? David Boshoff: Yes, certainly, the area experience cyclones. Our model, I mentioned earlier Poseidon, actually integrates the weather model and has used the last 45 years of actual weather data to model what the likelihood is of rainfall or cyclones in the near future, and it actually has included a cyclone in that ramp-up period. So I'm quite confident that our modeling in terms of salt ramp-up and salt production includes the expected weather from our region. To the question whether it impacts FSOS if we have a big rain event in this period between now and end of December. Well, good thing is so far, this particular season, we haven't had any cyclones. Of course, it doesn't mean there's not going to be a cyclone. Even if we have a cyclone, we have considered that in the process, and there is buffer in our schedule to still be able to deliver first shipment for revenue before December is out this calendar year. I would also say is we've experienced 2 cyclones not long ago, and some of those on the line might recall that. Not long ago, we had Cyclone Sean in that region. That had actually quite a significant impact in our area. And the good thing is that it validated that our design prevents overland flow water to enter into the ponds, and only the water you only receive in that area is falling on the ponds. Now we have a specific design feature to accommodate that. So once the ponds reach operational height, we have areas where this water discharges as natural process into the ocean. And as you can imagine, when you have water density very high and you've got rainfall at lower density, the lower density water is lighter, it stays on top. So you have this effect of laminating effect of the fresher water on top and that then discharge into the ocean while minimizing the dilution of our high-density brine in pond 9 particularly. Unknown Executive: Thank you, David. We might finish on one last question for you, Steve. You shared a really interesting insight onto the market. Can you tell us because Mardie is expected to deliver a significant volume of salt to the market, do you expect this will flood the market and push the price down? Steve Fewster: No, I think the timing of when we ramp up aligns very nicely with the -- the new chlor-alkali and new soda ash plants that are being constructed at the moment. So as I mentioned, about 10.2 million tonnes of new salt requirements in the Asian region at the same time as we're ramping up. So I think, firstly, that certainly supports our confidence. A lot of that production, new production that's coming into the region is actually, as I mentioned, is replacing production that's occurring in Europe. And over the last couple of years, we've certainly talked about the demand for salt largely reflects global GDP. So the global GDP still holds. There's still a high correlation between demand for salt and that growth. But that shift, that structural change with plant, chlor-alkali plants shutting down in Europe, relocating and building that capacity in the Asian region is certainly very helpful. The question earlier around rainfall is -- equally applies to other regions. And what we're seeing, particularly in India and the Gujarat region, is their rainfall, on an annual basis, has been increasing steadily. So the net evaporation rate is consequently reducing, which is also reducing the amount of salt that they're able to produce. So the yield that's coming out of India certainly been affected over the last 3, 4 years is the weather is affecting that yield. The other thing that's happening in India, though, is 2 of the world's largest chlor-alkali plants under construction there. So one has been constructed by Adani. The other is being constructed by Reliance Group. So those 2 plants are being set up specifically for the plastics industry or the PVC industry in India, and that is to build plumbing supplies and household -- for household construction. And so it's very new demand that's coming in the market. We expect that about 8 million tonnes per annum of salt that's being exported will need to be redirected into that Indian market. Modi has also set some policy -- put some policies in place, restricting the expansion of salt production in India. So at Gujarat region, they're not allowing any more permits to be issued for new salt projects. So we think in the medium term, certainly, there are a number of factors that support our enthusiasm and confidence where the salt market, the high-grade industrial salt market is heading. Unknown Executive: Great. Thanks so much, Steve, and thank you, David, for your time as well. And thank you to everyone who have dialed in today. That's a wrap. Steve Fewster: Thank you. David Boshoff: Thank you.
Mike Beckman: Welcome to the Texas Instruments Fourth Quarter 2025 Earnings Conference Call. I'm Mike Beckman, of Investor Relations. I'm joined by our Chairman, President and Chief Executive Officer, Haviv Ilan, and our Chief Financial Officer, Rafael R. Lizardi. For any of you who missed the release, you can find it on our website at ti.com/ir. This call is being broadcast live over the web and can be accessed through our website. In addition, today's call is being recorded and will be available via replay on our website. This call will include forward-looking statements that involve risks and uncertainties that could cause Texas Instruments' results to differ materially from management's current expectations. We encourage you to review the notice regarding forward-looking statements contained in the earnings release published today as well as Texas Instruments' most recent SEC filings for a more complete description. I would like to provide you some information that is important for your calendars. On Tuesday, February 24 at 10 AM Central Time, we will have our capital management call. Similar to what we've done in the past, Haviv, Rafael, and I will share our approach to capital allocation and summarize our progress as we prepare for the opportunity ahead. Moving on, today, we'll provide the following updates. First, Haviv will start with a quick overview of the quarter. Next, he will provide insight into fourth quarter revenue results and some details of what we are seeing in our end markets. Haviv will then provide the annual summary of revenue breakout by end market. Lastly, Rafael will cover the financial results and our guidance for the first quarter of 2026. With that, let me turn it over to Haviv. Haviv Ilan: Thanks, Mike. Let me start with a quick overview of the fourth quarter. Revenue came in about as expected at $4.4 billion, a decrease of 7% sequentially and an increase of 10% from the same quarter a year ago. Analog revenue grew 14% year over year. Embedded processing grew 8%, and our other segment declined from the year-ago quarter. The overall semiconductor market recovery is continuing, and we are well-positioned with inventory and capacity to meet immediate customer demand. Before I walk through our results, I'd like to share an update we've made to our end markets. To better reflect the growth opportunities we see for our analog and embedded products, we reorganized our end markets to include data center, which includes sectors related to data center compute, data center networking, and rack power and thermal management. As such, our end markets are now industrial, automotive, data center, personal electronics, and communications equipment. With that as a backdrop, I'll now provide some insight into our fourth quarter revenue by end market. First, the industrial market was up high teens year on year, with recovery continuing broadly across sectors and was down mid-single digits sequentially. The automotive market increased upper single digits year on year and was down low single digits sequentially. Data center grew around 70% year on year and mid-single digits sequentially. Personal electronics declined upper teens year on year and mid-teens sequentially. Lastly, communications equipment declined low single digits year on year and mid-teens sequentially. In addition, as we do at the end of each calendar year, I'll describe our estimated 2025 revenue by end market. Industrial was $5.8 billion, up 12% year on year and was 33% of revenue. Automotive was $5.8 billion, up 6% year on year and was 33% of revenue. Data center was $1.5 billion, up 64% year on year and was 9% of revenue. Personal electronics was $3.7 billion, up 7% year on year and was 21% of revenue. Communications equipment was about $500 million, up about 20% year on year and was 3% of revenue. In summary, industrial, automotive, and data center combined made up about 75% of Texas Instruments' revenue in 2025, up from about 43% in 2013. We see good opportunities in all of our markets, but we place additional strategic emphasis on industrial, automotive, and data center. Our customers across all regions are increasingly turning to analog and embedded technology to make their end products more reliable, more affordable, and lower in power. This drives growing chip content per application or secular content growth, which will likely continue to drive faster growth in these end markets. Rafael will now review profitability, capital management, and our outlook. Rafael R. Lizardi: Thanks, Haviv, and good afternoon, everyone. As Haviv mentioned, fourth quarter revenue was $4.4 billion. Gross profit in the quarter was $2.5 billion or 56% of revenue. Sequentially, gross profit margin decreased 150 basis points. Operating expenses in the quarter were $967 million, up 3% from a year ago and about as expected. On a trailing twelve-month basis, operating expenses were $3.9 billion or 22% of revenue. Operating profit was $1.5 billion in the quarter or 33% of revenue and was up 7% from the year-ago quarter. Net income in the fourth quarter was $1.2 billion or $1.27 per share. Earnings per share included a 6¢ reduction not in our original guidance related to the non-cash impairment of goodwill in our other segment and other tax-related items. Let me now comment on our capital management results starting with our cash generation. Cash flow from operations was $2.3 billion in the quarter. Capital expenditures were $925 million in the quarter. In the quarter, we paid $1.3 billion in dividends and repurchased $403 million of our stock. We also increased our dividend per share by 4% in the fourth quarter, to $1.42 per share, marking our twenty-second consecutive year of dividend increases. In total, we have returned $6.5 billion in the past twelve months to owners. The balance sheet remains strong with $4.9 billion of cash and short-term investments at the end of the fourth quarter. Total debt outstanding was $14 billion with a weighted average coupon of 4%. Inventory at the end of the quarter was $4.8 billion, down $25 million from the prior quarter. Days were 222, up seven days sequentially. Let's look at some of these results for the year. In 2025, cash flow from operations was $7.2 billion, and capital expenditures were $4.6 billion as we continue to make progress on our capacity expansions. We're nearing the end of a six-year elevated CapEx cycle that uniquely positions Texas Instruments to deliver dependable low-cost 300-millimeter capacity at scale. Free cash flow for 2025 was $2.9 billion or 17% of revenue, representing an increase of 96% from 2024. Our free cash flow growth reflects the strength of our business model as well as our decisions to invest in 300-millimeter manufacturing assets and inventory. This supports our overall objective to maximize long-term free cash flow per share growth, which we believe is the primary driver of long-term value. In 2025, we received a $670 million cash benefit related to CHIPS Act incentives. Turning to our outlook for the first quarter, we expect Texas Instruments' revenue in the range of $4.32 billion to $4.68 billion and earnings per share to be in the range of $1.22 to $1.48. We continue to expect our effective tax rate in 2026 to be about 13 to 14%. In closing, we will stay focused in the areas that add value in the long term. We continue to invest in our competitive advantages, which are manufacturing and technology, a broad product portfolio, reach of our channels, and diverse and long-lived positions. We will continue to strengthen these advantages through disciplined capital allocation and by focusing on the best opportunities, which we believe will enable us to continue to deliver free cash flow per share growth over the long term. With that, let me turn it back to Mike. Mike Beckman: Thanks, Rafael. Operator, you can now open the lines for questions. In order to provide as many of you as possible an opportunity to ask your questions, please limit yourself to a single question. After our response, we'll provide you with an opportunity for an additional follow-up. Operator? Operator: Thank you. We will now be conducting a question and answer session. Ross Seymore: If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the star keys. One moment, while we poll for questions. Our first question comes from the line of Ross Seymore with Deutsche Bank. Please proceed with your question. Ross Seymore: Hi, thanks for letting me ask a question. I guess my first question is, the first quarter guidance is significantly stronger than seasonal. If my math is right, it seems like it's the first time you've been up sequentially since right after the financial crisis, fifteen years ago, roughly. So is there anything unique going on by either end market or geography that's given you such an optimistic view versus relative or normal seasonality? Haviv Ilan: Ross, thanks for the question. I'll take it, and I'll let Mike add some more color as needed. First, let's start with the fourth quarter. We have seen a typical fourth quarter; revenue came in as expected. But if you look at the year-on-year results, we are seeing recovery continuing in industrial. It grew close to 20%. I think it was 18% year over year. And remember that in the industrial market, we still have a lot of room to go when you think about the previous peak. So if you will, the compare is still easy for industrial to continue to recover. The other market that I will highlight is the continued strength in data center. We are seeing this market now becoming a little bit more substantial as a percentage of our revenue. I expect this market to continue to grow in Q1. It's been growing for now seven quarters in a row for us. And we left the year at about $450 million a quarter revenue footprint, and I think that continues as we move forward. The last point I would say, we did see orders improving throughout the quarter. And what guides our guidance is the stronger booking. Mike, I don't know if you want to add anything. Mike Beckman: Yeah. And so we did see linearity revenue linearity through the quarter improve. So month one to month two to month three, we did see it continue to build. Same with backlog. We saw that continue to build through the quarter, and also, as we've talked in previous quarters, you know, turns business or what a customer comes in and wants an order shipped right away, we continue to see that run as well at higher levels. So, you know, that's factored into the guide. Have a follow-up, Ross? Ross Seymore: Yeah, I do. Just a question on the gross margin implications. Given what you guys are talking about with revenue, it seems like you had a nice beat at least versus what I was expecting in the fourth quarter. Rafael, can you just talk a little bit about the puts and takes on gross margin in your first quarter guide and maybe throughout the year if utilization is changing, inventory levels are where you want it or if they need to rise? Anything on that would be helpful. Thank you. Rafael R. Lizardi: Yeah, sure. Let me start with the fourth quarter. It came in a little better than expected. And once you account for that 6¢ reduction that we talked about in the prepared remarks. And that was a combination of revenue was a little better, mix end market mix was a little better, loadings was a little better, and OPEX was a little better. So it was a combination of multiple things there. On the first quarter, you know, we give you the range on EPS and the range on revenue. I would tell you, OPEX is up low single digits, and you should get into a reasonable number for gross margin. And the loadings will depend on demand, and we'll adjust those as needed. Ross Seymore: Thank you. Mike Beckman: Thanks for the questions, Ross. We'll move on to our next caller, please. Operator: Thank you. Our next question comes from the line of Jim Schneider with Goldman Sachs. Proceed with your question. Jim Schneider: Good afternoon. Thanks for taking my question. I was wondering if you could maybe relative to your prior comments, maybe address inventory levels and where you expect those to go. You talked about taking loadings down a little bit to bring inventories down, and you accomplished that in the quarter. Do you think inventories are at a pretty good place either from a days or dollars basis? Or would you expect to want to take them down a little bit further at this point? Haviv Ilan: Let me start, and I'll let Rafael add some color on this, Jim. So, again, I think we said it along the fourth quarter when we had the chance that we are very pleased with the inventory position we have built. We are very proud of how we got there. It's across all of our technologies at the right level. So from a high level, the inventory we have right now, that's an asset that allows us to serve customers, especially in the current environment when, you know, we have a lot of real-time just-in-time demand that turns business, as Mike mentioned before, is high. And it allows us to support customers at a high level. Rafael, any more color on how we want to manage inventory moving forward? Rafael R. Lizardi: No. That's it. Mike Beckman: Alright. Jim, do you have a follow-up? Jim Schneider: Yes. I mean, clearly, industrial and automotive are doing right. Very well right now, that plus data center are your main focus. Can you maybe talk about sort of the prospects of a return to growth or a turnaround in the personal electronics and communications end markets and maybe some of the product areas like embedded processing associated with those? Thank you. Haviv Ilan: Yes. So just on the maybe on the electronics market, it did grow for the year. Right? The business grew for the full year at around, I think, 7% for PE. And we just saw a little bit of a weak Q4, I would say, below seasonality. Maybe, Mike, you can add a little bit more color on what you've seen there in Q4. Mike Beckman: Yeah. If you look inside the sectors there, home theater, entertainment, TV declined the most. On the other end of the spectrum, mobile phones actually performed the best out of that group. So it varied within probably not inconsistent with what you've probably seen around subsidies expiring, around in China for things like appliances and TV. So it's also if you think about where personal electronics is and its timing of the cycle and where it is, it was one of the first to correct and also go through its recovery. So there's also a tougher compare than it probably has compared to some of the other end markets. Jim Schneider: Alright. Well, thanks for the question, Jim. Mike Beckman: Move on to the next caller, please. Operator: Thank you. Our next question comes from the line of Harlan Sur with JPMorgan. Please proceed with your question. Harlan L. Sur: Good afternoon. Thanks for taking my question. Good to see the strong double-digit year-over-year growth in Industrial. Haviv, last quarter, you talked about seeing some hesitation by customers in your industrial business, especially around manufacturing activity, things like factory automation, is one of the larger segments of your industrial business. Are you still seeing that hesitancy, that sort of wait-and-see posture by customers? Or is the order activity there starting to now pick up, especially among your China-based industrial customers? Haviv Ilan: Yeah. Harlan, it's a great question. I think from a high-level perspective, let's remember, Industrial and I look at the quarterly revenue, even if I go back to Q3, which was, I think, the highest industrial quarter for 2025, it was still about 25% from the previous peaks in year 2022. Right? So I do believe that secular growth continues in industrial. We are looking at equipment and generation to generation. We see just more content growth per system. So I expect industrial to establish new highs in the future. This is why I talked in the last quarter about maybe a more moderate recovery, especially on the industrial side. And it did behave, you know, kind of seasonally in Q4. But as Mike alluded to, we are seeing a little bit of a pickup on orders, including in industrial. And, you know, I can't tell you why. We'll have to see how it plays out. But, you know, we have seen some, you know, noise in the last several months on issues regarding a certain supplier, and sometimes, you know, we all know about the memory shortages. So I don't know what makes the customers order more. We'll just have to look and see. I do want to remind us all that earlier in 2025, I say the '25, we saw a pickup of industrial, and then it kind of calmed down. We don't want to see how sustainable this wake-up in orders is. And, Mike, anything to add on the industrial side? Mike Beckman: I think you covered it well. I wouldn't add anything to that. Harlan, do you have a follow-up? Harlan L. Sur: Yeah. Thank you. Thanks for answering the last question. You guys have previously mentioned the team is ahead on the Sherman fab build-out, and on track to complete the build-out of fab two this year. Can you guys just give us an update here? And then on the potential $2 billion to $3 billion of gross CapEx this year, not if you guys are willing to articulate what that could be, but what is the size of the potential offsets? Right? You've got ITC, goes up 35%. And you still have $1.6 billion in direct funding or grant to capture. Just wondering if you can maybe quantify that capture this year. Haviv Ilan: Yeah. I'll start regarding the build-up of the fabs, and I'll let Rafael comment on the rest of the topics. Although, we want to save something for the February call. But first, the top, yeah, we are very pleased about the execution in Sherman. It's actually ramped ahead of schedule, high yield. We also see with the new equipment that we have, really, the factory is more capable than we originally hoped. So a high level of throughput is being planned for this factory. So I'm very pleased with that execution. And that will help us, you know, support our customers for the next five and ten years. We have a clean room in Sherman one that already has some production lines running. But remember, we also have Shell instrument two, and we can build into this capacity if we want if demand wants to be very strong, we can be in a great position to support it. On the Lehigh side, also on schedule, I'm very pleased with the transition. Or the insourcing progress from our foundry wafers into Lehigh. That's mainly an embedded process comment that that tailwind will continue for us in 2026. I think I've mentioned in '25, we've completed our 65-nanometer transition, and they are yielding at the same level as they used to in the foundries. And now we are busy with our 45-nanometer technology, mainly supporting our automotive radar business. That's also progressing well in Lehigh. Rafael, anything on the ITC or Yeah. No. So, Harlan, you asked about five or six in one, but let me see if we can Rafael R. Lizardi: I've addressed a couple. Let me address the next few. First on CapEx. We continue to expect CapEx for 2026 between $2 and $3 billion. So that's consistent with what we said before. On depreciation for '26, let me give you a new number. We now expect $2.2 to $2.4 billion on depreciation in 2026. And for 2027, we expect an upward pressure on that number, but at a slower rate of increase. So if you look at what we've increased the last few years, just it'll increase again, but slower. You asked about ITC and direct funding. Direct funding not changed. We expect up to $1.6 billion as we reach several milestones. And on ITC, investment tax credit, it is now 35% as of 01/01/2026. So anything that we put in place, any CapEx we put in place, both equipment, building, clean room, in 2026, we get back 35% on the ITC credit. Mike Beckman: Great. Thanks. Oh, thank you. We'll move on to our next caller, please. Operator: Thank you. Our next question comes from the line of Vivek Arya with Bank of America Securities. Please proceed with your question. Vivek Arya: Thanks for taking my question. For the first one, Haviv, what do you think is, you know, driving this above seasonal Q1? First of all, how much above seasonal is it? And then what role is the pricing playing in that? Because there is some discussion about price increases from some of your peers. So is Texas Instruments raising prices in Q1? Is that part of what's driving it? And how would you characterize this? You know, how much above seasonal is it, and what's kind of the main driver of that? Haviv Ilan: Yeah. Let me just say for the second part of the question, the answer is no. It's not pricing related. Regarding the seasonality, no, it's more or less, you know, maybe a little bit above seasonal. Right? We usually see kind of a low single-digit to flat quarter. I think we've guided what Yeah. Low single-digit decline to flattish. And, again, the reason, Vivek, is the orders. We are just seeing growing orders, and it behaved the same through the quarter. I can't speculate on what, but I do know the industrial market, you know, there needs to be a correction. And the second point is data center is now a bigger part of our business. It starts to move the numbers for us. Right? This is a market that is now growing every quarter, and it's not insignificant. So I think that also helps change the guide compared to previous years. Mike, anything else on seasonality? No. I think you called it out. On seasonality. So Vivek, do you have a follow-up? Vivek Arya: Yes. Thank you. For my second question, there's a lot of talk of higher memory pricing impacting demand for consumer electronics, you know, PCs, phones, automotive. Have you seen it already? Have you heard that as a concern from your, you know, from your customers? And how are you thinking about the auto market right now? And just is memory pricing a headwind at all for your businesses that are exposed to consumers? Thank you. Haviv Ilan: High level, I would say that we haven't seen any implications although, you know, then that would be a speculation on my side, but it could be that when customers are seeing some issues on the memory side, do they want to, you know, replenish some of their inventory? That could be always the case. And, Mike, I don't know if you've seen any examples. Or Yeah. What I would add, though, is and, you know, we've heard about it, obviously. And I think not necessarily specifically that scenario, but it could be that. But, also, when a customer doesn't necessarily have everything they need to complete their bill of materials, when they finally have those parts they need, sometimes we'll come in very quickly and want to order parts. We did see some of that where customers come in at the last minute, want product shipped right away because they've just completed the bill of materials. Could be related to that or other different things. So with that, thank you, Vivek, for questions. We will move on to the next caller, please. Operator: Thank you. Our next question comes from the line of Timothy Arcuri with UBS. Please proceed with your question. Timothy Arcuri: Thanks a lot. Rafael, I wanted to also ask on CapEx and sort of quickly it's going to fall off. I think you said this year, $2 billion to $3 billion. But the math would then say you're gonna kinda exit the year, like, run rating something like a billion 5. So the question is then, can it go lower than that? Because I seem to recall a comment at our conference in December that it could go, like, lower than 5% of revenue next year. So that would put it down to, like, a billion dollars, and that you'd like, that kinda being a floor. So you kinda talk about that? Could it go that low next year? Haviv Ilan: Tim, let me start with the second half, and then I'll let Rafael answer the first part. I made a comment because I was asked about maintenance CapEx. What is maintenance? We always have to spend money or to, you know, to fix equipment, to buy replacement parts, etcetera. So I characterize it as kind of mid-single-digit revenue. That's always kind of a run rate you can think about. There's never zero. In a company like Texas Instruments. That's what that was my point. This is when you don't have growth. Right? Now I'll let Rafael talk about CapEx beyond the maintenance. Rafael R. Lizardi: No. So you know, for this year, for 2026, $2 to $3 billion, and there you know, it's a range there. So if we go through the year, we'll update you on that number. And then beyond that, what we've said is it's about 1.2 times long-term revenue growth. So you take, you know, take a number for revenue growth. You do 1.2 times. So 10%, you get to 12% CapEx intensity. But that's a gross number before ITC benefits. So once you get those ITC benefits, you essentially get back to one to one. On that growth rate. So whatever growth rate you assume, you kinda get back to a net capital intensity of about the same level. Haviv Ilan: Tim? Timothy Arcuri: I do, Mike. Thanks. So I also wanted to ask about loadings. It looks like cash gross margin is up, like, 50 basis points or something in March. That would kinda suggest that loadings are going up just a smidge. The bigger question is sort of are you thinking about loadings that you wanna keep inventory sort of in this four eight range? And you just wanna match loadings with demand from here, or do you wanna bring inventory down, you know, over time versus that point eight number? Thanks. Rafael R. Lizardi: You know, as Haviv said earlier, we're very pleased with inventory levels. That's a good inventory in a number of fronts. The buffers that we have, and the position that we have to support potential revenue growth. The same goes with capacity. We are well-positioned with capacity. So we'll adjust loadings as needed depending on what we see for demand for the rest of the year. Mike Beckman: Alright, Tim. Thank you so much for the questions. We'll move on to our next caller. Operator: Thank you. Our next question comes from the line of Thomas O'Malley with Barclays. Proceed with your question. Thomas O'Malley: Hey, guys. Thanks for taking my question. Haviv, in your outlook for March, you talked about strength in data center, recovery in industrial continues and bookings are improving, turns are good. There was no mention of auto there. You guys have said previously, maybe the auto business is a little bit slower off the bottom than industrial. Any update on the auto business and how that trended through the quarter and kind of your updated view there? Haviv Ilan: Yeah. Great question. On the automotive market, I think we I think in Q4, we were slightly down. That looks digits. Low single digits. And we did see strength in automotive in Q3 and Q4. It's back to the level more or less of the peaks somewhere in 2023. This is an automotive peak. Remember, automotive was last into the cycle. Right? If you go back all the way back to the COVID cycle, they're the last ones to pick. They picked in Q3 2023. But I think what's happening in automotive, and it continues to happen, is secular growth continuing. So generation to generation, model to model, we just see more content per vehicle. Even if it's an ICE, a combustion engine vehicle rather than EVs, strength in China continued in Q4. And, typically, in Q1, if I need to comment about Q1, typically, Q1 is a quarter where at least in China, we see always with Chinese New Year, we always see a seasonally down quarter. I expect that to be the same in Q1. But, again, we are we've seen a single-digit drop versus the peak in automotive back to the same level. And I think secular growth continues into the foreseeable future, at least for the next five years. Okay. You have a follow-up, Tom? Thomas O'Malley: I just wanted to clarify a comment earlier. You mentioned that pricing didn't have anything to do with the above seasonal margin. You talked more about these end market trends. Is that because you raised pricing previously? You plan to in the future? The reason the question comes from your competitors are talking about an increase in pricing early in 2026 and being very clear about that. You guys feel like you don't wanna do that, or is it just something you'd rather not comment on? Appreciate it. Haviv Ilan: No. I think we've been clear along the year, and I just repeat it. And then, Mike, you can add a little bit more color. But we said that we expect the pricing hello. Pricing's price, we have 80,000 products. Prices always go up and down. But for the company, the overall price effect like for like in '25, we expected it to be low single digits down. Now we finished '25. It was exactly there. When you say low single digit, think about two or 3% down. That's my assumption for 2026. That's what we expect the market conditions to be. If anything changes with pricing, if, you know, we'll see a you know, of course, Texas Instruments will respond. But right now, that's our assumption moving forward. That's why I was so convinced that the Q1 you know, I think we have a little sequential growth there. It's not due to pricing. Mike, anything to add there on the pricing side? No. I think you called it out in that base case assumption of low single digit. Mike Beckman: Decline over time. You know, we'll have to see what the market presents to us, but continue to expect. Definitely no step function planned in Q1. I usually in Q1, pricing usually goes down a little because of yearly negotiations. That's usually what we see in Q1. We have a follow-up. No. That was a follow-up. Okay. Sorry about that. Yeah. Thanks, Tom, for the question. Move on to our next caller. Okay. Operator: Thank you. Our next question comes from the line of Joshua Buchalter with TD Cowen. Please proceed with your question. Joshua Buchalter: Yeah. Thank you for taking my question. Wanted to build in a sort of business a little bit more. Any details you can give us on the exposure across power embedded and then maybe non-power analog parts and then and any, you know, 70% is a growth is a pretty big number. Any sort of handicap you're able you're willing to give us on what that business could grow over the medium to long term? Thank you. Haviv Ilan: Yes. Definitely. I can take that. So, again, data center has grown nicely, as you said, in 2025. You know, as CapEx continues to be invested in data centers, we expect that growth to continue. In terms of our position, our business is based on the analog side. And there is also there is between power and signal chain, I would say it's kind of maybe a little bit more power, but both power and signal chain are very strong in data center. We see a lot of opportunity, a lot of diversity, of parts. I know most people like to talk about, you know, socket, if you call it the VRM or the VCORE voltage regulator, that's always a large a very large socket. But if you look at the rack and you open it up, there are thousands of different parts, and many of them are analog embedded parts. And Texas Instruments plays across the board there. As I've mentioned over the years, we have invested in our technology to be able to support the higher power, call it, rails. Think about the VCore. This is where a lot of the current going into an accelerator, accelerated computer or a CPU come from and Texas Instruments is building the technology in Sherman, Texas. This is where our BCD process is serving us very well there. That product is sampling, and we expect our opportunity in data center to further expand in the coming years. So Texas Instruments plans to play across the different sockets in data center, and I see it as long as the CapEx continues into this market, I see the opportunity as an attractive one. Alright. You have a follow-up, Josh? Joshua Buchalter: Yeah. Thank you for all the color there. I mean, I think it's been good William, and an interesting several years for the analog industry. And for a while, you've about the benefits of your US-based, you know, commercial, military, capacity. You feel like we're having, you know, with the industry and your guys from a cyclical standpoint being from a lot of inventory, but are we at the point where we expect, you know, yeah, I can get back into sort of the shared behavior. Everything's normal enough yet. Thank you. Mike Beckman: So Josh, I think there was a little trouble on the line, but I'm gonna repeat what I believe the was and then we'll answer it. So I think it was talking about the cycle and how it's been playing out. And with the capacity that we have in place are we in a position to be able to get back to market share gains? And maybe if you wanna start with the answer, I can also answer as well. Was that a question? I believe that was Josh? Joshua Buchalter: Yep. Yeah. Close enough. Thanks, Glenn. Haviv Ilan: Yeah. As we said, look. The cycle is this cycle has recovered slowly. You know? We just forget about Texas Instruments. Just look at the overall unit trend. You can look at the unit without memory. You can look at the ICs. It's been one of the slowest, if not the slowest recovery ever in our history. At a time where I think more semis are used in our life. I mentioned the secular growth in automotive. We see that across many, many hand equipments industrial, across the board, just more content per system. That just and, of course, the investment in data center that are becoming more and more substantial even for the analog and embedded portfolio that we have. So I do believe that there is gonna be a point of time where you all this capacity we've put in place and the inventory that we've positioned is gonna serve us well. We have seen cases where it served us very well with an immediate response to customer needs, and our customers value that a lot. And I believe there is more to do here. So let's see how the market wants to continue and develop. One thing is very clear to me. End equipments are being redesigned with more semis every day. They'll continue to be the case in the future. This is why I'm continuing to stay very optimistic and encouraged by the investments we've made in the past several years. Mike Beckman: Alright. Thanks, Josh. Move on to our next caller, please. Operator: Thank you. Our next question comes from the line of William Stein with Truist. Please proceed with your question. William Stein: Great. Thanks for taking my questions. First, I'm hoping you can talk a little bit more about the strong bookings you referred to. Would you be able to disclose the book to bill to us? And maybe even more interesting, has the duration of your backlog changed at all in the quarter? Mike Beckman: So maybe I'll take that one. So, Will, we did see throughout the quarter, you know, backlog did build, and I think, first of all, important to remember that we transact most of our revenue direct with our we don't sell through a channel. So we do see things typically pretty real-time. And that's part of the reason you heard us talk about the fact we have seen our turns business also exhibit strength over the last several quarters. You know, I don't have a number specifically to provide you for what bookings did, but it is reflected in our guidance. And I think, you know, going back to what Haviv said about where our end markets are, you know, industrial is going through recovery, and you saw that in the fourth quarter. You got data center end market that is growing for, I think, seven consecutive quarters. You know, those are all part of what factor into how we think about our guidance. Have a follow-up, Will? William Stein: Yes. I'll ask maybe the same question a little bit of a different way. Are you seeing either based on customer willingness to place the orders or of your own lead times to customers, have you seen an extension in the orders further out into the Haviv Ilan: The shorter answer is yes, but, again, not because of times. Our lead times are very competitive, unchanged think on average, below thirteen weeks. Many of our parts are weeks, part of our ambition and objective, as we prepare to the next cycle was to be to be able to maintain very competitively lead times across the cycle. So far, this cycle has not been very tough to meet. Right? It's, as I said, been a slow recovery, but our lead times continue to stay very, very competitive, probably the lowest in the industry, and our inventory position allows us to support customers. So I don't think customers are placing I mean, they are placing orders a little bit more forward, but they have the ability to change their opinion, even within this quarter. This is what Mike mentioned before. Our terms are very friendly, are very customer friendly. We want customers to be, you know, showing us their demand real-time and we are willing to carry this inventory, especially when it's so diverse and long-lived. To increase customer support. So that would be my high-level comment. Mike, anything else about what we see into the longevity of the inventory? Mike Beckman: Well, the inventory that we have in place has incredible longevity. No. No. But on the orders that was asked. Yeah. I'd say that if you look at does the customer need to put long-term backlog out in place when lead times are stable? They probably don't feel like they have to necessarily. So I have nothing to spike out, I would say. But what we have seen is a lot of customers wanting to come in, want product quickly. That isn't something we seen built over the past several quarters. Alright. With that, we'll move on to our next caller. And our last caller. Our last one. Yeah. Operator: Thank you. Our last question comes from the line of Chris Caso with Wolfe Research. Please proceed with your question. Chris Caso: Yes. Thanks. Good evening. I guess the first question is a clarification of somewhat you said about factory loadings. And you did say that you'd adjust loadings according to what you saw with demand. Take into consideration that you reduce those loadings more recently. Are there any plans in place now to increase those loadings? And, you know, what would you need to see in order to take those steps? Rafael R. Lizardi: What I would tell you is that we had something significant changing like we did back in the third quarter, we would tell you. We are not making any disclosure right now on which way the loadings are going. So it's just it's nothing significant versus where we've been running in the fourth quarter. Mike Beckman: And I just add a part of that is, you know, we have the ability to make those adjustments as we see things occur, and that's the flexibility we have in our manufacturing to be able to do that. Alright. Chris, you have a follow-up? Chris Caso: I do. And it's related to geographic revenue. You made some comments on China. Obviously, you have the New Year holiday. That hits in the first quarter. But, you know, if we look at the different regions, how does that stack up against what you would expect for normal seasonality each one of those regions in the first quarter? Haviv Ilan: Yeah. In general, I think we haven't seen anything specific on the only comment I've made, Chris, before was that typically Q1 in China for automotive is lower just because of Chinese New Year. But I think from the backlog comes through from, it's been pretty even, right, across the geographies. Mike? And then maybe I'll just talk about last quarter what we saw and, you know, we don't have a guidance by end by regions for the top level. But you know, China came in know, right about and on a sequential basis, much in line with what we saw at the top level, down about 7%. On a year-on-year for the fourth quarter, it was up about 16%. So you know, didn't see something on a sequential basis that stood out very differently there compared to the overall top-level results. Haviv Ilan: And I want to make a maybe before we let Mike finish the call, I want to make one more comment on the orders and everything. I just want to remind us all that Texas Instruments has invested in capacity and in the inventory over the last three or four years to be exactly ready for this type of environment. Right? We've seen a lot of real-time demand coming in in Q4 with we were able to support. We're seeing a little bit of strengthening in the orders right now in Q1. And we'll see how long-lived it will be. You know, the market has been jittery in the last twelve months. Sorry. And we'll just have to see how it plays out. This is also related to Rafael's comment about loading. We have the knobs to turn as needed, and we have the inventory to allow us time to adjust our loading, for example, as we go. So we are in a very good position as we come into 2026. We worked very hard to get here, and I'm very proud of our execution. And we'll be ready for any scenario that the market wants to present to us. Mike Beckman: Aleth, anything to you, Mike? Yeah. Thank you, Haviv, and thank you all of you for joining us today. Again, as we mentioned earlier, we look forward to sharing with you our capital management call on Tuesday, February 24 at 10 AM Central Time. A replay of this call will be available shortly on our website. And with that, have a great evening. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, welcome to Hanmi Financial Corporation's Fourth Quarter and Full Year 2025 Conference Call. As a reminder, today's call is being recorded for replay purposes. All participants are in a listen-only mode, and a question and answer session will follow the formal presentation. If anyone requires operator assistance, I would now like to turn the call over to Ben Brodkowitz, Investor Relations for the company. Please go ahead. Ben Brodkowitz: Thank you, Operator, and thank you all for joining us today to discuss Hanmi Financial Corporation's fourth quarter and full year 2025 results. This afternoon, Hanmi Financial Corporation issued its earnings release and supplemental slide presentation to accompany today's call. Both documents are available in the IR section of the company's website at hanmi.com. I'm here today with Bonita I. Lee, President and Chief Executive Officer of Hanmi Financial Corporation, Anthony I. Kim, Chief Banking Officer, and Romolo C. Santarosa, Chief Financial Officer. Bonita I. Lee will begin today's call with an overview, Anthony I. Kim will discuss loan and deposit activities, Romolo C. Santarosa will provide details on our financial performance, and then Bonita I. Lee will provide closing comments before we open the call up for your questions. Before we begin, I would like to remind you that today's comments may include forward-looking statements under the federal securities laws. Forward-looking statements are based on current plans, expectations, events, and financial industry trends that may affect the company's future operating results and financial position. Our actual results may differ materially from those contemplated by our forward-looking statements, which involve risks and uncertainties. A discussion of the factors that could cause our actual results to differ materially from these forward-looking statements can be found in our SEC filings, including our reports on Forms 10-K and 10-Q. In particular, we direct you to the discussion of certain risk factors affecting our business contained in our earnings release, our investor presentation, and in our SEC filings. With that, I would now like to turn the call over to Bonita I. Lee. Bonita? Please go ahead. Bonita I. Lee: Thank you, Ben. Good afternoon, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2025 results. Our teams delivered a solid performance in the fourth quarter, capping a strong year of growth for Hanmi Financial Corporation. We believe we executed well on our priorities and advanced key initiatives we laid out at the start of the year. Specifically, we further enhanced the diversification of our loan portfolio and achieved mid-single-digit loan growth guidance. We made investments in our banking teams, which led to a significant increase in loan production. We managed the deposit cost and generated net interest margin expansion throughout 2025. Noninterest-bearing deposits continue to represent 30% of total deposits, a tribute to the stability of our customer base. At the same time, we maintained disciplined expense management and upheld strong credit quality across the portfolio. The strength and consistency of our operational performance underscore the effectiveness of our relationship-based banking model and reinforce our confidence in the strategy we are executing. Now turning to some highlights for the fourth quarter. Net income for the fourth quarter was $21.2 million or 70¢ per diluted share, down 3.7% due to lower noninterest income. However, net interest income increased by 2.9%, and net interest margin expanded by six basis points to 3.28% from the prior quarter, reflecting a lower cost of funds and higher average loan balances. Return on average assets and return on average equity during the quarter were 1.07% and 10.14%, respectively. For the full year of 2025, net income reached $76.1 million or $2.51 per diluted share, an increase of 22%, and we generated a return on average equity of 9.3%. As previously guided, we generated loan growth of $312 million or 5%. Net interest income increased by 16.5%, and our net interest margin expanded by 37 basis points through a combination of lower interest-bearing deposit costs and higher average loan balances. Noninterest income increased by 7.6%, primarily due to an increase from the gain on sale of SBA loans driven by a 39% increase in loans sold. Pre-provision net revenue increased by 31.5%, highlighting the reduction in funding cost and well-managed noninterest expenses throughout the year. As I just mentioned, we made significant strides in growing and diversifying our loan portfolio and deposit franchise in 2025. Loan production for the full year increased by 36%, driven by the investments we made in our banking team. Residential and C&I loan production was up 90% and 42%, respectively. As part of our ongoing portfolio diversification initiative, we expanded our C&I portfolio by 25% through a deliberate effort to grow this strategic vertical. At the same time, we reduced our commercial real estate exposure from 63.1% to 61.3% of total loans. Deposits grew by 3.8% in 2025, and we maintained a healthy mix of noninterest-bearing deposits. This consistent performance reflects the strength of the loan relationships we have built with our customers who depend on us to provide high-quality banking products and services. In today's highly competitive banking environment, our ability to cultivate enduring customer relationships remains a meaningful competitive advantage. As we diversify our loan portfolio, we maintain our firm commitment to asset quality. Asset quality remains excellent, reflecting our focus on high-quality loans, disciplined underwriting, and prudent credit administration. Additionally, nonperforming assets as a percentage of total assets and allowance of credit losses as a percentage of total loans both remain healthy at 0.26% and 1.07%, respectively. Our focus on disciplined expense management continues. Although noninterest expense increased by 4.6% for the year, this was primarily driven by salaries and benefits related to merit increases and the investment we made in acquiring new banking talent. Importantly, our efficiency ratio for the full year improved to 54.7% from 60.3% last year. Finally, with our strong financial and capital ratios, we are in a great position to advance our growth strategy and generate healthy returns for our shareholders. During 2025, we returned $42 million of capital to shareholders through $9 million in share repurchases and $33 million in dividends. I'll now turn the call over to Anthony I. Kim, our Chief Banking Officer, to discuss our fourth quarter loan production and deposit details. Anthony I. Kim: Thank you, Bonita, and thank you all for joining us today. I'll begin by providing additional details on our loan production. Fourth quarter loan production was $375 million, down $196 million or 34% from the prior quarter, with a weighted average interest rate of 6.9% compared to 6.91% last quarter. Although production was down from the high level we saw in the third quarter, originations for the full year were consistent across categories with continued strength in C&I, residential, and SBA loans. By maintaining disciplined underwriting practices, we ensure that we engage only in opportunities that meet our conservative underwriting standards. CRE production was $126 million, down 29% from the prior quarter, and we remain pleased with the quality of our CRE portfolio. It has a weighted average loan-to-value ratio of approximately 47.4% and a weighted average debt service coverage ratio of 2.2 times. SBA loan production is consistent with the prior quarter at approximately $44 million, reflecting the positive impact of our recent team additions and the momentum we're building among small businesses across our markets. During the quarter, we sold approximately $29.9 million of SBA loans and recognized a gain of $1.8 million. C&I production was $82 million during the fourth quarter, a decrease of $129 million or 61%. While down for the quarter, we're pleased with our annual production in this strategic vertical driven by the previously mentioned investments in our C&I teams, the momentum of our USKC initiative, and our strategic efforts to further expand the portfolio. Total commitments for our commercial lines of credit remain healthy at $1.3 billion in the fourth quarter, with outstanding balances of $520 million. This resulted in a utilization rate of 40%, slightly higher compared to the prior quarter. Residential mortgage loan production was $70 million for the fourth quarter, down 32% from the previous quarter. Residential mortgage loans represent approximately 16% of our total loan portfolio, consistent with the previous quarter. We sold $33.5 million of residential mortgages during the fourth quarter, resulting in a gain on sale of $600,000. We'll continue to explore additional sales based on market conditions. USKC loan balances of $862 million represented approximately 13% of our total loan portfolio. Turning to deposits. In the fourth quarter, deposits decreased by 1.3% from the prior quarter, driven by a decline in demand deposits, money market, and savings, partially offset by an increase in time deposits. Deposit balances for USKC customers decreased slightly by 1.5%. However, we maintained the $1 billion level from last quarter and grew deposits 24% year over year. At quarter-end, the corporate credit deposits represented 15% of our total deposits and 16% of our demand deposits. Last year at this time, we opened a representative office in Seoul, South Korea, which marked a key milestone for Hanmi Financial Corporation. Through this office, we are strengthening relationships and supporting our customers' ability to expand into the US market. This office complements our existing Korea desk in key cities across the US. It was instrumental in helping us achieve $1 billion in USKC deposits. The composition of our deposit base remains stable, underscoring the effectiveness of our relationship banking model. During the fourth quarter, noninterest-bearing deposits remained healthy at approximately 30% of total bank deposits. Now I'll hand the call over to Romolo C. Santarosa, our Chief Financial Officer, for more details on our fourth quarter financial results. Romolo C. Santarosa: Thank you, Anthony. For the fourth quarter, net interest income grew 2.9% from the previous quarter to $62.9 million as the average rate on interest-bearing deposits declined 20 basis points while the average yield on loans declined by only nine basis points and the average balance of loans increased by 2.4%. Average interest-earning assets and average interest-bearing liabilities both increased by 1%. However, average yields on interest-earning assets declined six basis points while average rates on interest-bearing liabilities declined 19 basis points. Hanmi Financial Corporation reduced deposit interest rates twice during the fourth quarter after the Fed lowered the federal funds rate by 50 basis points. The average rate on interest-bearing deposits for the fourth quarter was 3.36%, and the average balance increased slightly to $4.71 billion. Fourth quarter average loans increased by 2.4% to $6.46 billion with an average rate of 5.94%. Turning to the deposit portfolio, the average rate on non-maturity savings and money market accounts decreased 40 basis points to 2.82%, while the average balance increased marginally by 0.4%. Average time deposits also increased slightly by 0.5%, and the average rate fell by just four basis points to 3.93%. However, the composition of that portfolio shifted away from time deposits over the insurance limit. The weighted average maturity of the time deposit portfolio continues to be under 12 months. Moving to net interest margin, which was up six basis points to 3.28%, again, primarily due to lower rates on interest-bearing deposits. The decrease in deposit rates benefited net interest margin by approximately 14 basis points. Changes in the average rate on borrowings and changes in the average yield on other interest-earning assets offset the benefit of falling deposit rates on net interest margin while changes in loan yields had a nil effect. Hanmi Financial Corporation's December deposit rate reductions continue to affect January's month-to-date average rates. Interest-bearing deposits are 15 basis points lower than in the fourth quarter, and the month-to-date average rate on savings and money market accounts are 26 basis points lower. Noninterest income for the fourth quarter of $8.3 million was down from the third quarter. The decline was primarily due to lower gains on sales of mortgage loans and the absence of bank-owned life insurance income. As a reminder, the timing of mortgage loan sales was uneven this year with a delay in second-quarter sales, which closed early in the third quarter resulting in no sales in Q2. In addition, the third quarter included death benefit payouts from our bank-owned life insurance portfolio, while there were no such proceeds in the fourth quarter. Noninterest expenses for the fourth quarter were $39.1 million and increased $1.7 million from the third quarter because of several items. First, other real estate owned expenses increased by $400,000, reflecting a full quarter of operating expenses for a hospitality property, which also included $300,000 of past due property taxes. Additionally, there was a $900,000 increase spread across seasonal advertising and promotion expenses, as well as higher data processing and professional fees from a higher level of activities. Lastly, salaries and benefits increased by $300,000 largely because of a mix shift in personnel. Overall, the efficiency ratio remained favorable at 54.95%. Credit loss expense declined to $1.9 million as asset quality continued to be favorable with low net charge-offs to loans of 10 basis points. Delinquent loans to loans at 0.27%, criticized loans to loans at 1.48%, and nonperforming assets to total assets of 0.26%. Hanmi Financial Corporation's tangible common equity per share increased 2.5% to $26.27 per share, and the ratio of tangible common equity to tangible common assets was 9.99% at year-end. Hanmi Financial Corporation repurchased 73,600 shares during the fourth quarter at an average price of $26.75. I will now turn it back to Bonita I. Lee. Bonita I. Lee: Okay, Ron. Excuse me. I want to thank the entire Hanmi Financial Corporation team for their exceptional efforts over the past year. Their dedication is essential towards serving our customers and communities well. I would now like to outline some of our top priorities for 2026, which are firmly aligned with our long-term strategic vision. First, we expect to generate low to mid-single-digit loan growth with a continued emphasis on further diversifying the portfolio. Second, we are focused on growing deposits to support loan growth while maintaining a stable, well-balanced funding mix. Our efforts will continue to focus on deepening existing customer relationships, attracting new accounts, and strengthening our core deposit franchise with a particular emphasis on noninterest-bearing deposits. Third, we intend to sustain our commitment to disciplined expense management while we are investing selectively in talent and technology to support our long-term growth. We remain focused on operating efficiently, prioritizing initiatives that drive productivity, and maintaining cost discipline across the organization. Finally, we plan to prudently manage credit to maintain strong asset quality. Conservative underwriting standards, active portfolio monitoring, and robust risk analysis remain foundational to how we operate and will continue to guide our decision-making as the economic environment evolves. In summary, we believe we enter 2026 in a strong position to build on our momentum and create meaningful value for shareholders. We expect healthy loan and deposit growth, ongoing NIM expansion, disciplined expense management, and sustained credit strengths to support consistent and durable performance. We are excited about the opportunities ahead and look forward to sharing our progress with you. Thank you. We'll now open the call for your questions. Operator, please go ahead. Operator: Thank you. Star one on your telephone keypad, and a confirmation tone will indicate your line is in the queue. And our first question comes from the line of Matthew Clark with Piper Sandler. Please proceed. Matthew Clark: Hi, good afternoon, everyone. Thanks for the questions. To start with the hospitality credit that was downgraded to special mention. Can you just provide some color on what the situation is there and how you expect it to play out? Bonita I. Lee: Sure. So periodically, we proactively monitor all our significant size loans. And as a part of our periodic review, you know, we decided to place this particular loan in the special mention category. It is a seasoned loan with a very strong sponsor with high liquidity. However, the property is going through a property improvement plan, PIP, in anticipation of all the activities that are expected in terms of the World Cup and then also for the Olympics in the coming years. So the property is in Southern California. So we don't foresee any loss probabilities on this credit. As I said, it is a very seasoned credit. But, you know, it is due to our proactive monitoring process that we decided to place the loan in the special mention category. Matthew Clark: Okay. And then as it relates to your expense outlook for this year. Any thoughts around the growth there and whether or not some of these OREO costs might continue for a couple of quarters? Romolo C. Santarosa: No. With respect to OREO, again, there was a bulge particularly with respect to past due taxes. So one of the properties is anticipated to sell. The other one, that'll take a little bit longer. So I think there will be continued expense depending on how long it's going to take for the sale to close. But I think the bulge we saw is probably a bit more rearview mirror and not really indicative of the ongoing run rate. Matthew Clark: Okay. And then for the year, are you thinking mid-single-digit expense growth? Is that fair? Romolo C. Santarosa: I think that's fair, Matthew. You know, when we look back over the calendar year, which is always a little bit easier to perhaps measure, we had about a 4.6% increase. The year prior, it was 3.5%. I did see, of course, healthcare is going to run higher than anyone's expectation for a 3% kind of inflation. Service fees seem to run a little bit richer. So I think middle single digit's probably the right expectation over a twelve-month scenario. Matthew Clark: Okay. And then just on the CD repricing schedule, can you remind us what you have maturing here in the first and second quarter and the roll-off rates and new offering rates? Anthony I. Kim: Sure. It's the details on page 10 of your investor deck. So a little over $900 million CDs are rolling off in the first half at 4.01%. And then followed by another little less than $900 million maturing in the second quarter with a weighted average of 3.95%. So essentially, approximately $1.8 billion is maturing at high threes and low fours in the first half of the year. And in the fourth quarter, we were able to retain about 80% of maturing $700 million of retail CDs at around 3.66, and December retention pricing was a little less than 3.66, 3.57. So we're hoping to reprice maturing CDs in the first half of the year with anywhere between 3.5 to 3.6. And that'll benefit us to lower the deposit cost. Matthew Clark: Great. Sorry. Missed that. Last one for me, just on the buyback. You have a lot of capital. Why not get more aggressive on the buyback here? Romolo C. Santarosa: Again, Matthew, the Board evaluates the capital return each quarter. As you know, in the fourth quarter, relative to our previous share performance, we started to see share prices well above our tangible book. And so that was rewarding, but it also has a little bit of a minimizing effect. So we'll address that again here in 2026, and I think we'll be able to, you know, continue share repurchases. The absolute dollar amounts, I think, again, will be a facts and circumstances market condition type of idea. Matthew Clark: Okay. Great. Thank you. Operator: The next question comes from the line of Gary Tenner with D. A. Davidson. Please proceed. Gary Tenner: Ron, I appreciate the color you gave on the January deposit costs. And a moment ago, there was some discussion about the repricing of the CD book. I guess I'm a little surprised that there's not been a little more pricing power in the CD book kind of in this more recent part of the cutting cycle. So just wonder if you could comment on competition within your customer base on that side of things because the pricing power on the money market side, obviously, is very strong. Romolo C. Santarosa: Yes. I'll let Anthony talk a little bit more about the market. But I also watched wholesale funding, particularly in the broker market. And notwithstanding the rate reductions that occurred in the fourth quarter, brokered money really hasn't moved much. I can still see $3.70, $3.80 for, you know, twelve months money and a little bit higher for shorter-term money. So that marketplace has not responded as you might think relative to the actions on the fed funds. And I would just also observe before turning it over to Anthony, we're still in an inverted curve on the very short end. You know, it really starts to look like a curve when you get, let's just say, two years it could move a little bit from the inside, but on the very short end, it's still very inverted. So I'll stop with that. Anthony, competition? Anthony I. Kim: Yeah. Obviously, you know, in a declining rate environment, customers wanted to lock in their funds in the CD with a higher rate. So competition is getting intense. As you can see, I mean, our CD retention rate has been around 90%, and we chose not to retain some of the CDs at irrational rates. So our CD retention rate went down to 80%. And some of our competitors are still offering high threes, low fours. So within our corridor, there are still some of the things that are actually running CD promotions above 3.85%. So, I mean, we look at our, you know, deposit relationship, you know, one at a time, and we provide the rates that warrant the relationship. But it is fairly competitive still, and it's also a little bit disruptive in the sense that, you know, some of these smaller shops are still running CD deposit campaigns. Gary Tenner: Okay. Thanks for that. And then just to follow-up on the question regarding the buyback. It sounds like, obviously, it's a board-level decision, and I think everybody knows you've got a lot of capital. How about the dividend? That's kind of is that a first-quarter decision in terms of thinking about a higher payout from the board perspective? Romolo C. Santarosa: Yes. Typically, that would be reviewed at least once a year, and we're at that year mark, if you will, looking not only backwards on what we've accomplished but looking forward on what we see 2026 to entail. Gary Tenner: Got it. Thank you. Operator: The next question comes from the line of Kelly Motta with KBW. Please proceed. Kelly Motta: Hey. Good afternoon. Thanks for the question. Let's see. Ron, maybe circling back to expenses, I appreciate the kind of mid-single-digit outlook you provided for the course of the year. Just given Q4 was a bit elevated from some discrete items that you called out, but there's also some seasonality in Q1. Can you kind of help us out with how we should be thinking about the jumping-off point from $39 million in the fourth quarter, just trying to make sure my cadence is properly aligning? Thank you. Romolo C. Santarosa: So for our business, in terms of seasonality, there are, I think, I'll say, let's say, three events that are somewhat predictable. So fourth quarter, we do have a higher spend with advertising and promotion, given the holidays and things of that sort. First quarter traditionally are the payroll tax phenomenon that we see in salaries and benefits. And then second quarter is typically where we see the annual merits. So those are the somewhat seasonal notions. So relative to your jumping-off point, I have to think about it a little bit. But while the advertising promotion ideas, those will kind of fade, I can start to see a pickup in payroll. I have to study the numbers closer to see if they offset, but I guess that would be my starting point. The little bit of mix shift we saw in the personnel complement because personnel has been roughly the same, a very rounded idea, like 600. And so we still behave in that same idea. So we saw just a little bit of that. So I think that's probably where you see the swap of the increase from advertising the benefit there, it would move up to the top. That's about it. The activity year-end, just you can call it seasonal, although I hesitate to say that, but there's usually at year-end a little bit of pickup in activities. For a host of different reasons, but there always seem to be activities that kind of creep in or crop up at the year-end mark. So I know that's not very strong, but I'd have to really ponder hard, Kelly, to figure out if you should stay on that number or start with that number. Really, I really don't know. Kelly Motta: Okay. Fair enough. And then looking at slide six, it's nice to see the yield on new production is really held in really nicely. Wondering if that's a function of mix or, you know, if you're able to get, you know, some better, more rational spreads on loans here as rates have come down. Any commentary and color would be helpful. Anthony I. Kim: Yeah. So we remain focused on maintaining appropriate yield on the new loans. So we're being very selective in our loan originations, prioritizing our returns. So we are being selective. Kelly Motta: Got it. That's helpful. I'll step back. Thanks so much. Operator: As a reminder, to enter the question queue, please press 1 on your telephone keypad. And the next question will come again from the line of Matthew Clark with Piper Sandler. Please proceed. Matthew Clark: Hey, thanks for the follow-up. Just wanted to ask about the prepays and payoffs in the quarter and how that compared to 3Q. See the production at $375 million, but I'm just curious how the other side of the equation played out. Bonita I. Lee: So just comparing to the third quarter, payoffs were a little bit elevated. I think it's probably more meaningful to look at the whole year because there are fluctuations from quarter to quarter. But, you know, comparing 2025 to 2024, although our loan production was up 36% year over year, when we track the payoffs and paydowns and also net line utilization as well as loans sold, it is definitely higher. Just on the loan payoffs and the paydown category, just on those two items, just comparing them annually, it's 13% higher than the prior year. Matthew Clark: Okay. Great. Thanks again. Operator: Thank you. There are no further questions at this time. I'd like to turn the call back over to Bonita I. Lee for closing remarks. Bonita I. Lee: Thank you for joining our call today. We appreciate your interest in Hanmi Financial Corporation and look forward to sharing our continued progress with you throughout the year. Operator: This does conclude today's conference. You may disconnect your lines at this time. And we thank you for your participation. Have a good night.
Operator: Ladies and gentlemen, good day, and welcome to Stride, Inc. Q2 2026 earnings conference call. Operator: As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then 0 on your touch-tone phone. I now hand the conference over to Mr. Abhishek. Thank you, and over to you, sir. Abhishek: Very good evening, and thank you for joining us today for Stride, Inc.'s earnings call for the second quarter and half-year ended financial year 2026. Today, we have with us Badri, Managing Director and Group CEO, Ayse Kumar, Executive Director, and Vikesh Kumar, Group CFO, to share the heart of the business and financials for the quarter. I hope you have gone through our results release and quarterly investor presentation that have been uploaded on our website as well as the Storm Exchange website. The transcript for this call will be available in a week's time on the company's website. Please note that today's discussion may be forward-looking in nature and must be viewed in relation to risks pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out to the installation team. I now hand over the call to Mr. Badri to make his opening comments. Badri: Thank you, Abhishek. Morning, good afternoon, and good evening to all who are joining in this call. We are extremely happy with the results. The performance demonstrates our consistent execution as we invest in sustainable long-term growth. I will cover this presentation and divide my speech into two parts. I will focus on all the growth metrics of the business. Group CFO, Vikesh, will cover all the metrics relating to efficiency as well as profitability. I will also speak about some qualitative aspects of the key businesses we have. In the end, we will take all the questions that need to be answered. From our perspective, Q2 has been very strong for us. Our revenue grew by 4.6% year on year. Gross margins are 14.6%. EBITDA grew by 25.4%, and operational PAT at 84%. All I want to say is that consistency and sustainable growth have helped us to create the operating leverage, and the multiplier effect is very clearly seen from our results. A 4.6% increase in revenue growth resulted in almost three times increase in gross margin growth, almost five to six times increase in EBITDA growth, and almost 20 times increase in operational PAT. This is based on the quarterly performance. As far as the yearly performance is concerned, the revenue grew by 5.5%, gross margin at 13.2%, and EBITDA 20% growth for the full first half and operational PAT at 82.6%. Again, the complete operating leverage is visible in the entire P&L. Overall, you can really see from the US market, I will go market by market now. The US market at $73 million grew two year on year. There has been intense competition in recent launches. Despite the competition, we have grown 2% year on year. We also launched three products in H1 FY26, and the total number of commercialized products stood at 70. We continue to rank top three in 37 products, and we added one more product to this list, which contributes almost 75% of our US revenue. We have given a long-term outlook to the street in terms of the $400 million by FY28. We are continuing to focus on that and continue to execute based on that plan. We have got 230 plus ANDAs, and the ANDAs filed and 215 plus ANDAs approved as of July. The company has invested in new segments of controlled substances, and we are spending the new R&D on all those programs which are beyond $400 million. I also want to cover some of the key points with respect to the US business and also the philosophy of the company in doing that business. As far as the US business is concerned, our strength has been on the timing of the launch. We wait for the market to get disrupted, and we launch it at the appropriate time. Second thing is in terms of the service levels. Our service levels continue to enjoy a very premium position as far as the US generic suppliers are concerned. We are able to maintain the service levels at a very high level, and it also creates a lot of stickiness as far as the business is concerned. Our business discipline has been in terms of focused discipline on the entire capital allocation. We are focused on programs which are beyond the $400 million, and we are starting to invest now. Profitability has been the focus to see the first quarter. We also dropped a few products from commercialization because they did not meet our profitability threshold. We are continuing to focus on that top profitability as we go forward. Our US strategy has played out quite well in the Chestnut Ridge plant, delivering good outcomes for us. Also, in terms of the overall context of the external environment in terms of tariffs, almost a third of the revenue comes from the US. The company continues to focus on execution and supply chain efficiencies. This is what has led us to a very consistent performance in the US in the last six quarters. As far as the other regulated markets are concerned, we are extremely happy with the progress of other regulated pockets. As you know, the other regulated markets are difficult to operate, and given that each market has got a regulatory pathway, making it a very high entry value. We are able to see green shoots in these markets. As has been reiterated in the past, our rest of the world market, which we call it as another regulated markets plus the growth markets, have registered a very strong growth at 14% with other related markets at almost about 16% year on year. There are a number of markets which the company is focused on, which have got B2B market, B2C across all geographies, which are in various stages of evolution. If you go back and see the last six quarters, the growth has been quite muted. In the last two quarters, we have grown almost about 14 to 15% in these markets. We believe that all pivots are in place, and it has formed a new base. We should be able to launch from now. Overall, if you really see, we are very happy with the 14% growth, including the other related pockets and the growth markets, and 16% in the other related markets. We believe that the new dollars will come from these markets as we start to spend and increase our regulatory efforts. Our long-term objective of mirroring the US market in the next two to three years' time remains intact. We believe that we have got all pivots in place to grow from here on. We are pleased with the base that has formed, and you will start to see accelerated growth in these markets. Coming to the other regulated markets, we had a 16% year on year growth. The deal momentum continues in Europe with large Pan EU partners being onboarded. Onboarding a partner takes time, and we have already started to see green shoots in these markets. As far as the UK markets and other markets are concerned, it's very steady, and it has formed a new base. We are confident of good growth in the near term. The portfolio maximization and the portfolio buildup in the last quarters on the investments which have been made on various programs have resulted in this growth. As far as the growth markets are concerned, the growth markets' revenue at $17 million grew 7% year on year. When we say growth markets, this consists of new markets where the new dollars are expected to come in the near future. Our Africa is very, very tall in this quarter. We are also starting to invest our regulatory efforts on the growth markets. A number of filings are being done. We should be able to see substantial growth beyond FY28 in these markets. All the work is in progress, and we should be able to see a new amount of dollars coming in beyond FY27, FY28 in these markets for which all pivots are in place, products are in place, regulatory strategies in place, and the go-to-market is also planned out. As far as the access markets are concerned, it's very lumpy, and the donor funding environment continues to remain challenging. It's very opportunistic for us, and it will continue to be lumpy. We believe our second half should be slightly better than the first half. But, again, it has to be seen over the next two quarters how it pans out. It all depends on the donor agency's decisions at that point in time. Overall, if you really see, we are very pleased with the entire results. We are focusing on long-term growth. We are also focusing on EPS growth. We believe that all the pivots are in place for us from a long-run perspective and to make the company extremely valuable in the near future. With this, I will hand it over to Vikesh to cover the profitability and the efficiency metrics that have gone into the results. Then we will open the floor for questions from the management side. Thank you, and I will hand it over to Vikesh. Vikesh Kumar: Thank you, Badri. Good morning, good afternoon, and good evening to all of you. As Badri mentioned, it's very pleasing to report yet another quarterly performance. Our performance has been exceptional across metrics of profitability, efficiency, and growth. I will start with the profitability metrics. First, I will focus on the gross margins. Our gross margins for the quarter are at 706 growth. It's a 90 crore increase from what we reported in '25, with a gross margin percentage of 57.8%. It's a 500 basis points improvement from our gross margins last year. For H1, our gross margins are at 1,381 crores, with a gross margin percentage of 59%. So even for H1, our gross margins have improved by 410 basis points over H1 of last year. Coming to EBITDA, we are reporting a very strong EBITDA of 232 crores for the quarter, with an EBITDA margin of 19%. As Badri already mentioned, it's a 25% EBITDA growth year on year. For H1, we are reporting a 450 crore EBITDA with an EBITDA margin of 19.2%. The EBITDA margin has also moved from 15.8% to 19% in Q2. So that's a 320 basis points improvement for the quarter. Similarly, for H1, with 19.2%, we've improved by 230 basis points over H1 of last year. Coming to the operational PAT, our operational PAT for the quarter is at 140 crores. 140 crores is the highest ever operational PAT that we've reported in a quarter. It's an exceptional performance from a PAT perspective. An operational EPS at 15.2 is again our highest ever quarterly EPS. For H1, our operational PAT is at 154 crores with an operational EPS of 27.6 rupees. Our reported PAT for the quarter is at 132 crores, and our reported PAT for H1 is at 137 crores. All in all, if you look at all the profitability metrics, you can see the multiplier effect flowing in, and the EBITDA to operating PAT conversion is also at a very healthy 57%. Focusing on a couple of other line items of the P&L, our operating costs have remained steady, in line with previous quarters at 39% of sales, which is also visible in the EBITDA margin expansion. Our gross finance costs continue to improve. For the quarter, our gross finance costs are at 40.46 crores. Our net finance costs for the quarter are significantly better at 20 crores due to a finance income that we reported in this quarter. For H1, our net finance costs are at 61 crores, which is significantly lower than the 105 crores of net finance cost we reported for H1 of last year. We expect our gross finance cost to continue to improve while the net finance cost for H2 may slightly go up due to the income that we've had in H1. Our ETR for Q2 and for H1 has been around 15%, and we expect it to be in the range of 15 to 20% for the year. Moving to the efficiency metrics, I'll start with the operational cash. We are reporting an operational cash of 394 crores for H1, which is about an 87% of EBITDA to operational cash conversion. This strong operational cash has helped us deliver a free cash of 73 crores, which we have used for debt reduction. Our net debt at the end of Q2 stands at 1,449 crores. We were also adversely impacted by forex on our net debt. That impact was almost 71 crores. Despite this impact, we were able to reduce our net debt by 73 crores, and consequently, our EBITDA to net debt ratio is now at 1.65x, improving from 1.9x that we reported at the end of March. We have also invested significantly in CapEx. Our investments in CapEx for H1 are at 149 crores. So in addition to maintenance CapEx, we've also made investments for growth, including acquisitions of intangibles for future growth. Our cash-to-cash cycle remains steady at 113 days. We've improved by three days quarter on quarter. Our ROCE has now improved to 16%, compared to 14.9% in March 2025. Our ROCE does not include our both our capital employed and our ROCE not include the investments in one source, which is currently valued at 339 crores. This 339 crores is also not adjusted in our net debt and EBITDA to net debt ratio. Overall, it has been a comprehensive performance across metrics, and that is clearly visible both in profitability and the strength of our balance sheet. We hope to continue and sustain this momentum as we focus on our growth levers for the future. Thank you, and we can now open up for questions. Abhishek: Dhanesh, you can take the Q&A, please. Operator: Thank you, sir. Ladies and gentlemen, we'll now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use a headset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question comes from the line of Anand Mundra from Soar Wealth. Please go ahead. Anand Mundra: Hello. Good evening, sir. My question is with respect to other regulated markets. It has been strong this quarter. What are the key drivers, and is this growth sustainable? Is it clear to assume that other regulatory markets should grow faster than the US going forward? Badri: These are the questions regarding other regulated markets. Yes. As far as the other regulated markets, I'll put it like this. Like, other one is in terms of rest of the world markets, you have to look at it as a bucket. Other regulated markets plus the growth markets minus the access markets. If you really see this quarter, we have reached a very important threshold of 10,300,000,000.0 rupees. That's thousand crores we crossed in this market. If you really see the last trajectory of the last six quarters, this market has been forming in various geographies. This is the first time we have just broken that trend, and we believe that is very sustainable in the future. Our long-term objective of mirroring the US market in the next two, three years and with the rest of the world markets, it consists of, again, other regulated markets and the growth markets minus the access markets. We believe that we can mirror the US market in three years' time from now. We have got enough pivots in place, and you should not look at it from quarter to quarter. Over the period of three years, I think we should be able to get there. Anand Mundra: Okay. So if I look at the US market, it is flat for the last six, seven quarters. So not for one, two quarters, but we have come back to the same level what we were doing it quarters back. Badri: Yeah. If you really see that we have also specifically said that as far as the US market is concerned, there has been some intense competition in certain select molecules. If you really see the entire buildup for the US market, focused on profitability, and we are focused on various other metrics which are outside the in we are also focusing on a number of metrics. We believe that long-term is intact. As far as we are concerned, we are focusing on long-term. We are focusing on value. Both on the quarter on quarter trend. We believe that we have got enough products as well as these strategies in place to get there in the next two and a half years to three years' time frame. Vikesh Kumar: Yeah. Okay. Badri, just one point I would want to add. So specifically on the US market, in '25, we had reported roughly about $6,566,000,000 dollars in terms of revenue. Then over the last five quarters, we've been upwards of $7,070,000,000. It is a very calibrated approach that we focus on profitability rather than revenue growth. You will see that, be it in the US or in other regulated markets. So other regulated markets, historically, for many quarters, we were at 40,000,000, and now we've stepped up to that, you know, to that 44,000,000 range, and we expect to remain there. Similarly for the US, you know, four quarters back, we had stepped up from 65,000,000 to a 70,000,000 plus. We have studied in that range despite the competition that has been there on certain molecules. We have been able to maintain and grow revenues. Our focus continues to remain on profitability rather than chasing revenue growth. Anand Mundra: Understood, sir. So the second question is with respect to profitability only. It is largely driven by an increase in our gross margin. So this 58-60% gross margin, is this sustainable, sir, given the rising competitive intensity in the US? Badri: Yes. We have remained in that range for the last four quarters. Anand Mundra: This is helpful, sir. The third question with respect to our other income, which is 18.5 crore, this is being reported as a part of finance cost you have reduced. What is this related to, sir? Vikesh Kumar: So this is related to interest on certain refunds that we've got. Largely, we've seen this income coming in year on year, so it is more a timing of the income rather than that. So the way we are looking at it is net finance cost for H1 is at about 60 crores. 61 crores. With this level of income not repeating in H2, it may slightly go up. But overall, we've seen our gross finance cost coming down quarter on quarter for the last many quarters. Anand Mundra: On a run rate basis, it's clear to assume 40 crores, sir? Vikesh Kumar: It should be less than that. Anand Mundra: Okay. Okay. Thank you, sir. Thanks a lot. Operator: Thank you. Our next question comes from the line of Akash Jain from Moneycom's Analytics. Please go ahead. Akash Jain: Yes. Thank you. I think it has been an extremely positive effect on margins, and I think the management team should get fully accurate on that. I think I just want to also understand a little bit on is there an interplay between margins and revenue? Because I think a little bit of that you referred to earlier. But, for example, are we forgoing or are we stopping some reducing some revenues going to profitability? Just to understand a little bit what are we is some of this margin also come at the cost of revenue? Because the margins look great. But the revenue has been obviously, the retail has been lower than what we had expected and one will write it up here. So just a little bit qualitative and qualitative aspect of is happening on revenue growth versus trying to manage and try to do much. Vikesh Kumar: Yes. So I will take this. So if you look at the EBITDA, while the margin has been healthy, even the absolute growth in EBITDA and profits has been healthier, and which is where you also see the multiplier effect right at EBITDA and at PAT. So the focus is both on absolute profit growth and margin growth. So what we are saying is we don't want to we want to take in revenues that either meet our strategic margin thresholds in terms of profitability or they should help our under recoveries, which helps in improving our operating leverage. That philosophy has played out. So we don't factor it it is just that we don't want to do loss leaders or don't want to chase extremely low margin products just for the sake of revenue. It's a very calibrated approach. We've achieved leadership positions in the products that we sell, and we want to maintain that niche. Akash Jain: So we have said that we will launch 60 parts in the US in the next three years. But I think if you look at actual, the number has been significantly lower than the run rate that is required. So I just understand it. Right? And in the light of the fact that you said that the target for doubling US revenues. So the sorry. The target for revenue growth in the US image and tax is also what you are guided earlier. So how do I understand the move to that in terms of filings and approvals versus revenue growth versus what you're seeing actually next one? Vikesh Kumar: So if you follow our historical trends as well, it has been a very calibrated approach in terms of launch. Right? We don't launch products as soon as we get approvals. We wait for the right timing both in terms of pricing and market. We prepare ourselves. And make sure that when we launch, we launch it at a very profitable and at a very stable level. That strategy has really played out well for us. So we continue to remain focused on that. Given that we've got the pipeline, we've got the products, from a long-term standpoint, we see that to be intact, which is what we continue to mention. While there are some near-term headwinds, our long-term remains intact. Akash Jain: Okay. Thank you. Thank you. Operator: Our next question comes from the line of Amrish Kumar from Capital. Yeah. Congratulations on a very strong set of numbers. So the first question would be on our Beyond Generics. So we had launched our nasal spray. Is there any update on that in this quarter? Badri: We have one question. Yeah. We have already filed for one product, and we expect to file a few more in the next twelve months. Amrish Kumar: Okay. And the second question is on the balance sheet. So it was happening to see that the debt coming down. With the free cash flow this first half. So do we foresee some more debt reduction going forward? I mean, some reduction in further finance cost? Gross finance cost. No. Vikesh Kumar: We will continue to focus on profitability and efficiency. Okay. So we expect finance cost to come down, and from a free cash generation, whatever free cash we generate, our aim will be to reduce that. Amrish Kumar: Okay. And, sir, when delivering on the same points of the previous two speakers, so last our run rate is about $300,000,000 in the US currently, more or less. And in this rate, it was increasing very fast by about 25% till about a year back. We are still maintaining that we will go from current $304,100,000,000 dollars by FY '28. So are we going to see some step-up jump, or will we see gradual increase from here? Badri: Yeah. It will be very steady. That's all we can say that in the next two two and a half years. Should be able to get there. Is our hope. But, of course, external events are there. We have to watch out, and we want to take step by step. Most important thing is we are focused on sustainability of that. Revenue or sustainability of that target. Important for us and as a company, and that's what we are focusing on. Amrish Kumar: Got it, sir. Got it. Okay. Thank you so much, and congratulations on sitting on a very strong set of numbers. Thank you so much. Operator: Thank you. Our next question comes from the line of Krishna Mehta, an individual investor. Please go ahead. Krishna Mehta: Hi, sir. So on our CapEx intensity, it has increased to 149 crores in H1 FY26. Could you highlight the major areas of investment? And what will be your incremental spend in H2 FY26 and FY27? Vikesh Kumar: So I already touched upon the CapEx spends. It has gone towards maintenance CapEx as well as for future growth. So including certain investments for intangibles that we have done. We expect to maintain it at similar levels for H2. Krishna Mehta: Thank you, sir. Operator: Thank you. Our next question comes from the line of Rupesh Tatia from Long Equity Partners. Please go ahead. Rupesh Tatia: Yeah. Hi. Hi, Badri. Hi, Rakesh. I'm on a fantastic set of numbers. I have a few questions. First question, because I reported the PAT is 131 crore. Operational PAT you said in the presentation is 140 crore. So can you do some reconciliation maybe line by line? And, also, this 71 crore, the advanced currency impact what portion of that you know, is routed through P&L? Vikesh Kumar: So on the first part, the difference between the operational PAT and reported PAT is the exceptional items. So these are expenses related to past events and that are incurred in the quarter and are not relating to the performance for the quarter. So that is the exceptional loss. It's just one item that's the reconciliation item. Rupesh Tatia: So these are, like, one-offs, basically? Vikesh Kumar: Yeah. These are one-offs. Rupesh Tatia: And the 71 crore, what has grown in terms of the 200? In terms of the 71 crores, so that is the balance sheet position as of the date, as of the date. So if you look at the average rate versus the closing rate, the closing rate is much higher than the average rate. So the performance exchange does not flow through in the P&L. Whereas from a balance sheet standpoint, it gets restated by the end of the quarter rate. So there is some portion of that that would have flown through the P&L, but it is what happens is it comes the impact in the P&L comes with a lag. Rupesh Tatia: Okay. Whereas the balance sheet is immediate. Balance sheet is immediate because it is as of that date. Rupesh Tatia: Okay. Okay. Understood. And second question, Badri, is where are we on the controlled substances execution? I think in one of the investor conferences, I think hosted by Antti, you said we can hit $25,000,000 near term. So, I mean, what is near term? Have you figured out how quotas work? Have you launched the products? Get some color or qualitative and quantitative around that would be very helpful. Badri: Yeah. As far as the controlled substance is concerned, this is the first full year of execution from a We had some approvals of few products. This year also, we have launched one of the products in the controlled substance space. So this is a business which we are seeding in, and we are also very hard to execute it much better. The full impact of the controlled substances will be seen only from the next year onwards. I will put it that way because there are time lead times which happen between the quota allocation, purchase of API, manufacturing, and then selling. So all of this and this will be a very good investment here where the entire various legs of the control substances. We should see the full impact of that in the next year. Rupesh Tatia: And just one clarification, but is there that we have 15, 16, and that and the $34,000,000 per product kind of No. Revenue realization. Badri: No. I don't think so. That is right. Overall, as a controlled substances has a bracket, you could really see if you are able to get to the full potential, it will be slightly meaningful in the coming years. Rupesh Tatia: Okay. Okay. And final question, Ravi, where Q4 exit on that US $80,000,000 other regulator in that market, 50,000,000. Is that good? Does it have good probability that we will get there by Q4? Badri: We don't want to make any forward-looking statements within the year. All I can say the risk? Let me ask you another way. What is the risk to those numbers? That $400,000,000 were a three-year period, you should look at us long-term. Quarterly, that can be here and there, but it all depends on the market. All I can say is that our aim is to grow. If you see the other regulated markets, has other regulated many say, rest of the world markets, which includes other regulated markets plus growth markets minus the access markets have reached a 10,000,000,000 mark. There is a thousand crores. When we see all of that, we should see it as a basket. Most important thing for us is to grow wherever the opportunity is. That's what we are trying to focus on, not losing sight of the long-term what we have kept for ourselves. Rupesh Tatia: Okay. And just final clarification. Historically, H2 has been better than H1. So Yes, sir. Yeah. I'm really sorry. Operator: Mister Tatya, I'm really sorry to interrupt you. I request you please email your question. One very simple question. I'm sorry. Is this a very simple question? Badri: Yeah. Please go ahead. Rupesh Tatia: Yeah. Yeah. Yeah. So H2 historically has been better than H1, so nothing has been renewed this year as well. Right? Badri: Yes. Rupesh Tatia: Okay. Thank you. Operator: Thank you, sir. Our next question comes from the line of Prateek Uthari from UniqueBMS. Please go ahead. Prateek Uthari: Yes. Hi. Good evening, and thank you. Sir, one question on competition. So last quarter, we had called out some intense pricing pressure in the UK. Again, this quarter, are talking about I mean, in the presentation, have spoken about the US, we are writing discontinued five six production first half. Just across two markets, anything to read into it, how to look at I mean, is this just one of some products coming in? Is this I mean, some intense increase completion that we saw three, four years back? Some color, please. Badri: See, Prateek, just to give you a clarity on this. It's a competition. Is something which no company has got control of. Right? So from our perspective, at the end of the day, you have to look at it as a book portfolio. Some you will gain, some you will lose. Right? So from that perspective, you really see there is definitely some competition in the marketplace. What is more important for us to focus is that how we are ahead of the competition. That's what the company is working on. But the most important thing is we don't want to compromise the profitability of the company at the cost of top-line growth. That has been the philosophy all throughout. If you really see that this quarter, we have added one more product to the 37 out of 70 products or at a market-leading position. So it has to be it is a trade-off between the competition and the profitability as well as the you know, what you want to do as a company. Our disciplined execution has really helped us to get here. I think that is the right way to look at us. If you don't want to be looked at every quarter in terms of ups and downs. But overall, what we are chasing is something which is very value-driven, the volume or the price-driven. Prateek Uthari: It's actually the point that I was coming from was because it happened over two quarters, two geographies, some and hence the question. Right? Because and yeah, I mean, is it just some product specific? I mean, is it just the number of peers finding has gone up or maybe last two years were good for the US generic market? And now someone's taking price type or market share at cost of pricing. I mean, obviously, we're too soon to call out any trend, but but what you're saying is you're not done. Badri: Correct. There is no specific trend. All I am saying is competition will come and go. What Stride, Inc. will do is to how to stay ahead of the competition is what we are focusing on. Quarter on quarter is something which you should not even look at. From a long-term perspective, I think we have got we have got enough strategies in place and we'll continue to execute on our strength which will give us all the value which we are chasing. Prateek Uthari: Yes, ma'am. Point again. So second one, R&D, we were to double our R&D spend from $10,000,000 last year to 20. So, I mean, is run rate already hitting our P&L? Have we run that up? Vikesh Kumar: Yes. We have we said that it will be between 15 to $20,000,000. We are on track to spend that. R&D expense. Prateek Uthari: Fair enough. And earlier, Vikesh mentioned about this spend on intangibles, and that is what we see in the balance sheet. Intangibles have gone up about 100 crores. So let me just highlight this is just few registrations, etcetera, or it's gonna highlight the nature of this intended? Nikesh, you would like to take that? Vikesh Kumar: Yeah. So it is few intangibles. There's more few NDAs that we have acquired, and it is for near to medium-term growth. So it is in the 100 growth. It is a combination of the acquisition as well as exchange rate impact because exchange has also moved significantly in the last six months. So that is also that will also impact when you compare year on year numbers. Operator: You, Mister Kotari. Please rejoin the queue if you have more questions. Thank you. Operator: Our next question comes from the line of Nitin Agarwal from DAM Capital. Please go ahead. Nitin Agarwal: Badri, congratulations on our team for a very good job. Performance. Just one question on the R&D. Now R&D, the $1,520,000,000 dollars that you're looking to spend, are there any particular areas that you're gonna be focusing on more that you can highlight? Badri: So we have said that we'll be focusing on nasal space and the Beyond Generics. There are certain specific domains we have identified within. It's early days. But we are committed to focus on that. But nasal spray is one thing something which we need to call out at this point of time. Nitin Agarwal: Okay. And secondly, Vijay, on the CapEx, so this year is about 300 crores or thereabouts. Is this a run rate we should work with on these future years also? Vikesh Kumar: Our maintenance CapEx is going to be between the 100 to $1.50 crores, and the rest is more quarterly driven rather than being a trend. So it is more event-driven. Is what I would say. Nitin Agarwal: Okay. And lastly, on the overheads, I think we've done a pretty commendable job in terms of setting out creating operating leverage on the overheads over the last few quarters. I mean, do you still see opportunities to create more operating leverage on the overhead part of the business and this overhead going forward? Vikesh Kumar: So we still have some level of under recoveries across our plans, and that is where we are focused on to get in the incremental revenues without the need to spend in new operating costs. So there are surely some legs that are left as far as the operating leverage is concerned. Nitin Agarwal: Okay. Sure. Thank you so much. Operator: Thank you, sir. Our next question comes from the line of Siddhartha Bhattacharya from Autumn Investment. Please go ahead. Siddhartha Bhattacharya: Hi. I'm audible. Vikesh Kumar: Yes. Siddhartha Bhattacharya: Alright. Yeah. So a couple of questions. First, I wanted to understand about the gross margin expansion. You know, how structural is that and, you know or is that a function of the product mix that we did during this quarter? Or the first half? You know, if you could throw some light on that. Vikesh Kumar: It is fairly structural. I mean, if you look at the last six quarters, we've been in that range. And expanding in a very calibrated manner. So H1 FY '25, we were at 55%. H1 FY '26, we are at 59%. Q3, 458%, and so it is in line, and it has got to do with the discipline that we follow across markets in terms of how we onboard new business. Siddhartha Bhattacharya: Okay. Alright. And the second question I have is that H1 to H1, I look at numbers, you know, your gross margin increase not really translated into corresponding EBITDA increase. Know, which tells me that there is some variable cost that has grown much faster than the gross margin increase. So going ahead, you think that will sort of taper down lead to EBITDA expansion? In the coming quarters? Vikesh Kumar: Yes. So if you see Q1 of last year, the expenses were significantly lower. The revenue was lower. And from Q2 onwards and that is where the year on year, difference, you're able to see much more stocker. But when you look at Q3, Q4, the last four quarters, it has been fairly in a very steady range. Siddhartha Bhattacharya: Okay. Okay. Okay. Got that. Thank you so much. Operator: Thank you. Our next question comes from the line of Sarvesh Gupta from Maximal Capital. Please go ahead. Sarvesh Gupta: Hi, team, and congratulations on a steady set of numbers. So first question is on the tariffs. So now that we have seen one month post tariffs in the quarter gone by and one month in this quarter, how do you if you can throw some color on the impact on of the tariffs that we are seeing on our business. Badri: Currently, there is no impact, and we continue to watch the external development. Things are changing every day. But at least some clarity has come in that tariffs are not going to be there in the near term. But it's as good as news every day. Right? So we have to watch out. So far, there has been no impact for us for Synty Pharmaceuticals. Sarvesh Gupta: Understood. And, you know, you said that the other regulated market business would mirror the US business. So now the US business itself on a quarterly run rate can grow to maybe $100,000,000 in another two, three years. So do we mean that the other regulated business will also reach to that level in that time frame, thereby increasing by almost two and a half times? Badri: Yeah. I just want to make a small correction. What you said. And you said that US market, we have got a plan to go to 400,000,000,000. I named the other than you other than US which I call it as rest of the world, which consists of both other regulated markets and the growth markets reached at 10,300,000,000.0 rupees, thousand 30 crore which is the first time we are crossing thousand crores in that market. And that's growing steadily at about 14% on a start for the last two quarters. And if you keep up the same trajectory, we should be able to mirror the market the US market in the next two, three years. From now? That's the thing I said. You have to I didn't say other regulated markets. Other regulated markets plus growth markets minus plus group markets. That's it. Sarvesh Gupta: So that should also reach a run rate of $100,000,000 in two, three years. Badri: Yeah. That is what that is what is our plan. And it will it's, again, that's a long-term aspiration. When it will happen, we don't know. But we are working towards it with the growth whatever trajectory that is there. We believe that it can catch up. Sarvesh Gupta: And finally, on the expensed out things versus capitalized, so you have $1,520,000,000 dollars of R&D that you mentioned. Then you have a maintenance CapEx of 100 to 150 crores. And then you have filing related intangible expenses, I think. So how much of these items are going through the P&L, and how much is going to get capitalized. And under what time frame. Vikesh Kumar: So everything that we spend internally except for the filing fees goes through the P&L. Anything that is bought out is what goes through the balance sheet. Sarvesh Gupta: No. So this R&D expense and maintenance CapEx, are they going to the P&L? Vikesh Kumar: Maintenance CapEx is for the factories. That does not put into R&D. Sarvesh Gupta: And the R&D expense of $1,520,000,000 dollars? Vikesh Kumar: It's already in the P&L, in the reported numbers. Sarvesh Gupta: Oh, okay. Thank you. And all the best. Operator: Thank you, sir. Our next question comes from the line of Kiran from Table Free Capital. Please go ahead. Kiran: Hi. Congratulations, sir, on a very good set of numbers. Couple of questions. One, we are talking about 200,000,000 in the US, maybe 200, $220,000,000. I mean, just in one so one plus growth market is 400,000,000. So I'm thinking one will be somewhere around $202.50. So again, not asking for a quarter to quarter, but at least from a run rate perspective, we should at least start hitting $80.85, 90 in the US and probably 15 other related markets. Do you see this happening in FY '27? Again, not for a particular quarter, but at least some run rate growth that we have to see to reach 400. Right? It's not certainly down to 400. Badri: Yeah. So just to reiterate. This is an aspirational goal. Right? And we are starting to see growth. All we are saying is that the last six quarters of market formation has resulted in a growth. For the rest of the world markets, excluding access markets. We believe that if you are able to grow in the same trajectory, we should be able to mirror that market in the next two years. That's what we are expeditiously working on. You will see that the narrowing in as we go along from quarter to quarter. Between US family, rest of the world markets, includes both the other regulated markets and the growth markets. Kiran: My question was different. So my question is simply was we should see some run rate increasing. Right? At least in the US markets to 80, eighty five. Growth markets, not growth market, I think the world markets to 40, 50, So I'm asking is that one rate that we're gonna see in FY '27? That eighty eighty five kind of run rate in US and forty five fifty in Warren next year? Badri: Yes. Because, see, I don't want to get into specifics on how you are thinking in terms of modeling. But all I can say is if I have to mirror the markets in two, three years, all of it, what you said is true. Kiran: Got it, sir. Got it. Second question, sir, in terms of nasal sprays, we said we'll launch one nasal spray. Most of our nasal sprays are going in so R&D is also going around majorly in nasal spray. Is there any particular therapy area, sir? Because some industry players do thousand crores molecule in a single product. Right, in nasal spray. So just wanted to understand if there's any therapy area that you can talk about. Badri: No. We are not going to specifically talk about any therapy play. All we are saying is that we filed one product, we are in the process of filing few more in the next twelve months. Once we get an approval and then we'll have to look at launch, at least it is about eighteen months to twenty-four months away from the current date. Operator: Okay. So please rejoin the queue for more questions. Thank you. Operator: Our next question comes from the line of Chirag Shah from White Pine Investment Management. Thank you. Please go ahead. Chirag Shah: Yeah. Thanks for this opportunity, and congrats for a good set of numbers. Sir, these questions. First question is on currency. So what is our average rate of duration when you will see the benefit of top INR depreciation in DNS, That's one. Second, on this intangible and or and that you have what if you can give more color on that in terms of number or what kind of opportunities size it will target if everything plays to the playbook? And third was on this on the on the US competition, you know, in general, a lot there's competition that we see. If you can just give us color, how should one look at it simply because we all have refreshed memory of competitive intensity what happened after COVID. Which lasted very long. But if you go back into the history, generally, it's is the competition or short term one to two quarter, event or and how is the generally tends to be? Vikesh Kumar: Yeah. Thanks, Chirag. On the currency, I did not follow your question. Chirag Shah: I will repeat it. I think we indicated minimal amount of heavy loss accounting hedge loss, when I say hedge loss, given the currency. So how what is the duration of our current budget? Outstanding And from when can we see the benefit of current current INR, for example? Vikesh Kumar: So we are seeing the benefit of the current INR rates. You should also appreciate that we have a large part of our operations outside of India. Where there are costs that are in USD. But, largely, the way we really focus on is that on a net basis, the currency impact benefit flows through. We see that load flowing through in terms of the P&L. The impact on the balance sheet comes in when the depreciation is far steeper than what it is during the course of the period where the currency benefits come, come with a lag over subsequent quarters. If the currency rate stays. So if the currency stay rate stays, that benefit should flow through the next few quarters. As far as the ANDAs or the products, the products are they are in line with our strategic profile in terms of how we look at products internally. We expect to launch them in the near to medium term. So those are very small tuck-ins that we really saw value in and took them over, but we cannot get into specifics of it. They will form part of our pipeline. And growth in the near term near term to medium term. As for the competition and the intensity, it is very specific to the new launches that we've had over the last twelve months. If you really see across the rest of the portfolio or the large part of the portfolio, we are not seeing any erosions. In fact, we continue to maintain our market leadership position both in terms of volumes, and which is where you also see that gross margins are steady. What the impact on these products meant is that what could have been a very solid growth that growth did not come through because of these impacts. Chirag Shah: Just a clarification. So first on HP, what I was referring to is whatever balance sheet law hedges losses that we have booked would be with to the outstanding product you would have taken for forward booking of revenue. Right? Potential revenue. Vikesh Kumar: We have not booked any balance sheet loss or hedges. I mean, that impact is not much. What I spoke about was the impact of restatement of foreign currency debt. Chirag Shah: Okay. Okay. Restate. What about restatements? Okay. I understand now. More of foreign currency debt. We don't have any significant outstanding hedges that are impacting. Chirag Shah: And just clarification on this competitive intensity, but generally in the past, if we exclude the post-COVID period intensity, how long does of you will be in a better position to make a guess than us understanding that it's a forward-looking statement. It may or may not hold to. I understand that. But how long it's in the law? How long it lasts? Forget about the intensity, but generally, because there are multiple if you can just hyper understand because we all think that when competition testing, it can last for two, three years and the price erosion could be very severe. Given the recent experience of post-COVID. Vikesh Kumar: Yeah. I mean, like we had said, our focus remains on profitable expansion. We continue to remain focused on that. We expect that through our EVD programs and cost improvement, cost improvement plans, we will be able to offset the mitigation. We'll be able to mitigate and offset these impacts. It is just that when an impact comes in, it comes immediate, whereas your improvement takes six to twelve months to get back those margins. So that is what we are focused on. That we need to recoup. It's a competitive market. We have to continuously work on our cost and keep improving our cost across line items. And retain our leadership positions. Operator: Thank you, sir. Ladies and gentlemen, due to the time constraint, that was the last question for today. I now hand the conference over to the management for the closing comments. Badri: Thank you, everyone, and wish you a very happy weekend. All we are saying is that we'll continue to focus on long-term sustainable business with EPS accretion. Operator: Thank you. On behalf of Stride, Inc., that concludes this conference. Thank you for joining us. You may now disconnect your lines.
Operator: Good afternoon, and welcome to the F5, Inc. First Quarter Fiscal 2026 Financial Results Conference Call. Also, today's conference is being recorded. And I'll now turn the conference over to Ms. Suzanne DuLong. Thank you, ma'am. You may begin. Suzanne DuLong: Hello, and welcome. I'm Suzanne DuLong, Vice President of Investor Relations. We are here to discuss our first quarter fiscal year 2026 financial results. François Locoh-Donou, F5's President and CEO, and Cooper Werner, F5's Executive Vice President and CFO, will be making prepared remarks on today's call. Other members of the F5 executive team are also here to answer questions during the Q&A session. Today's press release is available on our website at f5.com where an archived version of today's audio will be available through April 27, 2026. We will post the slide deck accompanying today's webcast to our IR site following this call. To access the replay of today's webcast by phone, dial (877) 660-6853 or (201) 612-7415 and use meeting ID 13757533. The telephonic replay will be available through midnight Pacific time, January 28, 2026. For additional information or follow-up questions, please reach out to me directly at s.Dulong@f5.com. Our discussion today will contain forward-looking statements, which include words such as believe, anticipate, expect, and target. These forward-looking statements involve uncertainties and risks that may cause our actual results to differ materially from those expressed or implied by these statements. We have summarized factors that may affect our results in the press release announcing our financial results and in detail in our SEC filings. In addition, we will reference non-GAAP metrics during today's discussion. Please see our full GAAP to non-GAAP reconciliation in today's press release and in the appendix of our earnings slide deck. Please note that F5 has no duty to update any information presented in this call. I will now turn the call over to François. François Locoh-Donou: Thank you, Suzanne, and hello, everyone. We are very pleased to report strong Q1 results with 7% revenue growth driven by 11% product revenue growth, our sixth consecutive quarter of double-digit product growth. This includes a robust 37% systems revenue growth in the quarter. Our growth continues to be fueled by durable demand drivers including hybrid multi-cloud adoption, scaling AI investment, and the demand for converged platforms. Our EMEA region delivered a particularly strong quarter. We are seeing momentum from emerging trends, which may prove durable. Regulations and mandates for resiliency and digital sovereignty are prompting customers to accelerate hybrid multi-cloud deployments, driving increased demand for F5 solutions. We are especially pleased with our Q1 results following the security incident at the start of the quarter. Our global sales and support teams mobilized rapidly, enabling customers to take action and get back to business quickly. They managed more than 9,000 additional support cases and earned positive customer feedback on our response efforts. As a result, we experienced minimal demand disruption in Q1. Unexpected positive outcomes emerged, including customers gaining a deeper understanding and appreciation of F5's critical role in their infrastructure, and opportunities to strengthen relationships, including deeper engagement with CSOs. We remain focused on protecting customers and earning their trust, recognizing the responsibilities that come with our critical role. We are hyper-focused on three areas: further investing in the security of our operations, including security automation, enhancing the security of our products and development environments, and supporting the broader security community by sharing our learnings and innovations such as introducing endpoint detection and response, or EDR capabilities to perimeter devices. As we look ahead, we see three forces reshaping customer infrastructure decisions, and they are all accelerating simultaneously. The first is hybrid multi-cloud. Workloads now span on-premises, private cloud, and multiple public clouds. Customers want flexibility without lock-in, and hybrid multi-cloud has become the dominant operating model as a result. The second is enterprise AI. Customers are shifting from general-purpose systems to AI-centric data centers. These environments require far higher levels of data movement and compute, and these new requirements are putting real pressure on networking, storage, and application delivery layers. Finally, organizations are replacing fragmented point products with converged platforms because complexity now directly impacts performance, uptime, and risk. Consolidation is no longer simply a cost exercise. It is how customers simplify operations and improve resilience. I will double-click on the first trend. Hybrid multi-cloud adoption has been driven by enterprises' need for flexibility, cost efficiency, vendor lock-in prevention, and data gravity. Today, drivers like regulations, including NIST 2, GDPR, and DORA, are accelerating hybrid multi-cloud adoption by imposing greater resilience and digital sovereignty requirements, especially outside the US. Organizations are also modernizing infrastructures to enhance security, performance, and efficiency. They are repatriating sensitive workloads to ensure compliance and deploying advanced ADC and API security solutions. These trends underscore why hybrid multi-cloud is the leading operating model. F5 is purpose-built to lead in this space. Our unmatched ability to provide delivery and security for every app, deployable anywhere and in any form factor, sets us apart. With a platform architected for hybrid multi-cloud, it is no surprise that customers are turning to F5 to secure and scale their environments. Let me share a few examples of some hybrid multi-cloud wins from Q1. F5 is powering the hybrid multi-cloud strategy for a regional banking leader. The customer needed more capacity, a modern application infrastructure for digital banking services, and AI-based application development. F5 is building an AI-ready infrastructure with enhanced security using BIG-IP for automated and simplified operations, NGINX for cloud-native performance, and distributed cloud services for bot defense and DDoS mitigation. Second, a media and Internet provider selected F5 to standardize application delivery across its on-premises and cloud environments. With F5, the customer uses the same ingress and security approach everywhere its applications and AI services run, ensuring predictable performance, security, and user experience. Teams can deploy or expand applications across environments without changing operational practices. This provides a reliable foundation for scaling AI and modern applications in a hybrid multi-cloud environment. Finally, a large operator of veterinary clinics is leveraging F5 to strengthen the resilience of its hybrid multi-cloud architecture. The customer needed to modernize their infrastructure and reduce risks tied to cloud concentration and vendor lock-in. F5 is delivering consistent networking and security functions and eliminating cloud-native dependencies. With F5, the customer is creating a durable foundation for future API and AI use cases. Now let us look more closely at AI. AI-related investment is scaling as enterprises prepare for increased network capacity and services to support AI workloads, generative AI, and inferencing demands. The resulting AI-related demand is fueling growth across our portfolio. AI is fundamentally transforming application behavior, and we are seeing three consistent patterns driving demand for F5 solutions. In AI data delivery, multimodal data growth is pushing terabit-scale ingestion. With idle GPUs costing real money, customers need sustained end-to-end high-throughput data pipelines across network, storage, and application delivery. BIG-IP solves the AI training and inference throughput bottlenecks traditional infrastructure cannot handle. In AI runtime security, customers are moving quickly on generative AI, but security and compliance often become bottlenecks to deployment and ROI. Generative systems raise the stakes by accessing and acting on sensitive data, driving demand for stronger runtime controls and guardrails. F5 safeguards AI applications, APIs, and models from abuse, data leaks, and attacks like prompt injection. We ensure visibility, control, and trust. With our Q4 acquisition of Calypso.ai, we enhanced our runtime security offerings with real-time threat defense, red teaming models, and robust guardrails. We are preventing prompt injections and ensuring models act as intended even under attack. In AI factory load balancing, as AI deployments scale, intelligent traffic distribution across models, clusters, and GPUs is critical, creating new demand for load balancing across and within the AI factory. F5 optimizes traffic and GPU utilization, increasing token throughput, reducing time to first token, and lowering per-token cost. These trends highlight a clear reality: AI is accelerating demand for application delivery and security, areas where F5 excels. In Q1, we added nearly as many AI customers as we did in all of FY '25. This growing demand is a testament to our layer seven expertise and decades of experience connecting applications and users, key differentiators in a rapidly evolving market. I will highlight a few of our AI wins from the quarter. In an AI data delivery use case, one of the largest global technology OEMs is expanding its BIG-IP infrastructure to support a new high-bandwidth AI data ingestion use case. The customer is repatriating large amounts of IoT data from the cloud to enable AI and analytics workloads. F5 is modernizing their S3 data delivery tier with BIG-IP for ultra-high performance. We are also accelerating their internal large language model development, powering large-scale data ingestion into AI storage and pipelines. In AI runtime security, a global financial services leader is leveraging F5 to integrate generative AI into its AI trust framework. F5 is ensuring security, regulatory compliance, and continuous access controls at scale. F5's AI guardrails with programmable risk-based controls reinforced with continuous F5 AI Red Team testing are enhancing trust, resilience, and regulatory readiness across every AI interaction. F5's approach seamlessly integrates with the customer's existing identity access management and governance systems and is providing advanced protection against emerging threats while delivering low-latency performance. And finally, in an AI factory load balancing win with a major energy and chemicals company, our team successfully leveraged a tech refresh into an expanded AI use case. The customer is shifting from public AI consumption to hosting private AI models and needed a solution to reduce latency and prevent timeouts. F5 is ensuring faster, more reliable AI responses, with hardware-level handling of layer four traffic and SSL processing, significantly improving time to first token. All of these examples highlight how customers are building their AI infrastructure with F5. Let's shift gears to the third trend: converged networking and security platforms. Growing hybrid multi-cloud complexity has customers desperate for ways to reduce cost and improve the performance of fragmented point solutions. F5's application delivery and security platform, or ADSP, is the first platform to unite high-performance traffic management with advanced application and API security across hybrid and multi-cloud environments. ADSP converges security, scalability, and operational efficiency. It enables customers to consolidate multiple point solutions in one unified platform, simplifying operations and reducing risk. ADSP also delivers valuable XSOPS capabilities for customers like policy management, analytics, and automation. Let me highlight a few Q1 wins that demonstrate how customers are adopting ADSP, converging solutions, and simplifying operations. In banking, a long-standing BIG-IP customer is modernizing its infrastructure, consolidating networking, application delivery, and security with F5. The customer is modernizing its digital banking applications and needed increased capacity and improved resilience to comply with central banking regulations. Today, the customer is leveraging a powerful combination of BIG-IP, NGINX, and distributed cloud services for traffic management, WAF, and DDoS protection. A global consumer products company standardized on a converged F5 platform to address governance and reliability concerns. By expanding its use of NGINX and refreshing its BIG-IP footprint, the customer consolidated application delivery and security controls, ensuring consistent performance. Finally, a foreign national law enforcement agency selected a converged F5 platform to support its national open data initiative. The customer's disparate infrastructures struggled with ransomware threats, high false positives, and limited scalability. F5's converged solution enabled the agency to consolidate load balancing, API protection, authentication, and threat mitigation. And these are just a few of the examples of customers leveraging F5's platform to consolidate vendors, simplify operations, and reduce risk. F5 is unmatched in delivering complete application delivery and security across hybrid multi-cloud environments. Our vision for a unified converged platform is fueled by our commitment to customer-focused innovation. And we are continuing to invest to create even greater value for our customers. In November, we launched F5 BIG-IP version 21.0, scaling the core for the most demanding AI workloads. This release delivers the significant control plane enhancements required to handle the scale and complexity of modern traffic. Crucially, we have applied this performance directly to AI data delivery, introducing native support for the model context protocol or MCP and S3. This ensures that BIG-IP is optimized for the high-throughput storage and retrieval workloads that are critical to AI architectures. We are also bringing our advanced API security to the data center. One of the primary challenges our customers face is the risk of shadow APIs, endpoints that are active but invisible within their private networks. We have now enabled our API discovery engines to run locally in customer environments. This means we can deliver the exact same discovery and security capabilities on-premises that our customers already rely on in F5 distributed cloud services. This allows customers to maintain a consistent API security posture in any environment. In summary, our first-quarter performance underscores F5's strong alignment with durable market demand drivers including hybrid multi-cloud adoption, the acceleration of AI, and the increasing need for converged platforms. We remain deeply committed to driving innovation and to delivering cutting-edge solutions that address our customers' rapidly evolving application delivery and security challenges. Now I will turn the call over to Cooper who will walk you through our Q1 results and our outlook. Cooper? Cooper Werner: Thank you, François, and hello, everyone. I will review our Q1 results before I update our outlook for FY '26 and provide our guidance for Q2. We delivered a strong Q1, growing revenue 7% to $822 million with a mix of 50% product revenue and 50% services revenue. Demand in the quarter came from continued hybrid multi-cloud adoption, fueled by customers' need for flexibility and their efforts to modernize architectures. AI regulations, the resulting need for greater resilience and data sovereignty are also emerging as hybrid multi-cloud accelerants. As François mentioned, we saw minimal demand impact from the security incident in Q1. Product revenue totaled $410 million, increasing 11% year over year, while services revenue of $412 million grew 4% year over year. Systems revenue totaled $218 million, up 37% over Q1 FY '25, driven by strong tech refresh and capacity expansion in connection with hybrid multi-cloud adoption and growing AI demand. Our software revenue of $192 million was down 8% year over year. This met our expectations given the exceptionally strong results in Q1 '25, including the sizable 8-figure renewal we discussed last year. Subscription-based software revenue totaled $164 million, up 1% year on year. Perpetual licensed software totaled $27 million, down year over year against exceptionally strong results from Q1 '25. Revenue from recurring sources contributed 69% of our Q1 revenue. Our recurring revenue consists of our subscription-based revenue and the maintenance portion of our services revenue. Shifting to revenue distribution by region, revenue from The Americas grew 2% year over year, representing 53% of total revenue. As François highlighted, EMEA delivered exceptional 24% growth, representing 31% of revenue. And APAC declined 1% and represented 16% of revenue. Looking at our major verticals, enterprise customers represented 64% of Q1's product bookings. Government customers represented a strong 23% of product bookings, including 8% from 13% of Q1 product bookings. Our continued financial discipline contributed to our strong Q1 operating results. GAAP gross margin was 81.5%. Non-GAAP gross margin was 83.8%. Our GAAP operating expenses were $456 million. Our non-GAAP operating expenses were $375 million. Our GAAP operating margin was 26%. Our non-GAAP operating margin was 38.2%, an improvement of 80 basis points year over year. Our GAAP effective tax rate for the quarter was 19.2%. Our non-GAAP effective tax rate was 19.8%. Our GAAP net income for the quarter was $180 million or $3.1 per share. Our non-GAAP net income was $259 million or $4.45 per share, reflecting 16% EPS growth from the year-ago period. I will now turn to cash flow and balance sheet metrics. We generated $159 million in cash flow from operations in Q1. CapEx was $10 million. DSO for the quarter was fifty-four days. Cash and investments totaled approximately $1.22 billion at quarter-end. Deferred revenue was $2.1 billion, up 6% from the year-ago period. In Q1, we repurchased $300 million worth of F5 shares at an average price of $249 per share. We ended the quarter with approximately 6,400 employees. I will now speak to our fiscal year 2026 outlook. With strong close rates in Q1 and solid pipeline creation, we are raising our FY '26 outlook. We now expect FY 2026 revenue growth of between 5% to 6%, up from our prior outlook of 0% to 4%. For the year, we now expect mid-single-digit software revenue growth, double-digit systems revenue growth, and low single-digit services revenue growth. We estimate FY 2026 gross margin in a range of 82.5% to 83.5%. This reflects a modest reduction to our prior range, accounting for an anticipated impact to product COGS in the second half related to rising memory costs. We estimate FY '26 non-GAAP operating margin to be in a range of 34% to 35%, up from our prior range of 33.5% to 34.5%. We continue to expect our FY 2026 non-GAAP effective tax rate will be in a range of 21% to 22%. We expect FY 2026 non-GAAP EPS in a range of $15.65 to $16.05, up from the prior range of $14.50 to $15.50. Finally, we continue to expect our full-year share repurchase to be at least 50% of our free cash flow. Given the $300 million repurchased in Q1, we anticipate repurchase activity will be lower in the remaining quarters of FY 2026. Turning to our Q2 outlook. We expect Q2 revenue in a range of $770 million to $790 million, reflecting approximately 7% growth at the midpoint. We expect non-GAAP gross margin in the range of 82.5% to 83%. We estimate Q2 non-GAAP operating expenses of $390 million to $408 million. As a reminder, our operating margins are typically lowest in fiscal Q2, due to January payroll tax resets and expenses from our large customer event in March. We expect Q2 share-based compensation expense of approximately $70 million to $72 million. We anticipate Q2 non-GAAP EPS in a range of $3.34 to $3.46 per share. I will now pass the call back to François. François Locoh-Donou: Thank you, Cooper. In closing, I will say that F5's mission to help each other thrive and build a better digital world has never been more vital or more relevant. As we look ahead, we see our strengths aligning with the most significant secular trends reshaping the enterprise: hybrid multi-cloud adoption, the AI revolution, and the growing demand for converged platforms. We expect these trends will provide tailwinds for continued growth in fiscal year 2026 and beyond. Operator, please open the call to questions. Operator: Thank you. We will now be conducting a question and answer session. We ask that you please press 1 on your telephone keypad if you would like to ask a question. You may press 2 if you'd like to remove your question from the queue. The first question comes from the line of Matt Hedberg with RBC. Please proceed with your question. Matt Hedberg: Great, guys. Thanks for taking my question. Congrats really on the results. Really good to see, especially following the security incident last year. François, you spent a lot of time talking about some of the drivers, and I thought it was super helpful. The one that continues to pique my interest is AI. And, you know, we're basically three years after the release of ChatGPT. And, you know, it seems like non-AI native enterprise customers are accelerating their AI adoption. And I guess based on the results, I'd assume that customer cohort is becoming now more AI leaning. Wonder if you could talk a little bit more about this trend. And I guess, like how durable could that be? Because it feels like we could be very early in that cycle. François Locoh-Donou: Thank you, Matt. I'll start with where you left off, which is we absolutely are very early in the cycle. But let's talk a little bit about how we've seen AI develop over the last couple of years. As you started, of course, we've seen a lot of investment from hyperscalers in CapEx and building out AI infrastructure. We've then seen enterprise, especially either AI-native enterprises or large enterprises that were very forward-leaning in AI, start by investing in training and starting to build models and train those models. But now we're entering a different phase of the cycle where these AI-leaning enterprises are now shifting from training to moving AI applications into production. So you're seeing a shift from training to inference. And with that comes new requirements. Specifically, as enterprises move to production, their data pipelines need to be hardened. They need to be able to connect their data stores to their AI models, and they need to be able to do that at speed, at scale, with very low latency. That requires significant performance from their topic management solutions. It requires low latency, high scale, high throughput, high performance, and that is perfect for F5. That's kind of the first requirement. And then the second requirement as they move into production is security, specifically runtime security. It becomes really, really important. And so this quarter, what we saw was a little bit of an inflection around enterprise adoption and AI. We won as many new customers in AI just in the last ninety days as we had for all of FY '25. And interestingly, the mix in FY '25 was very oriented towards data delivery, basically high-performance load balancing for these data pipelines. But this quarter, the mix was almost balanced between data delivery and security, and we saw a lot more requirements for security. As we project forward, I think the trend is durable because the enterprises that are doing that today are kind of the largest enterprises that are very forward-leaning in AI. But we will see, I think we'll see a lot more enterprises adopt AI in the future. And the early enterprises are doing so right now. Will also scale in production pretty significantly. An example I'll give you of that is we signed a multimillion-dollar deal with a global technology OEM this quarter. Who have repatriated part of their data from the cloud because they're collecting more data from their customers. They know their data is more valuable. They're having a lot more telemetry from customers, from their products, and they're putting all this data in large data lakes on-prem. But they then need to leverage their data in their AI applications. And connecting their data to their AI applications requires significant enhancements to their infrastructure, and that is just gonna scale more and more in the future. So we think the trend is durable, both in terms of data delivery and in security. And then the last thing I'll say about security is that a lot of the security that we've seen so far when I talked about runtime security was really almost traditional security applied to AI applications. We are now in the early days of seeing AI models also go into production. They are specific threats for AI models that we now address with our AI guardrails, and we had a very strong start to our AI guardrail solution this quarter. Really with strong adoption from some of the largest enterprises in sectors like financial services or technology or even management consulting, for these AI guardrail solutions. So we're pretty excited about the quality of customers that we are seeing in the early stage of this, and we think the trend is only going to grow from here. Matt Hedberg: Congrats. François Locoh-Donou: Thank you, Matt. Operator: And the next question comes from the line of Tim Long with Barclays. Please proceed with your question. Tim Long: Thank you. Maybe if I could do one software, one on hardware. Just on the software side, I get that tough year over year, comparison in the December, but the sequential know, looks like it was a little worse than normal. So, you know, how do we think about that in the quarter and how we can get to mid-single digits get that business accelerating? And then just on the hardware side, I'm just hoping you could break down your views a little bit, but it continues to perform very well. Market share versus market growth, it seems like we're starting to see hardware that you're selling or systems that you're selling in maybe new use cases. So maybe the market growth is dynamic is changing. Just love, opinions on both of those. Thank you. Cooper Werner: Yeah, Tim. So this is Cooper. I'll speak to the software performance. So you're right. We did have a pretty strong compare from the Q1 period of a year ago. We had the large 8-figure renewal that we had referenced. We also had a pretty strong quarter with our perpetual software business that was tied to a couple of specific deals in the service provider space. So there's a little bit of an anomalous growth quarter a year ago. But our performance in the quarter in '26 was right in line. It was actually slightly ahead of our expectations. And I think as we look ahead, we're pleased both in terms of the execution that we saw in Q1 and that there was no demand disruption related to new software projects. So things move forward in a pretty orderly fashion. But also as we look ahead to the renewal cohort for the rest of the year, which is pretty strong, the utilization rates that we're seeing with customers are very healthy, and we see that as a good indicator that we should have a strong finish for the remainder of the year. And so that gives us confidence that we'll be able to grow the business in the mid-single-digit range. François Locoh-Donou: And, Tim, let's talk about the hardware. Although the trends we're seeing really apply to both hardware and software. But if you step back really, the thing that has changed in the market is that hybrid multi-cloud deployments hybrid multi-cloud architectures for enterprises are now the new normal. And we've seen that shift happen over the last two, three years, but it is accelerating now. Now over the last three years, hybrid multi-cloud architectures have been driven by, first of all, enterprises wanting to have the flexibility to deploy apps in any environment, cost optimization, control, those have been the drivers of hybrid multi-cloud deployments. And we have been ideally positioned for hybrid multi-cloud because of the unique flexibility we provide with hardware, software, and SaaS. We're absolutely unique in the world of delivery and security. In being able to do all of that. Now we are seeing now, and these have accelerated really over the last three to six months, we're seeing two new catalysts that are accelerating that and driving demand ultimately for both hardware and software. But in the near term, we're still in very strong demand for hardware. These two new catalysts are, number one, regulation. Especially outside of The US there is regulation that has come into force or will come into force that is forcing companies to adopt a stronger stance on resilience and a stronger stance on digital sovereignty. It means that companies need, for example, to be able to fail over from one cloud back to on-premise and to have true hybrid resilience in their environment. It means, for example, that they need to have consistent security controls across all of their infrastructure environments. Regulations like NIST 2, DORA, cyber resilience regulations that have come into force in '25 and all the way through '27 will come into force. Are really causing reinvestment in data center and stronger resilience between data center and the cloud and we are perfectly positioned to benefit for that. And we're seeing those tailwinds in the business. This is one of the reasons that we had a very strong quarter in Europe this quarter. And then the second new catalyst driving also strong hardware demand is enterprise adoption of AI is accelerating. I shared that earlier, but AI is hyper hybrid. And it accelerates hybrid multi-cloud architectures. And we are seeing that contribute meaningfully to the hardware demand that we saw this quarter. Tim Long: Okay. Thank you, and I hope those sirens are current for you guys. François Locoh-Donou: No. We're fine, Tim. Thank you. Operator: And the next question comes from the line of Samik Chatterjee with JPMorgan. Please proceed with your question. Samik Chatterjee: Hi. Thanks for taking my question. François, maybe if I can start off with similarly on the hardware side and the upgrade cycle you're seeing from your customers as well as the incremental use cases? But there is the sort of end of software support, I believe, in early 2027. How much of the momentum that you're seeing on the hardware is you would tie to sort of the Viprion and the I Series, which are going through the upgrades versus maybe on the rest of the portfolio? And has the security incident led to any sort of BIG-IP coming in for those upgrades? And I have a quick follow-up after that. Thank you. François Locoh-Donou: I think, Samik, clearly, we are in addition to the trends I've just talked about, which are macro trends, there is a trend that is specific to F5 at the moment, which is that we are in the middle of a refresh cycle. You mentioned the dates. Looking to refresh their infrastructure. That said, what we are seeing is this refresh cycle is obviously stronger than past refresh cycles because what we are seeing is not just refresh, but a lot of expansion for customers. And from all the conversations we're having with customers and the data points we're seeing, we think the refresh is stronger and has a lot of expansion because customers are also getting their infrastructure ready for AI, the deployments of AI infrastructure and getting their capacity ready for AI. We think that's a substantial driver. The others I've just talked about, hybrid multi-cloud also accelerating this refresh cycle. Cooper Werner: Yeah. And Samik, I would add we're continuing to see strength on not just from the refresh motion that has a lot of expansion also outside of the refresh motion. We're seeing continued capacity expansion with existing customers. We're seeing we think, some readiness for AI workloads. Then, of course, some of the data sovereignty and regulation drivers that François mentioned earlier. Samik Chatterjee: Got it. Got it. And for my follow-up, I imagine this will be a question for everyone this season, earning season is, sort of you did highlight the increasing memory costs and sort of what you're budgeting for it. But maybe if you can outline sort of how are you managing it through your supply chain and to are there any sort of concerns around capacity or sort of supply constraints as well that you're baking your guide, just outside of price? Is there a supply constraint to be thought of as well? Thank you. François Locoh-Donou: Talik, this is an important topic of discussion. And as you know, memory prices have gone up substantially and there are worries about supply in the industry. Now you know we went through that in 2022. Effectively with the same management team as we have today. So we did learn from what we saw in the supply chain crisis of 2022. We took a lot of actions early as it relates to memory. We raised our forecast and volume request with our suppliers several months ago. We give our suppliers extended visibility to our needs. We qualified additional suppliers to have more diversity, which started executing on broker buys. So we did early a lot of the elements of the playbook that we have to do in 2022. And I think because of all these actions that we have taken, in terms of supply, I think we feel very confident about where we are in the near term. Of course, as you go further into the future, there is some risk around supply for us as for anybody else in the ecosystem. And we are all aware of it and trying to take as many actions as possible to prevent having some shortage of components. Today, with the group of suppliers that we've put in place, we have not seen decommits from these suppliers, but we have seen, of course, substantial price increases. And so we're monitoring that very, very closely to ensure that we can continue to have the right supply, not just in the near term, but also beyond the next couple of quarters. Samik Chatterjee: Got it. Got it. Great. Thank you. Thanks for taking my questions. Operator: And the next question comes from the line of George Notter with Wolfe Research. Please proceed with your question. George Notter: Hi, guys. Thanks very much. I just wanted to kind of button up the whole discussion of the security breach. I'm just curious about, you know, have you seen any evidence of your customers in turn getting breached since you first discovered the situation? I'm wondering if you know, you guys are continuing to provide patches to your BIG-IP software code. You know, I'm wondering if there was any disruptions in the field and sales organizations that kind of inhibited you from selling how long did that whole distraction last? And, you know, any impact you can kind of tie to the December results? Thanks. François Locoh-Donou: Thank you, George. No. We have not seen any evidence of customers being breached as a result of our security incident. And, of course, I should caveat and say we are not aware of any customers having reported any such incident to us. And I would say, generally, you know, we feel that our response, our collective response, both our customers, our partners, and F5, our collective response to the security incident has been very successful. If I go back in time, back to where we were in October, you know, we had to mobilize very rapidly. We mobilized our development teams to ensure that we had the right releases for our customers immediately upon disclosure so they could take actions and protect themselves. We mobilized our support teams to be ready to take thousands and thousands of support calls which did happen, but we were able to take all these calls with minimum wait times and attend to customers very quickly so they could perform upgrades in record time. And we mobilized our sales teams to engage and support customers quickly. Our customers were both extraordinarily patient with us and empathetic, but also acted with a sense of urgency around the actions they needed to take to protect themselves. And as a result of this, the partnership and the work with our customers, the disruption was actually kept to a minimum. We of course had disruption because customers had to mobilize their resources to do their upgrades, and we were extraordinarily thankful for that. But we also saw minimal disruption in demand for F5. In terms of where we are on patches, we provided, of course, significant patches to a number of versions of software around October 15, and made those available to all of our customers. A lot of our customers upgraded really quickly. That has the benefit that today, you know, if I spoke to where we were at this time a year ago, we had about 15% of our customers on our latest release. As I speak to you today, we have over 50% of our customers that are on our latest software release, and that is kind of a testament to the speed with which our customers acted but we're also really happy with where the estate is at. We're going to remain, of course, vigilant with all of this. We have made significant enhancements to our security posture and we are continuing to make enhancements to our overall security environment, our development environment, our product environment. So, you know, we will consider this an evergreen journey, but so far, we are very pleased with the response from our customers and the way that they have continued to, of course, invest in F5. And frankly, we're taking this as an opportunity not just to maintain the trust that our customers have in us, but to strengthen that trust they have in us. And we've had the opportunity to engage with dozens and dozens of CSOs over the last several months. I have personally spoken to dozens and dozens of our customers. In every single one of these conversations, they have expressed their appreciation for F5's response and I'm immensely proud of the way that all F5ers have rallied together with our partners and our customers on this incident. George Notter: That's great. Just as a quick follow-up, any financial impacts, you know, revenue that you lost or costs that you incurred incrementally that you can point to in the December results? Thanks a lot. Cooper Werner: Yeah. No. We really didn't see any noticeable impact. You know, we talked about as we went into the call in October that we hadn't yet seen any change in terms of some of the sales metrics that we track around pipeline and close rates, but it was a very short period of time as we reported it. I think that something we're really happy with was just with the response that we have with customers, they were able to move pretty quickly through their remediation activities. And as a result, they were able to get back to business in a short period of time. And so that trend really held through all the way through the quarter in terms of a normal velocity around pipeline generation, you know, predictable close rates. And so it just it was kind of a very healthy execution throughout the quarter. And importantly, also a strong pipeline build as we head into Q2. Suzanne DuLong: Thank you. Operator: And the next question comes from the line of Simon Leopold with Raymond James. Simon Leopold: Thanks for taking the question. I've got two pretty straightforward, I hope. First one is regarding the progress in AI. You've given metrics around customer numbers. I'm wondering if we could frame it in terms of revenue. In other words, what rough percentage of revenue is coming from AI projects today? And then what do you expect full year longer term as a portion of mix? You've had success raising product prices. Passing through the higher costs. I'm wondering if you could maybe help us bridge what portion of your systems revenue growth could you attribute to your price hikes? Thank you. François Locoh-Donou: Simon, I'll start with, I think, the first part, and Cooper will take the second part. Look. We have not, of course, broken out AI revenue in part because we feel it's too early. We wanna see more quarters behind us on AI. We have shared, I think, in the past that AI if we isolate our answer here to use cases that we know are AI. And I say that because there's part of our business that may well be related to AI, but it's not visible to us. And so if we isolate this for use cases that we know are a direct AI use case, we said that, you know, last year, it was kind of single-digit millions of dollars every quarter. You know, this quarter, it was above that. It was, you know, half yearly in the double-digit millions of dollars quarter, but we're not, you know, prepared to go beyond that and qualify that. And in terms of the future, you know, our view when we look at the trends over the last few quarters, our view is that it is likely to grow. Because, you know, we're seeing more use cases emerge, not just data delivery, which is an important and growing use case, security is also going to be a growing use case. We think that runtime security in AI is going to be a multibillion-dollar market. We're just scratching the surface of the very early innings of this market. So clearly, there's a lot of growth potential. But we're going to take it one quarter at a time. Cooper Werner: Yeah. And then in terms of the pricing increases, and the impact on revenue, so that where we see the biggest impact is in the systems business. Because those are applied to, you know, they're effectively all net new sales. And so we had a price increase that we introduced last January, so January 2025. And so we're still realizing the benefit of that. That was a roughly mid-single-digit price increase. You know, we had that factored into our outlook for the year. And so we'll continue to look to monetize. On the software side, a little bit more of a muted impact because a lot of our software sales are sold in multiyear agreements. And so it takes time for some of the pricing increases to matriculate through that business, but we are seeing a healthy pickup from the pricing on the software side as well. Suzanne DuLong: Thank you. Operator: And the next question comes from the line of Michael Ng with Goldman Sachs. Please proceed with your question. Michael Ng: Hi, good afternoon. I just have two. First, just on the systems revenue outlook, it's very encouraging to hear about the double-digit revenue growth for the full year. I think the guidance implies around like mid-teens system revenue growth for the full year. And if that's right, could you just maybe talk a little bit about the revenue shape throughout the rest of the year? Is there anything that you would call out that might drive a deceleration relative to the obviously very strong growth that we saw in the December? And then second, I wanted to ask about the EPS upgrade. You beat the midpoint in the December by 85¢. The full year was raised by 85¢. You know, just given what sounds like a very constructive outlook for the top line for the rest of the year, is there anything that you would call out in terms of like incremental costs that would prevent, you know, more of the top line upside flowing down to the bottom line for the full year? Thank you very much. Cooper Werner: Yes. So I'll handle both. So on the revenue guide, I think you can see if you take the midpoint of the guidance for the full year, it implies kind of a 4% to 5% growth in the second half and a little bit higher it's around 7% for the first half. So to your point, it does reflect a little bit of a deceleration. I don't think there's anything that we're seeing today that where we have visibility that there will be a deceleration. It's really just that it's early in the year. And so we've seen tremendous strength in the first quarter. We have a good pipeline in the second quarter, and I think what you're seeing is us take a little bit of a measured approach to how we look in the out quarters for the year, but nothing specific that suggests that the business should slow down. And so then to the EPS question, the two things I would point to is we have the gross margin. We took the guidance down a little bit tied to the pricing increases. So that has a little bit of an effect on the operating margin guide. And then just based on the strength that we're seeing in some of these trends, these that we think are pretty sustainable beyond FY '26, we're making some targeted investments that we think can really help drive a better growth outlook in FY '27 and beyond. So we're looking at sales capacity, you know, where we see additional opportunity that we wanna get in front of with some early investments. We're making some investments in the road map, you know, things. And we talked about XOps. So capabilities that we can bring to customers around analytics and telemetry that we think ultimately will drive a higher rate of adoption across the portfolio. And then some just some other features on our road map. So we think it's an opportune time for us to really invest in future growth just given the increased outlook we've got for this current year. Michael Ng: Great. Thanks, Cooper. That's very clear. Appreciate the response. Operator: Great. Thank you, Michael. And the next question comes from the line of Ryan Koontz with Needham and Company. Please proceed with your question. Ryan Koontz: Great. Thanks for the question, and congrats on a great quarter here. When you asked about the strength in EMEA, you mentioned sovereignty. I wonder if you could just double click on that a bit and expand on, you know, how long that dialogue's been going on. Is this relatively new phenomenon you didn't see happening so quickly? Or and if there was any contribution of, you know, deferred upgrades or expansions from customers that may have pushed them off while they were going through the kind of the recovery from the breach. Thank you. François Locoh-Donou: Thank you, Ryan. Well, there's an element of both. So the dialogue around, you know, sort of hybrid multi-cloud deployment in Europe driven by the need for digital sovereignty, the need for more resilience, has been going on for several quarters, but we did see an acceleration this quarter. If I go back to why that is, I think, first of all, these regulations have come into force or will come into force already in 2025. And organizations that are not compliant are moving quickly to be compliant before they face some penalties. In some cases, I would say in the majority of cases, we're seeing that translate into new projects. Customers that need both some hardware and some software or software as a service to be able to deliver consistent security or consistent delivery across all their infrastructure environments. And there are some cases where we saw customers that perhaps should have refreshed their equipment several moons ago, did not do so, and were not in compliance, and in the face of coming enforcement decided to refresh quickly and upgrade their equipment. And we're seeing that come to us by way of extra hardware demand. So we're seeing both, but it is a durable trend because there is for two reasons. One is there is more regulation coming. You know, NIST 2 and DORA are already in place, so there's a cyber resilience act that is coming. I think the enforcement date for that will be in 2027. And the regulations vary by countries. So I think we're gonna see that deploy across multiple countries. And then the other phenomenon is there are a number of large enterprises that have expressed to us that because they don't know yet how new regulations will be applied, it's very difficult for them to forecast where they should have their data or where they should have their workloads to be in compliance with this regulation. And in the face of that uncertainty, a partner like F5 is ideal because we give them the flexibility to deploy their licenses of F5 in any environment they want today or in the future. And also to deploy it with whatever form factor they may want today or in the future, whether it's hardware, software, or software as a service. And so we are at this time for that uncertainty and for matters of digital sovereignty this perfect company that has the perfect flexibility, the perfect number of models, and the perfect scalability for what these large enterprises are facing. And I think that is going to continue for some time. Ryan Koontz: Super helpful, François. Thank you. Operator: And the next question comes from the line of Tal Liani with Bank of America. Please proceed with your question. Tomer Zilberman: Hey, guys. It's Tomer Zilberman on for Tal. Maybe going back to one of your earlier answers, you talked about second half implied deceleration to around 4% to 5% growth. How do you balance that between the fact that as we approach next quarter and really the next three quarters, you're starting to lap much more difficult comparisons within systems as I think 180 to 190 million kind of quarterly run rate. Versus, you know, maybe some of your large enterprises refreshing well ahead of that 2027 end of service? Cooper Werner: Yeah. So just a couple of factors. So it isn't anything to do with the cadence of the refresh. So we're still relatively early in that opportunity. We have not seen any kind of an acceleration in terms of, you know, decommissioning on the legacy base. So I think it's been orderly. The strength in the refresh has really been around the expansion, and that's tied to the dynamics that François has been outlining that customers are facing today. So I don't think that we expect that to really slow down in the second half of the year. It again, it's just more about where we're sitting in the cycle. It's, you know, a new calendar year. So budgets are still getting cemented with customers. There are some fluid dynamics in just in the macro, and so I think we're just being a little bit pragmatic with how we approach the second half. But the underlying pipeline trends that we're seeing and the momentum in the business is very strong as we entered the quarter, and that's reflected in the Q2 guide. So it's more to do with just, you know, where we sit in the calendar as we're kind of looking ahead on our guidance. Tomer Zilberman: Got it. And maybe just as one quick follow-up on the software side, do you see the renewal cohort equally balanced throughout the remainder of the year, or do you think that's more clustered around the second half? Cooper Werner: No. It's more balanced than it has been in prior years. We actually expect to have a pretty strong growth quarter in Q2 and then healthy growth in the second half of the year. Tomer Zilberman: Got it. Thanks. Operator: And the next question comes from the line of Meta Marshall with Morgan Stanley. Meta Marshall: Great. Thanks. A couple of quick ones for me. François, you mentioned kind of a lot of strength around these hybrid implementations. Just wondering have there been any trends that have developed between kind of virtual ADCs versus product or hardware versus the last time you kind of went through one of these cycles? And then second question, you know, maybe building on Ryan's question, the government business or public sector business was probably the highest concentration it's been in three plus years. Just wondering, you know, was there any kind of strength within Europe on the public sector side that was concentrated? François Locoh-Donou: Thank you, Meta. I'll actually handle both, and I'll start with the last question. Government sector was very strong. That was driven by North America. In fact. And, you know, it may come as a surprise because we had, I think, the longest government shutdown in history in the quarter, over forty days of shutdown. And, of course, we had, you know, at entering the quarter, we had the expectation of some disruption with the security incident. But we had a very strong quarter with the Fed here in the US. Frankly, I'm very proud of the execution of our federal team here who, you know, put their shoulders behind the wheel. And despite not having as much time to interact with customers because of the shutdown, we're able to engage in the right conversations and get really interesting projects started. Interestingly, the strength in government came from new use cases. Specifically on modern applications. And also, we started to see our first AI use cases in government. So we feel very good about what we saw in the Fed this quarter and our ability to execute, despite the shutdown. And, you know, the continued trust that we have from our customers there. In terms of your question around have we seen a different dynamic between software and hardware in these hybrid multi-cloud architectures, I would say that, you know, part of what's really appealing for customers of F5 is the ability we give them to choose between hardware and software and to implement their software licenses across any environment. Over the last, I think you will continue to see a trend towards more customers wanting to move to software because ultimately it gives them more flexibility. And especially flexibility against the uncertainty that I talked about. But over the last couple of quarters, we have seen very strong demand for hardware. So I would say at the moment, the dynamic is we're seeing more customers wanting to spend in hardware in part because of some of the use cases in AI data delivery where they really need the performance of hardware for high throughput. In part because of some of the security use cases. So we're seeing that strong demand in hardware. I think, you know, over time, you will continue to see our software grow, and we feel pretty confident about our software growth for the long term. I would add that one element that is going to fuel all of this, and we really started to see the quarter is in the past, our customers, if they were purchasing, you know, hardware or software from F5 versus software as a service. Those were two completely different experiences. And we have talked about building our application delivery and security platform. And some of that innovation is now making its way into production for our customers and it's fueling their desire to have converged platforms. They all want to have simpler operating environments, and a number of the wins that we had this quarter were customers consolidating spend on F5 because they had multiple point security products or point delivery products. And they went to F5 because we were a single vendor that could deliver across all of their environments and replace multiple of their point vendors. And then on top of that, we're starting to give them a single experience from a single console. Cooper mentioned some of the XSOPS innovation that we are investing in. That gives them the ability to deploy policies from a single console across multiple environments. This quarter, we took the API discovery capabilities that were in F5 distributed cloud and we're making them available on BIG-IP. So we're bringing that API discovery capability to the data center on-premise. That is a massive issue for customers. No one addresses that properly today. And so the consistency that we're bringing around these security and delivery capabilities across hardware, software, across on-premise and cloud, is unique and that convergence, I think it's gonna continue to fuel our growth into the hybrid multi-cloud environment. Cooper Werner: And then, Meta, I also wanted to add on the government question. So the US Fed was absolutely the headline around the strength that we're seeing, but that said, we also saw fairly strong results in EMEA as well. With a number of government agencies, particularly around the same data sovereignty concerns. You can imagine those are top of mind for government entities, and so that drove a lot of strength in EMEA in addition to the strength we were seeing in the Fed. Meta Marshall: Perfect. Alright. Great. Thanks so much, guys. Operator: And our final question comes from the line of James Fish with Piper Sandler. Please proceed with your question. James Fish: Hey, guys. Thanks for squeezing me in here. Just circling back on product refresh. Kind of capacity plus expansion are you seeing typically in I get it. It's hard to tell exactly what your AI exposure to Simon's earlier question, but how are you able to tell that these are capacity plus increases related to sort of traditional general environment versus sort of AI modernization? Cooper Werner: Yeah. So one thing that we're seeing is a lot of customers have higher security needs, which is driving a performance. So we've been seeing this for the last couple of quarters, and this trend is continuing where customers are refreshing very often higher up in the portfolio so we're seeing a higher ASP at that time of refresh and then also additional capacities in terms of more units. So it's I'd say it's a combination of kind of getting in front of some of the performance needs for security as well as getting in front of the kind of downstream performances they're anticipating related to AI workloads. And so the customers are just being a little bit more front and center in terms of their planning than we had seen in prior cycles. James Fish: Yeah. Thanks, guys. Suzanne DuLong: Thank you. Thank you. Operator: Ladies and gentlemen, that does conclude our question and answer session. I would like to turn the floor back over to Suzanne DuLong for any closing comments. Suzanne DuLong: Thank you, everyone, for joining us today. We look forward to seeing many of you out and about during the quarter. Operator: Ladies and gentlemen, thank you for your participation. That does conclude today's teleconference. Please disconnect your lines and have a wonderful day.
Operator: Good day, and welcome to the Qorvo, Inc. Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to Douglas DeLieto, Vice President of Investor Relations. Please go ahead. Thanks very much. Douglas DeLieto: Hello, everyone, and welcome to Qorvo's fiscal 2026 third quarter earnings call. This call will include forward-looking statements that involve risk factors that could cause our actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in the earnings release published today as well as the risk factors associated with our business and our annual report on Form 10-Ks filed with the SEC because these risk factors may affect our operations and financial results. In today's release and on today's call, we provide both GAAP and non-GAAP financial results. We provide this supplemental information to enable investors to perform additional comparisons of operating results to analyze financial performance without the impact of certain non-cash expenses or other items that may obscure trends in our underlying performance. During our call, our comments and comparisons to income statement items will be based primarily on non-GAAP results. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our Investor Relations website at ir.qorvo.com under financial releases. Lastly, for detailed information regarding the Skyworks and Qorvo combination announced on October 28, I encourage you to review the press release, investor presentation, Qorvo merger proxy, and related materials available on our investor relations website at ir.qorvo.com under events and presentations. Today's call will focus on our fiscal third quarter results as well as our outlook for March. We will not be commenting on the proposed business combination. Joining us today are Bob Bruggeworth, President and CEO, Grant Brown, CFO, Dave Fullwood, Senior Vice President of Sales and Marketing, and other members of Qorvo's management team. And with that, I'll turn the call over to Bob. Robert Bruggeworth: Thanks, Doug, and welcome everyone to our call. In our fiscal third quarter, Qorvo delivered solid financial performance with notable strategic achievements across each operating segment. We continue to pursue our long-term growth strategy while executing on restructuring actions to optimize profitability and reduce capital intensity. In ACG, we are supporting the world's leading smartphone OEMs with best-in-class products for their highest value flagship and premium tier devices. In CSG, we enjoy broad representation in Wi-Fi applications and we are expanding our reach in automotive, enterprise, industrial, and other customer segments with our ultra-wideband technology. In HPA, we are growing across a range of customer applications such as defense and aerospace, satellite communications, power, and infrastructure. Within our factory network, we closed our Costa Rica facility in December a few months ahead of schedule and have transitioned to external partners. The transfer of SAW filter production to Greensboro, North Carolina, and Richardson, Texas remains on track. With these actions, we will be able to operate more efficiently with reduced capital intensity and we will continue to differentiate our products with onshore manufacturing of GaAs, GaN, BAW, SAW, and advanced multichip modules. Turning to quarterly highlights. In ACG, December quarterly revenue declined sequentially in line with the view we provided last quarter consistent with typical seasonality. At our largest customer, content gains on their ramping platform helped to support double-digit revenue growth compared to last December. We supply a diverse portfolio of high-performance discretes, tuners, ET PMICs, and integrated modules to our largest customer. Not all of which have been awarded on the upcoming platforms. However, at this time for the upcoming fiscal year, we expect revenue from our largest customer to be approximately flat. For our ET PMICs, increasing internal modem adoption provides a multi-year structural tailwind as platforms transition away from third-party modems. With regard to integrated modules, on the ultra-high band pad, we received lower share in the upcoming phone models than last year and we expect our ultra-high band pad revenue to decline year over year. As a placement, we have demonstrated success across multiple generations. We remain confident in our highly differentiated technology and our ability to compete effectively over subsequent generations. In our largest customers' cellular-enabled iPads, we were awarded the high band pad. Representing a product and technology milestone and new content for Qorvo on that platform. We are extremely pleased to have secured this placement. The win gives us the opportunity to demonstrate capability and execute at scale on that platform consistent with our long-term investment strategy. Turning to Android. We remain a leading supplier in premium and flagship smartphones while we continue to reduce our exposure to low-margin mass-tier smartphones. In December, total Android revenue declined sequentially in the low double digits. In March, we expect a greater than seasonal decline in Android revenue. For fiscal 2027, we expect Android revenue to decline by approximately $300 million versus fiscal 2026, driven primarily by our actions to reduce exposure to lower-margin segments and secondarily by the impact of memory pricing and availability on mass-tier Android build plans. Qorvo enjoys broad participation across smartphone OEMs and we are not seeing signs of memory pricing, or memory availability impacting the flagship and premium tiers. Our largest customer is expected to be approximately flat, ACG revenue is expected to decline in fiscal 2027 by the reduction in Android revenue. This is an intentional resizing of our Android business. We are reducing exposure to lower-margin segments while continuing to serve Android's high-value and premium and flagship tiers. We expect the improvement in product mix to support a higher gross margin in ACG. Additionally, with ongoing OpEx reduction efforts, we expect to deliver expanding operating margins in ACG on the healthier revenue mix. In CSG, we're on track with an automotive ultra-wideband program with a leading automotive tier one. Regarding this platform, we are very pleased to announce we did receive our first production orders during December. This program will span multiple years and support multiple OEMs. We continue to see expansion of our engagements across the automotive customer base. Use cases for Qorvo's automotive ultra-wideband technology include secure access, digital key, child presence detection, and short-range radar sensing. We are supplying both our ultra-wideband and Wi-Fi 7 solutions in collaboration with multiple tier-one manufacturers of network access points. We're seeing strong customer demand and initial deployments include hospitals, factories, and other enterprises requiring ultra-precision indoor navigation, and location awareness. Our Wi-Fi portfolio is broadly represented in flagship smartphones, fiber gateways, mesh networks, client devices, and SATCOM ground terminals. And we continue to expand our Wi-Fi, FEM, and filter portfolio to enable higher bandwidth lower latency interconnected networks. We delivered first Wi-Fi 8 samples during December and customer engagement in Wi-Fi 8 is increasing. Regarding the CSG restructuring discussed last quarter, these actions remain on track. During the quarter, we successfully divested our MEMS-based Sensing Solutions business. While this represents a headwind to year-over-year CSG growth, next fiscal year, it is one of multiple initiatives we are undertaking to improve CSG's profitability. Turning to HPA, we continue to see multi-year tailwinds in DNA data center power and infrastructure markets. In DNA, the passage of the fiscal '26 NDAA includes top priorities, such as Golden Dome, the F47 fighter, and the Navy's next-generation fighters, warships, and drones. Qorvo is a beneficiary of new platforms, upgrade cycles, RF content growth, and increases in defense spending. As an example, Golden Dome is a multi-layer defense system that requires significant RF content. For the full fiscal year '27, sales in DNA markets are expected to total approximately $500 million. In power management, our strategic emphasis on PMICs for enterprise-class SSDs has been met with continued data center growth where customer demand has been very strong. During the quarter, we taped out our first chip for our next-generation enterprise SSD platform. Other power opportunities for Qorvo include AESA radars, drones, robotics, wearables, and smartphones. There is strong interest globally in Qorvo's AESA solutions combining our FEMs, Beamform AICs power management, and power control. In infrastructure markets, there are increased content requirements in DOCSIS 4.0 systems that align well with our amplifier and control portfolios. Qorvo is a leading supplier of broadband amplifiers for DOCSIS 4.0 and we are well-positioned with all major suppliers. We're also a market leader in small signal receive and transmit components used across the RF chain of 5G radio access networks. While these products have historically been deployed in terrestrial 5G infrastructure, we are increasingly seeing the same RF building blocks adopted in adjacent applications. Such as drones, and low Earth orbit satellite communications including direct-to-cell satellite architectures. We are sharply focused on growing our highest-performing businesses, we are divesting or exiting businesses that underperform. In fiscal 2027, we forecast a mid-single-digit decline in full-year revenue for the company, as ACG declines and becomes more profitable, CSG is approximately flat and HPA continues its double-digit growth. As we move through fiscal 2027, we expect our defense and aerospace business will be larger than our Android business. That's a meaningful shift in the portfolio that reflects both the strategic resizing of our Android business and continued growth in HPA. This increasingly favorable mix positions us to deliver full-year FY 2027 gross margins above 50% and EPS approaching $7 per share. These outcomes reflect continued operating expense discipline, a structurally improved portfolio mix, and our sustained commitment to innovation and operations excellence. And with that, I'll turn it over to Grant. Grant Brown: Thanks, Bob, and good afternoon, everyone. Qorvo's fiscal third-quarter revenue of $993 million, non-GAAP gross margin of 49.1%, and non-GAAP diluted earnings of $2.17 per share all compared favorably to guidance. During the quarter, our largest customer represented approximately 53% of revenue. On the balance sheet, as of quarter-end, we held approximately $1.3 billion of cash and equivalents and approximately $1.5 billion of long-term debt outstanding with no near-term maturities. We ended the quarter with a net inventory balance of $530 million. This represents a sequential reduction of $75 million and a decrease of $111 million compared to where we ended last fiscal year. During the quarter, we generated operating cash flow of approximately $265 million and incurred $28 million of capital expenditures which resulted in free cash flow of $237 million. Regarding our outlook for fiscal Q4, guidance reflects continued momentum in HPA offset by our strategic pivot from lower-margin mass-tier Android and the normal seasonal decline at our largest customer. Our expectations for March are as follows. Revenue of $800 million plus or minus $25 million, non-GAAP gross margin between 48-49%, and non-GAAP diluted EPS of $1.20 plus or minus 15¢. Gross margin continues to improve on a year-over-year basis. In Q3, non-GAAP gross margin increased approximately 260 basis points versus last fiscal year, and we expect a similar improvement year over year in Q4. This improvement is a direct result of multiple initiatives. We've actively managed our product portfolio and pricing strategies to reduce exposure to mass-tier Android 5Gs. We've positioned the company to benefit from growth in DNA, which is margin accretive, divested or exited margin dilutive businesses and we continue to manage factory costs aggressively as we have consolidated our manufacturing footprint. We project non-GAAP operating expenses in March to be between $240 million and $250 million. Below the operating income line, non-operating expense is expected to be between $8 million to $10 million reflecting interest paid on our fixed-rate debt offset by interest income earned on our cash balances, FX gains or losses along with other items. Our non-GAAP tax rate for fiscal '26 is expected to be approximately 15%. We continue to monitor the situation as changes to tax policy in the US and internationally may evolve over time. At this time, please open the line for questions. Thank you. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our queue. The first question comes from Thomas O'Malley with Barclays. Please go ahead. Thomas O'Malley: Hey, guys. Thanks for taking my question. So thanks for the color on the content. Think, Bob, you mentioned the ultra-high band potentially not having as much content there in this generation but you have some of the ET coming back in. If you look at the next several generations of content, it looks like with this dual sourcing, you've seen a lot more swimming in other people's lanes is the way I think I've heard talked about in the past where, you know, one guy would compete in, you know, a couple sockets, and now you've seen that proliferating to some other sockets, which is just kind of increased the competition. And you guys have called out a couple areas where you're seeing that. Maybe talk about the content roadmap on a go-forward basis. Like, do you think that there are other sockets you obviously talked about the high band or the mid-high band and the iPads. Like, do you see other sockets where you could have some more or do you feel like the wind's behind you or in front of you in terms of content over the next several generations? Thank you. Robert Bruggeworth: Yeah. Thanks a lot. Appreciate the question, Tom. And as you know, we don't like to comment on future generations or even architectures. But I will say that there continues to be an opportunity for us to continue to grow our footprint there. No doubt about it. It's been, as you know, a lot of it was sole source. As you can see, it does appear they're multi-sourcing more or at least dual sourcing. I should say, more sockets in the future. And you know, we're investing in R&D to continue to grow at our largest customer. Thomas O'Malley: Helpful. And then just a clarification on the second one. I think you mentioned into March, Android would be down more than seasonal. I'm sure there's a million different ways. Five, ten, fifteen years, you can look at seasonal. But in terms of what I have here, Android is actually up in the March quarter. I know you've seen some different seasonality. What do you mean by down more than seasonal? What is normal seasonal for March and Android? Robert Bruggeworth: Yeah. I appreciate the question, Tom. And you're exactly right. Typically, Android has been up in the March quarter. And as we've been strategically a lot of that lower margin business and we talked last quarter about even some of the Android ramps and other phones that we're not participating as much. Again, due to our strategic emphasis on making sure we're getting paid for the value we bring. And this year, it's going to be down quarter over quarter. So that's the big swing. You're correct. Operator: The next question comes from Peter Peng with JPMorgan. Please go ahead. Peter Peng: Are you there, Peter? Oh, hi. Hi. Thanks for taking my question. For just for the Android business, I think the prior expectation was you know, you're gonna exit by about $200 million, and now you guys are saying $300 million. So maybe just talk about whether that is just expedite exit. Is it the memory impact? What drove the, you know, accelerated pace? And then you know, as we think about longer term, what is the business revenue run rate, you know, after you're finishing, you know, everything on this business? Grant Brown: Hey, Peter. This is Grant. Let me take that one, and then Dave can fill in some more detail. So we've said that it'll be a multi-year event as we exit the lower margin or lower tier Android businesses. It could run approximately $150 million to $200 million in fiscal 2026 and then again in our fiscal 2027. Last quarter, we had mentioned that we expected the larger portion of that in our fiscal 2026 to hit in the second half, and especially impacting March. And that's exactly what we're seeing in results. And then in fiscal 2027, instead of the $150 to $200 million, we're taking that estimate up to $300 million that we could exit in fiscal 2027, and that's both due to our strategic from the business as well as some of the memory pricing and availability constraints that are impacting customers' build plans. Peter Peng: Perfect. And and then just on the gross margin, you talked about potentially getting to the, you know, the 50%. Maybe you can kinda lay it out on how we should think about that margin profile over the course of the 2027. Grant Brown: Yep. We're getting a lot of background noise when when we're talking. I don't know if it's on your end or not. Peter Peng: Let me Sorry. Go Sure. So I think your question was around margin profile. So as we look out into fiscal 2027, That is right. That is right. Okay. Yeah. So the the biggest driver for margin as we look out in fiscal 2027 is mix. That's both business mix as HPA becomes a larger percentage of the total, which is margin accretive. As well as product mix inside of the segments. Especially within ACG. We've talked at length about the exit from the lower tier Android business, which is having a a sizable effect. Obviously, our utilizations aren't where we'd like them to be. But, you know, the the biggest gains in gross margin for the moment are coming from that business mix I talked about. So there's still further headroom as we add additional volumes over time. I would compliment the operations team. They've had a you know, done a considerable job of pulling costs out while maintaining the capacity that we need. To strategically target very important pieces of business all while transferring multiple lines of production, which is not a small feat as Bob commented earlier, both on Costa Rica as well as the North Carolina transition to Texas. Thank you, guys. Operator: The next question comes from Gary Mobley with Loop Capital. Please go ahead. Gary Mobley: Hey, guys. Thanks for taking my question. And thanks for the explicit guidance, Bob, for fiscal year 2027. And specifically, on Apple. You're calling for revenue to be flat in fiscal year '27. With perhaps some content loss in the upcoming iPhone 18, you know, in in aggregate. So is that more or less one part volume growth offset equally by some some content decline. Maybe you can just help us out there in terms of, like, your volume assumption for iPhone units, I guess, you know, with that assumption. Robert Bruggeworth: Yeah. Thanks, Gary. And we're not gonna comment on our largest customers' volumes or We're just giving you an indication of what we think our revenue is going be given everything we know at this time. Gary Mobley: Got it. Got it. Okay. And then looking at your fourth quarter revenue guide, it's down about $70 million roughly on a year-over-year basis. How much of that decrease is a function of business divestments? I believe there might be two significant business divestments you know, within that year-over-year comparison. And I would assume the rest is is mostly Android related? Grant Brown: That's correct. The the vast majority of it is Android related. You know, it's relatively small from the the divestitures that we've made. And the Android component of that. Obviously, we'll see how that exactly plays out. We're seeing both our strategic exit as well as some of the customer forecast driven by some memory pricing concerns. Which is just starting to find its way into the customer dialogue. Gary Mobley: Got it. Thank you, guys. Operator: The next question comes from Christopher Rolland with Susquehanna. Please go ahead. Christopher Rolland: Thanks so much for the question. So I I I think previously you guys were quite optimistic around integrated modules and ramping integrated modules. Obviously, this dual sourcing is a setback, but perhaps it you can talk about your products here, how you feel about them and how you feel about your prospects moving forward. Particularly for integrated modules. Robert Bruggeworth: Yeah. Hey, Just to be clear, the ultra-high band has been a dual-sourced part for many, many years, probably five or six years. We've always had content in it. We just have less this year than prior years. And, you know, I talked about the high band pad and that's an area we hadn't been. So the dual sourcing is actually helping us in that case. That's how I'd actually answer your question. Christopher Rolland: Okay. Maybe, Gary, in terms of in terms of revenue, maybe, you know, there's always a considerable number of variables to consider in addition to content gains and losses, including the timing of certain different awards as well as the volume of of specific SKUs, the mix, launch cadence across those models. You know, but at least from a modeling perspective in terms of our assumptions, I think the key point is that all of our our underlying assumptions are are fully reflected in the fiscal 2027 outlook that Bob provided earlier. Robert Bruggeworth: Thanks, Chris. Christopher Rolland: Sorry. Me yeah. And just maybe maybe just following up there. You you did have some comments about not being totally decided for the year, but you it sounds like you guys have pretty good visibility here, and we probably shouldn't be expecting any more surprises, either positive or negative versus your flat guide year over year? Is that fair? Grant Brown: Yeah. That's fair. There there's always certain components, you know, particularly around tuners that are awarded later in the cycle. But but, yeah, everything is kinda reflected in the guide that five k. Robert Bruggeworth: Excellent. Thank you, guys. Grant Brown: Thanks, Chris. Operator: The next question comes from Krish Sankar with TD Cowen. Please go ahead. Robert Martin: Hello. This is Robert Martin on the line for, Krish. Thanks for taking my questions. You mentioned that Android sales are expected to decline roughly $300 million next year. And walk us through how the exiting of the low-end space will impact the business could you just walk us through a little bit more about how the current higher memory prices and costs are affecting your mobile business and how you think that might play out next year? Dave Fullwood: Yeah. This is Dave. Yeah. So that decline we're talking about is primarily as a result of the ongoing intentional resizing of the Android business that we've been talking about for almost a year now. Secondarily, what we're seeing related to the memory pricing and availability is OEMs adjust their build plans to react to that. It definitely pressures the mass tier. As customers prioritize the supply that they get towards the higher-end devices. So this has an acceleration effect on our strategy, but it really doesn't change the end result. But that that's why you're seeing you know, the the higher $300 million decline that we called out for FY '27 what we had called out earlier. And maybe I'll just add to that a little bit, Dave. As far as the profile of our revenue throughout the year. Know, as you start to think past March and into June, the dynamic that Dave was describing will play out. You know, it's it's a little too early to put too fine a point on it since we only guide in any detailed way for the next quarter. But know, it's worth pointing out that historical seasonality even in June, say, down five to 10% sequentially no longer applies for for the the reasons were mentioned in the strategic actions around Android. Are, you know, strategically managing down our Android exposure in the mass tier, as well as a seasonal downtick in our revenues from our largest customer. Normally, those would offset and we're not gonna see that. You know, we haven't seen it in March. We won't see it in June. And then secondarily, you know, as we've talked about our DNA business, a year-over-year basis, we continue to see a considerable strength there. But it'll be down as we look into June, which is pretty typical coming off of a very strong March. So, you know, as DNA has grown to be a larger contributor, to our top line, the impact on June seasonality has also grown. So the profile of our business will change because of you know, to a large degree, the Android exit as we were communicating earlier. Robert Martin: Got it. Thank you. That that's helpful. And makes sense for customers to prioritize the the higher end. Just real quick, in line with that, are you seeing any sort of changes in terms of inventory level at customers or this in line or or higher or lower than what you would typically expect at this time of year? Dave Fullwood: Yeah. I wouldn't say we've seen anything abnormal as it relates to inventory. It's just more of a reaction to how they're adjusting their build plans. Given the situation that's going on with the with the memory. Robert Martin: Okay. Thank you. Operator: The next question comes from Edward Snyder with Charter Equity Research. Please go ahead, sir. Edward Snyder: Thank you very much. Bob, you said you had lower share in the high band. Obviously, the iPad isn't going to be a big driver for unit volume. But the mix should favor your ET, and that's like a dollar 80 extra content. And, apparently, that's gonna be a significant shift given what we saw last year versus what we saw this year. So doesn't this imply that you're seeing significant share loss at ultra-high band? Or are there other parts that we don't know that you mentioned that you're not going not gonna be on in a new phone. I I know Dave talked about two So let's get added towards the end of it, but plus or minus on that isn't gonna be I wouldn't dig correctly if I'm wrong. I wouldn't think you're in the the dollar range of content. So I'm just trying to get my arms around the shift because the wind should be at your back of the fold. For ET itself, and it doesn't sound like that's the case at all. Frank Stewart: Yeah. Hey, Ed. This is Frank Stewart. Maybe just to reiterate, the things that we're excited about is the high band pad win that we got. The headwind that we have, is the loss of share in UHB. Working very hard to get that back in the following generation. We agree that as the internal modem is is used on more SKUs, that is a tailwind for us. When you put it all together together with all of our estimates of how all that plays out. Again, we can only talk to our expectations for revenue. When you play that out over our fiscal year, it it comes together with about flat year over year. Edward Snyder: Okay. I just wanna be sure we have all the moving parts together. But it's you're still gonna be in the ultra-high band. You just can see what we're sure. You're not gonna keep down with that. Again, in red. Frank Stewart: That's right. Edward Snyder: Alright. Yeah. I just wanna explore the case. And then Grant, underutilization charges, it sounds like, especially if you're gonna be flat, etcetera. Are you did you incur any this quarter? Do you expect any coming with them? Is that mostly gas at this at this stage? Because know you're gonna be shipping with a BAW because all I know you guys called the high band Historically, it's been called the mid-high band. It uses a lot of BAW. Use a lot of BAW. Mean, you're going into your product here, so maybe it actually. Maybe maybe you even have nearly a number of management to deal with before. So one, underutilization charges, and two, have things improved utilization wise involved? Do you anticipate they'll improve this year? Grant Brown: Thanks, Ed. It's you know, utilization is obviously not where we'd like it to be. So still have ample headroom, you know, to support some of these strategic areas that we're going after in our largest customer and elsewhere. But you know, there are no specific underutilization charges or period charges in the quarter. And, you know, the the ops team our side has done a terrific job of managing costs as we've been, you know, shutting down factories or we've been moving them, you know, from North Carolina to Texas, and all of the other activities they have going on. That we've discussed. It's it's a considerable effort and at the same time pulling out costs in order to support the gross margin improvements that we've been showing is is a significant effort. Edward Snyder: Okay. Frank Stewart: Thanks, Ed. Operator: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Robert Bruggeworth: I want to thank everyone for joining us today. And I hope everyone has a great evening. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon. My name is Julian, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Manhattan Associates, Inc. Q4 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this question and answer period, simply press star then one on your telephone keypad. As a reminder, ladies and gentlemen, this call is being recorded today, January 27, 2026. I would now like to introduce you to our host, Mr. Michael Bauer, Head of Investor Relations of Manhattan Associates, Inc. Mr. Bauer, you may begin your conference. Michael Bauer: Great. Thanks, Julian, and good afternoon, everyone. Welcome to Manhattan Associates, Inc. 2025 Fourth Quarter Earnings Call. I will review our cautionary language and then turn the call over to our President and Chief Executive Officer, Eric Clark. During this call, including the Q&A session, we may make forward-looking statements regarding future events or Manhattan Associates, Inc.'s future financial performance. We caution you that these forward-looking statements involve risks and uncertainties, are not guarantees of future performance, and actual results may differ materially from the projections contained in our forward-looking statements. I refer you to Manhattan Associates, Inc.'s SEC reports for important factors that could cause actual results to differ materially from those in our projections, particularly our annual report on Form 10-Ks for fiscal year 2024 and the risk factor discussion in that report and any risk factor updates we provide in our subsequent Form 10-Qs. Please note that the turbulent global macro environment could impact our outperformance and cause actual results to differ materially from our projections. We are under no obligation to update these statements. In addition, our comments include certain non-GAAP financial measures to provide additional information to investors. We have reconciled all non-GAAP measures to the related GAAP measures in accordance with SEC rules. Find reconciliations scheduled in the Form 8-Ks we filed with the SEC earlier today and on our website at manh.com. Now I'll turn the call over to Eric. Eric Clark: Thank you, Mike. Good afternoon, everyone, and thank you for joining us as we review our better-than-expected fourth quarter and full-year 2025 results as well as provide our outlook for 2026. 2025 was a successful year for Manhattan Associates, Inc., and we ended the year strong, achieving record cloud bookings in the fourth quarter. In a volatile environment, Manhattan Associates, Inc. achieved annual records across RPO, cloud bookings, total revenue, operating income, free cash flow, and earnings per share. Recall back in April on my first earnings call, I highlighted how Manhattan Associates, Inc.'s strengths are well established as our platform, our products, and our people are recognized as world-class. Through strategic investments, we've strengthened each of these areas in 2025, positioning us to accelerate our momentum in 2026 and beyond. So let me briefly touch on each. In 2025, we extended our position as the leading innovator within the supply chain commerce universe and enabled faster implementation of our industry-leading solutions. While I will provide a more detailed platform and product update in a few minutes, I'm excited to say that several weeks ago, on the heels of a successful early access program, we announced the commercial availability of our initial set of AI agents and our agent foundry. Our offering enables customers to build or customize new agents directly in the active platform using natural language. Excitingly, results and feedback from our early adopters indicate that our AI agent workforce generates significant value. As increased automation and simplicity can drive higher productivity ROI, improve customer satisfaction. In 2025, our R&D team launched additional new offerings, including enterprise promise and fulfill, which is designed to optimize B2B order promising and fulfillment. As well as introduced numerous industry-leading features and functionality across our supply chain commerce solutions. On the people front, to improve our effectiveness and accelerate our selling velocity to both new and existing customers, in 2025 we made key hires and introduced several new programs within our sales and marketing organization. To briefly recap, we reorganized our entire global sales team under the leadership of our Chief Sales Officer Bob Howell. And added several new sales leaders and product specialists to the team. Additionally, we hired Greg Betts as our Chief Operating Officer and under his leadership, we have introduced several new programs to drive growth. Last week at our sales kickoff in Atlanta, we hosted a partner day that was attended by more than 100 people from across our partner community. Greg and his team introduced our updated partner program for global SIs, Manhattan specialists as well as technology partners like Google and Shopify. And a few weeks ago, we announced the hiring of Katie Foote as Chief Marketing Officer. Katie brings more than twenty years of marketing leadership for technology companies, most recently she was the CMO at Captivate IQ, and prior to that, she held several leadership roles at salesforce.com. I'm excited to say that Katie hit the ground running and spent her first week with Manhattan Associates, Inc. at NRF in New York. We're delighted to have her on the team. Now pivoting to quarterly results. Q4 was a record quarter that exceeded expectations. Revenue increased 6% to $270 million, highlighted by 20% growth in cloud and a return to growth in services. This resulted in adjusted earnings per diluted share increasing to $1.21. RPO increased 25% to $2.2 billion. In Q4, competitive win rates remained over 70% and more than 75% of our new cloud bookings were generated from net new logos. For the full year, our team did a fantastic job gaining market share. As new logos represented more than 55% of our 2025 new cloud bookings. With our growing opportunity for expansion from existing customers, we anticipate net new logos to revert to one-third of our new cloud bookings over time. Manhattan Associates, Inc. has always had strong cloud revenue visibility and that gives us confidence in the durability of our growth. To better assist investors' assessment of our business, today Dennis will provide additional color on renewals and annual recurring revenue. Many of our contracts will reach or approach full ramp pricing by the fourth year of subscription. So to better showcase this dynamic, we're introducing a four-year annualized value of recurring revenue or a ramped ARR. This ramped ARR alongside RPO will help investors quantify the pace of our cloud revenue growth over time. At the conclusion of 2025, our ramped ARR exceeded $600 million and was up 23% compared to the ramped ARR at the conclusion of 2024. From a vertical sales perspective, our end markets are diverse. And we have healthy established footprints across numerous sub-sectors, which include retail, grocery, food distribution, life sciences, industrial, technology, airlines, third-party logistics, and more. For example, Q4 deals included the following: A Fortune 100 home improvement company became a new logo active warehouse customer. An upscale department store chain became a new logo Active Omni and Active Warehouse customer. The largest global provider of medical surgical products became a new logo active warehouse customer, a lifestyle brand and omnichannel retailer of premium home furnishings that was an existing warehouse customer expanded to include Active Omni, a medical supplies equipment and services company became a new logo active supply chain planning customer a home furnishing wholesaler became a new logo active transportation and active warehouse customer. And many more as well. So looking out to the New Year, our pipeline remains strong across our product suite and we have numerous opportunities to drive growth. Including adding new customers, cross-selling our growing unified product portfolio converting our on-premise customers to the cloud, and renewing our initial sizable cohort of active warehouse customers. So now let me briefly provide some updates on our industry-leading products. As I stated earlier, we recently made our agentik.ai product set commercially available to our entire active customer community. Dennis Story: Our active agent offering consists of two primary elements. Eric Clark: Elements, a set of base agents that are ready to be activated immediately and our agent foundry offering which enables our customers to quickly build and deploy their own agents within the active platform. We designed our base AI agents in collaboration with a set of key customers to provide immediate valuable value to our customers by solving important day-to-day problems in areas like warehouse, transportation, contact center, and stores. Because we built our active agents directly into the platform, our customers do not need to implement costly and complex external data lakes to make them work. Our API-first architecture enables us to solve a growing list of high-impact problems with almost no configuration or additional upfront effort. And while our active agents are highly capable today, we have an aggressive product roadmap which will both enhance our existing agents with new features and deliver entirely new agents. Our agile software delivery process enables us to deliver these additional agent features on an incremental basis throughout 2026. In addition to these base agents, this month we also released our agent foundry. This intuitive tool enables our customers to build their own AI agents. Foundry provides a visual editor to allow customers to either start with an existing base agent and enhance it, to create an agent entirely from scratch. To achieve this, Foundry provides our customers with a comprehensive set of both base API and agentic tooling. And during our early access program this fall, our forward-deployed engineers use Foundry to enable our customers through a powerful new agents purpose-built to tackle specific operational challenges. In terms of commercialization, our goal is to make it easy for our customers to start their agentic journey with us and we are going to do that by offering a low-risk active agent pilot to get started. We are confident that the combination of our powerful base agents the flexibility provided by Foundry and the deep technical and domain expertise of our Manhattan forward-deployed engineers will provide a compelling reason for our customers to add an active agent after they complete their pilot. Dennis Story: Our active agents Eric Clark: made their public debut a few weeks ago at NRF where there was strong interest for these new AI capabilities and our active store offering, which is centered around our active point of sale application. Designed from the outset to be mobile-first and cloud-native active point of sale now also embeds a GenTick AI to help store associates become more effective sellers. With real-time insights into sales performance and the ability to understand what is selling well across the network our store associate agent provides prescriptive recommendations within the point of sale application. Because many of our active store customers also use our active OMS these selling insights and recommendations are enabled by a truly view of our customers' commerce activity. Speaking of order management, this quarter we are also releasing a powerful new fulfillment optimization simulation capability. Our customers can now experiment with a variety of optimization settings to ensure they are meeting the overall needs of their business at any given time. Many of our customers change their view of what optimal fulfillment means throughout the course of the year. During the holiday season, speed of delivery may predominate while at the end of the spring season, there is likely more emphasis on shipping distressed inventory to avoid markdowns. Our new simulation feature enables our customers to test a number of these strategies compare the outcomes and ensure the system is ready to pivot fulfillment strategies when the business calls for it. Like interactive inventory, we project fulfillment simulation to have strong cross-sell potential for our active Omni customers. And finally, we continue to experience strong sales and implementation results across our supply chain execution applications. Our active warehouse application continues to differentiate itself both its functional and technical superiority. During selection processes, the vast majority of prospects reached the conclusion that only Manhattan Associates, Inc.'s active warehouse application will meet their needs. And 2025 was also a strong year for our active transportation application with respect to both strategic wins and key go-lives around the globe. Our unification message continues to resonate Customers no longer want to select separate stacks for warehouse and transportation. They see the real power of a single platform optimizing inbound and outbound flow throughout their supply chain. That concludes my business update. I'll now turn it over to Dennis to report on our financial performance and outlook and then we'll move on to Q&A. So Dennis? Dennis Story: Thanks. Thank you, Eric. As Eric highlighted in 2025, we set records across bookings, our P&L, and cash flow. Congratulations to our team members around the globe for great execution in a volatile macro environment. I'll start by recapping our better-than-expected financial performance for the quarter and year. All growth rates are on an as-reported year-over-year basis unless otherwise stated. Regarding FX, it was a one-point tailwind to our Q4 revenue growth rate and did not have a material impact on our full-year revenue growth rate. For RPO, FX was less than a $1 million tailwind to sequential RPO growth and a $41 million tailwind to year-over-year RVO growth. As Eric highlighted, to better assist investors' assessment of our business today, we are providing additional color on renewals, and annual recurring revenue. ARR. Many of our contracts reach or approach full ramp pricing in the full year of the subscription agreement. And so to provide additional insight on our cloud revenue visibility, we are introducing a four-year annualized value of recurring revenue or ramped ARR. Our assumptions for ramped ARR are as follows. If a renewal is set to occur, during this four-year period, it renews at current pricing with no churn or price increases assumed. Also, if a pricing ramp schedule extends beyond the four-year window, which today that would be any ramps beyond 2029 that future uplift is not included. At the conclusion of 2025, our ramped ARR exceeded $600 million and was up 23% compared to the ramp period at the 2024. Please recall deals that include ramp pricing are only time-based which supports our strong cloud revenue visibility. So moving to Q4, total revenue was $270 million up 6% and full-year revenue totaled $1.08 billion up 4%. Excluding license and maintenance revenue, which removes the revenue compression by our cloud transition, Q4 revenue growth was 9% and full-year 5%. Q4 cloud revenue totaled $109 million up 20% and includes a customer liquidation headwind of $1.3 million that was not embedded in our guidance. This resulted in full-year cloud revenue increasing 21% to $408 million. As Eric stated, we achieved record cloud bookings in Q4 as we closed out 2025 with RPO of $2.2 billion growing 25% year over year and 7% sequentially. Our RPO strength was driven by continued new logo momentum. Which was a significant contributor to our approximately 20% growth in new cloud bookings for the year Renewals which does not include cross-sells were about 18% of total bookings in 2025, Contract duration remains at 5.5 to 6 years resulting in 38% of RPO to be recognized as revenue over the next 24 months. Q4 services revenue of $120 million was better than expected as solid execution returned this line item back to growth earlier than our original plan. For the full year services revenue declined 4% to $503 million. Q4 adjusted operating profit was $91 million with an operating margin of 33.8%. Full-year adjusted operating profit totaled $387 million with a 35.8% operating margin and represents over 100 basis points of improvement over 2024. The better-than-expected Q4 and 2025 results were driven by strong cloud revenue combined with operating leverage as our cloud business scales. Q4 earnings per share increased 3% to $1.21 and GAAP earnings per share increased 12% to $0.86 big whopper there. This resulted in full-year adjusted earnings per share increasing 7% to $5.06 and GAAP earnings per share to increase 3% to $3.6. As discussed in Q2 and Q3, our higher tax rate is due to an increase in tax reserves caused by the acceleration of our domestic R&D cost deductions under the July 4 U.S. Tax law change. As such this change was the predominant driver to the $15 million reduction in Q4 cash taxes and $36 million reduction in our annual cash taxes. So, moving to cash. Q4 operating cash flow increased 40% to $147 million with a 52.7% free cash flow margin and 34.4% adjusted EBITDA margin. Our full-year operating cash flow increased 32% to $389 million with a 34.6% free cash flow margin and 36.4% adjusted EBITDA margin. Turning to the balance sheet. Deferred revenue increased 21% year over year to $337 million. We ended the year with $329 million in cash, and zero debt. Accordingly, we leveraged our strong cash position and invested $75 million in share repurchases in the quarter resulting in $275 million in buybacks in 2025. Additionally, the board has approved the replenishment of our $100 million share repurchase authority. So moving on to our 2026 guidance. Our long-term and long-standing financial objective is to deliver sustainable double-digit top-line growth and top quartile operating margins benchmarked against enterprise software comps. Software comps these are drivers to our best-in-class return on invested capital as we maintain a balanced investment approach to growth and profitability. As noted on prior earnings calls, our goal is to update our RPO outlook on an annual basis. Additionally, as previously discussed, our bookings performance is impacted by the number and relative value of large deals we closed in any quarter which can potentially cause lumpiness or non-linear bookings throughout the year. All guidance references made on today's call will be at the midpoint of their respective ranges. So with that, for RPO, we are targeting $2.62 billion to $2.68 billion RPO, representing a range of 18% to 20% growth. Included in our target is an 18% to 20% contribution from renewals which implies double-digit growth in both new bookings and renewals when normalizing for FX movements. For full-year 2026, we expect total revenue of $1.133 billion to $1.153 billion. The $1.143 billion midpoint represents 10% growth excluding license and maintenance attrition, and 6% all in. For Q1, we are targeting $272 million to $274 million, which at the midpoint represents 10% growth excluding license and maintenance attrition and 4% all in. For the rest of the year, at the midpoint, we are targeting total revenue of about $287 million in Q2, $296 million in Q3, and accounting for retail peak seasonality $287 million in Q4. For 2026, adjusted operating margin we expect a range of 34.5% to 35%. Removing the impacts of license and maintenance attrition the 34.75% midpoint represents about 75 bps of margin expansion compared to 2025 and includes increased investment in our business particularly in sales and marketing and expanding our services teams. On a quarterly basis, at the midpoint adjusted operating margin is expected to be about 31%. In Q1, 34.7%, In Q2, 36.9%. Q3, and accounting for retail peak seasonality, 36.1% in Q4. This results in a full-year adjusted EPS guidance range of $5.04 to $5.2 and a GAAP EPS range of $3.37 to $3.53. For Q1, we are targeting adjusted earnings per share of $1.08 to $1.1 and GAAP earnings per share of $0.64 to $0.66. For Q2 through Q4, we expect GAAP earnings per share to be about $0.40 lower than adjusted EPS per quarter with the vast majority of accounting for our investment in equity-based compensation. So here are some more additional details on our 2026 outlook. We expect cloud revenue to increase 21% to $492 million which assumes $114 million in Q1, $121.5 million in Q2, $126 million in Q3, and $130.5 million in Q4. We expect services revenue to increase 3% to $517 million which assumes $124 million in Q1, $131.5 million in Q2, $137 million in Q3, and accounting for retail peak seasonality, $124 million in Q4. On attrition to cloud, we expect maintenance and license to represent about 4.4 headwind to total revenue growth in 2026. As such, we expect maintenance to decline 19% to $105.5 million which assumes $28 million in Q1, $27 million in Q2, $25.5 million in Q3, and $25 million in Q4. We expect license to be about $1 million per quarter and hardware to be between $6 million and $6.5 million per quarter. To support our strong bookings growth and the significant AgenTic AI opportunity, we have already onboarded about 100 new services associates in January and we anticipate these new hires coupled with license and maintenance attrition will result in consolidated subscription maintenance and services margin to be flat as reported compared to 2025. On a quarterly basis, we expect consolidated subscription maintenance and services margin to be about 57% in Q1, 59% in Q2, 60% in Q3, and accounting for retail peak seasonality, 60% in Q4. Removing the impacts of license and maintenance attrition our target implies 50 basis points of year-over-year improvement and we expect our effective tax rate to be 22% and our diluted share count to be 61 million shares which assumes no buyback activity. So in summary, 2025 was a great year of progress and execution. Thank you and back to Eric for some closing remarks. Eric Clark: Great. Thank you, Dennis. To recap, 2025 was a successful year for Manhattan Associates, Inc. and we ended the year on a strong note. Business fundamentals are solid and we enter 2026 with accelerating momentum across the organization. So a big thank you for joining the call and thank you to our global team for all the great work they do for our customers. And that concludes our prepared remarks and we'd be happy to take questions. Operator: Thank you. And with that, we will be conducting a question and answer session. And our first question comes from the line of Terry Tillman with Truist Securities. Please proceed with your question. Terry Tillman: Yeah. Hey, good afternoon, Eric, Dennis, and Mike. Appreciate the time here. And then first congrats on the 4Q bookings. It's impressive and also just the 4Q cash flow finish. I have a question maybe for you, Eric, first in terms of both cloud migrations for WMS and starting to drive that kind of muscle tissue around fast renewals. I think those were some focus areas going into the year. Just, or really throughout '25 and into '26, can you share any progress reports on both of those areas? Eric Clark: Great. Yes. Thanks, Terry. So I'll start with kind of that conversion and driving some of our on-prem customers onto active warehouse. You recall that we started that effort kind of mid-year in 2025 and we saw some early success we're now seeing, I would say, the fruits of that effort. And we're seeing the pipeline really start to build. We've already closed some of these deals in Q1, so that helped us get off to a quick start in Q1. And that's a part of, Dennis just talked about we've added 100 services headcount already in January. And, you know, that's a big difference from where we were a year ago in January. I think that says a lot about the confidence level we have in the book of business that we've built around services. So you combine the conversion opportunity with the new logo that we've brought in and what we see in terms of opportunity around forward-deployed engineers to help drive our AI efforts. And we're very bullish in that area. Yeah. Did I hit everything there, Terry? Terry Tillman: Yeah. Yeah. You did. I mean, I said that was maybe just another part of this first question, so I may accidentally do two and a half here. I apologize to everybody. Okay. It's not one of those things that gets a lot of attention we just care about the numbers. It's always about the numbers and spreadsheets. But you talked about fast implementation times and faster time to value, I think, last year. Again, that's not gonna get a lot of the accolades, but where are you in some of those, progress efforts? Eric Clark: Yes, great question. Thanks for asking. So we're making really good progress in those efforts and that's coming into play in some of our deployments. Even some of the that maybe were multiyear deployments that started years ago. And we're able to start accelerating those now. It's also coming into play in many of these, conversions that we're actually closing them as fixed fee, fixed timeline deals because we've got the confidence in that pace. So the other thing that'll where it comes into play, Terry, you know, we shared for the first time today the ramped ARR. And it grew 23% year over year. Part of what's driving that is we're able to sell more deals at a faster pace. We're driving a faster ramp of that revenue, and you're seeing that confidence come through in that area as well. Terry Tillman: That's great. I appreciate that, Eric. And I guess, Dennis, the 4Q free cash flow strength. I'm curious, though, looking in '26, is there any way you can share any commentary on cash taxes or anything that we need to think about and just maybe the relationship of free cash flow to EBIT or EBITDA on '26, just for some kind of parameters? Thanks. Dennis Story: Yeah. Terry, I think that's just it's similar from cash taxes. Operator: Yes, got it. Thanks. Thank you. And our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question. Brian Peterson: Thanks, gentlemen, and congrats on the quarter. So Eric, I wanted to dive into the RPO number that looks like a very strong number versus what we had expected. Particularly on the net new side. So I'd love to understand maybe in terms of deal timing, what products are out there, geos? Is there anything that you can share about what really drove that fourth quarter strength? Eric Clark: Yeah. Thank you. The great thing about that fourth quarter strength is it really comes across a variety of products and a variety of deal types. And I shared several examples there. We always talk about the big deals can be lumpy and you don't know when they're going to come, but I think Q4, we rounded out the year in a very complementary way with a lot of those deal types across a lot of deal across our entire product suite. So that gives us confidence in the pipeline that we've got going into next year as well. But the other thing, I'll kind of great RPO, you know, we're really proud of what we did in terms of RPO sequential growth quarter over quarter and year over year. But we also recognize that as we come into 2026, where we know it's a year where we've got kind of an uptick in renewals, we want to give you that ramped ARR so that we don't have to go focus on renewing every deal at five years. If we can renew some of these deals at three years, that gives us another opportunity to increase price sooner. But when the only metric we give you to for you to measure growth is RPO, that might give you concerns if we're only giving you RPO. So that's why we're now going to give you this combination of RPO and ramped ARR so you can have confidence in the growth that we're projecting. Brian Peterson: Got it. And I appreciate the new disclosures, guys. Dennis, I did have one clarification. You said 18% to 20% is coming for renewals in 2026. Is that the mix of the RPO target? I just want to make sure I understand the disclosure around that 18% to 20%. Dennis Story: Yes, yes, that is the mix. Eric Clark: Yes. So and again, if we held ourselves to make sure we renewed every deal at five years, it could be a higher number, but we think that's in the best interest of the company. So that's why we want to give ourselves the ability to renew some deals at three years as well. Brian Peterson: Got it. Thanks, guys. Dennis Story: Thanks, Brian. Thank you. Operator: And our next question comes from the line of George Kurosawa with Citi. Please proceed with your question. George Kurosawa: Great. Thanks for taking the questions. Maybe just to stay on this topic of renewals. I think if I got the numbers right, 18% of RPO bookings from renewals in 2025 and now expecting 18% to 20%. I think we were maybe estimating that might be a bit of a bigger uplift. Am I right in thinking here that maybe there's some level of conservatism baked into that or maybe there's these duration dynamics that you were just discussing? Anything else we should keep in mind? Eric Clark: I think those are the key things. And maybe those two things go together conservatism on duration. Again, if we really held ourselves to make sure that we renew every deal five years that 18% to 20% could be higher. And the total RPO growth year over year could be higher. But we think we've got a very sticky product and our customers are not leaving us. All of our customers are renewing. So having the opportunity to have another conversation about price increase in three years versus five years is an advantage to us. George Kurosawa: Okay. Okay. Very helpful. And then I wanted to touch on the services business. I think you mentioned you're looking to hire into that group. You're guiding to 3% growth for the year. Historically, that's been a line item that's maybe a little bit lower visibility relative to the rest of the business. What's kind of underpinning your confidence there? Eric Clark: Yes. So it's a few things. Number one, that strong bookings growth in Q4 and really strong in total for all of last year going to continue to drive services well into 2026. But then again, we put these conversion programs in place in the middle of last year they're really starting to bear fruit. We're seeing the pipeline. We're seeing the deal volume pick up. That's creating services opportunity. And then I think the big one is AgenTic AI. You know, you look at a lot of SaaS companies that are out there trying to sell AgenTic AI, and they don't have the army of services people that we have. And we see this as an opportunity to use that army of services people as a big advantage because we have the domain expertise. We can go in with forward-deployed engineers and help our customers realize value very, very quickly. This is the first time since Manhattan Associates, Inc. launched the cloud product where we've got an opportunity to go out to every cloud customer all at one time and have an immediate upsell opportunity that can add value from day one. So, you know, this is new for us, and we want to make sure that we get that message to all of our customers as quickly as possible. George Kurosawa: Great. Thanks for taking the questions. Eric Clark: Yep. Thank you. Operator: And our next question comes from the line of Joe Vruwink with Baird. Please proceed with your question. Joe Vruwink: Hi, great. Thanks for taking my questions. Lot of questions on the renewal component to RPO. Next year. I wanted to ask about the remainder, the new bookings component. And what's kind of interesting is, so new new logos, you know, so heavy and what you were able to achieve in 2025. You said your expectation is that balances back towards normal. And yet, there's still a pretty healthy bookings component for '26. So that would seem to be kind of the pace of migration or maybe cross-sell to existing customers kind of picking up the slack. Are you seeing kind of some early evidence? I know you talked about deals closing already here in 1Q around the more consultative approach to conversions. But what are some of the other things you're doing to accelerate the pace of migration because that new bookings number looks pretty good relative to where our expectations were. Eric Clark: Yeah. So, you know, when you think about new bookings us that includes new logo, it includes expansion within existing accounts and of course converting from on-prem to the cloud. We've talked about conversions quite a bit as you mentioned, but that expansion is a big opportunity for us. We've done really well in acquiring new logos. And we've got this renewal cycle of warehouse, active warehouse. So the opportunity to cross-sell and expand is really ripe for us as well, and that's a big focus area for us. We also consider that taking market share. Because when we cross-sell new products, we're taking that from someone else. So that's kind of continued focus on taking market share. So we'll do that in 2026 with new logos and cross-selling new products to existing customers. Joe Vruwink: Okay. That's great. And then on the services outlook, so I guess that's good that kind of the update maybe as hard as that was a year ago. You really haven't missed on a service communication since then, and now you're bringing people back. Are there aspects of the services pipeline where you would maybe say it's a lower risk factor? Know George just asked about this question, but I think about these 66 timeline propositions that would seem to actually provide a high degree of confidence and a services outlook are there are things around, you know, maybe a different go-to-market approach where you're trying to de-risk, what you're communicating tonight? Eric Clark: Yeah. So I think number one, we always try to de-risk what we're communicating and take a conservative approach. Of all of the revenue services is the tough one to predict a year from now. It's easier to predict closer to now. But we've got the confidence that we have in what we've shared is based on the things that I mentioned. Those all of that pipeline and new logo that we sold last year and in Q4 gives a whole lot of clarity. Those ramp timelines are fixed, that gives a whole lot of clarity to what we're doing. And the things that we're doing around conversions and creating fixed fee, yeah, those as that volume picks up, that gives us an opportunity potentially see upside in services as well. Joe Vruwink: Great. Thank you very much. Eric Clark: Thank you. Thank you. Operator: And our next question comes from the line of Dylan Becker with William Blair. Please proceed with your question. Dylan Becker: Hey, gentlemen. I appreciate the question here. Maybe Eric, starting with you, I think it's very clear that the RPO strength is quite exceptional. Guess maybe if you're to reconcile kind of that outperformance relative to maybe the contribution from some of these newer initiatives we've onboarded over the last maybe few quarters here, if we think about a dedicated migration team, partner emphasis, obviously, like, more of an expansion motion as well too. That something that you're starting to already see kind of some of the fruits of the labor from? And maybe how we think about that layering in over time as well too and contributing to strength throughout the balance of the year, maybe as those start to ramp and become more contributors over time? Eric Clark: Yes. So I think some of the things that some of the programs that we put in place in 2025 did have a positive impact. But realistically, most of the pipeline we close is a little bit longer-term sales cycle. So I think you've got a credit what the team had in place before we went into 2025. Maybe we influenced some of that in the second half and got a little bit better result. But largely, the result that we got was based on the preparation that happened before '25. Now that being said, I think we did a whole lot of great preparation in '25 for '26. And that's when I think we will really start to see the fruits from our labor around these programs. We put in place in the '25. Dylan Becker: Perfect. Okay, great. Thank you. And then maybe for Dennis, or if you have a comment as well too. On the fully ramped metric as well too. Obviously, some nice room for incremental kind of contribution step-ups relative to what we're doing today, from a cloud revenue perspective. I guess, how you think about, the in-year contribution of those ramps effectively kind of like what's committed, what you have visibility into? I know, Dennis, you called. Called out high levels of visibility here, but maybe kind of parsing through what's rolling off of kind of that ramped backlog and giving you conviction in that 20% growth versus kind of what's an incremental net new that you kind of have to go and get in a particular year? Eric Clark: So maybe I'll start with that just to make sure I understand the question very clearly. When we talk about that ramped ARR, what we're doing is at the 2025 everything that is sold we're looking at the ramps over the next four years. And then comparing that to the same thing a year ago. So in that ramped ARR, it doesn't assume any new sales. That is all committed revenue. And then everything new that we sell adds to that committed revenue. Is that kind of the question you're asking, or am I missing something there? Dylan Becker: It was more in the, in the context of how that flows through to reported cloud revenues. Right? Of what's the kind of step up in that ARR that you actually realize in a particular year just giving you kind of conviction in the durability of the 20% growth algorithm, if that makes sense? Eric Clark: Yeah. And the ramps vary. And in any given year, we've got as you know, some of our products like POS and order management ramp quicker, but some of the long complex warehouse do often take four years to fully ramp. And in any given year, we've got some that are four years in, some that are three years in and two years in and one year in. But you've seen the volume over the past several years of our sales growth. So we're you know, each one of those categories is kind of stepping up each year, which is compounding that growth each year. Dylan Becker: Very helpful. Thanks, Eric. Eric Clark: Yep. Thank you. And then maybe one thing I'll add to that, sorry, is, our GRR gross retention rates are world-class and that really gives us confidence. So Dennis talked about the assumptions around this new ramp ARR number is that we're assuming no churn and no price increase. Well, that also creates upside because there's more opportunity for price increase than there is return. Dylan Becker: Thank you. Operator: And our next question comes from the line of Parker Lane with Stifel. Please proceed with your question. Parker Lane: Hey guys, thanks for taking the questions here. Eric, great to see the commercial availability of the AI agents and the agent foundry. Was just wondering if you could go a little bit deeper on the monetization strategy around these agents if you expect that to be fairly static across the different types of agents you're providing, including those that are more customized. And when you look out the 2020 I know we're really early here, but what sort of momentum do you anticipate seeing within your base from an adoption standpoint? And perhaps any thoughts on how much that could contribute to growth here in the near term? Eric Clark: Yes, thank you for that. So number one, we're really excited about what we've launched and we think this is truly different in the market. We're in a unique position where we really have stuck to our model on creating a true API-driven microservices platform that is truly integrated. So we don't have to start the conversation with a project of data indexing and moving to a data lake. We start the projects by turning it on and you've got live agents working in your system that are natively working in your platform. So that's something that's really unique. And I think we've got a lot of customers that are looking for ways to figure out how to take advantage of AI. And this gives them a very easy opportunity to. And we're offering this at a very low-cost low-risk scenario. It's a ninety-day proof of concept. It will come with forward-deployed engineers that will make sure that they learn how to use all of the standard agents that they can turn on day one. And those forward-deployed engineers will also help them build at least one or two custom agents using our agent foundry. And train them how to build their own custom agents. Clearly, all of this is, so that when we get to the end of that ninety-day proof of concept, we've got customers that say, there's no way we can turn this off. It's adding so much value. We've got to use it. And that's when we monetize it. So, we're pricing this. We want to keep it very simple for our customers, so it's an uplift. Kind of like we do with labor and slotting and some of the other things that we have within our product. It's standard uplift, and that makes it easy for our salespeople to have the conversation and easy for our customers to buy. Parker Lane: Thanks, Eric. And Dennis, one for you. Just to clarify on the customer liquidation headwind you faced. Was that $1.3 million for the fourth quarter that wasn't contemplated in the guide? And if so, what's the annualized headwind you anticipate there in '26? Dennis Story: Yes, was in the quarter $1.3 million or $2.5 million annualized. Eric Clark: Okay, yep. Parker Lane: Got it. Okay. So that wasn't in our numbers a quarter ago. That happened quickly and surprisingly. But it's now baked into all of our numbers. Parker Lane: Okay. For clarification. Dennis Story: Thank you. Operator: And next is Christopher Quintero with Morgan Stanley. Please proceed with your question. Christopher Quintero: Hey, Eric. Hey, Dennis. Really appreciate the ARR disclosure here. That's super helpful, especially with all the different dynamics hitting the RPO metrics. So thank you for that additional color. Eric Clark: Yep. Of course. Christopher Quintero: I've got two questions on services. It's usually the number one question I get from investors is how do we think about the services business over the medium and long term? Clearly, it's really great to see that get back to growth. You have some easy comps from '25, but you also have a lot of renewals coming up. So is there any color you can give us around what is that kind of medium normalized kind of growth rate for the services business? Potentially look like here? Eric Clark: Yes. So it doesn't surprise me that you get that a lot because I think in the services, in IT services world that question is going around a lot. I think what's unique about our services business is that it is so domain specific. And that gives us a unique advantage across our products, but also when we're talking about things like AgenTik AI. You know, the real value in AgenTik AI is being able to tie it to that domain knowledge and domain expertise. And that's what we're doing with our forward-deployed engineers. All that being said, and, you know, based on some of the comments I made earlier, these are all the things that give us confidence for that mid-single-digit growth rate in services. We don't expect this to be a double-digit growth rate and we don't necessarily want it to be. We want to our focus is on growing the cloud double-digit. 20% plus. Christopher Quintero: Got it. That's super helpful, Eric. And then if we go back to, you know, this call last year, you all talked about some of those implementation, in-flight implementations that got pushed out. Any update on that? Like how did all those close in 2025? Are you still kind of working through some of those? Any additional color there would be helpful. Eric Clark: Yeah. I think there's, you know, a little bit of all over the board on some of those. But the reality is, I think, in a large part, none of them stopped. As we said a year ago, none of them are stopping. They were just slowing down. They're all back deploying again to some extent. Some of them are you know, now ahead of where they were, you know, ahead of schedule, and we continue to have these conversations. If you remember, we talked about not only are we offering fixed fee conversions, but in some cases, we're going out to some of these customers and offering fixed fee hey, let us do the next 10 DCs that we've already got the recipe for, let us go roll these out quickly. So there's a big effort to make sure all of those catch up or get ahead of their schedule plan. Christopher Quintero: Awesome. Thanks so much, Eric. Eric Clark: Yep. Thank you. Operator: Thank you. And our next question comes from the line of Guy Hardwick with Barclays. Please proceed with your question. Guy Hardwick: Hi, good evening. Hi, Eric. I also NRF and I was able to fortunate enough to speak to some Manhattan Associates, Inc. reps and obviously, a home den on the active agent subscriptions, which you mentioned in the in your prepared remarks. So I know it was asked a little bit earlier, but asking in a different way. Are you assuming any incremental subscription bookings from active agent subscription in that $2.62 to $2.68 billion RPO guidance for the year? Or is it within the SaaS revenue guidance? Or would anything be incremental if it's not? Eric Clark: Yes. So we've taken a very conservative approach. Anything we do in AI is incremental to what we've talked about today. Guy Hardwick: Okay. Got it. And just as a follow-up. I guess that given you in terms of the Q4 bookings, how much of was that a catch up from perhaps the bookings being a little bit disappointing in Q3? So how much was it of bookings, which should have fallen in Q3, fell falling in Q4? And then how much was down to your sales guys over delivering or perhaps delivering better than expected? Eric Clark: Yes. I think when we talked about Q3 bookings, was a little below what we wanted it to be. But at the time, I said we are still on track to hit our full-year number. And that is a little bit just the lumpiness but we beat our full-year guidance by $40 million. So it absolutely was more than just timing by quarter. It was overperformance by the team. Guy Hardwick: Thank you. Eric Clark: Thank you. Operator: Thank you. And our next question comes from the line of Mark Schappel with Loop Capital Markets. Please proceed with your question. Mark Schappel: Thank you for taking my question. Nice job on the quarter, especially on the RPO print. Eric, a question for you here. Could you just comment on the CIO sentiment you're seeing with respect to green lighting large WMS and TMS conversion projects and maybe how that sentiment has evolved over, say, past six to nine months? Eric Clark: Yeah, I would say, the sentiment really hasn't changed drastically. Over the past six to nine months. I would say that our customers that are in programs are really like everything we're doing about speeding them up, speed and simplicity, how can they get to their ROI faster. The reason companies embark on this is because it truly does create efficiency and it does create cost savings and it does create ROI for them. So the faster they can achieve that, the better. But you can I gave you several examples of Q4 companies and the types of companies that we sold to and what they bought? Many of them being new logos, we still see a very healthy of companies that are recognizing if they want to achieve things that they need to do to meet their business strategies, they need software that supports that. And there's not another provider in the market that can provide what we can in these spaces, and that's why we continue to see these very, very strong win rates against the competition. Mark Schappel: Great. Thank you. And then as a follow-up here, in terms of your sales motion, obviously, a very strong quarter for new logos again this quarter. Could you also talk a little bit about the mix this quarter with conversions and cross-sells? And also how we should expect that to or how we should expect that mix to evolve in the coming year? Eric Clark: Sure. We always say that over time that it's kind of the rule of thirds. One third will be new logo, one third will be expansion and one third will be conversion. But clearly what we saw in 2025 is we had 20 we had 55% come from new logos. So that was a pretty remarkable performance. Now if any one of those three categories is gonna be higher than the others, I would absolutely want it to be new logo because that means we're going out, we're taking market share. That being said, I think just being realistically, and the more new logo we win, the more opportunity we have for expansion. And we know we have a ripe, set of customers that are getting ready for conversion. So we're just kind of weighing that as, you know, probably the rule of thirds over a longer period of time will come back into play. But we see big opportunity in all of those categories. Mark Schappel: Thank you. Eric Clark: Thank you. Operator: And our last question comes from the line of Clark Wright with D. A. Davidson. Please proceed with your question. Clark Wright: Hi there. Thank you. Most of my questions have been asked here already, but just wanted to understand again going back to the services revenue. And the opportunity that you have there once the customer is converted to the cloud. What's driving really the upsell from there on out and how do you continue to drive value through services in your domain expertise moving forward? Eric Clark: Yeah. So once a customer converts to the cloud, keep in mind, every quarter they get quarterly updates. So new features and that come to them through release notes and then our teams will help them determine which of these features and functions can add value to you right away, which do you want to think about later, etcetera. So the customers that are having the most success and getting the most value out of this software platform that we've built are the ones that are really looking at that quarterly. So then it comes in the services that are related to that come in very small doses each quarter. As compared to back in the old on-prem days, maybe it was an upgrade every five or ten years. With no services in between. So now it's more of a steady dose of services throughout the life of the partnership. Clark Wright: Awesome. That's helpful. And then just in terms of oh, go ahead. Eric Clark: No, please go ahead. Clark Wright: I was just wondering in terms of the strengths of the new business that you're talking about, has there been any specific verticals where you've seen more traction than others? Eric Clark: Well, I think what's been exciting for us is it's been very diverse. People really know us as we're really strong in retail and a lot of people think about us as that retail strength. But when I kind of listed out the wins and talked about the wins that we had in Q4, it goes far beyond retail. And it's great to see we're getting more and more strength and more dominance outside of retail. Clark Wright: Thank you. Eric Clark: Thank you. Operator: Thank you. And ladies and gentlemen, with that, this does conclude today's question and answer session. I would now like to turn the floor back to Eric Clark for any closing remarks. Eric Clark: I know we ran a few minutes long, but thank you all for sticking with us. Really appreciate your time. We're pleased with where we are here in Q1 and excited about the year ahead. Operator: Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time, and have a wonderful day.
Operator: Good morning, and welcome to Nucor's Fourth Quarter 2025 Earnings Call. [Operator Instructions] And today's call is being recorded. [Operator Instructions] I would now like to introduce Chris Jacobi, Director of Investor Relations. You may begin your call. Chris Jacobi: Thank you, and good morning, everyone. Welcome to Nucor's Fourth Quarter Earnings Review and Business Update. Leading our call today is Leon Topalian, Chair and CEO; along with Steve Laxton, President, COO and CFO. Other members of Nucor's executive team are also here with us today and may participate during the Q&A portion of the call. Yesterday, we posted our fourth quarter earnings release and investor presentation to Nucor's IR website. We encourage you to access these materials as we will cover portions of them during the call. Today's discussion will include the use of non-GAAP financial measures and forward-looking information within the meaning of securities laws. Actual results may be different than forward-looking statements and involve risks outlined in our safe harbor statement and disclosed in Nucor's SEC filings. The appendix of today's presentation includes supplemental information and disclosures, along with a reconciliation of non-GAAP financial measures. So with that, let's turn the call over to Leon. Leon Topalian: Thanks, Chris, and welcome, everyone. For as long as I've been Nucor's CEO, we have opened our earnings calls by recognizing our safety performance, and I am pleased to continue that tradition again. In 2025, our team achieved the lowest injury and illness rate in our history, marking the eighth consecutive year of improvement. And we finished the year with incredible momentum as the final 2 months of the year were the safest 2 months we have ever recorded. These milestones have occurred during a period of significant growth and transformation for Nucor, and I am extremely proud of how our team continues to prioritize safety in everything we do. However, as we pursue our goal of becoming the world's safest steel company, our safety journey will not be complete until we operate injury-free every day. Before I comment on our results, I would like to briefly address the management changes we announced at the end of last year. Effective January 1, Steve Laxton was promoted to President and Chief Operating Officer. Throughout his 23 years at Nucor, Steve has demonstrated strong leadership and has played an important role in shaping our growth strategy. In this expanded role, he will have an even greater impact on the company's future. Steve will also continue to serve as CFO until a successor is named. Congratulations, Steve. I would also like to acknowledge the many contributions of Dave Sumoski. Dave has served as our Chief Operating Officer since 2021 and will retire in June after more than 30 years at Nucor. Over that time, Dave has been a trusted leader, and his deep operational expertise and strong commitment to advancing our safety culture have made a lasting impact on the company. He will be missed by all of us when he begins a well-deserved retirement in June. On behalf of our teammates across Nucor, we wish Dave and his family all the best. Turning to our financial performance. We delivered adjusted earnings of $1.73 per share in the fourth quarter and $7.71 per share for the full year. EBITDA totaled $918 million for the quarter and approximately $4.2 billion for the year. We remain committed to balancing long-term growth with meaningful shareholder returns while maintaining the strongest credit profile in our industry. For 2025, we reinvested $3.4 billion into the company, with the majority of that capital going to projects that were completed in 2025 or will be completed later this year, returned $1.2 billion to shareholders through dividends and share buybacks, representing approximately 70% of net earnings and finished the year with $2.7 billion in cash, providing ample liquidity to support the business and finance our growth objectives. We begin 2026 with real momentum built on years of hard work, disciplined investment and a relentless commitment to Grow the Core, Expand Beyond and Live Our Culture. Since 2019, we have strengthened our steel mills segment through 15 major projects across our sheet, bar and plate groups. These investments have enhanced our capabilities while shifting our product mix toward higher-margin products that address growing customer needs in key markets. We have also expanded our steel products portfolio by delivering more comprehensive customer solutions and adding steel adjacent businesses supported by strong secular demand trends. The progress we made in 2025 marked a meaningful inflection point as a number of projects transitioned from the construction phase to the ramp-up phase. Major projects completed include our new rebar micro-mill in Lexington, North Carolina, a new melt shop at our bar mill in Kingman, Arizona, a new Nucor Towers & Structures facility in Alabama and new galvanizing and prepaint lines at our Crawfordsville sheet mill in Indiana. All of these projects are on track to be fully ramped up and operating at positive EBITDA run rates within the year. Our growth strategy has never been about simply getting bigger. It's about generating more value for our customers, shareholders and teammates. Even as we've executed on these growth projects, we've also taken deliberate steps to realign our asset base and improve our cost structure by restructuring operations and repurposing facilities to better serve fast-growing end markets. For example, we converted 2 existing steel products facilities to support our Nucor Data Systems business as it supplies the rapidly expanding data center market. This demonstrates a core strength of Nucor. With the broadest range of capabilities in the North American steel industry, we are uniquely positioned to capitalize on new opportunities wherever they emerge. Turning to 2026. Several remaining projects will reach completion this year, and our teams are focused on bringing them online safely, on time and on budget. Within the sheet group, we are on schedule to complete construction of our new mill in West Virginia by year-end. Once online, this mill will begin supplying some of the cleanest and most advanced sheet steel in North America, serving automotive, construction and industrial customers. We will also start up the new galvanizing line at our Berkeley County mill with commissioning planned for mid-2026. Within towers and structures, construction continues on our greenfield utility pole production facility in Indiana, which is expected to begin full operations in the second quarter. Our third greenfield project in Utah remains on track for completion in 2027. When these facilities are fully online, we will operate 4 highly automated state-of-the-art production sites with national coverage in the high-growth utility transmission tower market. Since 2020, we have invested approximately $20 billion through CapEx and acquisitions to grow our core steelmaking capabilities and expand into downstream businesses while returning nearly $14 billion of capital to shareholders and improving our credit profile. With the majority of our recent investments largely complete, I'm confident it sets up Nucor to enter its next phase of growth from a position of strength, focused on disciplined capital allocation while driving long-term value for our shareholders. Moving to trade policy, vigorous enforcement of our trade remedy laws and the full reinstatement of the Section 232 steel tariffs without exemptions last year have helped drive down steel imports. Foreign import share of the U.S. finished steel market has dropped from approximately 25% at this time last year to 16% in October and an estimated 14% in November. We expect imports will continue to trend at or below those levels in 2026 as the market absorbs the full impact of the Section 232 tariffs and recent trade case determinations. During 2025, the Department of Commerce and the International Trade Commission made important rulings regarding unfairly traded imports of corrosion-resistant steel and rebar. Together, the Section 232 tariffs and product-specific trade cases provide vital defenses against countries that seek to dump their steel into the U.S. market. We appreciate the efforts the federal government took in 2025 to level the playing field for the American steel industry. Looking ahead, the trade policy will remain a priority for our industry. The formal USMCA review beginning in July offers the opportunity to drive additional steel demand in North America, crack down on efforts to transship steel through Mexico and Canada and address steel subsidies provided by the Canadian government. We must also continue to implement common-sense policies like Buy America that incentivize the use of American-made steel for infrastructure, shipbuilding and defense. Turning to our expectations for 2026. We continue to see strength in many of our primary end markets, including infrastructure, data centers and energy and in energy infrastructure. We are also seeing healthy demand related to advanced manufacturing in the border fence. While those markets remain strong, we have yet to see much improvement from interest rate-sensitive markets like automotive and residential construction. In total, we expect domestic steel demand to be slightly up relative to 2025. And as I mentioned earlier, we expect the full impact of the Section 232 tariffs and recent trade determinations will lower levels of imported steel in 2026. Against this supply and demand backdrop, we entered the year with historically strong backlogs, up nearly 40% year-over-year in the steel mills segment and 15% in steel products. Within that, our structural group really stands out. The team set a record in the first quarter of 2025, and the structural backlog we are carrying into this year is more than 15% above that, reflecting sustained demand across key nonresidential and infrastructure markets. For the full year, we currently expect Nucor steel mill shipments to increase approximately 5% compared to 2025. With that, I will turn the call over to Steve to provide additional details on our fourth quarter and full year performance as well as our outlook for the first quarter. Steve? Stephen Laxton: Thank you, Leon, and thank you all for joining us on the call this morning. During the fourth quarter, Nucor generated adjusted net earnings of $400 million or $1.73 per share. For the full year, adjusted net earnings were approximately $1.8 billion or $7.71 per share. As noted in our earnings news release, adjusted fourth quarter earnings exclude $27 million or $0.09 per share of charges related to onetime noncash asset impairments, primarily related to discontinued operations that were recognized during the period. Full year results also exclude approximately $23 million or $0.10 per share of after-tax charges incurred in the first quarter, primarily related to closing or repurposing facilities in the steel products segment and ceasing production of wire rod at our Connecticut bar mills. Turning to the segment level results. For the fourth quarter, the steel mills segment generated $516 million of pretax earnings, down roughly 35% from the prior quarter. Shipment volumes declined 8%, reflecting seasonal effects, fewer shipping days in Nucor's fiscal fourth quarter and the impact of both planned and unplanned outages. While average realized pricing improved in our bar and structural groups, those gains were more than offset by lower pricing in our sheet and plate groups. This decline was expected as lagging sheet prices from the fall flowed through in the quarter. Sheet prices began to rise in November and December, with most of that benefit expected to be realized in the first quarter. Turning to steel products. We generated pretax earnings of $230 million, down from $319 million in the third quarter. Consistent with our steel mills segment, volumes declined sequentially across the steel products portfolio. Our rebar fabrication business accounted for roughly half of the quarter-over-quarter volume decline, in line with its typical seasonal volume trend. Turning to our raw materials segment. We generated pretax earnings of approximately $24 million compared to $43 million for the prior quarter, primarily reflecting the impact of 2 scheduled outages at our DRI facilities. As we continue to advance our long-term multiyear growth strategy, 2025 CapEx totaled approximately $3.4 billion. With several major projects reaching completion this past year, we will see a meaningful step down in capital spending for 2026. Our current estimate for 2026 CapEx is approximately $2.5 billion. Growth-oriented investments will represent roughly 2/3 of our planned spending with our West Virginia sheet mill remaining the largest single use of capital. Our growth efforts are also having a pronounced near-term impact on profitability. For 2025, pre-operating and start-up costs totaled $496 million. Looking ahead, we expect these costs to remain elevated in 2026 as several projects move beyond the start-up phase, offset by higher expenses associated with others, particularly bringing West Virginia online. Nucor remains committed to a balanced capital allocation framework anchored by 3 principles: maintaining a strong balance sheet, investing for value-creating growth and making meaningful direct returns to shareholders. In the past 3 years alone, Nucor has invested over $9.5 billion through capital spending and acquisitions. During that same period, Nucor returned over $6 billion to shareholders in dividends and share repurchases, an amount equal to roughly 73% of Nucor's net earnings during that time frame. Even with these historically sizable investments and returns, we have preserved low leverage and substantial liquidity, supporting our industry-leading A- and A3 credit ratings from all 3 major rating agencies. It is worth noting that in December, our Board approved an increase in the quarterly dividend to $0.56 per share, extending our record of paying and increasing our regular quarterly dividend for 53 consecutive years. Turning to our first quarter outlook. We expect higher consolidated earnings with improved results across all 3 operating segments. Shipment volumes should increase in each segment, supported by a healthy demand environment, typical positive seasonal trends and fewer outages relative to the fourth quarter. The steel mills segment is expected to drive the largest portion of the sequential earnings growth due to higher volumes and higher realized pricing. All product groups within this segment should see improved results with our sheet business contributing the most to the overall increase. In the steel products segment, we expect higher volumes and stable pricing. And in our raw materials segment, earnings are expected to improve modestly following the successful completion of planned DRI outages in the prior quarter. These gains will be partially offset by higher profit eliminations upon consolidation. Before we take questions, I'd like to spend a minute on what has long been both a source and evidence of Nucor's resilient and sustainable business model, our ability to generate free cash flow across a wide range of market conditions. Last year, Nucor had negative free cash flow, something that is very rare in our company's history. But this event was not a surprise. It was a measured and intentional result that was the product of advancing our aggressive growth initiatives and strategy. We prudently positioned the company with ample liquidity ahead of these expected results to afford the ability to maintain our growth and return commitments. With lower capital spending, incremental EBITDA from recently completed capital projects and improved market conditions as a backdrop, we expect Nucor to generate meaningfully higher free cash flow in the year ahead. We enter 2026 with healthy, favorably priced backlogs, supporting both higher shipments and better margins across most of our product lines, and we remain confident that with the broadest range of capabilities and solutions in the North American market, our driven and dedicated team is exceptionally well positioned to create value for our customers and shareholders. And with that, we'd like to hear from you and answer any questions you may have. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Lawson Winder from Bank of America. Lawson Winder: Steve and Dave, I would say congratulations on your new adventures going forward. If I could ask about CapEx and look out to 2027. And by the way, thank you for the detailed guidance on 2026 CapEx. As we think of how falling CapEx might help support Nucor's unfolding free cash flow inflection, could you just speak to your current view on CapEx for 2027? And in particular, maybe address -- one would be the $950 million for West Virginia in 2026 and how that might be expected to follow on in 2027 with some additional CapEx. And then the breakdown in 2026 CapEx suggests non-expansionary and non-improvement CapEx of about $950 million. And I think we've talked about $600 million in the past. Like what is the latest thinking on sort of ongoing non-expansionary CapEx to kind of keep the business running? Leon Topalian: Lawson, I'll kick this off and then ask Steve to provide a little bit of color as we think about CapEx flowing into 2027, but I do want to begin where you started in thanking Dave and Steve both for their commitment. Dave's 30 years with our company. And again, he and I started our careers together building Nucor Berkeley in the mid-90s, and we appreciate everything you've done. And on behalf of our 33,000 team members, Dave, thank you. David Sumoski: Thanks, Leon. Leon Topalian: And look, Lawson, the other thing I'll also just mention briefly is 8 straight years of safety performance, that our team continues to just exemplify the value of safety and what it means to accept the challenge of becoming the world's safest steel company. It is something that gives me tremendous pride in all of us in Charlotte as they execute each and every day across all of our product groups to these start-ups, the enhancements, the build-outs, the new lines and greenfield operations. It's an incredibly exciting time for Nucor that positions us well for the long term. And as again, we move to the future, we do see a day in time where Nucor will go an entire year without a single injury to any of our team members. So we're going to continue to focus on that as our primary value as we drive all of our business results and again, thanking our team for that. Finally, the last comment I'll make specific to the CapEx. Look, when we began this journey in 2020, it was to make sure Nucor remained a growth company. We've invested heavily. We've taken meaningful steps. But against that backdrop, Lawson, one of the wonderful things then and now is we didn't have to pivot. We didn't have to change tack of where the company was headed or the direction. In fact, we were coming off some of the best years we've ever achieved as a company when we added the Expand Beyond portion of our growth strategy, and it remains the same today that we can be incredibly prudent and disciplined with how we think about spending our valuable shareholder capital to grow this company meaningful. Again, the culmination of West Virginia that will start up later this year will really absorb the majority of that CapEx as we move into 2027. But Steve, maybe provide some additional details? Stephen Laxton: Yes, sure. Lawson, just to kind of follow up on what Leon said there. West Virginia will be done at the end of this year, and that team is doing a fantastic job moving that project forward. Busy, as you could imagine, it's a big project. And in the past, we have guided figures of what we would call maintenance capital. But included in maintenance capital, I would put safety, environmental compliance and a certain amount of efficiency projects that are smaller in nature that don't necessarily add new capabilities to us. I would guide you to a figure closer to $800 million a year now for that just because of the inflation that we've seen in the last several years post-COVID and just the size of our company. We're larger now. So as you think about modeling out things beyond '27 and beyond, I'd guide you more toward an $800 million figure plus whatever projects are going on. Lawson Winder: Fantastic. And I guess just a follow-up would be on those potential expansionary projects. It feels like you're quite satisfied with the long product business at this point with the step back from a potential Pacific Northwest expansion. Are there areas of the business that you might be able to highlight today as places where you actually might consider some expansionary capital beyond '26? Leon Topalian: Yes. Look, Lawson, I think without getting very specific and completely not answering your question, I would just guide you to the things that you've seen and how we've looked for growth. And it's coming through the megatrends in our economy, things like data centers, energy, energy infrastructure. Obviously, the ability for us to pivot very quickly and handle the increase in the border wall has been a nice boom for our businesses across Nucor. But -- and finally, the towers and structures segments of our growth that we are tremendously excited about. Every one of those continues to provide a platform for additional growth. For example, in data centers today, Nucor supplies about 95% of the overall steel demand required for the entirety of a data center. And so again, we look for, okay, what's the next step? How can we continue to maximize our capability set and continue to enhance the growth profile for our shareholders? So we're looking for things that aren't high CapEx. We're looking for businesses that might be countercyclical to the steel industry and trends that we've been a part of for 6 decades. And then lastly, I think in the core side, it's how do we continue to invest for the long term that moves us up the value chain and higher-value products. And again, you're seeing that in our galvanizing lines in Crawfordsville and Nucor Berkeley, the 2 galvanizing lines that West Virginia is building. So again, we're thinking about how do we continue to grow and enhance our differentiated position that we have to supply our customers with products that they're going to need today and down the road. Operator: Our next question will be from Timna Tanners from Wells Fargo. Timna Tanners: I wanted to take a step back and recall your November 2022 Investor Day where you talked about through the cycle EBITDA at $6.7 billion. And if you could just refresh us on where we stand relative to that number, what it might take to get there considering the projects that you have. I know those were -- that number was assuming they are complete. But should we assume that, that could be the run rate in 2027 as you finalize some of these projects? Or any updated thoughts there, please? Leon Topalian: Yes. A couple of thoughts. First, thank you for referencing that. For me, it was my first Investor Day as CEO. And again, Steve and his new role as Chief Operating Officer as well as CFO, at least for a short time until we announce his successor. Look, we're thinking hard about when the next Investor Day is, Timna, again, to provide an update against that backdrop. But look, it's something we spent a lot of time thinking through the investments we're making at that time. So look, to answer your question broadly, yes, I think you're thinking about it the right way as we culminate the West Virginia start-up and then bring that to its full ramp capabilities. At the same time, I would tell you, look, I'm an optimist, and I believe in the long-term growth strategy Nucor has had, but I also think we've reached a time in our economy where we've seen import levels, for example, I've never seen in my 30 years at Nucor. So we're poised today to capitalize on those trends as well as the opportunities. And again, I know your background and obviously, how well you understand sheet. The material decrease in the import levels on sheet alone are 4 million tons of consumption that the domestic supply chain gets to now contribute. It is a meaningful number. And so again, I don't know what the next administration brings, but certainly, as we look to '26 in the short-term horizon, may we see import levels staying or maybe even slightly coming down some more. So Steve, anything you'd add on the Investor Day or the EBITDA that we projected at that point? Stephen Laxton: No, not really. I think what I would be a little bit clear on, I think I heard you ask about is that good guidance for '27. And I want to hesitate to say that it's guidance for '27, the Investor Day materials, which you're familiar with, but others on the call may not be, was a mid-cycle guidance around -- after all projects at that time were completed, including West Virginia and the others. And just -- so I'd back off of that being a specific guide toward '27. All the points Leon made are solid and can be baked into your thinking around '27. But with respect to the ramp-up of West Virginia, that's a big complex mill. It's not going to be at its run rate of EBITDA in '27 among other projects, for example. Timna Tanners: Okay. Appreciate that color. Along the lines of what Leon was talking about with the loss of imports, it does make sense that the domestic mills can take share. Can you just give us some thoughts on the spare capacity across your operations and what you might be able to do incrementally to take share from imports? Leon Topalian: Yes. Look, again, I think overall, we're in a great position. We're roughly about 85% utilization across our sheet mills. That gives us opportunity to contribute into the spot market and as well as think about the long term. So again, with an import level overall ADC about 15%. It creates some unique opportunities that we have the room. We have the capability set in our mills and again, really creates a wonderful time for a ramp-up of a new facility in West Virginia. And so we see more opportunities there as well. I think the Northeast and Midwest corridors provide some unique geographic opportunities for Nucor. And again, I think from a cost position, that mill is going to provide a significant value for our shareholders. Operator: Our next question comes from Bill Peterson from JPMorgan. William Peterson: Again, congrats to Steve and Dave here. I wanted to follow up on the last question. You discussed shipments are -- your shipments are projected to increase by 5%, implying a higher share of U.S. market demand. I think you talked that there's some uplift you can see in utilization, you mentioned sheet. But I guess should demand support, is there upside to that 5% expectation? And what would drive that? Would that be more in your view, sheet, plate or I guess, bar considering that you have Lexington and Kingman coming online? Leon Topalian: Well, yes, Bill, look, do I think it's sustainable? 100%. If you look at our backlogs, again, they're up 40% year-over-year in the steel group, 15% or 16% in our products group. In many of our product groups today, they are record-setting backlogs. I think maybe the -- our earnings call in Q3 and 4, I actually shared some volumes in our structural backlogs. And again, in my opening comments, they are record backlogs, and they are historic backlogs for what we've seen, and it's a market and an end-use customer in our nonres and industrial sectors that we know incredibly well. So when I'm talking to our customers and our customers' customers, the demand picture is robust, and it's very optimistic for 2026. We believe that the 5% is not only an achievable number, but the demand profile is going to create some uplift for virtually every product group. Finally, I'd tell you that as you look, it's a commodity across the board. We've -- it's a supply and demand environment. It's not tariffs or a single thing that's driving pricing, but the pricing that Nucor has realized that were announced in Q4 hits almost every product group, sheet, plate, bar, beam and many of the product group segments themselves that are all seeing that stick. So look, I think we're entering what should be a better year in 2026. We're very optimistic. And again, we -- the timing of our start-ups in several of the expand businesses and core are coming at a perfect time in a demand environment that's peaking in energy, infrastructure, nonres, border fence, energy infrastructure, towers and structures, and yes, I think positions Nucor incredibly well. William Peterson: I wanted to follow up on your comments around trade policy with your expectations that the tariffs are going to continue without exemptions. So is that kind of a statement on 2026? I guess, are you expecting that to be durable beyond? I'm also trying to get a sense for the risk of lower tariff rates and/or quotas. Maybe these are on the table for the upcoming USMCA negotiations. And maybe what is Nucor lobbying for or positioning for? I guess bottom line is, are you supportive of lower rates for Mexico and Canada if they have equally high steel tariffs to other regions in order -- basically in order to mitigate transshipments? Any sort of specifics on your expectations around trade policy would be helpful. Leon Topalian: Yes, Bill, I'll touch on it. And look, let me begin with the end in mind. What Nucor is most in favor of is banning illegally dumped subsidized imported steel to come in and ravage the shores of the U.S. economy period, full stop. How we do that, how that's affected? Obviously, it matters greatly. And if you would ask me and you did a year ago, hey, did I think our trade agreement with USMCA as we reinstituted or Trump reinstituted the 232 tariffs would be resolved very quickly. I would have told you, absolutely, I believe that would have been resolved very quickly. But here we are a year later, still that not done. And then again, July, the renegotiations come up. But the reality is I can't tell you, does that end up with a trilateral agreement, a bilateral agreement and again, the one-offs on what this current administration is going to do. What I can tell you is what we've seen out of Commerce and USTR is a very supportive trade environment that's pro-America and pro-U.S. manufacturing. So what would we like to see ultimately? Manage strength in the rules of origin, continued enforcement of the 232 policies that are already on the books, the enforcement of them. That's why we've been such staunch supporters of the Level the Playing Field Act 2.0 (sic) [ Leveling the Playing Field 2.0 Act ] and still think that needs to pass. But look, I think as we look to the second half of President Trump's administration, you will see a continuation of those pro-America first trade policies and remedies. Operator: Our next question comes from Phil Gibbs from KeyBanc. Philip Gibbs: On West Virginia specifically, can you just update all of us on some of the new products and end market capabilities that, that mill may give you relative to the current fleet of assets that you have right now on the sheet side, just to kind of go back over the investment case and why you're making the move here? And yes, that's effectively the question. Just kind of want a refresher in terms of what it brings because I know it's a different mill relative to what you currently have. Leon Topalian: Yes. Look, Phil, I appreciate the question. I'll kick it off and then ask Noah Hanners to actually give you the specifics of that capability because it's going to be very unique for Nucor. But if we step back to the macro question you asked about why, look, it's the right opportunity. If you look at Nucor's market share in the largest sheet consuming region in the U.S., it's about 15% or 16%. So we have a huge opportunity to grow in that space against what we believe is some competitors that we have ample opportunity to continue to provide a better differentiated value proposition in that market. So the geography of West Virginia, coupled with the state in the Mason County, West Virginia, the people of that state fuels what we believe is going to be an unprecedented growth for us and a capability set unlike anything Nucor has brought to bear in the market. So we couldn't be more excited about the geographic, the technical and again, the people side of the state of West Virginia. They've been an amazing group to work with. We couldn't be prouder of the team we've hired, the work that's being done there. But Noah, why don't you touch on some of the capability sets in the mill. Noah Hanners: Yes. Maybe just to add a little bit more detail to Leon's excitement there. One, we feel great about the strategy to get into higher value-added products. And specifically at West Virginia, that's about 1/3 of that production going into the automotive market. And some of those grades, the quality of the production there will be into exposed automotive, an area where EAF production really hasn't played broadly before in the U.S., and we're really excited about the capability to get there mostly because of the demand we hear from customers. We've recently gotten qualified on exposed automotive through another route to our mills, and that will really open the door for us to expand our business into the highest quality automotive production. The other point I'd highlight is in the consumer durables. We haven't had great market share there with especially items like appliances. And Leon hit the regionality of this, but we see some pretty substantial growth in demand through some reshoring projects that are being built in that region. So probably those are the 2 areas that I'd highlight for you, 1 million tons of galvanizing is going to play really well with that. We're going to have the capabilities to match what is really robust growth in demand for us. Philip Gibbs: And do you have any carryover CapEx from these major projects like West Virginia into 2027, Steve? I know you talked about $800 million maintenance plus whatever growth you have, and you always have some sort of growth element. But anything left on West Virginia or these other major projects in '27? Stephen Laxton: Yes, there'll be a small amount, Phil. That's very normal for us to have some carryover between calendar years. We'll update you more on the outlook in '27 as we get toward the end of '26. So I'd love it if that team beats every time and we don't do that, but that's been the historic pattern year on. Philip Gibbs: And then if I could sneak one more in just on kind of just a modeling question, high-level question, just because I don't have it in my model. Do you guys have an idea what mill utilizations were for Nucor in general in 2025? Leon Topalian: Yes, we do. As I think about our major product groups, somewhere in that 82%, 84% range is about the right utilization, Phil. Operator: Our next question comes from Katja Jancic from BMO Capital Markets. Katja Jancic: I think earlier, you talked about beyond the current project pipeline, you would be looking at growth opportunities that would be less capital intensive. In the future, could you talk -- or could you provide a little more color on what the, let's say, annual growth CapEx could potentially be in a more normalized environment without these major projects? Leon Topalian: Well, Katja, yes, I appreciate the question, and I'll probably have you back into the numbers because we're not going to exactly tell you the exact amount of dollars. What I would tell you is this, we are committed to a long-term investment-grade credit rating. We're committed to returning at least 40% of our net earnings back to our shareholders in dividends and share repurchases. And quite frankly, beyond that, I want to use the rest 60% for growth, period, full stop. So I want us to be using the money that Nucor is generating to continue to fuel our growth for the next 10, 12, 15, 20 years and beyond. And so that's how you can be thinking about it. We -- again, we provided some details in the 2022 Investor Day that we had. And so again, if you think of a through-cycle EBITDA of $7 billion, okay, everything that didn't go back to our shareholders is then going to be used for growth. So again, our M&A teams are working hard, and we're really looking really hard this year at, okay, how do we invest that, how do we grow -- continue to grow Nucor in meaningful ways. And I think you're going to see a shift from heavy core investments to heavy adjacencies or what we call the Expand Beyond investments over the next several years. Katja Jancic: Maybe just a follow-up to your comment about M&A, can you talk a little bit more? I know you said adjacencies, are there specific products? Or how should we think about these type of businesses? Leon Topalian: Yes, Katja, again, I shared a little bit earlier, but look, we've been fairly open with our investment filters and strategy in M&A and particularly adjacencies that they're going to have some steel centricity. There's going to be some connection to Nucor gaining and using and having the opportunity to have synergies. So it's something that's going to connect us to, for example, like C.H.I., with the overhead door businesses in Rytec and what a wonderful adder, where they've been a huge player in the residential space, a little less so in the commercial. Well, again, that's where we play in the commercial side. So our teams and our Buildings Group, our Nucor Warehouse Systems groups to be able to use and combine forces to be able to provide that, the hyperscalers and colocators in the data center. It provides a wonderful platform for us to continue to grow Nucor and as well that business footprint. So when you think about the megatrends in the U.S. today, energy, energy infrastructure, data centers, towers, structures, those are the areas you can be looking and expect that Nucor is searching really hard for those companies that would be additive and where we see synergies and value [ in creating EVA ] for our shareholders. Operator: Our next question comes from Andrew Jones from UBS. Andrew Jones: Just a few questions. First of all, on pricing. I'm just curious how you're looking at your pricing policy now given, obviously, we have on import parity, your traditional importers are probably getting sort of close to $1,000 on HRC, I would guess. But I guess if you're talking about like East Asia, they can probably land HRC in the U.S. at close to $800. So given that gap is now growing to import parity versus, say, some of these East Asian countries, like what stops those volumes starting to tick up in the coming months? And do you see that as a material risk? And does that hold you back from potentially lifting prices much further from here? How do you think about that in the context of changing trade flows? And I've got a second question, if you answer that first. Leon Topalian: Yes, Andrew, I want to make sure I'm getting at the heart of your question. I think I understood what it is. But Steve, if I miss parts of that or -- jump in. But look, we had similar questions back in '21 and '22 when the U.S. economy was so hot and the world pricing was less, right? We saw spreads of HRC that were $200, $300 a ton or in some cases, in short points greater than that. And what's sustainable? And are you taking -- look, we are a commodity-driven business who values our shareholders and our customers a great deal. It is that bedrock that ultimately dictates pricing, not our wishes. It is what the demand profiles and supply chain is looking like in the U.S. And what I would tell you is that the separation today in the U.S. from the world market is for a good reason. Look at the demand profile against the backdrop of a really healthy and robust economy outside of just steel. You're seeing growth, reshoring, investments, nuclear energy, like just a number of facets that are creating this. So it's not a false narrative that it's the only reason pricing is up because President Trump put in place tariffs. That's not it at all. Shoot, it wasn't 5, 6 months ago, we saw HRC at $800 a ton. So it's not that. It's a much broader economic picture of strength of the U.S. and why every foreign investment wants to come and build here. It's why you saw -- and now what was the -- a U.S. company, now a Japanese company and U.S. Steel. It's not an American company today. It is a Japanese-owned company. And you're going to see continued investments from foreign companies that are looking to capitalize and come to the U.S. because of that strength. And so, look, the forecasted [ touch on ] pricing, look, I'm not going to try to predict. What I would tell you is based on what we're sharing with you our historic backlogs, volumes, the demand, the robustness that we see in this economy, again, I think '26 is shaping up to be a very, very solid year for Nucor. Andrew Jones: Okay. That's clear. And then just on the CapEx, I mean, you sort of talked about it a bit already, but I guess the guide for '26 was lower than what the Street had in. And if there isn't substantial overspill into '27, it looks like the cost of some of those projects have come down despite obviously all the tariff risks. I mean, what do you attribute that to? I mean were you building in a lot of contingency that hasn't come to pass? Or like what's changed? Stephen Laxton: Andrew, this is Steve. In many regards, it's the -- you have to look at '25 coupled with '26. So if you're only looking at '26, it looks like maybe relative to what your estimate would have been that our forecast is lower. But we also -- we ended up spending $3.4 billion, which is a little bit more than a year ago on this call, we would have guided you closer to $3 billion for the spin. So our teams did an outstanding job advancing those projects. And we -- as Leon mentioned in his opening comments, we brought a number of projects online this year. So kudos to our team. They covered a lot of ground. We -- almost arbitrarily, there's a year-end stuck in there. But under the course of time, when you look at both of those 2 numbers together, it's in line. So it's not that there's been a reduction in cost. It's really just timing difference between the 2 periods. Andrew Jones: Okay. That's clear. And just finally, on the M&A front, I mean, obviously, your peers have been pretty active. From the perspective of your market share, I mean, do you think that M&A would be possible for you on the actual upstream steel side of the market, given how large you are relative to others, obviously, with imports going down? I mean, do you have scope or interest in expanding in the upstream side? Or is it mainly just focused on some of those downstream areas you've alluded to? Leon Topalian: Yes, Andrew, look, we are the largest steel producer in the Western Hemisphere. So yes, every M&A opportunity in our pipeline holds interest. And so where we think we can grow and do and move, we will absolutely do so. But make no mistake, Nucor is a steel company at its heart, and we will continue to grow through adjacencies and Expand Beyond, but it's the capabilities through our steel that fuel and fund all of that growth. And so yes, as those opportunities emerge, you can bet Nucor's looking hard and evaluating hard of how we think about growth in the core businesses. Operator: Our next question comes from Tristan Gresser from BNP Paribas. Tristan Gresser: The first one is on the incremental EBITDA from the completed projects. Could you give us a sense of how much those projects contributed in 2025? And what do you expect in terms of EBITDA contribution for 2026? Stephen Laxton: Yes. Tristan, that's a great question. So if you just took -- are you talking about just -- I want to clarify, just if you're talking about the projects that came online last year, there's 4 major projects that came online. When you put those along with continued progress at Brandenburg, the delta in the EBITDA is about $500 million between just those 4 projects and progress at Brandenburg. So it's a meaningful uplift in 2026's outlook for us just from those recently completed projects. Tristan Gresser: Okay. Sorry, just to clarify, you expect a $500 million additional contribution from those projects plus Brandenburg in 2026 versus 2025? Stephen Laxton: Yes. That's the delta in EBITDA between all projects together. Correct. Tristan Gresser: Okay. Got it. And second question, could you provide us a bit of an update on the plate market? You referenced Brandenburg. It would be good to know where the -- what's the situation today. But also on plate, I think we've seen some price hike announcement in December, January. But when I look at spot prices, they've not moved too much. So are you facing some resistance? Can you discuss a bit the demand environment? And also keen to get some sort of update on the rebar market and where do you see the ramp-up at Lexington? That would be great. Leon Topalian: Okay. Tristan, you have -- Brad Ford will kick us off on plate. And then maybe, Randy, why don't you touch on the start-up in Lexington? Brad Ford: Yes. Thanks for the question. Overall, we're pretty excited about where we're at on plate entering '26. As we touched on a few times on this call, backlogs are strong. Backlogs in plate are up 40% from this time last year. And we're coming off a pretty good year in terms of overall domestic consumption, which was up 15% year-over-year and really the best since we've seen since 2019. Obviously, couple that with an import picture where imports ended 20% down on cut-to-length plate for '25. And a lot of that was in the second half of the year as the market kind of worked through higher levels of imports from earlier in the year. So all told, we feel pretty strong going into '26. Strength in certain end-use markets, specifically energy, line pipe, transmission, wind are pretty strong. Nonres construction continues to be robust. I know Leon has referenced our structural backlog. And then infrastructure and specifically bridge continue to remain robust. So strong demand picture, low import levels and strong backlogs, we feel pretty confident going into '26. Randy Spicer: Tristan, just to give you an update on Lexington. First, I certainly want to thank our Lexington and Kingman teams for their continued focus on safely and successfully ramping up these new investments. We are extremely encouraged by those operations. They're ramping up, developing and how that team is executing on those projects. We continue to hit more and more milestones. Each week, we're setting and breaking production records on a regular basis. So this is an absolutely fantastic time to be bringing these investments up. We are currently sitting with record backlog on that side of the business. So we remain confident that both, quite frankly, our Lexington and Kingman operations will be EBITDA positive by the end of the first quarter, and we would expect both also to be fully ramped by the end of the year. Operator: We currently have no further questions, and I would like to hand back to Leon Topalian, Chair and CEO, for any closing remarks. Leon Topalian: Well, thank you for joining us for today's call. We feel very good about the position we're heading into 2026 and look forward to the opportunities we have before us. Thank you to our team for the safety, operational and financial performance you delivered in 2025. And thank you to our customers for choosing to do business with Nucor each and every day. And thank you, finally, to our shareholders for investing your valuable shareholder capital with us. Have a great day. Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Greetings, and welcome to the RBB Bancorp Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. And please note, this conference is being recorded. I will now turn the conference over to your host, Rebeca Rico, financial analyst. Ma'am, the floor is yours. Rebeca Rico: Thank you, Ali. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the fourth quarter of 2025. With me today are President and CEO, Johnny Lee; Chief Financial Officer, Lynn Hopkins; Chief Credit Officer, Jeffrey Yeh; and Chief Operations Officer, Gary Fan. Johnny and Lynn will briefly summarize our results, which can be found in the earnings press release and investor presentation that are available on our Investor Relations website, and then we'll open up the call to your questions. I would ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and the company's SEC filings. Now I'd like to turn the call over to RBB Bancorp's President and Chief Executive Officer, Johnny Lee. Johnny? Johnny Lee: Thank you, Rebeca. Good day, everyone, and thank you for joining us today. The fourth quarter was a strong finish to 2025 with solid loan growth, improving performance ratios and normalizing credit. The entire RBB team continues to work hard to return the bank to its historic performance, and I'm very proud of what the team has accomplished. We still have work to do, particularly with respect to resolving remaining nonperforming assets but we're confident that we turned the corner on credit, and that performance will continue to improve in future quarters. Fourth quarter net income totaled $10.2 million or $0.59 per share which was stable from the third quarter but more than double our earnings for the same quarter a year ago. ROA and NIM showed similar trends and were stable from the third quarter while increasing sharply from a year ago. For the year, loans grew at a solid 8.6%, which we believe demonstrate the progress we have made, returning RBB to its historical rate of growth. We had another quarter of strong originations to $145 million. And for the year, loan originations were 32% higher than they were in 2024. Our pipeline remains healthy and in line with this same time last year, so we are optimistic we will see another year of high single-digit growth in 2026. We continue to maintain pricing and structuring discipline with fourth quarter originations yielding 31 basis points above our current loan portfolio yield. Despite the Fed rate cuts of 75 basis points in 2025, we were able to drive our fourth quarter yield on loans up 4 basis points to 6.7% compared to the same quarter a year ago. Deposits were not the bright spot of 2025 and we show the progress we made by focusing on community outreach to attract retail deposits and expanding relationships with our business clients. Fourth quarter total deposits increased 6.6% compared to the fourth quarter a year ago, with strong growth in interest-bearing nonmaturing deposits supporting loan growth and a reduction in FHLB advances. Average demand deposits remained stable in 2025 and currently comprise 16% of total deposits. The fourth quarter rate on average interest-bearing deposits declined by 55 basis points from the fourth quarter of 2024 or 73% of the rate cuts we saw last year. While we were successful reducing funding costs last year, competition for deposits has been increasing and recent rate cuts have not delivered the same pace of reductions in our deposit costs. We made significant progress addressing our nonperforming assets during 2025. Nonperforming loans decreased 45% and nonperforming assets decreased 34% since the end of last year and included ongoing improvement during the fourth quarter. Criticized and classified assets also improved during 2025, decreasing by 43% for the full year and 25% since end of the third quarter. With that, I'll hand it over to Lynn to talk about the results in more detail. Lynn? Lynn Hopkins: Thank you, Johnny. Please feel free to refer to the investor presentation we have provided, as I share my comments on the fourth quarter and annual 2025 financial performance. As Johnny mentioned, and you can see on Slide 3, net income for the fourth quarter was $10.2 million or $0.59 per diluted share, which is stable from the third quarter. Fourth quarter pretax pre-provision income was $2.3 million or 21% higher than a year ago, which is 4x the growth rate in assets over the same time period. Net interest income increased slightly, the sixth consecutive quarterly increase, adding 1 basis point to the net interest margin, which was $2.99 in the fourth quarter. Asset yields declined by 7 basis points, driven primarily by the 4 basis point decrease in loan yield due to the market decreases in the prime rate in the last 4 months of the year. At the same time, average funding costs declined 8 basis points, driven mostly by a 7 basis point decrease in the cost of deposits, which included a 12 basis point reduction in the average cost of interest-bearing deposits. For the year, net interest income increased by 13% to $112 million due to loan growth, relatively stable asset yields and a 38 basis point decline in funding costs. Our spot rate on deposits was 290 at the end of the year, which was 6 basis points lower than the average cost of deposits in the fourth quarter. To this end, we expect to see some incremental improvement in deposit costs in the first quarter. But as Johnny mentioned, competition remains intense, so it is difficult to quantify what the impact will be. Fourth quarter noninterest income declined by $486,000 from the third quarter, which had included a $0.5 million gain related to 1 equity investment. During the fourth quarter, in addition to SBA loans, we sold $22 million of mortgages, which drove an increase in gain on sale and we remain optimistic that our SFR production levels will continue to support ongoing loan sale activity. Compared to the fourth quarter of 2024, all categories of noninterest income increased, except for other income. Fourth quarter noninterest expenses increased by $282,000 mostly due to year-end accruals, but were in line with expectations. Our operating expense ratio was stable from the third quarter at 1.80% of average total assets. First quarter expenses are expected to increase due to seasonal taxes and salary adjustments and then stabilize for the next few quarters in the $18 million to $19 million range as professional service fees are expected to moderate in 2026 compared to 2025. We also reduced the quarterly effective tax rate by 330 basis points in the fourth quarter when compared to the third quarter of 2025. This was mostly due to a reduction in the multistate blended tax rate and benefits from ongoing state tax planning. The overall 2025 effective tax rate benefited from purchased federal tax credits and state apportionment tax planning. The effective tax rate in 2026 is expected to be between 27% and 28%. Slides 6 and 7 have additional color on our loan portfolio and yields. As Johnny mentioned, originations have been strong at $145 million in the fourth quarter and $73 million for all of 2025, which was 32% higher than the originations we saw in 2024. Slide 7 has details about our $1.7 billion residential mortgage portfolio, which represents 50% of our total loan portfolio and consists of well secured non-QM mortgages primarily in New York and California with an average LTV of 54%. Slides 10 through 12 have details on asset quality, which continues to improve. As Johnny mentioned, we did a lot to work -- we did a lot of work to stabilize and revolve our NPAs in 2025. We believe we are appropriately reserved on our NPL and REO assets as we work towards their resolution. The provision for credit losses totaled $600,000 in the fourth quarter due mainly to charge-offs and loan growth, partially offset by the impact of positive changes in economic forecast and credit quality metrics. We expect future annual credit costs to be much lower now that credit has stabilized. Slide 13 has details about our deposit franchise. The decrease in total deposits during the fourth quarter of 2025 was due to a $42 million decrease in brokered deposits, offset by a $26 million increase in retail deposits which has supported our loan growth. Tangible book value per share increased 7.8% during 2025 to end the year at $26.42 while at the same time, returning over $25 million in capital to our shareholders through dividends and the repurchase of approximately 4% of our outstanding shares. Our capital levels remained strong with all capital ratios above regulatory and well-capitalized levels. With that, we are happy to take your questions. Operator, if you would please open up the call. Operator: [Operator Instructions] Our first question is coming from Matthew Clark with Piper Sandler. Matthew Clark: Just want to start on the deposit beta this quarter, 30% in terms of interest-bearing. It sounds like competition is still pretty intense. How should we think about that beta going forward? Should you think you can hold that 30%? Or do you feel like you need might that come down throughout the year? Lynn Hopkins: Matthew. Thank you. So the 30% for the linked quarters, I would say we're sort of just getting started. So kind of year-over-year, we were able to achieve, I think, closer to that 70% and I think given that we still have a very large portion of our funding base and deposits that will mature over the next year. We think the deposit beta will continue to increase. Matthew Clark: Okay. Great. And then just any update on your plans for the sub debt leases in -- Lynn Hopkins: Yes. So you're right. We have $120 million of sub debt that's eligible to be redeemed and will reprice effective April 1 of this year. So I think that we're looking at the opportunities to rightsize it for our balance sheet and for our capital stack. So I think -- if it was set just to reprice on its own, we're just under 7%. I think the market is more attractive. So we'll be looking at something maybe more holistic in addition to, like I said, rightsizing it for our balance sheet. So I think that's where we're at right now. Matthew Clark: Okay. Great. And then just last one for me on capital. You still have a lot of excess capital, how should we think about the buyback this year? Lynn Hopkins: Yes. I feel like once we rightsize the sub debt, I think there'll be an opportunity for us to be more active on a buyback program. I think one step at a time. I think the end of the 2025 had a continuing to be a little bit more inward facing as we resolved credits wrapped up 2025. So I would expect both the sub debt and then returning to being more active on the buyback. Operator: Our next question is coming from Brendan Nosal with Hovde Group. Brendan Nosal: Maybe just starting on the margin. Definitely, I hear your comments earlier on the pace of deposit competition. But I guess when I look at the margin, the pace of improvement was a bit muted this quarter versus recent quarters. Can you maybe just talk about how you view the path of the margin as we move through '26? Lynn Hopkins: Sure. So let me add just a little bit more color to why we think there is an opportunity, I think, for deposit costs to continue to come down. So again, 99.5% of our $1.7 billion in CDs will mature within the next 12 months. And 40% of those are actually in the first quarter. I think the average price of those is in the high 3s, and I think funding has come down to probably at the high end around the 30% mark. So I think a portion is going to have an opportunity to reprice into the current interest rate environment and we haven't fully seen that. And then I think for -- and then we've also shifted a portion of our funding from traditional CDs into non-maturity interest-bearing products. They have kind of some similar yields, but I think will give us more flexibility as rates continue to come down based on forecast. So I don't know if that's helpful, Brendan or if you're looking for something more specific. Brendan Nosal: Yes. No, that's helpful. I mean, is it fair to say, based on that outlook for downward funding cost repricing that there's room for the margin to continue to expand? Lynn Hopkins: Yes. We are still, I would say, slightly liability sensitive, maybe a little bit more neutral than we've been in the past. You're absolutely right that from a NIM perspective, what we saw in the fourth quarter as our earning asset yields came down a little bit as liquidity repriced into the current environment and then our loan yield came down just slightly. I think there's still opportunity to hold our earning asset yield and our loan yields based on the shape of the yield curve, the repricing characteristics of our loan portfolio. But there's definitely downward pressure on it. It's not that without being very careful, especially since our loan-to-deposit ratio sits around 99%. So I think we're looking at having some attractive deposit beta. We're looking at NIM expansion. One of our biggest opportunities for NIM expansion is our nonperforming assets and continuing to resolve them. They held relatively flat kind of quarter-over-quarter, but we've made progress in, I think, ultimate resolution. So that would also have a positive impact on our net interest margin being able to return over $50 million to an earning asset status. Brendan Nosal: Okay. Okay. Great, Lynn. That's helpful. One more for me just on credit. First of all, congrats on the workout this quarter and the improvement in virtually all metrics. As we look forward, I get that there's a ton of moving pieces here, but can you just kind of talk in broad strokes on where you hope to see credit metrics by the time we sit here in 12 months and look back on 2026? Johnny Lee: I'll talk. That's quite, I would just say in a few quarters, we always stated that we're staying very laser focused on resolving much of our classified, criticized credits and hopefully, this quarter's results demonstrates our ability to continue to kind of moving positively to get most of the results. So let's also keep on track on what we're doing right now. I would hope that certainly 12 months now, you'll see much continuously see improvements in our credit picture. Lynn Hopkins: Yes. I think in addition to what Johnny stated, so our NPLs are well understood. 90% of them are represented by 4 relationships. Of those 4 relationships, 3 of them are continuing to make payments based on agreements, which is good because it continues to lower the balance towards what could be ultimate resolution. So we're really only focused on a few. I think that gives us a really good opportunity to get them worked out during 2026. We're optimistic that, that will happen in the first half of this year. But one of them is the partially completed construction project, which represents about half of that balance and that one will probably take the longest. So as we sit here a year from now with credit stabilized, we look to have sold our OREOs and to have these resolved. Obviously, there may be regular activity, but expect that these larger ones will be moved out. Operator: Our next question is coming from Kelly Motta with KBW. Kelly Motta: Maybe on loan growth, it slowed down a bit from the past 2 quarters to low single digits. Wondering if you could speak more to the pipeline where you're seeing opportunity? And if the decline was more of a function of payoffs or lower demand or just maybe some deposit constraints given your loan-to-deposit ratio and the competitive dynamics that you cited earlier in the call. Johnny Lee: Kelly, this is Johnny. I think quite a combination of all the things that you have mentioned. But I mean, overall, again, obviously, we have some loan sales and we had some strategic exits on a couple of classified credits. And for loan sort of momentum, actually, we certainly want to do more, but compared to previous year, overall, I think we're doing pretty well as far as keeping that momentum going. The pipeline is still relatively healthy right now, both for the commercial and the residential mortgage side. So I think even though Q4 seems a bit light, but I think overall on average, are new funded loans for commercial is about $65 million per quarter and mortgage is about $90 million per quarter. And looking at the pipeline right now, certainly, we feel very optimistic that we can continue to keep that pace. Lynn Hopkins: I think as we sit here today, we are in as good as, if not better position at the same time last year when we were able to achieve over 8% annualized growth. I would kind of comments, the fourth quarter loan growth was a little bit muted, but we did have a higher volume of loan sales, as Johnny mentioned. And we were working to resolve some substandard credits. So we were happy on those exits. And I think with the interest rate environment, payoffs and paydowns can tend to come up a bit, but they are actually a little bit lower than third quarter. So we think that our ongoing production will fall through to net loan growth as we go forward. But I think those things just kind of had a little bit downward pressure, but I think every -- all the metrics are healthy to sit behind it. Kelly Motta: Got it. Maybe last question for me on expenses. You've rewarded about $19 million in the quarter. Just looking into '26. I'm wondering if this is a good run rate to build off of? And any kind of puts and takes. Like I know legal and professional has been maybe more elevated than past years, probably related to the workout but should be presumably declining. And then any kind of thoughts for additional things we should be baking in as we look ahead to next -- this year, sorry, I keep saying next year -- this year, 2026. Lynn Hopkins: I know. I'm doing the same thing. I think that the run rate in the fourth quarter is a pretty good indication of our overhead or quarterly overhead to achieve the production levels we were able to achieve in 2026. So I think what we saw is compensation is a bit higher to reflect the growth inside of the company. We also have management transition this year that we wouldn't necessarily expect to reoccur, and we can reallocate those dollars into higher cost of doing business. You're exactly right, legal and professional. We think there is an opportunity for those costs to come down as credit is stabilized. So while there is a step-up when I look from 2024 to 2025, I don't know that it requires that same step-up in order to achieve mid- to high single-digit loan growth. I think there's also other opportunities to grow top line, if for some reason, expenses go higher. So -- but I think just when you look at just that part of it, we're looking in that $18 million to $19 million range. I think you can tell. So first quarter based on kind of pay raises and taxes kind of has an extra kind of $0.75 million, I think, is kind of what pops through in the first quarter and then it normalizes after that. Operator: Our next question is coming from Tim Coffey with Janney. Timothy Coffey: Then, I guess my first question for you would be, do you see this year as an opportunity to lower the loan to deposit ratio considering the potential to reduce interest expense through the course of the year as well as grow interest income? Lynn Hopkins: Great questions. So I would say a couple of things. One, we lowered our reliance on wholesale funding. And I think it's relatively low and very manageable. So obviously, to lower the loan-to-deposit ratio, deposit growth would have to outpace our loan growth. And I think we're looking at some attractive loan growth in 2026. Our retail deposit growth did keep pace with our loan growth in 2025. So we would expect the same. I think pushing down significantly would maybe take some opportunistic loan sales that we would then put that benefit into the equity. But I would say, generally, I think there's some opportunity to maybe get into the mid-90s. But I don't know if it would get much lower than that, Tim. Timothy Coffey: Okay. Yes, I wasn't contemplating that you sell loans to get there. I thought that you'd be able to grow retail deposits faster. And then, Johnny, as we talked a little bit about the pipeline for this year in terms of loan growth, and we are going to see another a year just like the past one. How -- what is the competition like for commercial real estate loans right now in your footprint? Johnny Lee: Actually, still -- competition is always there. But again, we want to be very strategic about the kind of relationships that we bring in. Certainly, the rate has a little bit more challenged as far as we're trying to maintain the yield that we had in, let's say, prior first half of the year last year. But the -- but overall, I think we've been able to, I think, hold our ground pretty well, because, again, we're a very relationship-driven bank. And so we look at each one of these prospects of contract that we are considering lending to. We look at the overall potential of the relationship, not just what we might be able to generate from a yield standpoint, but any other additional ancillary businesses that might come along with it such as deposits, of course. So with that, I think from a relationship standpoint, we still are able to be fairly competitive. But again, the reality is, certainly, we always face competition on the rate side. Timothy Coffey: Yes. Okay. Yes. Are you seeing competitors undercutting the spreads on these loans relative to where the yield curve is? Johnny Lee: Well, I think we are from a yield standpoint, we've actually given a given up quite a bit of businesses for sort of competitor against some of our peers who are offering these 5-year fixed rates below 5.75% on average or 5.5% to 5.75% by the way, so far, I think we're holding pretty well above the 6% or higher right now with a yield that were much of the pricing that we've been proposing. Operator: As we have no further questions on the line at this time, I would like to hand the call back over to Mr. Lee for any closing remarks. Johnny Lee: Okay. Thank you. Once again, thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day, everybody. Operator: Thank you. Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good day, everyone. Welcome to Western Alliance Bancorporation's Fourth Quarter and Full Year 2025 Earnings Call. You may also view the presentation today via webcast through the company's website at www.westernalliancebancorporation.com. I would now like to turn the call over to Miles Pondelik, Director of Investor Relations and Corporate Development. Please go ahead. Miles Pondelik: Thank you, and welcome to Western Alliance Bancs Fourth quarter 2025 conference call. Our speakers today are Ken Vecchione, President and Chief Executive Officer; and Vishal Idnani, Chief Financial Officer. Before I hand the call over to Ken, please note that today's presentation contains forward-looking statements which are subject to risks, uncertainties and assumptions, except as required by law, the company does not undertake any obligation to update any forward-looking statements. For more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please refer to the company's SEC filings included in the Form 8-K filed yesterday, which are available on the company's website. Now for opening remarks, I'd like to turn the call over to Ken Vecchione. Kenneth Vecchione: Thank you, Miles. Good afternoon, everyone. I'll make some brief comments about our fourth quarter and full year 2025 performance before handing the call over to our new Chief Financial Officer, Vishal Idnani to discuss our financial results and drivers in more detail. I'll then close our prepared remarks by reviewing our 2026 outlook. Dale Gibbons, now back by popular demand and our new Chief Banking Officer for deposit initiatives and innovation and Tim Bruckner will join us for Q&A. Our Western Alliance closed 2025 with strong momentum delivering record quarterly financial results and broad-based performance across the franchise. We saw robust loan growth, reduced seasonal deposit outflows, positive net interest income trends, stable NIM, rising fee income and continued expansion in PPNR, all while maintaining steady asset quality and demonstrating meaningful operating leverage. In the fourth quarter, net interest income, net revenue and PPNR all reached record levels. EPS for the quarter was $2.59, up 33% from prior year. Return on average assets was 1.23%, return on average tangible common equity was 16.9%, and tangible book value per share rose 17% year-over-year to $61.29. For the full year, we generated diversified HFI loan growth of $5 billion or 9% across regional banking and our specialized C&I verticals. Deposits increased $10.8 billion or 16% supported by strong regional banking inflows and approximately 40% growth in our specialty escrow businesses, which Dale is now leading. Net interest income rose 8.4% on a linked quarter annualized basis driven by loan growth and higher average earning assets and accompanied by a stable margin. We continue to build momentum in commercial banking fees. Cross-selling treasury management, commercial products and digital escrow disbursement services drove a 77% increase in service charges and fees in 2025. Q4 mortgage banking revenues did not experience a large seasonal decline and hence, we're only down $5 million compared to prior quarter. Our Juris banking team delivered a standout quarter completing the first round of more than $17 million in digital payments in connection with the Facebook, Cambridge Analytica consumer data privacy settlement, the largest in U.S. history. Demonstrating the power of our comprehensive disbursement platform. Mortgage banking fundamentals continue to firm and quarterly results exceeded expectations despite typical seasonal softness. We are constructive on this business heading into 2026 due to the current administration's focus on delivering affordable homeownership, potential capital relief on MSRs and continued mortgage rate reductions which point to a stronger results for this business. Operating leverage was a major theme in 2025 with net revenue growth outpacing noninterest expense growth by 4x. Our multiple -- multiyear investments to prepare for large financial institution status are serving us well. And even if the Category IV threshold remains unchanged, we expect to cross $100 billion in assets by year-end 2026 without a notable step-up in expenses. Asset quality remained steady in Q4 with total criticized assets declined by $8 million and staying well below midyear levels. We are working to proactively resolve nonaccrual balances with meaningful improvement expected by the end of the second quarter. We expect net charge-offs to remain elevated in the first half of the year as we work through nonaccrual loans with reserves adjusting modestly as our mix shifts towards higher return C&I growth. However, these actions reinforce the strength of our credit discipline and should enhance our powerful risk-adjusted earnings engine supported by an expanding revenue base and operating leverage. We are well positioned for 2026 and excited about our organic growth opportunities. With that, Vishal will now walk you through our results in more detail. Vishal Idnani: Thanks, Ken. Turning to Slide 4. In 2025, Western Alliance produced record net interest income of $2.9 billion, net revenue of $3.5 billion and pre-provision net revenue of $1.4 billion. Net income available to common shareholders was $956 million and EPS was $8.73. Net revenue and pre-provision net revenue increased 12% and 26%, respectively, from the prior year, demonstrating the continued successful execution of the bank's organic growth strategy. Noninterest income rose 25%, primarily driven by stronger commercial banking and disbursement fees as mortgage banking remained essentially flat and in line with our prior expectations. Noninterest expense growth slowed to 4%. Lower deposit costs and reduced insurance expense were key drivers of this moderate expense growth and reinforced our operating leverage. These factors were key to strong annual EPS growth of 23%. Now shifting to Slide 5, record net interest income of $766 million grew $16 million or 8% on a linked quarter annualized basis as a result of strong organic loan growth, leading to a higher average earning asset balances, while NIM remained relatively steady from the prior quarter. Noninterest income rose 14% from Q3 to approximately $215 million from stronger commercial banking and disbursement fees. We experienced continued firming in mortgage banking revenue during what is typically a softer quarter. Loan servicing revenue was slightly down from accelerated MSR amortization as prepayment speeds increased with recent lower mortgage rates, which has benefited gain on sale income. Noninterest expense increased about $8 million from the prior quarter to $552 million. Overall, we delivered solid operating leverage this quarter with net revenue growing nearly 5%, which outpaced the 1% growth in noninterest expense. Pre-provision net revenue of $429 million marked another record quarter. Provision expense of $73 million declined $7 million from Q3 to account for stronger loan growth, the continued remixing of the portfolio into C&I categories as well as the replenishment of net charge-offs. Turning to balance sheet on Slide 6. HFI loans grew a robust $2 billion in the quarter, bringing full year loan growth to $5 billion, which matched our 2025 full year guidance. Deposit growth across regional banking, specialty escrow services and HOA remains strong and helped offset typical seasonal pressure in mortgage warehouse. Notably, mortgage warehouse deposits performed better than expected, reflecting our efforts to improve stability by increasing the share of more durable principal and interest escrow balances. As a result, total deposits were essentially flat for the quarter. For the full year, deposits exceeded expectations by a wide margin, increasing $10.8 billion or nearly $2.5 billion above our revised guidance from last quarter. In late November, we successfully issued $400 million of subordinated debt to bolster our total capital ratio. Overall, total assets expanded by $1.8 billion from Q3 to approximately $93 billion. Total equity ended the year at $8 billion, supported by organic earnings and an improved AOCI position, partially offset by higher dividends and the initiation of share repurchases. Tangible book value per share continued its upward trajectory, rising 17.3% year-over-year. Turning to Slide 7. Loan growth accelerated in Q4, increasing $2 billion from the prior quarter or $5 billion for the year. Regional Banking posted about $1 billion of loan growth with leading contributions from innovation banking, in-market commercial banking and hotel franchise finance. These businesses made consistent sizable contributions to overall loan growth throughout the year. Additionally, if you look at the chart in the upper right corner, you'll see most of our quarterly and annual growth came from C&I. Mortgage warehouse and MSR financing were leading loan growth contributors from the national business lines. Now looking at Slide 8, impressive deposit growth in 2025 was driven by a notable acceleration in regional banking deposits across both in-market commercial banking and Innovation Banking, along with continued momentum in specialty escrow services and HOA. To put numbers on it, in Q4, regional banking deposits grew $1.4 billion of which $500 million came from Innovation Banking, while specialty escrow services deposits rose over $850 million and HOA deposits increased over $400 million. As noted earlier, the small decline in period-end deposits from Q3 reflected strength in these businesses largely offsetting expected mortgage warehouse outflows. This is a notable improvement from the $1.7 billion net quarterly deposit decline experienced in Q4 2024. Turning to Slide 9 here. Turning to our net interest drivers. Interest-bearing deposit costs fell 23 basis points from reduced costs across product categories. Solid average balance growth in lower cost interest-bearing DDA and savings and money market deposits reflect this deposit cost optimization. Overall liability funding costs also declined, compressing 18 basis points from the prior quarter from lower borrowing costs. Looking at average earning assets, the securities yield declined 18 basis points from Q3 to 4.54% from lower rates on a relatively stable average balance. The HFI loan yield compressed 17 basis points following the resumption of FOMC rate cuts in September, which continued in Q4 with two additional 25 basis point reduction. Looking at Slide 10. Net interest income rose $16 million from Q3 to $766 million, driven by strong loan growth that pushed average earning assets $2.5 billion higher. The modest 2 basis point compression in net interest margin to 3.51% stemmed primarily from a 20 basis point decline in the yield on average earning assets from higher cash balances along with the impact of lower loan and security yields. The outperformance of deposit growth led to the spike in average cash balances, which we expect to revert to more normalized levels going forward. Turning to Slide 11. Non-interest expense only increased 1% quarter-over-quarter. Deposit costs of $171 million resulted from higher average balances in deposit businesses such as HOA. The Q4 efficiency ratio of 55.7% and the adjusted efficiency ratio of 46.5% both fell about 5 points year-over-year. Looking just at non-deposit cost OpEx, the quarterly increase reflects higher corporate bonus accrual related to our financial performance, partially offset by lower FDIC assessments. As has been reported by other banks, we also recognized a reduction in the FDIC special assessment, which lowered the insurance expense by about $7.5 million. Concurrent with this benefit, AmeriHome recognized mortgage servicing deconversion costs of a like amount. Now looking at Slide 12, we remain asset sensitive on a net interest income basis, but essentially interest rate neutral on an earnings at risk basis in a ramp scenario. This offset is supported by a projected deposit cost decline and an increase in mortgage banking revenue based upon our rate cut forecast of 25 basis point cuts in April and July. Turning to Slide 13. Asset quality remains stable. Criticized assets decreased nominally from Q3 and totaled $1.4 billion. Reductions in classified accruing assets and nonaccrual loans were partially offset by modest increases in special mention loans and OREO. Turning to Slide 14. Quarterly net charge-offs were $44.6 million or 31 basis points of average loans. Provision expense of $73 million was primarily a function of strong C&I driven loan growth and net charge-off replenishment. Our allowance for funded loans moved about $20 million higher from the prior quarter to $461 million. The total loan ACL to funded loans ratio edged up 2 basis points to 87. Our total ACL fully covers nonperforming loans at 102% and rose 10 points from the prior quarter. Now looking at Slide 15. Our tangible common equity to tangible assets ratio increased approximately 20 basis points from September 30 to 7.3% from strong earnings growth, while our CET1 ratio edged down to 11% at our target level. Our solid capital levels are indicative of our ability to generate sufficient capital organically, support robust balance sheet growth while returning value to shareholders through share repurchases. We also issued $400 million of subordinated debt at the bank level in late November that augmented our total capital to 14.5%. We repurchased about 0.7 million shares during the quarter for $57.5 million at a weighted average share price of $79.55. Turning to Slide 16. Tangible book value per share increased $2.73 from September 30 to $61.29. From strong growth in organic retained earnings and complemented by a 16% improvement in our AOCI position. Since initiating our share buyback program in September, we have repurchased over 0.8 million shares to date and have utilized just over $68 million of the current $300 million authorization. Our quarterly cash dividend was hiked $0.04 during the quarter. Consistent upward growth in tangible book value per share remains a hallmark of Western Alliance and has exceeded peers by 4.5x over the past decade. Turning to Slide 17, Western Alliance has been a consistent leader in creating shareholder value over the medium and long term. We have provided on this Page 11 metrics, we believe, are key factors in driving leading financial results, strong profitability and sustainable franchise value that ultimately compounds tangible book value and produces long-term superior total shareholder return. For the last 10 years, our EPS growth and tangible book value per share accumulation have ranked in the top quartile relative to peers. We are also the leader in tenure EPS, tangible book value, loan, deposit and revenue growth compared to peers. Lastly, ROATCE growth, the last 2 quarters has made solid progress toward achieving top quartile performance. I'll now hand the call back to Ken. Kenneth Vecchione: Thanks, Vishal. Given the strong macroeconomic tailwinds, we continue to see including an increasingly pro-growth regulatory stance, constructive sentiment across our commercial client base and improving visibility on rate normalization, we remain confident in another year of strong earnings momentum for Western Alliance. Our 2026 outlook is as follows: We entered 2026 with strong loan pipelines across business lines, supported by a healthier macro backdrop and what we view as increasingly accommodative regulatory and political environments. These factors are broadening the risk appetite of our commercial customers. As a result, we expect loan growth of $6 billion and deposit growth of $8 billion. We continue to feel confident operating with CET1 around 11% with our strong organic earnings trajectory, we expect to continue opportunistic share repurchases, subject to market pricing while maintaining capital broadly in line with current levels. Our strong loan growth outlook combined with continued opportunities to lower funding costs, supports our expectation for net interest income growth of 11% to 14%. We assumed two 25 basis point rate cuts in this outlook. We also expect modest expansion in net interest margin throughout the year driven by ongoing remixing into higher-return C&I categories and sustained momentum in core deposit growth. We expect non-interest income to grow between 2% to 4% off an elevated starting point. The building momentum exhibited in service charges and fees and the constructive environment for mortgage points to continued growth in noninterest income. The combination of these emerging tailwinds favor a more robust revenue environment for mortgage and MSR-related income even as we continue to operate with a conservative forecast. Noninterest expense will rise primarily as a function of scale and targeted investments that support top line growth and operational efficiency. For 2026, total operating expenses are expected to increase between 2% and 7% for the year. Deposit costs are projected to decline again between $535 million to $585 million from continued rate relief. Operating expenses, excluding deposit costs are expected to be between $1.62 billion and $1.67 billion, reflecting continued investments in several new business lines and future technology. Looking at asset quality, we expect net charge-offs between 25 and 35 basis points as we proactively reduced nonaccrual balances over the next couple of quarters. As I discussed in my opening remarks, with the ongoing loan growth shift into C&I, the reserve level should adjust as the mix evolves. Our risk-adjusted PPNR trajectory remains strong, and we are confident in continued robust EPS growth. Finally, we project our full year 2026 effective tax rate to be approximately 19%. At this time, Vishal, Dale, Tim and I look forward to your questions. Operator: [Operator Instructions] Our first question today comes from the line of Andrew Terrell with Stephens. Andrew Terrell: I was hoping to maybe start on just the balance sheet growth guidance. Obviously, loans up $6 billion in 2016, deposits up $8 billion, unchanged versus kind of your 2025 expectations. You gave a lot of positive commentary about the momentum. I'm just wondering why maybe not a higher loan and deposit growth guidance? Or do you feel like you're being conservative this year? Kenneth Vecchione: Yes. Well, number one, our loan growth and deposit growth as projected is -- leads the peer group. And I'll just point that out. That's one. Number two, what you see here is all organic growth, which is very important. Number three, we are deemphasizing certain areas of our loan portfolio, i.e., mostly we're doing less in residential loan growth. So as that runs off, it puts more pressure on the other areas to accommodate the runoff in volume. And I guess, number 4 is that $6 billion and $8 billion seems about right. And as we continue to move forward throughout the year, if the projections are proving to be conservative, we will adjust accordingly. But going into this year, $6 billion to $8 billion will produce something along the order of a consensus EPS that's out there today in the $10.38 range, which is about 19% EPS growth, which is, again, leading the peer group for any bank for organic growth. I actually think maybe leading the peer group even for banks that have had M&A activity during the course of the year. Andrew Terrell: Great. And then, Ken, just on the charge-off commentary as well, it sounds like the charge-offs could be a little bit front half loaded. I guess just should we think about first half charge-offs is potentially above your full year guided range before normalizing back to that 20 basis point type level that you've been guiding to previously as we move into the back half? Or just how should we think about the timing of charge-offs or magnitude throughout the year? Kenneth Vecchione: Yes. I would say, I would think about the range as the midpoint coming into the year for modeling purposes at 30. You could see it a little bit higher than that in the first half of the year as we look to get rid of a number of nonaccrual loans that have been on our books -- that is our effort to bring that number down well below our loan loss reserve. And we think that will be good -- look, personally, good for the business. It's good business overall and it will be healthy for our PE expansion and improving our market capitalization. So we are doing that. I think you saw some of that in Q4. Charge-offs were a little bit higher than maybe you thought but classified and criticized loans remained flat. And in terms of our visibility into the first half of the year, we have a number of properties designated to be either upgraded or sold or notes sold or properties sold. And the hard part will be to determine whether or not a lot of that happens in Q1 or Q2. There's, as you know, a lot of paperwork that goes along with that and negotiations but we do have a confident level that by the end of the Q2, the nonaccrual loans will be down. Operator: Our next question comes from Chris McGratty with KBW. Christopher McGratty: Vishal, maybe you could talk about the strength in noninterest income, big service charge number in the quarter. Again, I want to make sure I understand the sustainability of it. I guess what's in that line? And obviously, I heard you on mortgage, but any near-term expectations for mortgage in a seasonally tough quarter. Vishal Idnani: Yes, sure. Happy to take that one. I think the big one there is the service charges. Two primary drivers in that, Chris. The first one is treasury management. We've made a lot of investments in that and we continue to see a pickup in that on the cross-sell there. And the second one is going to be what Ken and I mentioned in the prepared remarks. There's a big improvement in fee income related to the digital disbursements business. Right? So we did handle one of the largest settlements that Facebook, Cambridge Analytica. And we're actually when you get the settlement, we're distributing it to the end claimants and there's fees associated with that. So it's going to depend on what that business looks like going forward, but we've already have other settlements that have come in. So we do feel positive on where that line is going in terms of sustaining that trajectory. On the mortgage side, I think Ken hit this well. Kenneth Vecchione: Let me -- I'll take that. So first, Chris. We are constructive on the mortgage business, as I said, as we begin 2026. And we see several tailwinds that could provide additional alpha earnings to our 2026 projections. As a starting point, we are assuming a 10% year-over-year increase in total mortgage fee-related revenues. However, if several of the administrations make housing affordable programs take hold, combined with favorable regulatory changes and a lower interest rate environment, we think AmeriHome could outperform these projections. As a data point and it's an early data point, so I caution everyone on this. But as a data point, entering the year here, we expect Q1 total mortgage revenues to be nearly equal Q4 results, but I'll tell you that January's volumes and margins as of close of business last night, we're presently trending above our planning assumptions. So a little conservative on the mortgage income. It's based on some tailwinds, which we think are going to come. We'll wait. Those happen to be whether or not there's access to 401(k) funds or the GSEs buying $200 billion more of mortgage bonds. We also see certain areas of the United States seeing supply exceed demand. So we think some housing pricing may come down and certainly in the Southeast and we expect a couple of rate cuts certainly with potentially a more sympathetic Fed chair in May. So with all that going on, I think that's the economic and administration tailwinds that we have. There's also a couple of regulatory tailwinds and we're going to wait to see what happens here but it's our understanding coming out of Q1 that the FRB may give us additional guidance on MSRs. And the two things that we're looking at is, one, will the FRB reexamine the MSR 25% cap to CET1 capital? And if they do that, that will allow us to either hold on to -- that will allow us to hold on to more MSR receivables and those have a double-digit yield to them. And so we like that. On the other hand, there's another consideration, which is the change the risk weighting of the asset -- of the MSR asset, which you know is 2.5x to 1. If that comes down, that will either free us up to hold on to more MSRs or it could allow us to buy back more stock or support more growth to the first question today that we received or we just want to go to capital and we build a higher capital base. So we have some things going on here that potentially could be very strong as it relates to the mortgage business. So a little wait and see, but we have some optimism and trying to restrain it, but I'm hoping that it does come to fruition. Christopher McGratty: That was great. And just as a follow-up for the NII, 11% to 14% with the two cuts. I guess, what puts you at the high end versus the low end? Kenneth Vecchione: The higher end is the average earning assets. If that comes in and grows at a faster pace. We had a great Q4. Our average earning assets in Q4 were up $2.5 billion. So that was fabulous. And usually, it all depends on the loan and deposit growth and when it comes in. That's the hardest thing for us to forecast on an average basis. We can usually get it right on an ending quarter basis. But on an average basis, it's always the one thing that's a little bit softer for us to predict. But we're confident that, that range is good. And I would think it's 12% or greater as a floor, if I was modeling. Dale Gibbons: We're also hopeful that on the deposit side that the categories that are lower cost to us that would pull down our average cost and expand the margin are some of the ones that we're going to be focusing on in terms of digital assets, our trust company and business escrow services in particular. Operator: Our next question comes from David Smith with Truist Securities. David Smith: Can you give us an update on your ECR deposit expectations? How do you expect the mix of ECR within total deposits to shift with the $8 billion of growth in the outlook for this year? And then can you also give an update about how the mix inside of ECR is shifting? Like is there less mortgage warehouse and more settlement services? And how does this affect the ECR rate paid and your beta to changes in short rates over the next year? Vishal Idnani: Yes. I'll start and Tim can add. So first thing I'd say is when you think about the ECR deposits to our total deposits today, if you think about it on an average basis, around 37% today, if you think about end of period, it's around 33%, right? So about 1/3 -- when you think about what that mix shift is going forward on the $8 billion of deposit growth, I think you can largely expect it to hold constant from a mix perspective. We're obviously hoping to push more of that towards the non-ECR. But I think as the forecast stands today and things will move around, I think you can assume the mix is going to move pretty consistent with where we are today. When you think about the beta on the ECRs, we would say think about a 65% to 70% beta on those ECR deposits, but appreciate there's very specific businesses that drive that, right? On the mortgage warehouse side, that's more like 100% beta. When you think about the HOA, I think like 35% to 40% beta and then you've got Juris. So there's a mix of different things in there. So hopefully, that gives you a little bit of sense of what the mix is and what the deposit betas are for the ECRs. Timothy Bruckner: Yes. I'll just add one other thing, too, and I'll tie it back to the first question, which was gee, we thought your deposit growth would even be greater than $8 billion. We're coming into the year of projecting warehouse lending as a division to have flat deposit growth. And what we're trying to do is remix that so that deposit growth comes from the cheaper deposits. Now one of the things that's interesting here, and this will tie into the mortgage fee income question that Chris asked as well, in Q4, we did $1.5 billion better, meaning our deposits in warehouse lending were $1.5 billion higher than we expected because of the mortgage activity and the refinancing activity that was occurring. So one of the things that's -- so what's the good news about that? Well, if there's a lot of refinancing activity, deposit levels should be up for warehouse lending going forward. So that's something to consider. But also with that type of refinancing activity, it should give more volume opportunities to AmeriHome. What it means to your question is, even though we're coming into the year flat for warehouse lending in terms of deposit growth, you could see it spike up accordingly with the volume growth and the movement in that industry. David Smith: And then just as a follow-up, how are spreads trending on new loan origination? And have you seen any changes from competition there? Kenneth Vecchione: We're sort of ending the year or the spot rate now, at the end of the year is about the same as you see in the book. There isn't a day that we don't wake up and have competition and have to worry about yield coming from different players. As the economy gets better and more banks get aggressive to start driving in their organic growth. That, of course, puts a little bit of pressure on us. For us, we keep a tighter lid on the operating expenses while we continue to invest in future businesses for future revenue growth. So if we have to give up a little bit in yield to get loan growth, so be it, as long as it's safe and sound and credible credits, we will go ahead and do that. Tim, do you want to add anything about what's happening on the regional side in pricing? Timothy Bruckner: Yes. What we're really seeing is our specialty business lines are insulating us a bit. There's a definite flight to quality in the market. And our specialties have well-established relationships, control environments and structures where folks are doing business with us for something other than rate. I think that's really important. And we're seeing the strongest growth in those deep channels. Operator: The next question comes from Jared Shaw with Barclays. Jared David Shaw: Maybe sticking on the deposit side. Any update, Dale, early update on some of the initiatives you're working on because it feels like maybe there's a little more of a margin tailwind from the funding side as we look at that NII guide. Dale Gibbons: Sure. Well, maybe I'll just run through them. I really do think these are -- really have awesome opportunities in front of them. I love the bank. I've been here a long time, but I think some of the more interesting things are likely to happen in some of these sectors. The first one is our HOA group, and we talked about how well that's done. The bank is about 30 years old. This has been around about half that time, started at 0 and is now the largest HOA provider in the country. Notably, for the past 8 years, every quarter, they've exceeded our new record balance for them. And that consistency, we think, is important, and we think we're out in front. And frankly, we want to be pulling away from where we're going to be going, going forward, and they're going to have strong performance in 2026. The next one is our Juris Banking operation. We talked about that with the combination with digital disbursements that's already received some color during this call. We're the largest class action mass tort claims settlement entity in the country. We've now expanded that into providing banking services for basically law firms nationwide. We expect to triple their loan volume in 2026. Our digital asset group, we're serving our clients 24/7, which is, of course, digital asset markets are open 24/7. I'm a big believer in kind of the tokenization of everything, and we want to be out in front and facilitating that process. Our trust company, we started that 3 years ago. In under 3 years, we are now broken into the top 10 of the largest CLO trustees worldwide. And they have doubled basically in 2025 and they're going to -- we think they're going to be doubling again in 2026. And our business escrow services function, that's where we provide services to ease the M&A process for private companies selling to either public or private ones for collection of funds, disbursement and also holding on to earn-outs and reps and warranties. So in total, we think these are going to grow about 3x as fast as the bank overall, north of 30% in growth. And most of these have notably lower costs than what we're incurring in our other deposit channels as mortgage warehouse is the largest one for some of the ECRs and that one, as Ken mentioned, will be holding relatively flat, we expect. Jared David Shaw: Okay. Great. I appreciate all that detail. I guess shifting back to the credit question with the expectations for higher charge-offs at the beginning as you work through some of those NPLs. How should we think about provisioning and the allowance with that backdrop? Vishal Idnani: Yes, sure. Happy to jump in there. In terms of where the allowance is for funded loans on the HFI balance today, it's 78 basis points. That's about flat quarter-over-quarter, up about 8 basis points from 70 a year ago. As we think about where that's going next year, I think you can see that allowance drift up a little bit, maybe into the low 80s. And that's largely just a function of, as we said, we see the loan growth mainly coming on the C&I side. So there will be a little bit of a remixing as we do that. And then in terms of the charge-offs, the other piece to get to the provisions, how you can back into it, it's exactly what Ken said. You've got the 25 to 30 bps guidance for the full year. We think right now, it's going to be around that midpoint. So hopefully, that gives you the data points you need. Operator: Our next question comes from Casey Haire with Autonomous. Casey Haire: So I want to follow up on the NIM outlook. Ken, I think you said you expect it up throughout '26. And it sounds like it's positive mix shift on the loan side, moving to more -- less resi and more higher-yielding C&I and the deposit side, as Dale just mentioned, the growth in lower cost deposits. Just wondering, any color you can provide like what C&I categories are you growing faster and sort of the yields around them? And then this growth in lower cost deposit channels, is this going to up the deposit beta in a meaningful way? Just trying to get a better sense on the magnitude of NIM expansion. Kenneth Vecchione: Yes. Okay. Starting on the liability side on the deposits. I think you saw -- if you look at the numbers for Q4, you can see how much we were down in CDs. And so we meaningfully took our CD funding down and that helped our deposit costs decline. We continue -- we will continue to do that through 2026 and that will give some support to NIM. Let me just say about NIM. It's not going to jump up dramatically, but it's going to slowly cascade up throughout the year, okay? Remember, we have 2 rate cuts embedded in there as well, right? For planning purposes, I would always assume NIM is flat, but it does have a slight gentle stream upward to the right. We also are accentuating the businesses growth that Dale is running. And these businesses price more attractively than our traditional deposits. One of the things Dale didn't fully touch on, and I may just throw it over to him in a second, is in our digital asset group, the fact that we now do 24/7 interbank trading. And for that, we get a premium, i.e., a larger discount in what we pay for funding. I'll give that to Dale in just one second. The combined -- on the other side of the balance sheet, I'll take something that Tim Bruckner said, which is the business lines of lot banking, hotel financing, resort financing. Even private credit, all those yields are holding on to where they are. I won't say we have pricing power, but we have the ability to bring in volume based on the pricing that we're holding. And so you'll see more volume come out of those groups in 2026. Dale, did you want to say anything about IBT at all? Dale Gibbons: Yes. Let me just describe what we're doing on this IBT 24/7 that I alluded to and Ken amplified on. I mean, my analogy is it's like the SPDR Gold Trust. SPDR Gold Trust is the largest gold repository in the ETF in the world. And what you do is you just buy and sell your ETF. You don't have to actually own the gold anymore. Well, we're not holding gold, but we're holding U.S. dollars. And these clients can come to us and 24/7, unlike the ETF, which only turns when the markets are open, 24/7, they can convert money to U.S. dollars or from U.S. dollars to any kind of where they are. And that service level is important. And there's things like this in our other businesses as well that lead to lower funding costs. It's because we're providing services that are not widely available. And as a result, we're going to actually have a lower beta, not a higher beta on these types of things. I might note that our deposit growth in 2025 is actually a little bit better than maybe as advertised. You haven't seen this yet, but our broker deposits fell by more than $1 billion on top of that. So the $10.8 billion is already net. There's more like $12 billion. So I think we really outperformed this last year. I know our guidance for 2026 and I feel like we're going to be able to meet that guidance for sure. Casey Haire: Okay. Great. And then just one more on expenses. So if I look at the core expense growth actually the ECR deposit costs, it implies about a 9% to 13% growth understanding you guys got a lot going on. But is there a wiggle room if the deposit cost relief does not materialize, meaning you could maybe flex that lower? Kenneth Vecchione: Sorry, the question is, can deposit costs go lower to drive down more year-over-year operating expense growth? Casey Haire: Yes. The expense growth ex the deposit costs, right? So that implies 9% to 13% growth. If deposit cost relief doesn't kind of materialize the way you guys, can you flex that core expense lower? Kenneth Vecchione: Yes. So embedded in our expectations is that there is no change to LFI guidance. So we've got the full boat of expenses embedded in there that we need to spend in order to meet the $100 billion threshold. Now if the LFI guidance is moved up from $100 million to some larger number, some say $150 million, some say it will be $250 million, then the dollars that we spend there will be reduced, will not be eliminated, but will clearly be reduced because there are certain things that we want to get to and we think are better for the company. So we have room there. We also have room in looking at business expansion and revenue initiatives. But I'll tell you, the secret to our success and the secret to our growth is that we always work on new businesses or new products and services, new business lines so that we can develop an S-curve so that 2 years from now, some of the things we're working on begins to take form and it drives higher revenue. The stuff that Dale mentioned with the IBT network, we started working on that 2 years ago, all right? And so now it's coming to fruition, and we think it's going to drive future success. Juris Banking, we worked on 4 to 5 years ago. BES 3 to 4 years ago. So all these businesses have taken time. Go back and only because Dale is here, I'll say HOA, we worked on 12 years ago, all right? And we did it in such a way that we're now the #1 market share leader in HOA, and we continue to pump out significant deposit growth there as well. So my answer to you is, can we flex on things? Of course. But we're going to balance that with what's good for the short term and what's really good for the long term. And so far, we've done a fairly good job of managing short-term and long-term expectations and driving in long-term growth, whether it be on the balance sheet or in fee income as well. Operator: The next question comes from Janet Lee with TD Cowen. Sun Young Lee: So it appears that some of the confidence... It appears that some of the confidence in your 2026 ECR deposit cost guide is coming from a remix of ECR deposits into lower costs and away from mortgage warehouse for the time being. Are you able to share the composition of ECR deposits among mortgage warehouse, HOA versus Juris? I believe those are the 3 biggest today versus, let's say, the end of the year or what your internal targets might be? Kenneth Vecchione: No. That makes me feel very uncomfortable just because of the competitive environment we're in. I mean it's -- in terms of ranking them, warehouse lending is the biggest, followed by HOA, followed by Juris. And that's what I would tell you. But absent of that, I'm not going to provide what our deposit levels are for any one of those businesses, I'm sorry. Sun Young Lee: Okay. That's fair. And your ACL ratio going up from 78 basis points to low 80s by the end of this year, you said it's really driven by the C&I loan growth and NCO replenishment and I guess, the nonaccrual cleanup. Is there any update you could share on either Cantor or First Brands on that note? Kenneth Vecchione: Okay. Yes. Let me handle First Brands first. And it's really -- our loan is not to First Brands, but it is to Point Bonita, which is a subsidiary of Jefferies. That loan continues to pay down at an accelerated pace. Last quarter, I think we said it was about $168 million outstanding. Today, it sits at $124 million outstanding. So it went from a 19% advance rate against receivables to investment-grade retailers to about 14% to 15%. And so we have good visibility into that. That continues to pay down. That is a past loan, and we're not carrying much concern about that. It's behaving as expected. And as I said, the payments are coming in a little bit faster than what we modeled. And so we're very pleased there. As it relates to Cantor, as you can imagine, I am going to be somewhat limited as to what I can say because of the ongoing legal action that we have. But we have gotten a -- put in a receiver into the business. And that was with the support of the 2 ultra-high net worth individuals. That receiver has ordered all the appraisals for all the properties. We are expecting those appraisals to come in, in early March. Once we see what those appraisals are, we'll have a better understanding of the value of the collateral relative to the outstanding loan. The outstanding loan is $98 million, and then we can proceed from there. So at this point, that's all that I can really tell you that what we're up to, but we hope to have a better insight, better clarity when we present our first quarter numbers. Operator: The next question comes from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess maybe just one more on credit. So you provided good clarity in terms of the charge-off provisioning outlook. Ken, is the takeaway also that you don't expect classified like special mention went up a little bit this quarter? Like are you feeling good about the pipeline in terms of credit metrics should keep improving from here? Or what could kind of cause any incremental deterioration that could surprise to the downside, if you can talk about that? Kenneth Vecchione: Yes. So asset quality remains stable, and there have been several notable areas of improvement. First, the number of new or rising credits has declined. So that's a positive. We also are seeing an increased willingness from the borrowers to collaborate and work to measurably reduce nonaccrual loans by midyear. We always had this mantra, Tim Bruckner is sitting across to me. He started when he was Chief Credit Officer of early identification and early elevation. Our new Chief Credit Officer, Lynne Herndon, has taken that and modified it just slightly, early identification, early elevation and now accelerated resolution. And so we are working to do that in order to move the classified and criticized numbers down. I will say they are clearly down from second quarter. And interesting to note is that when we look at our credit quality, and we look at, for example, classified loans to Tier 1 capital plus ACL for Q4, that stands at 11.7%. But that compares very favorably to our peer group, $50 billion to $250 billion, and we're using Q3 peer median. So you have to give me a little bit of what leeway here since you haven't calculated everything for the -- for Q4. But that stands at 14.7%. We're at 300 basis points better, all right? So we do -- our asset quality is improving. We came up off the floor of nearly 0 losses. And so it looks a little bit worse than it is, but we're running with our guidance about equal to or slightly below where the peer group is. Tim Bruckner, I don't know if I said too much. I don't know if you want to add anything to that. Timothy Bruckner: No, I think that's a great synopsis. The focus as we continue to communicate was on office loans identified, I think, first discussed with this group in Q1 '23. We've had ongoing discussion. There's a finite inventory of those loans as we've continued to reference and it's shrinking. And the classified office loans are down 1/3 from midyear 2025. And we have deliberate strategies at the asset level around each asset. The elevation brings our executive management team to bear on every situation. And those loans are marked to as is values less liquidation costs. So we feel that, that takes the beta out as we work through resolution. Ebrahim Poonawala: That was good color. And I guess just a separate question. I think, Ken, you talked about all the things over the years you've done to build the pipeline for future growth. As we think about deposits, is inorganic make any sense at all for Western Alliance when we think about maybe transforming the distribution network, having a greater branch footprint? Are all of those things something that you think about? Or just given the momentum you have on organic growth, all of that would be a huge distraction. Kenneth Vecchione: Well, I think the last part of your statement is true. It would be a huge distraction. And when we -- first of all, we do think about it, we should think about it, and it is a discussion point among the senior members of the team. One of the things we consider when we look at alternative inorganic opportunities is return on management's time. And if we went and did anything, would it take away from all the organic growth that we have. We think we're unique with this organic growth. We think it's important. We think it comes with less execution and operational risk. And I'll tell you truth, it's certainly a lot more fun trying to grow a business and go into different products and services or regions than it is to sit on a call and announce, guess what, we just converted our general ledger, and we're very excited about it. So the entrepreneurial spirit here at the bank is more towards organic growth. Having said that, if something fell into our lap that was able to make us bigger and better, okay? That's the key. I look at a lot of deals that are done for people wanting to get bigger, all right? What we -- our criteria is bigger and better. So if there is a bigger and better that help get us into a series of deposit lines that could reduce deposit costs, we'd be very excited to look at something like that. But bigger for big's sake, I think would take away from the organic momentum that we have. Dale Gibbons: Ken mentioned earlier that we have, based upon the estimates out there for 2026, one of the strongest EPS growth targets out there. And so the challenge -- one of the challenges to look at somebody else is to say, gosh, we're growing at 19%. What is everyone else going to be doing and how that might be diluted because our growth is so strong and that not necessarily reflected in RPE. Operator: The next question comes from Matthew Clark with Piper Sandler. Matthew Clark: Just want to circle back to the service charge line. Can you maybe quantify how much the Facebook disbursement fees were this quarter? And it sounds like you've got some settlements coming to help mitigate that headwind going forward. But how should we think about kind of a sustainable run rate there before we see some seasonality again in the fourth quarter? Kenneth Vecchione: Yes. Unfortunately, we're not going to be able to give you any numbers around the settlement and what we generated in terms of fee income. Okay. That's number one. And number two, the thing about settlements, they're hard to predict for us quarter-by-quarter. The Cambridge settlement, we actually thought was going to happen earlier in the year. And so when we get awarded these mandates, we feel great about them, but it's hard for us to predict when they're going to come in. We take a best guess of cost. And so we're not going to be able to give you any very specific data on that. It exposes us to too much competitive risk here, sorry. Matthew Clark: Okay. And then just on the interest-bearing deposit costs, you had a 55% beta this quarter. Could you give us the spot rate on deposits at the end of the year and then your outlook for that beta going forward? Vishal Idnani: Yes, sure. Happy to. So the spot rate on interest-bearing deposits is 2.81%, and that's down from the average rate for the quarter of 2.96%, right? So you're already seeing it come down very nicely. And in terms of where it goes going from here, I'd put it in that mid-50s range is probably the right place when you think about that bucket. Operator: The next question comes from Gary Tenner with D.A. Davidson. Gary Tenner: I just had one quick follow-up to clarify the earlier question on the non-deposit cost expense growth for the year. So it sounds like from what you're saying, if I interpret it correctly, any flexibility there is around the CAT IV threshold more than any tethering of that expense growth to the revenue side, right? Because the majority of that is investment for longer-term opportunities. Is that the right way to think about it? Kenneth Vecchione: Yes. Yes, it is. Gary Tenner: Okay. And then the second question, just, I guess, also a follow-up on that commercial business or the commercial banking fee line. Maybe just even any first quarter sense. I mean, is kind of a blend of 3Q, 4Q kind of the more reasonable expectation than anything closer to the fourth quarter? Kenneth Vecchione: For servicing fees, is that the question? Gary Tenner: Yes. Yes. Dale Gibbons: I think that's fair. I mean it is going to fade from Q4 numbers. We can't really guide you exactly where it's going to go. It is lumpy, but the pipeline for future transactions that we'd be out there in front in terms of helping facilitate disbursements looks good. So -- but this was the largest case basically in U.S. history with 17 million claimants. And so that is going to be diminished in Q1, Q2. Operator: The next question comes from David Chiaverini with Jefferies. David Chiaverini: So I had a follow-up on the IBT network and tokenized deposits. There's been a lot of talk about the strong growth in stablecoins and the potential to disrupt banking deposits. Is it fair to say the IBT network is competing with stablecoins? And can you talk about the client uptake and growth outlook here? Dale Gibbons: I don't think it competes. I think it complements. I mean at the end of the day, people still want to do -- have fiat currency or be able to figure out how they can get back to fiat in quick order. And so what stablecoins do is like my analogy has been McDonald's. I don't think you're ever going to drive through a McDonald's and see a price of a Big Mac in Satoshis. But you're going to see it in U.S. dollars, and you're going to be able to pay for it with USDC with your phone with a flash. And in the background, we're there and saying, okay, so here's something that pain that came in on USDC delivery of that and then what's going to be going out is to -- is U.S. dollars. Within our walled garden, working with stablecoin providers, we facilitate that. We complement what they do more than compete. David Chiaverini: Perfect. And then I wanted to ask about average earning asset growth, particularly on securities portfolio and held-for-sale loans. Any commentary there? Is it right to think about average earning asset growth similarly to deposit growth? Kenneth Vecchione: Well, yes, deposit growth will drive average earning asset growth. You're absolutely right there. Dale Gibbons: We're liability-based in terms of the value of the franchise. We always have been. I think if you get it the other way around, you tend to push on credit underwriting. So we used to have a strong deposit growth at low cost gives us opportunities to make good loans, move into high-quality securities, whatever that might be. Operator: Our next question comes from Bernard Von Gizycki with Deutsche Bank. Bernard Von Gizycki: On the $535 million to $585 million in ECR-related deposit costs you expect for full year '26, you've been rate dependent in the past, and now you're moving to shifting to lower ECR-related balances. Could you provide some sensitivity on the ECR costs if we get 2 rate cuts versus if the Fed is on pause from here? Vishal Idnani: I think we'll still be able to -- we continue to work on. I think we'll be able to drive it down as well. But obviously, it will not go down as much if we don't see those rate cuts, right? I think that will help us move it down further. So I think you can see that being a little bit more sticky if we don't see a drop in rates from here. Bernard Von Gizycki: Okay. On loan growth, the $6 billion for full year '26, so you noted the strong pipelines across business lines, and you noted the C&I will continue to lead the way. Just curious, any color you can share on how big CRE could be a contributor given some of the expected maturities expected in full year '26? Timothy Bruckner: Sure. So in 2025, you can see that we curtailed our growth and pressed out in some cases, CRE loans as a percentage of total loans, they decreased. In 2026, we're not projecting significant dependence on CRE in our total growth numbers. So we call it a modest increase. The preponderance of the increase is coming from our commercial strategy-based and segment-based business strategies where we're aligning our fee-based and treasury products with the credit discipline that we have. And really with that, garnering a broader -- driving a broader spectrum of revenue. So you won't see a significant increase coming from CRE for those reasons. Operator: Our final question today comes from Anthony Elian with JPMorgan. Anthony Elian: Your CET1 is 11% as of 4Q, which is at your target for this year. I know on the outlook slide, you say buybacks remain opportunistic, but should we expect buybacks to take a step back relative to the $57 million you did in 4Q, given you're already at your target for CET1? Kenneth Vecchione: Yes. So 11% is where we feel comfortable. Would we like that to rise? Yes. In regards of the stock buybacks, we don't have anything really layered into our models. We're there in case there's a disruption in the market. We think the capital that we need is -- needs to be there to support the $6 billion in loan growth. And if there's any weakness in the $6 billion in loan growth, then we can switch in support with the EPS goals by buying back the stock. But it wouldn't be something I'd model in. And if we reported that we bought back some stock, it's because we had an opportunity to buy at a discount price vis-a-vis the market. Anthony Elian: Okay. And then on the ECR, so I get your guide $535 million to $585 million this year. But is there a scenario where you can actually see that expense rise from last year relative to the $630 million? If I just think you're not getting as much relief this year from lower rates with only a couple of cuts. You call out the steady investments you have in growth on Slide 18. And the ECR mix from Vishal's comments on the $8 billion of deposit growth is expected to stay constant. I just think about those items as limiting some of the relief you're expecting to get on ECR costs. Vishal Idnani: The first thing I'd say is part of that, just at the beginning, remember, we did have a rate cut at the end of last year. So not all of that is actually baked into where the current rates are. So I think you could continue to see some trend down there. And then we're going to continue pushing on the mix, right? Appreciating what it is. It's hard to kind of say exactly for the year where this is going to land out. So trying to give you some broad level parameters here, but we're going to continue to push and the business is very focused on trying to drive down those costs. The irony here is that it could be higher than our guide. And if we have a very strong mortgage market, which is going to result in refis and those balances that now have a refi coming in or a sale of a house, those come through, and those can add hundreds of millions of dollars to those balances in short order that would actually be a good problem to have. And now we've got more deposits from this sector that we're actually kind of controlling a little bit, have more of an opportunity to tamp down their pricing, but you still could have a higher dollar number. So there's a way that we miss that actually results in better value creation. Operator: Those are all the questions we have time for today. And so I'll turn the call back to Ken Vecchione for closing remarks. Kenneth Vecchione: We're very pleased with the quarter, very proud of what we produced here and we thank you for taking the time to join us today to talk about our results, and we look forward to talking to you again in a couple of months for the Q1 results. Thank you, and happy and healthy New Year to everyone. Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to Metro Inc. 2026 First Quarter Results Conference Call. [Operator Instructions] Also note that this call is being recorded on January 27, 2026. I would now like to turn the conference over to Sharon Kadoche, Director, Investor Relations and Corporate Finance. Please go ahead. Sharon Kadoche: Good afternoon, everyone, and thank you for joining us today. Our comments will focus on the financial results of our first quarter, which ended on December 20. With me today is Mr. Eric La Fleche, President and CEO; Nicolas Amyot, Executive VP and CFO; Marc Giroux, Chief Operating Officer; and Jean-Michel Coutu, President of the Pharmacy division. During the call, we will present our first quarter results and comment on the highlights. We will then be happy to take your questions. Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statements which does not constitute a historical fact may be deemed a forward-looking statement. Words or expressions such as expect, intend, are confident that, will and other similar words or expressions are generally indicative of forward-looking statements. The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget and our 2026 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown as well as uncertainties that could cause the outcome to differ materially. Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward-looking statements are described under the Risk Management section in our 2025 annual report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements, except as required by applicable law. I will now turn the call over to Nicolas. Nicolas Amyot: All right. Thank you, Sharon, and good afternoon, everyone. First, I will start by mentioning that we are pleased to report that the challenges related to the temporary shutdown of our frozen food distribution center in Toronto are now behind us as operations have fully resumed. Our contingency plan was effective in securing supply across our Ontario food store network. The direct costs associated with our freezer issue and our related contingency plan amounted in the quarter to $21.6 million pretax or $15.9 million post tax and our results are adjusted for these costs only. Turning to our Q1 results. Total sales reached $5.3 billion, an increase of 3.3% versus the first quarter last year. Sales were negatively impacted by the transfer of one significant pre-Christmas shopping day to the second quarter this year as well as by the temporary shutdown of our frozen food distribution center, as I've just mentioned. Food same-store sales grew by 1.6% in the quarter, and they were up 1.9% when adjusting for the Christmas shift. On the pharmacy side, same-store sales grew by 3.9%, supported by a 5.1% growth in prescription sales and a 1.3% growth in front store sales. Similar to food, when adjusting for the Christmas shift, front store sales were up 1.7%. Our gross margin reached $1.04 billion or 19.7% of sales in the quarter, the same percentage as Q1 last year. Turning to operating expenses. They were $557.6 million in the quarter, up 5.5% year-over-year. As a percentage of sales, operating expenses were 10.5% versus 10.3% in the first quarter last year as they were unfavorably impacted by $20.8 million of direct costs related to the temporary shutdown of our freezer. Excluding these costs, operating expenses grew by 1.6% year-over-year and represented 10.2% of sales. Note that we also had $0.8 million of direct cost impact related to our freezer issue and our losses on asset disposal. EBITDA for the quarter amounted to $482.6 million. That's up 0.2% year-over-year and stands at 9.1% of sales. Adjusting for the $21.6 million direct freezer costs, adjusted EBITDA stood at $504.2 million, up 4.7% year-over-year, reaching 9.5% of sales, an increase of 13 basis points over Q1 2025. Total depreciation and amortization expense for the quarter was $143.6 million, up $10 million. The increase in depreciation and amortization expense is mainly due to the increase in our retail investments including the opening of new stores from last year, right-of-use assets as well as the commissioning of investments in our supply chain, including some automation technology in the pharmacy division. Net financial costs for the first quarter were $37.3 million compared to $30.7 million last year. The bulk of the increase results from the recording in Q1 2025 of interest receivable of $4.2 million regarding the resolution of an income tax position related to prior years as well as higher interest on net debt. Our effective tax rate of 25% is higher than the effective tax rate of 18.2% in the first quarter last year. Largely driven by the resolution of the just mentioned income tax position related to prior years of $20.6 million in Q1 2025 as well as by the Terrebonne DC tax holiday which amounted to $4.9 million this quarter versus $6.1 million in the same quarter last year. Adjusted net earnings were $248.7 million, compared to $245.4 million last year, an increase of 1.3%, while adjusted fully diluted net earnings per share amounted to $1.16 versus $1.10 last year. up 5.5% year-over-year. Our capital expenditures in Q1 totaled $61.9 million versus $89.3 million last year. Looking forward, we expect CapEx in F '26 to reach approximately $550 million as we continue to invest in our retail network. On the food retail side, in Q1 '26, we opened three stores and carried out major expansion and renovation projects at three other stores for a net increase of 88,600 square feet or 0.4% of our food retail network square footage. Under our normal issuer bid program as of January 16, we have repurchased 1 million shares for a total consideration of $98.7 million representing an average share price of $98.72. The Board of Directors declared yesterday a quarterly dividend of $0.475 a share or $1.63 per share on an annual basis, and that's an increase of 10.1% versus last year. This is the 32nd consecutive year of dividend growth for Metro, and it represents a payout of about 32% of last year's adjusted net earnings, in line with our dividend policy. On this, I will now turn it over to Eric for more color on our results. Thank you. Eric La Flèche: Thank you, Nicolas, and good afternoon, everyone. We recorded strong sales and delivered adjusted earnings per share growth in a challenging environment marked by the temporary closure of our freezer in Toronto and persistent food inflation. As Nicolas mentioned, operations at our frozen DC in Toronto have now fully resumed. I'm pleased with the way our teams came together to ensure a steady supply to our food stores for over 3 months. Turning to the quarter. We grew sales by 3.3%, adjusted EBITDA by 4.7% and adjusted earnings per share by 5.5%. As Nicolas said, food same-store sales were up 1.6%, and 1.9% when adjusted for the Christmas shift. We inevitably lost some sales and margins on the items we were not able to supply as part of the contingency plan, and we estimate that impact to be about 30 basis points on same-store sales for the quarter for which no adjustment was made. Discount continues to drive same-store sales faster than Metro with the gap between them remaining consistent with the prior quarter. Total food sales growth of 3.1% reflects the strong performance of our new food stores and conversions. Our internal food basket inflation was below the reported food CPI of 4.1%. Recall that the food CPI measure is somewhat inflated due to the GST holiday last year. We continue to see inflationary pressures on certain commodity prices, namely in the meat category and grocery. Our teams continue to work tirelessly at pushing back on those price increases, requests and offering the best value possible to our customers. During the quarter, transaction count was slightly down but offset by an increase in the average basket. Promotional penetration remains at elevated levels and private label sales continue to outperform national brands. The competitive environment remains intense, but rational, and we are pleased with our new discount store openings and our growing market share in a very competitive market. Online sales grew by 25.8% in the quarter. Growth is being driven by third-party marketplaces, the ramp-up of click-and-collect services as well as the launch of delivery in our discount banners. Turning to pharmacy. The business sustained its momentum with another quarter of strong Rx sales growth and positive front-end performance. Prescription sales were up 5.1%, driven by continued organic growth, specialty medications, GLP-1s and clinical services. Commercial sales grew by 1.3% and were driven by HABA and seasonal, partly offset by a softer performance in OTC. Although the cough and cold season picked up towards the end of the quarter, this acceleration was not sufficient to offset the slow start. Similar to food, adjusted for the negative impact of the Christmas shift front and same-store sales were up 1.7%. We are on track with our plan to accelerate the development of our growing discount banners as we successfully opened three new discount stores in Q1. We continue to see more opportunities. And as mentioned in our previous call, our 2026 capital plan calls for a dozen discount stores, including some conversions as well as several major renovations in fiscal 2026. To conclude, our teams remain committed to providing the best value possible to our customers and we're confident that our diversified business model, sustained investments in our retail network and strong execution will continue to deliver long-term growth for our shareholders. Thank you, and we'll be happy to take your questions. Operator: [Operator Instructions] And your first question, Mark Carden at UBS. Unknown Analyst: This is Matthew [ Rothway ] on for Mark Carden. So I was hoping to dive into what you're seeing from the consumer a little bit more -- are you noticing any change in shopping behavior, any trade down? Do you think food inflation is beginning to have much of an impact there? Eric La Flèche: No noticeable change in consumer behavior. As outlined on previous calls, discount is growing faster than conventional. So we're seeing more traffic there. People are buying more on promotion, private label sales are outpacing national brands. So yes, there's no noticeable change in customer behavior. Inflation -- reported inflation has risen a bit in the quarter. We're not seeing that elevated inflation in our stores. But for sure, inflation pressures put pressures on customers, and it's a concern. So that's why we're focused on value in all of our banners and working really hard to deliver value to our customers every day. Unknown Analyst: Great. And just a quick follow-up. Anything to call out on comp cadence within the quarter, how did that trend? Eric La Flèche: We don't -- no comment on other than what we reported for the company on the food and pharma side, cadence pretty consistent. That's all I'd say. Operator: Next question is from Irene Nattel of RBC. Irene Nattel: Just sticking with the topic of inflation, obviously, getting a lot of airtime in the media. Can you talk about what you're seeing in terms of supplier requests magnitude, frequency and the types of conversations that you're having because like ultimately, they're the what's asking, right? Eric La Flèche: That's right. That's where the inflation is coming from. We see it on the fresh side of the store week in, week out, there's commodity price pressures. Beef, poultry, pork, all those categories are trending up. And in the case of beef, it's been for an extended period of time. So very, very challenging for us to procure meat at reasonable costs so that we can promote and that we can price -- not competitively, but that we can price at prices that consumers are looking for. A big challenge on the procurement side there. But working hard and looking for alternative sources in other countries like Mexico, Australia, whatever, so that we can access some lower prices. But it's for sure challenging. On the grocery side, the number of requests is consistent with prior years. We're in a normal range. But the quantum of the ask, we're seeing a little more than we saw in past years. So we're pushing back as much as we can. We're negotiating as much as we can. Some of it is justified by aluminum prices, commodity prices, chocolate, coffee, name it, there are inflationary pressures that some of our suppliers are facing and trying to push or transfer to us. We negotiate as best we can and there's going to be inflation going forward. So working hard to control it as much as we can. Irene Nattel: That's really helpful. And maybe it might be a little bit early to ask this question because I think a lot of the pricing comes in next week. But in this environment where consumers there's so much value-seeking behavior, when you do pass or when pricing is increased, what are you seeing in terms of consumer response? Eric La Flèche: Well, the prices, as you say, some of those price increases will start to take effect next week. So we'll see. But as merchandisers, we're trying to minimize the impact on our customers. So where we increase price. We do it surgically, and we try to incorporate it into our merchandising strategies, but there are going to be some price increases as there are -- as there have been in previous years. It's is the reality we're facing. What the consumer reaction will be, we'll have to see over the coming weeks. We will be price competitive and we will compete as best as we can. Operator: Next question is from Chris Li at Desjardins. Christopher Li: I was wondering if I can start off with on the gross margin side. Can you please talk to us a little bit about the positive and negative factors that impacted the gross margin during the quarter? Eric La Flèche: Well, gross margins vary from quarter-to-quarter as we say, the competitive marketplace, the promotional weight the cost increases we're getting from our suppliers, all of that impact on the gross margin. So for sure, price -- cost pressures or drag on gross margin for sure. We're trying to be the most efficient that we can in our promotions so that we draw customers into our stores and not kill the bottom line, as they say. For sure, the warehouse investments that we've made over the past years are a plus on the gross margin, they're reducing hours, which reduces the lower the price of the cost of goods sold. So those efficiencies help. And net-net, we came up flat on gross margin rate this quarter. The freezer situation in Toronto did not help, of course, we're not getting efficiencies from that. We're getting the contrary. That was a drag for sure on our gross margin this quarter. So going forward, that's all behind us, and we're looking forward to getting back on track on gross margin. Christopher Li: Okay. That's helpful. And maybe if I can just double click on that. So in terms of going forward, now that you are fully behind all these free of disruption, do you expect margin to increase for the rest of the year. I know it's still a very dynamic environment, as you pointed out, but just generally, is it fair to assume margin should increase the rest of the year? Eric La Flèche: No, you can't make that call. We don't give guidance. We don't -- we won't give you a number ahead of time. We will -- like I said, we're competing in a competitive market. It's our job to have effective merchandising to deliver a gross margin that's acceptable for our returns and our bottom line. So that's what we do every day. I think we have an experienced team, and we're confident in our ability to deliver a decent gross margins. But I'm not going to give you color on up or down. Christopher Li: Okay. That's fair. And then my other question just on same-store sales. Thanks for quantifying the impact in Q1 from the previous disruption. Are you seeing more impact? Or do you expect more impact in Q2? Or is that fully now? Eric La Flèche: Like I said, we are back to normal. So there is no lost sales anymore. The contingency plan was good. It was effective. We supplied our stores "appropriately" but there were some missing items. If you look at the bakery department, some frozen categories in meat or grocery was not the complete assortment so that we lost sales and we lost margin on those frozen categories, which going forward is behind us. So we're looking forward to more normal sales and margins on those frozen products out of Toronto. Operator: Next question will be from Michael Van Aelst, TD Cowen. Michael Van Aelst: Just on the refrigeration issue. Can you explain how it was resolved? Did you fix it? Did you change suppliers and change the equipment? Why was there a charge? Eric La Flèche: Very big mechanical issue in the refrigeration system, basically, two heat exchangers in place, on defaulted and contaminated the other which was never supposed to happen in the first place, but it did. All this to say that the faulty heat exchanger has been replaced by another one using a different technology. So we have two, we have the old one and we have the new one using two different technologies. So that's our -- going forward, that's how we're operating. I don't know what else I can tell, Mike. Michael Van Aelst: Well, the other equipment that's on the older technology, is that the risk at that one falls as well? Or is it just a fault in the equipment rather than [indiscernible]. Eric La Flèche: Well, the exact root cause of the failure of the first one, still remains to be determined. There's a lot of expertise in forensic stuff going on. Net-net, the one that's left is never malfunctioned. It's still functioning really well, and it's backed up by another one that is using a different technology. So we think the risk has been managed well, and we're confident that we're not going to suffer any problem going forward. Michael Van Aelst: And then you had a decent increase in your depreciation this quarter, and you talked about -- one of the things you talked about was pharmacy automation starting to be commissioned. So should we start expecting -- to expect to start seeing some margin improvement on that side of the business coming from this automation in the coming quarters? Nicolas Amyot: So this is Nicolas. Mike, I'll take the question. So that investment was commissioned last year. Obviously, when we make investments in equipment, we ensure that we're going to get or plan for the return on investment. So I would say, yes, over time, we should see some margin improvement in the warehouse distribution for the pharmacy business. I'm not going to quantify that today. We're still at the beginning of the investment, if you will. But yes, obviously, we expect productivity improvements and return on investment. Eric La Flèche: So the return on investment method that we've communicated before, double-digit cash on cash after tax is still on. We're going to get -- we're very confident we're going to get those returns from those supply chain investments at the pharmacy warehouse in Varennes. But like Nicolas said, these are long-term investments, and it will ramp up gradually over time. . Operator: Next question will be from Mark Petrie at CIBC. Mark Petrie: I just had a couple of follow-ups actually. On the topic of gross margin and the impact from the disruptions at the frozen DC. Is there any way to sort of just help shape that? I know I don't think you've quantified it specifically, but like above or below sort of, I don't know, 5, 10 basis points? Eric La Flèche: We -- I gave you some color on the lost same-store sales impact of 30 bps. You can put some dollars on that. What we -- I think the key message here is that we suffered in this quarter because of this freezer on a year-over-year basis. A few million dollars of lost margin for sure on that freezer. We lost the day of Christmas sales that shifted to Q2. So if you compare to Q1 last year, there's some sales and margin loss to last year, too. We have some asset disposals that are on our financial statements that is a reversal versus last year. So you put all that together, there's about $0.03 a share of negative impact that are putting a damper on our results this quarter, but we're confident going forward. Mark Petrie: Yes. Understood. Okay. And I guess, just you called out the sort of challenging operating environment. And I know you specifically referenced the DC disruption and food inflation. But just to be clear, any shifts related to sort of promo intensity or the pressure from industry square footage growth that has sort of compounded those challenges relative to, I guess, either last quarter or last year? Eric La Flèche: So the DC we just talked about versus last year and that's behind us. Food inflation or "rising food inflation" puts pressure on consumers, puts pressure on consumers looking for value, and that puts pressure on promotions. So it's just a more challenge that we have to face. We've been facing. We're in this environment where cost of living is hard. Price of food is key on people's mind. People are making choices, making some trade downs, they're changing stores, they're buying on promotions. So all that has been happening, continues to happen and we adapt. That's why we're opening discount stores, and that's why I think our merchandising teams and all of our banners are offering good value. You have no choice. If you don't offer value, you don't attract customers. So that's what we do. The promotional intensity, I think, is pretty consistent. It's intense, but it's rational. The fact is there are more stores opening. We're opening some stores. Some of our competitors opening stores. So that's the added square footage puts more pressure in the sense of more competition out there with the same promotional intensity. So these are challenges that we face, that we are, I think, experienced at and in a good position to face. I think like I said, in our diversified business model, we're well balanced between food and pharmacy and within food I think we're well balanced between discount, conventional and specialty. And I think going forward, with all the investments we've made in our supply chain over the past few years, our consistent investments in our retail networks we're, I think, well positioned to continue to grow. Mark Petrie: Yes. Excellent. Eric. And maybe just another quick one, if I could, probably for Nicolas. Excluding the DC costs, cost control was pretty strong. Anything to call out there? And what sort of dynamics should we be thinking about for the balance of '26? Nicolas Amyot: Yes. As you point out, good cost control. I think 1.6% increase is perhaps on the low end of what we could expect in the future. So I think what you can expect is perhaps a notch more than that, but continued good cost control and yes, focus on execution and delivering the margin above these costs. Operator: Next question will be from Vishal Shreedhar at National Bank. Vishal Shreedhar: Eric, you've been asked this question many times, but I just want to get your view more formally reflecting on the past. We're in a period of higher inflation, accelerating square footage growth and consumer stress. And you're saying the consumer backdrop is stable, and we appreciate that you see that. But as you look forward and these pressures continue to accrue, do you feel like the grocery environment is normal and accommodative? Or do you think that some of the worries that some investors are articulating are merited. Eric La Flèche: Well, you can always worry the situation you described is factual. I think the industry square footage number Yes, it has accelerated, but that's after several years of low industry and low company, in our case, industry, we've added square footage, but one or below percent whereas population growth has grown, as you know, quite a bit more than that over the past 5 years. So there's a bit of catching up on the square footage factor. And the square footage we're adding is on the discount side, for the most part, a big portion of it in Ontario, where we have lower penetration, lower share and where we see more opportunity for us. So I think that's -- I don't think it should be cause for concern as much as seen as an opportunity for Metro and for our shareholders. So I see that as a positive. Inflation and consumer pressures are a fact. And we're dealing with this have been for a while, like I said, so it's up to us to deliver that value. I think we have good programs in all of our banners, good pricing, good promo, a good loyalty program, effective merchandising that can deliver value to customers. We know it's hard on customers. Cost of living is -- it's tough out there, no question about that. But I think we are offering a good value at the end of the day. Vishal Shreedhar: Okay. And with respect to your new stores, can you comment on if they're hitting plan? Eric La Flèche: Maybe I'll let Marc Giroux give you some color on the new stores. Marc Giroux: So yes, we are satisfied with the -- with our store opening. They're not all equal, but overall, we're very satisfied with their performance in their respective market. As Eric mentioned, we have a plan for a dozen more in 2026. So that will continue to contribute to the total sales. Eric La Flèche: Yes. So we're hitting our sales forecast in general -- more than in general. The large majority of the store openings, like I said, we're very happy with. We're exceeding expectations in most of them, meet expectations elsewhere and confident that the stores are going to be good contributors short term. Vishal Shreedhar: Okay. Wonderful. And maybe I just want to get your thoughts on the pharmacy side. And with respect to the generics that are coming on the GLP-1s, do we have any Pro Doc plans? And when should we expect the Pro Doc generic equivalent to come out. Eric La Flèche: Let me pass it to Jean-Michel. Jean-Michel Coutu: Yes. Thank you for that question. So obviously, there's a lot in the news right now about the genericization of Ozempic. It's -- right now, we know there's been some delays. There's been some noncompliance notices. So we know it's being pushed forward a little bit. We're expecting something earlier in 2026. Now we -- there's a lot of discussions around GLP-1s. We see it a lot as a category of one right now. Everyone talks about Ozempic, but it's a very dynamic category. There's some new innovations coming out around [ Zepklom ], then we saw some news in early in December about the oral GLP-1s. So the way we see it is we think it will increase demand. But at the same time, it's going to -- the margin is also going to be protected by the fact that there are new therapies coming out. So other categories can continue to grow. And on the product front, obviously, we're always looking to increase the portfolio of Pro Doc, but that's not something that we could disclose right now. We need to see how the market shapes up. See how Novo Nordisk also reacts to the genericization of Ozempic in Canada to see if there is space for additional generic companies that product could then market in Quebec where we're prevalent. So I hope that answers the question, but it's -- as a category, it's growing and there's a lot of new innovation coming in. So you have to take that into account when you look at Ozempic. Operator: [Operator Instructions] Next, we will hear from John Zamparo at Scotiabank. John Zamparo: I wanted to revisit the topic on competition levels. and a question I think is for you, Eric. Against whatever base time line you choose, do you consider the market to be more competitive pretty equally across your network? Or is the comment about a very competitive market more specific to certain regions or certain pockets where you are seeing greater store growth from the industry? Eric La Flèche: Well, in our plan for this year, there's more impact from competition in the Quebec market versus Ontario, but there's impact over there from new competition, be it our own cannibalization or competitor square footage. So but there's a little more in Quebec that's happened over the last year and continues to happen this year. That cycles throughout this year. So yes, that's a wave that's going to pass, but there's still -- there's a competitive impact a little more in Quebec this year. John Zamparo: Okay. And then one perhaps for Nicolas. In the past, you've contemplated at times about looking at slightly higher leverage to facilitate more buybacks. And I wonder where Metro currently stands on that subject. Nicolas Amyot: I would say that we're still contemplating the same. We still have a view that we could progressively increase the leverage over time and then use part of that to buy back shares. So I think we're at the same position, and we would do that very gradually and prudently over time. Operator: Next question from Michael Van Aelst at TD Cowen. Michael Van Aelst: So just a follow-up. So overall, the sales are pretty good, particularly when you adjust for the temporary items and the timing. And at the AGM, it sounded like you're going to increase your focus on cost controls this year. Do you think this combination can allow you to get back into your growth algorithm despite the slower start to the year? Eric La Flèche: We remain committed to our financial framework objectives, which, as you know, are mid- to long-term averages. We're working really hard to make those numbers every quarter, every year. Yes, the number for Q1 is slightly below on EPS growth than that framework, but we will do everything we can to meet our objectives. So no change to our objective but we're not going to give you guidance for next week or next month or next quarter. Operator: At this time, we have no questions registered. Please proceed. Sharon Kadoche: Thank you all for your interest in METRO, and please mark your calendars for our second quarter results on April 22. Thank you. Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.
Operator: Welcome to the Five Star Bancorp Fourth Quarter and Year-End Earnings Webcast. Please note, this is a closed conference call, and you are encouraged to listen via the webcast. [Operator Instructions] Before we get started, we would like to remind you that today's meeting will include some forward-looking statements within the meaning of applicable securities laws. These forward-looking statements relate to, among other things, current plans, expectations, events and industry trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties, and future activities and results may differ materially from these expectations. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from the company's forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 2024, and quarterly reports on Form 10-Q for the 3 months ended March 31, 2025, June 30, 2025, and September 30, 2025, and in particular, the information set forth in Item 1A, Risk Factors in those reports. Please refer to Slide 2 of the presentation, which includes disclaimers regarding forward-looking statements, industry data, unaudited financial data and non-GAAP financial information included in this presentation. Reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures are included in the appendix to the presentation. The presentation will be referenced during this call but not followed exactly and is available for closer viewing on the company's website under the Investor Relations tab. Please note, this event is being recorded. I would now like to turn the presentation over to James Beckwith, Five Star Bancorp President and CEO. Please go ahead. James Beckwith: Thank you for joining us to review Five Star Bancorp's financial results for the fourth quarter and year ended December 31, 2025. These results were released yesterday and are available on our website, fivestarbank.com, under the Investor Relations section. Joining me today is Heather Luck, Executive Vice President and Chief Financial Officer. 2025 was another outstanding year of achievement underpinned by exceptional growth across all of the markets we serve and consistent strong financial performance. During 2025, we expanded our footprint in the San Francisco Bay Area through the opening of our Walnut Creek office. We expanded our agribusiness vertical, and we also added 10 more seasoned business development professionals to facilitate ongoing organic growth. In 2025, Five Star Bank achieved year-over-year growth in total loans held for investments of 15%, total deposit growth of 18%, net income growth of 35% and an increase in earnings per share of 28% to $2.90 a share. Financial highlights for the fourth quarter include $17.6 million in net income, earnings per share of $0.83, return on average assets of 1.50% and return on average equity of 15.97%. Our net interest margin expanded 10 basis points to 3.66% and our total cost of deposits declined by 21 basis points to 2.23%. Our efficiency ratio was 40.62% for the fourth quarter. Financial highlights for the year included a $61.6 million of net income, earnings per share of $2.90, return on average assets of 1.41% and return on average equity of 14.74%. Our net interest margin expanded by 23 basis points to 3.55% and our cost of total deposits declined 16 basis points to 2.40%. Our efficiency ratio was 41.03% for the year. In the fourth quarter, we saw continued balance sheet growth. Loans held for investment grew by $187.7 million or 19% on an annualized basis and total deposits increased by $97.6 million or 10% on an annualized basis. Over the course of the year, we experienced outstanding balance sheet growth. Loans held for investment grew by $542.2 million or 15% and total deposits increased by $643.1 million or 18%. We successfully reduced our balance of wholesale deposits by $95 million or 17% in 2025, and we grew our balance of non-wholesale deposits by $738.1 million or 25%. Our asset quality continues to remain strong with nonperforming loans representing only 8 basis points of total loans held for investment. We continue to be well capitalized with all capital ratios well above regulatory thresholds for the quarter and year. Our strong financial performance and dedication to delivering shareholder value drove an increase to our cash dividend of $0.05 per share for a total dividend of $0.25 per share for the quarter. This is the first increase in the dividend since April 2023. The dividend is payable to the company's shareholders of record as of February 2, 2026, and is expected to be paid on February 9, 2026. Our total assets increased during the fourth quarter and full year by $113.1 million and $701.6 million, respectively. This growth was largely driven by loan growth within the commercial real estate portfolio, which increased by $161.4 million in the fourth quarter and $448.5 million in the year. Our loan pipeline remains strong. Our prudent underwriting standards, comprehensive loan monitoring and focus on relationship-driven lending have contributed to maintaining the strong quality of our loans. As a result, we have a very low volume of nonperforming loans despite an increase of $1.0 million during the fourth quarter related to 2 separate faith-based real estate loans entering nonperforming status. We recorded a provision of $2.8 million for credit losses during the fourth quarter, primarily related to loan growth for the total provision of credit losses of $9.7 million for the year ended December 31, 2025. Growth in our total liabilities during the fourth quarter and full year was a result of growth in interest-bearing and noninterest-bearing deposits related to both new accounts and inflows from the existing customer base. Non-wholesale deposits increased $139.1 million during the quarter and $738.1 million during the year. Wholesale deposits decreased by $41.4 million during the quarter and $95 million during the year. Total noninterest-bearing deposits accounted for 26% of total deposits. Approximately 61% of our deposit relationships totaled more than $5 million. These deposits have a long tenure with the bank. With an average of 8 years, we believe our deposit portfolio to be a stable funding base for future growth. On that note, I will now hand it over to Heather to discuss the results of operations. Heather? Heather Luck: Thank you, James, and hello, everyone. Net interest income increased $2.7 million or 7% from the previous quarter, primarily due to a $1.8 million increase in loan interest income driven by new loan production and a $1.1 million decrease in interest expense. The decline in interest expense is primarily related to a 21 basis point decline in the average cost of deposits quarter-over-quarter driven primarily by 2 rate cuts occurring in the 3 months ended December 31, 2025. The average balance of deposits increased by 4% during the 3 months ended December 31, 2025, but the substantial decrease in the cost associated with deposits led to a net reduction in total interest expense. Net interest income increased by $32.2 million or 27% from 2024, primarily due to a $35.9 million increase in loan interest income driven by new loan production at higher rates, contributing to overall improvement in the average yield on loans. This was partially offset by a $10 million increase in deposit interest expense related to a 19% increase in the average balance of deposits during the year. The average cost of deposits was 2.40% for the year ended December 31, 2025, a decrease of 16 basis points compared to the prior year, which helped to moderate the increase in interest expense related to deposit growth. Noninterest income decreased to $1.4 million in the fourth quarter from $2 million in the previous quarter, primarily due to an overall decline in earnings related to equity investments and venture-backed funds during the 3 months ended December 31, 2025, compared to the prior quarter. Noninterest income increased by $100,000 in 2025, primarily due to an increase from fees from swap referrals and income from credit card activity, an improvement in earnings related to equity investments and venture-backed funds and an increase on earnings on bank-owned life insurance related to the purchase of additional policies. These gains were almost entirely offset by a lower gain on sale of loans, which declined due to the strategic reduction in origination of loans held for sale during the year. For the 3 months ended December 31, 2025, there was a $1.1 million increase in noninterest expense. And for the full year ending that date, the increase amounted to $10.5 million. The primary driver for higher noninterest expense was related to an increase in headcount, leading to elevated salaries and benefits. Provision for income taxes for the quarter ended December 31, 2025, decreased by $500,000 or 9% as compared to the prior quarter due to a $900,000 benefit recorded during the fourth quarter related to the purchase of transferable tax credits. This was partially offset by an increase in pretax income recognized during the quarter and an adjustment related to the true-up of amortization expense related to low-income housing tax credits during the 3 months ended December 31, 2025. The provision for income taxes increased by $3.1 million or 16% for the year ended December 31, 2025, as compared to the prior year due to a 29% increase in pretax income recognized during the year. This is partially offset by a $900,000 benefit recorded during the quarter related to the purchase of tax credits. And now I will hand it back to James for closing remarks. James? James Beckwith: Thank you, Heather. 2025 was an outstanding year of achievement for Five Star Bank. As we not only celebrated our 25th year in business, but also reflected on a quarter century of growth, innovation and commitment to our core values. Since our founding, Five Star Bank has steadily evolved from a [ small ] entrepreneurs into a $4.8 billion financial institution with 9 branches and over 230 employees. This remarkable expansion is a testament to our enduring dedication to authentic relationship-based service, a philosophy that places the needs of our customers, the well-being of our employees and communities and the interest of shareholders at the heart of everything we do. Throughout these 25 years, Five Star Bank has consistently prioritized building deep, meaningful relations with our clients, understanding that true success comes from trust, transparency and mutual benefit. Our employees play a crucial role in this journey, embodying our values through personalized service, expert financial guidance and active participation in the community initiatives. We take immense pride of our achievements, which include not only financial growth, but also positive impacts on the local economies, support for small business and contributions to the social and environmental causes. Looking ahead to 2026 and beyond, our vision remains steadfast. We are committed to further developing all of our business verticals while expanding our reach into new markets. It is increasingly -- in an increasingly digital world, we recognize the importance of blending cost-cutting technology with the human touch that defines Five Star Bank's high-tech and high-touch approach to business. As we move forward, Five Star Bank will remain focused on innovation and service excellence. We are excited about the opportunities ahead and are confident of our proven strategy will drive continued growth, strength in client relations and creating lasting value for our shareholders. We appreciate your time today. This concludes today's presentation. Now we will be happy to take any questions you might have. Operator: [Operator Instructions] And the first question today will come from David Feaster with Raymond James. David Feaster: I wanted to start on the origination side. You saw a real nice acceleration in originations this quarter. I just wanted to -- I was hoping you could give us maybe a sense of some of the drivers behind it? I know it's hard to peg, but how much of that growth is from new hires versus increasing demand? And then just any thoughts on how pipelines are shaping up heading into the new year and where you're seeing opportunity for growth? James Beckwith: Sure. We saw all of our verticals perform extremely well in the fourth quarter. Our ag -- our food and ag group did extremely well in terms of onboarding some clients whose lending cycle, if you will, is kind of gears up during the fourth quarter, especially in some of our nut tree processing clients who are paying growers. So that was a significant component. So it's seasonal in nature. But also some of the deals that we did down in the Bay Area, I think we had a fair amount of volume that came out of that. But across all of our geographies and our verticals, it was a very big quarter for loan production. Now as we enter into 2026, the pipeline looks good. It's been higher, it's been lower, but it looks good as we roll into 2026, David. David Feaster: Okay. That's great. And maybe just switching to the other side of the balance sheet, your deposit growth has been phenomenal. You've done a great job driving core deposit growth and reducing the wholesale funding and significantly improved your deposit costs. I just wanted to -- I was hoping you could touch on, first, the competitive landscape for deposits from your perspective today? And then just how you think about core deposit growth going forward and your ability to continue to fund your outsized loan growth with core deposits? James Beckwith: Sure. Well, the markets that we're in right now are very competitive. For the best clients that [ I'm going ] to see the Tier 1 clients, if you will, or prospects, it's a very competitive space. And it doesn't really matter what geography you're in. It's just competitive. And so we don't expect that to change. But our secret sauce, David, is the fact that we've got 42 business development folks that -- that's their job is to bring in core deposit and core relationships into the bank. We feel that's our competitive advantage. We brought some folks in down in Orange County that are deposit gatherers. They're starting to see a fair amount of traction down there. We've got folks that are in the Bay Area that are primarily deposit -- have a deposit orientation, they're doing well. But we also saw great growth in North State in our Redding office and also our Yuba City office. So we're excited about what that might mean for 2026. We seem to be doing fine so far. So we expect that we'll be able to continue to execute. Don't think we're going to be able to do what we did in 2026, what we did in 2025, David. That's just -- that's asking a lot. And a lot of things [ are ] away so we're projecting on both sides of the balance sheet, 10% growth as we roll into 2026. If we can achieve that, which is really quite substantial, we're happy with that. A couple of drivers of that is that on the loan side, we expect a fair amount of payoffs. We saw a fair amount of payoffs in the fourth quarter. And we expect the same or similar that we're going to see in 2026. So we're going to have to run that much harder. And then on the deposit side, we're trying to get rid of all of our wholesale -- excuse me, our broker deposits. And that's $175 million as we ended the year. And so in order to grow total deposits by 10%, I think what is it, Sarah, we're going to have to grow by 13 or so percent? So we're going to have to hustle in order to achieve those types of goals for us as we enter into 2026. David Feaster: Okay. And one of the things that supported your growth has really been your hiring efforts. I mean you talked about adding 10 BDOs this year. You've had a lot of success. I got to imagine what you guys are doing is resonating in the market. I mean it's -- you guys are putting up pretty -- it's just -- it's fun growing like you guys are, and I know you're getting recognized. I'm just curious, there's still a lot of disruption across your footprint in Northern California. How do you think about your ability to continue to recruit bankers and BDOs? And are there any markets or segments that you're notably focused on or expanding into? James Beckwith: Sure. I think we did a nice job with the East Bay and our Walnut Creek opening. It's a nice office. We expect that to grow. But when you consider about what we're doing down in the Bay Area, we're not yet on the Peninsula or South Bay. So that certainly would be an area from a geographical perspective that's of interest to us, highly competitive in terms of getting qualified bankers to come work for you. And frankly, a lot of those salaries have been bid up. And it's not a bad time to be a business development and a seasoned business development person in the Bay Area. Let me tell you that much. Operator: The next question will come from Andrew Terrell with Stephens. Andrew Terrell: Maybe if I could just start on expenses, Heather, hoping you could help us out with just kind of thoughts on the expense run rate into the first quarter. And if I look back at 2025, you guys grew, I think it was around high teens on overall expenses. You obviously had a pretty tremendous amount of revenue growth as well throughout the year. But just as we look out into 2026, any thoughts on kind of where the expense growth head? Should it moderate from here or stay elevated as you guys keep hiring and continue making investments? Heather Luck: Yes, sure. So from a dollars perspective for Q1, you could probably add about $300,000 to that expense amount. We do have plans that have brought on a few new people into our group. So that will help support that. But if you look at the full year for 2026, I think our target for a range on expenses as a percent of total assets or average assets, should be like 1.48% to 1.55% in that range. And we believe that, that will help accommodate growth as well as regular maintenance on there, too. So I think that range for 2026 would be 1.48% to 1.55%. James Beckwith: I think, Heather, what we end the quarter at or in the year at -- we're right at 1.50%? Heather Luck: Yes, the quarter was at 1.50% average assets. James Beckwith: That's something that we think about constantly, Andrew, in just terms of a percentage to total assets. And it's not a bad guide as we continue to grow. Andrew Terrell: Yes. Okay. Yes, you guys have stayed pretty consistent in that band we've talked about for a while. Okay. James, I wanted to get a sense from you just on competitive dynamics on rate competition on loans specifically. I know you guys do have somewhat of a repricing story as we move forward. Just wanted to get a sense on where new originations are coming at -- coming on that from a yield standpoint. We've heard from several of your peers, just the competition they're seeing on the loan side is impacting spreads. I'm just curious what you're seeing. James Beckwith: Yes. I think we're seeing the same thing, but we have the -- an ability to generate new credit within our MHC and RV efforts that usually will allow us to get our normal spreads, which could be anywhere between 275 to 350 over the 5 years. So we have a competitive advantage from that perspective because it's just not a lot of players in that market. But if we're going toe to toe with folks on an owner-occupied real estate and line of credit for an operating entity, it can be very competitive. And you could see spreads as low as 200 over 205 over and at prime or prime minus 25 even for their operating line. So it's constant. There's a lot of folks that are interested in the -- certainly in the Bay Area that have come in. And so we've -- it's a highly competitive environment and not just in the Bay Area, but up and down the Valley, the capital region. So we recognize this. There is pressure. We do have a lot of refinancings coming up in '26 and those fundamentally from everything that we did in '21 since we have, for the most part, our MHC and RV and probably outside of that, too, anything with the CRE patina to it, it's a 5-year reset, usually a 25- or 30-year [ ammo due ] in 10 with one reset after the 60th month. So big years of origination, you're going to have some resets happen. We don't expect all those loans to stay with us. A lot of those operators are going to take their loans to agency because they can get a better deal, lose the personal guarantees, take cash out. So we just -- it's going to have an impact to us. So a lot of those credits were 4 handles in terms of interest rates. So we're going to see a lot of that happen in 2026. Hopefully, we can keep up to half of them, okay? But they're going to reset, and we'll just see how that goes. We're actively -- I'm going to say, because they have other credits with it. We're actively in those discussions about what they're going to do when their loans reset. Andrew Terrell: Yes. Got it. Okay. I appreciate all the color there. And if I could just ask one more. You leveraged capital a little bit this quarter with the strong growth. I think your CET1 down around 10.5% now, maybe 10.6%. But I just wanted to get your sense on comfortability with capital as it stands today and kind of the outlook. I'm sure organic earnings can fund kind of 10% growth rate. But just wanted to get your thoughts on the current position and kind of capital expectations. James Beckwith: Sure. We had outsized growth in 2025. So you saw a decline in our capital ratios. But as we go forward, we believe that we'll be able to maintain our capital positions with a 10% growth. We do anything like 15% growth. I think that's another matter. But I think we like where we are. We need to be highly profitable so we can fund our growth. And I think we -- we'll be able to do that in terms of what we see in front of us in 2026 from a profitability perspective. So we'll just see how that goes, Andrew. If we have outsized growth that's another conversation. Heather Luck: Yes. If we stick to that 10% growth rate throughout our entire forecast period, we usually budget on a 5-year forecast. We are able to sustain ourselves and fund ourselves through that even with the elevated dividend that we just announced recently. But if we did grow like 15% to 20%, that clearly will accelerate capital needs, and we won't be able to self-generate. So we would likely have to have a capital event sometime in '27 or '28, depending on how fast that growth happens. Operator: The next question will come from Gary Tenner with D.A. Davidson. Gary Tenner: I wanted to dig a little bit into kind of the efficiency ratio. I know you talked about the expense-to-asset ratio earlier in the call. But as I'm thinking about the margin expansion kind of outlook, thinking that NII should run somewhat ahead of your loan growth outlook and balance sheet outlook, it seems like it will be kind of in line with the expense side of things. So I'm just wondering, with your efficiency ratio at 40%, down a little bit from a year ago, is there any -- is there much more room to push that lower? Or is it really just making $1 on every $0.40 from here? James Beckwith: Well, I think it's probably more the latter. And we have -- because we're constantly investing in our business. We're constantly growing our front end, adding more [ biz dev people ], and they're expensive. And we're constantly throwing coal into the boiler and trying to maintain our growth rates. As we get bigger and bigger, doing 10% is harder to do because the numbers are just bigger. But -- so we think that constantly having some form, Gary, of investment in the business in the form of new front-end people, which has a rippling effect across our cost structure because you hired some more biz dev folks, you've got to have some backup from a depository perspective. And then, of course, you got to have a few more lenders that will be able to underwrite their business. So that's how we think about it. It really starts with the folks that are on the front end. And we're not backing off. If we see a team that we think we can get, Gary, we're going to do it. And I think that's evidenced in what we've been able to do over the last 3, 4 years. So we're reinvesting. We're constantly reinvesting in our business. Imagine -- I think our profitability would be a lot higher if we didn't do that. But this is really a long-term play for our shareholders. And so we're a long-term organic growth shop, and we want to maintain that focus. Gary Tenner: Appreciate that, James. And then just as it relates to kind of the near-term outlook, the ability to generate that kind of 10% threshold of loan growth or really both sides of the balance sheet, is that -- do you have the headcount to accommodate that or to accomplish that today? Or is there any assumption that there's adds early in the year that help generate some of that growth? Or is it basically kind of -- is it based on the current team, I guess, is the question? James Beckwith: Kind of based on the current team. Wouldn't you say, Heather? Heather Luck: Yes, I think so. We really have -- if you think about it, we've -- in the Bay Area specifically, we've been hiring in tranches. And so it started in 2023, but we continue to add headcount as we go. So we have new hires. We hired 12 BDOs in 2025, and it does take some time to really understand our system, our platforms, our processes to really get their feet under themselves to run hard. And so they'll come online. But really, I think 10% growth is achievable with the current team that we have in place. Operator: [Operator Instructions] No further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. James Beckwith: Thank you. We are proud to have achieved another quarter and year of significant organic growth, built on a strong foundation of client service, expanded relationships and products and the loyalty of our exceptional clients. We will always remember that we exist because of our clients' trust us, and we believe in them. We will continue to answer the call of businesses and organizations who desire a time-honored banking partner through the geographies and verticals we serve. Five Star Bank is here to stay. It is our privilege to be a driving force of economic development, a trusted resource for our clients and a committed advocate for our communities. We look forward to speaking with you again in April to discuss the earnings for the first quarter of 2026. Have a great day, and thank you for listening. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to XVIVO Q4 Report for 2025. [Operator Instructions] Now I will hand the conference over to CEO, Christoffer Rosenblad; and CFO, Kristoffer Nordstrom. Please go ahead. Christoffer Rosenblad: Thank you so much. Good morning and good afternoon, and most of all, welcome to XVIVO's Earnings Call for the Fourth Quarter as well as for the Full Year of 2025. And with that, we turn over to Slide 2. It's just the 2 presenters that were introduced. It's me, Christoffer Rosenblad calling in from Gothenburg and the company's CFO, Kristoffer Nordstrom, calling in from Philadelphia in the United States. And with that, we can go over to Slide 3, which are the Q4 financials at a glance. The Q4 shows a 10% organic top line growth, which is equivalent to a 12% top line organic growth if we adjust for the U.S. heart trial revenue compared to Q4 last year. With recovering sales, the EBITDA recovered to healthy levels during Q4, again, showing that the revenue model is scalable. In terms of segment growth, the thoracic sales were slightly negatively affected by the lower heart study revenue compared to the same quarter last year in the United States, but positively affected by a stronger Q4 lung market, especially stronger if you compare sequentially to Q3 this year and even more so if you compare to Q2 this year. The abdominal segment shows great progress for both liver and kidney during the quarter. As stated earlier, liver in Europe has entered the majority market segment with penetration above 15% in many countries and up to 25% in core markets. The main task is to support growth with increasing resources for perfusion as well as more data for improved reimbursement level. In parallel, we are increasing the sales force footprint in Europe. While kidney, on the other hand, is still below 15% penetration in many countries, including the U.S., the main task is to win account by account. We are very, very encouraged by the positive feedback we get from our kidney customers. They see that the kidneys are in better condition after being perfused in Kidney Assist Transport compared to alternatives. And investigators will come out with clinical data proving this during 2026, which will be most important in the United States. The progress in our U.S. service business need to be drastically improved. It is a strategic investment to prepare for the heart launch, and therefore, we invest heavily for growth. We will come back later in the presentation on the actions taken and how we will execute to one day become the preferred partner in the transplant process. And with that, we can go to the next Slide 4, which is the year at a glance. The year shows a similar picture to the quarter, good and stable gross margin with continued investment in field force and scalable production structures. Sales came in at SEK 812 million with a 3% organic growth and which is then equivalent to 8% organic growth if we adjust for U.S. heart trial revenue. As we said in the last call, during the end of Q3, a cost and cash restructuring initiative was initiated to enable better resource allocation going forward. And our CFO, Kristoffer Nordstrom, will get into the details on sales, gross margin, EBITDA later in the presentation. For heart, the main hurdle is regulatory approval. Once the Heart Assist is used, the feedback is overwhelmingly positive. We continue to build evidence. We now have more than 500 patients that have been safely transplanted and also, I would say, successfully transplanted with Heart Assist. The CAP or Continuous Access Protocol in the U.S. is up and running, and we just passed the 30-patient mark included in the trial. In Australia, the heart penetration last year was -- or in '24 was approximately 30%. And we saw last year that going up to 40% for DBD heart in Australia during 2025. I'm also proud and happy to present that the Benelux DCD direct procurement study has enrolled all 40 patients. And I'm truly looking forward to another great presentation and publication that will most probably change heart transplantation and heart recovery forever. The high interest, the early very good results on DCD hearts and the Australian experience once again shows that the heart technology has the potential to change the paradigm of heart transplantation forever once it's launched. Lastly and most important to mention is that the projects are still progressing according to plan. Regulatory time line are hard to predict. We saw that this summer with the EU heart approval, especially when we come with groundbreaking innovative new technology that has the potential to change the paradigm. But both the clinical trials and development projects are progressing according to the time line agreed. For example, the production capacity project, where we invest to scale up volumes x10 of today's volume for disposables are running in line with communicated time line. The full-scale production for our disposables for heart, liver and kidney will be extremely important to capture the future growth potential for all 3 product groups. And with that, we can go into Slide #5. Let's be clear, for avoidance of doubt, we are not pleased with the performance in 2025. And that made us take fast and important step for future growth. Firstly, the EVLP business didn't grow as expected. This was partly due to slower lung market, but also because of lack of resources, especially in the U.S. field force. So now we have taken swift actions both to enable service models with partnerships and entering the OPOs as well as a larger investment into the U.S. field force. As we stated in the Q3 report, we entered into partnership for -- to enable perfusionist services. During Q4, we secured our first OPO contract. And as I stated, we have decided to invest in more feet on the ground during 2026 to enable closer customer relations with a growing number of EVLP partners. I just said that regular time line for innovative and paradigm-shifting products can be hard to predict and -- but we can take action. And we directly strengthened the team and reinforced a cost cash saving program to enable at least a healthy cash flow and at the same time, increase the focus on the heart project. For the organ recovery business, we have during the second half of '25, doubled both the hub footprint from 6 to 7 hubs and the surgeon roster to enable -- to stay closer to customers and do more recoveries at a lower cost. We also include NRP into our service offering to enable an offering that all customers actually request or almost all. We expect the fruit of this work to start to kick in during Q2 2026. And with that, we can go over to the next slide, Slide 6. And the key message is that the right actions give the right result. So with actions taken in the second half of '25 and the recovering lung market in the U.S., we did deliver for the full year of '25 organic growth, a stable EBITDA and actually the first ever positive cash flow in a quarter during Q4. And with that, we leave the introduction and we go into 2025 highlights. The Slide 7 is a dividing slide and the highlights of the year are in the two following Slides 8 and 9. So let's start with Slide 8 and the part 1 of highlights. Firstly, the reason we are here that XVIVO has enabled approximately 13,000 life-saving transplants during 2025, giving patients a chance to better life and in many cases, a new life. This is approximately 1,000 patients more than last year. I want to state this is something that I am and the entire XVIVO team are very proud of. And I want to thank you as investors that has enabled investment into truly innovative life-saving technology that has the potential to, in the future, change the life for hundreds of thousands of patients. And turning into our heart technology and the milestone we passed, early in the year, we presented a promising 12-month data follow-up from the European trial at ISHLT. It was the first and so far only superiority trial in thorax transplantation. And more importantly, it was the first trial to show a direct link between perfusion device and severe PGD and patient 1-year survival, which is a milestone within our field and it had never been done before. And I also never seen earlier in my life or encountered the extreme improvement we saw with a 76% risk reduction of severe PGD with very, very high statistical significance. And looking back at the year, we achieved several important milestones for heart, the European DCD trial completed, the CAP study up and running. And as I stated, 40% of DBD hearts in Australia has been preserved with XVIVO Heart Assist during 2025, showing that this is a technology that solves a real problem for patients and doctors in transplantation. And with that, we can go over to Slide 9, which is the second part of yearly highlights. In the U.S., we launched the first of its kind EVLP-OPO model through a perfusion partnership. Through the same partnership, we can now also offer NRP through our Organ Recovery service. For our liver technology, where we are European market leaders, we now have reached 25% penetration in core EU markets. Very, very encouraging results were also published from a 5-year follow-up of a randomized controlled trial for DHOPE DCD Liver. During the year, we -- another milestone was the launch of XVIVO Insight that enables remote monitoring for both Liver Assist and Kidney Assist. And finally, when talking about those 2 products, Liver Assist and Kidney Assist Transport are now regulatory approved in Canada. And with that, we go over to the regulatory and clinical updates. Slide 10 is a dividing slide, and then we have 4 slides taking into the update. We can turn to Slide 11, and we start with the usual overview of the status for the regulatory processes on Slide 11, as I said. The U.S. heart trial was fully included in record time, and we now passed the 12-month patient follow-up. Next milestones are to present the U.S. study at ISHLT in late April and prepare the technical and preclinical files for submission together with the clinical file to the FDA. We estimate to handing the files to the FDA during Q2. In parallel, we continue to build the clinical file with the help of the continuous access protocol in the United States. In Europe, the CE marking process continues. As stated earlier, the Heart Box and disposable part of the product is already CE marked. The solution has passed the EMA consultation, and we are now waiting for consultation at the sub-medical agency in Europe. It is estimated that we will complement the file and hand in for consultation by our notified body at the end of February this year. At this moment, we have no other update on the time line than what has previously been communicated by a company. But clear is that once approved, fully approved, we are ready to launch the product as we have a launch plan, it's ready to go, staff is recruited and the interest is, to say the least, extremely high from clinics in Europe. The European heart clinics are suffering badly from lack of alternatives to XVIVO Heart Assist. And for that reason, and in parallel, we are working with local agency to obtain compassionate use in chosen European markets prior to approval. And in Australia, New Zealand, the product is soon becoming gold standard, now at 40%. I believe that number will increase over time. But the regulatory approval will mark in Europe and to be clear, the same will apply to Canada. Regarding liver, I will come back to an update in the following slides. And with that, we can -- before we go into liver, we just have a short recap of heart on Slide 12. In the U.S., we also see an increasing interest to save patient lives and more and more clinics realize that the XVIVO Heart technology is the way to do that. We today have 10 activated clinics, of which 6 are currently enrolled patients. We recently included patient #13 to the continuous access protocol. And we are working hard to turn all activated centers into enrolling centers, and we also want to activate more centers into the trial. Right before we have included the 60th patient, we will apply with the FDA for an extension of another 60 patients to strengthen the clinical file in the U.S. And as stated earlier, we are working with the PMA process and most importantly is the presentation in -- during ISHLT of the first 141 patients in the United States. And with that, we can go to Slide 13 for a status update of the liver regulatory pathway in the U.S. We have earlier reported that the Liver Assist has been granted breakthrough device designation by the FDA. With an approved IDE and CMS funding approved, we could have started a trial in early Q3 '25. However, the company decided to temporarily pause activities for the liver PMA process to investigate if an alternative regulatory route is possible. With the recent 510(k) DeNovo approval in the U.S. for liver perfusion, we will begin a dialogue with FDA on regulatory pathways for Liver Assist. The aim is to enable patients in the U.S. a better product than what is currently approved faster than otherwise would be possible. Since we haven't had the meeting with the FDA, we don't have more information today on time line or possible route forward, but the company will inform the public and all investors of the outcome of our U.S. liver regulatory investigations latest in the Q1 report and earlier if needed. And with that, we can go to Slide 14, which is the last slide in this segment. XVIVO is the clear liver market leader in Europe with, as I stated, 25% penetration in the important markets. This success is built on excellent patient outcome, positive and documented health and hospital economics as well as the Liver Assist enabling the transplant team to have a work-life balance. Hence, they can plan liver surgery better than they could do before. In 2026, we will continue to expand the sales organization to increase penetration in Europe. In parallel, we will increase our efforts to educate the American transplant clinics on the benefits we have seen in Europe using the Liver Assist and where needed, replicate small-scale clinical trials to prove that it applies to the U.S. as well. And with that portion, we go over to Slide 15, and I hand over to our CFO, Kristoffer Nordstrom. Kristoffer Nordstrom: Thank you, Christoffer. Yes, an overview on the P&L. So net sales in Q4, as you know, came in at SEK 226 million. The organic growth was 10% and 12%, excluding heart trial revenue in total. Sales for the full year came in at SEK 812 million, representing 3% organic growth and 8% excluding heart trial revenue. The total gross margin in Q4 decreased to 73%, primarily due to inventory write-offs related to some R&D projects where we had some overproduction, so more of an anomaly. For the full year, gross margin was more or less in line with last year, 74% versus 75%. And this was despite the unfavorable exchange rate development from a weakened U.S. dollar, as you all are aware of. Throughout the second half of 2025, we maintained a strong focus, as Christoffer mentioned, on the operating expenses. And as a result, the adjusted EBIT in Q4 was 16% and adjusted EBITDA was 25%, which is a new quarterly record for XVIVO. Full year EBIT 11% and EBITDA 20%. I will come back to our view on EBITDA in 2026 in a later slide, so bear with me. Moving over to Thoracic, our largest business area at the moment. Q4 sales were SEK 147 million. Organic growth was 9% and excluding heart trial revenue, 12%. This means that thoracic return to growth again in Q4, and the main reason was the increased EVLP sales volumes, primarily in the U.S. The EVLP disposable sales in the quarter grew 33% versus last year. Perfadex Plus sales were flat, but this was after a strong Q3 where Perfadex grew 17%. And all in all, globally, 8% Perfadex Plus growth for the full year, which means we are maintaining our market position and marketing leading position of this very profitable part of our business. The highlight of the quarter was the installation of the first XPS system to an OPO in the U.S. in collaboration with PSI, and we look forward to expand this first-of-its-kind EVLP service model to more OPOs in 2026. Another highlight was the continued progress in heart sales. So not only did we include 18% in the CAP study, but we also saw continued adoption in Australia and New Zealand, further compassionate use cases in Europe, leading to a Q4 heart sales of SEK 60 million in line with last year. Finally, gross margin, solid 85% in Q4, and this was in line with last year. Moving over to Abdominal. Here, we had yet another record quarter, proud to say we're showing strong performance in both liver and kidney. Net sales were SEK 61 million translated to an organic growth of 30% in the quarter and also 30% for the full year. Liver sales grew 36% in Q4 and 31% full year. Kidney sales grew 20% in Q4 in local currencies and 29% for the full year. So good traction here. Gross margin, as I alluded to before, in Q4 was 56% lower than last year's 67%. And the main reason for this was some year-end write-offs of R&D inventory, and we hope to see the margin return to the plus 60% levels again in 2026. So once again, a solid quarter and another strong year for XVIVO Abdominal. Our last business area, Services. Financially, it was a disappointing quarter in Q4 with sales of 18%, which was in line with Q3, representing a negative organic growth of 21%. As I stated during the last earnings call, the second half of '25 has been transitional. Over the past 6 months, we have put fundamental pieces in place that will drive growth in 2026 and be of strategic importance as we prepare for the U.S. heart launch in 2027. So with a strengthened organization and with the introduction of TA-NRP in Q1, we foresee meaningful growth in 2026. And I think we will develop more -- a better understanding of what the meaningful growth means quarter-by-quarter next year. Gross margin decreased to 25%, and this is a direct result of our investments into the surgical capacity in the second half of last year. And as we acquire new customers in 2026, this margin should improve quarter-by-quarter. Our focus for 2026 is clear and worth repetition. So for organ recovery, it's everything about returning to growth, leveraging our strength in surgical capacity and the NRP offering. And at the same time, we will prepare for the U.S. heart launch. For FlowHawk, our digital software, it's about investing in further commercial excellence, broadening our team, work on the scalability of the product and prepare for integration with XVIVO product portfolio over time. I'm very pleased about our EBITDA in Q4. We hit a new record with an EBITDA margin of 25%. And at the rolling 12 months EBITDA, we're at 20%. The main reason for this achievement was not surprisingly, the increased sales in Q4, but also the stricter cost focus that we implemented during the second half of the year. In the following quarters, we will continue to manage our operating expenses, of course, with discipline and ensure that resources are directed towards areas with the best ROIs. However, with 25% that we delivered now in Q4, that is not what we expect out of the full year in 2026 to be transparent, sorry. I mean the baseline going into 2026 is the annual EBITDA of 20%. And that -- it's from that level that we are growing for next year. And as Christoffer said, 2026, it will be a year where we will invest heavily, primarily into the U.S. commercial organization to prepare for our launches and to accelerate the momentum we see now in EVLP. I would also before we move over to cash flow, which is my last slide, I also want to comment a little bit on the challenging environment we have at the moment when it comes to the currency that is not working in our favor. So overall, if you look at XVIVO and our operations, we have an operational hedge in the fact that we -- where we foresee the majority of our growth in the short midterm is in United States, and that's also where we foresee that we will invest the larger portion of our investments over time. So however, of course, this will translate into SEK eventually in our P&L as well. So that risk we are living with today. We do not have any hedging instruments in place today, but this is something we could implement if we decide that it's the right thing to do. In 2025, the sales in U.S. dollars constituted around 55% of total sales, approximately SEK 450 million. I think the average SEK-USD ratio in '25 was 9.8%. So if we assume a 10% decrease in USD versus SEK to 8.8 in 2026, that would translate into U.S. sales equaling SEK 405 million, hence, a reduction of SEK 45 million, which is roughly 5% decrease of total sales for XVIVO versus last year. So a 10% decrease of USD would roughly translate into a 5% decrease in the global sales for next year. Roughly best estimate that would lead to a decrease of EBITDA of 2% units. So that's a risk to bear in mind when looking into 2026 that the impact of a decrease in EU will be slightly less. Final slide before I hand over to Christoffer again. I'm very proud of our cash flow in Q4. We ended the third quarter with SEK 280 million in cash. We also have our credit facility of SEK 120 million roughly. So that brings total available funds to SEK 400 million. Operating cash flow was strong, SEK 87 million. And for the first time in XVIVO history, we had a total positive cash flow of plus SEK 18 million. So we feel that we enter 2026 with a cost base well aligned with both our financial resources and our growth outlook. And with those final remarks, I will hand over to you again, Christoffer. Thank you. Christoffer Rosenblad: Thank you so much. And with that, I will round off with the outlook for 2026 and then the longer-term outlook as I normally want to end the presentation. And if we start with the focus on 2026 on Slide 23. The key message that we will continue to build the sales force and to build on the new partnership in the U.S. to enable OPOs and clinics to recover more lungs by EVLP adoption through a combined service model and staying closer to customers. In parallel, we will increase our service offering to better tailoring customer needs, especially offering NRP procurement from an increased footprint with more available surgeons. We continue to work close with competent authorities in Europe with the aim of obtaining a CE mark for Hawk. And I'm, of course, looking forward to the presentation or many presentations on heart, but especially the U.S. heart study during ISHLT and that we -- after that, hand in the regulatory file to the FDA for submission. And lastly, in Europe, Liver Assist saves hundreds of lives every quarter, and we will support clinicians to increase that number through larger sales force, better reimbursement and more data to support them. And in many cases, service models to enable a better work-life balance for the teams. And with that, we can go over to the last slide or second to last slide 24, and it's a longer-term outlook. And I want to state this and I want to state it again that we are looking at a demand that is 10x higher than the available donated and used organs for transplantation today. And the sales value of machine perfusion is approximately 10x static cold perfusion. So the market opportunities there is approximately 100x bigger than what we see today. Machine perfusion and service models has proven to increase the number of organs to be used for transplantation, especially in the fast-growing DCD organ pool. The main growth drivers are superior clinical results for machine perfusion and the fact that service model reduced complexity and time for the transplant clinic. XVIVO has unique truly paradigm-shifting technology that are on the brink to becoming a gold standard in many fields. And I want to end this presentation with a look into the future. And you will, in the future, find yourself on an airplane. You might be seated next to the XVIVO Heart Box with a heart being transported to a patient whose life is about to change. And this patient has likely been on the waiting list for a long time with limited to no quality of life at all. And by having innovative paradigm-changing technology on the market, we will not only save this patients' life, we will also reduce the cost for the healthcare system dramatically as well as more importantly, we often forgotten in the field we are. At the same time, we have to remember there is a donor family who in their darkest moment, chooses the gift of life to someone in need. And that is what XVIVO Heart device can enable, and that is why XVIVO is here. So I hope that one day, if we continue to invest in innovation, in field force close to customers, that we can make our vision come true that nobody should die waiting for an organ. And with that, we turn to Slide 25 and open up for questions. Operator: [Operator Instructions] The next question comes from Simon Larsson from Danske Bank. Simon Larsson: My first question relates to the investments that you're planning [indiscernible] and at the U.S. launch of the Heart Box in '27 and the effect on profitability. So, yes, so I got it right from you, Kristoffer, we should not expect the EBITDA profitability level in a 25% range for the full year '26. Is that the correct way of viewing this? Kristoffer Nordstrom: Exactly. So I mean, the baseline from 2025 is 20% EBITDA. And we, of course, have an ambition to grow our top line next year, but we will make very deliberate decisions on how to use that money and growth is more important than profitability, it's that way. Simon Larsson: Yes. Okay. That makes sense. And I was also a bit curious about the lung performance here in Q4. Obviously, a strong bounce back from earlier quarters. Should we view this as some kind of baseline from which you can grow here going into '26? Or should we continue to expect some volatility maybe in sales here in the quarters ahead? Any dynamics that we should know about as we enter '26, would be helpful? Christoffer Rosenblad: Thank you, Simon. Great question. I wish I could give a clear answer. The clear answer is when we plan into 2026, this is, yes, the baseline we plan for. When we talk to customers in the U.S., there is a sentiment that we need to grow the number of lung transplants, partly due to the OPO dynamics where the rating could improve if they improve allocation of lungs and partly because of the TA-NRP opportunity where we actually throw a lot of lungs today away unnecessarily after TA-NRP when they could go through EVLP and be used for transplantation. That being said, it's always hard looking into the future because you don't know the volatility that comes with the future. But with the knowledge we have today, that is the best expectation we can give you. Simon Larsson: Yes. Very good. On the U.S. CAP study, just to confirm now as you're recruiting very fast, is it certain that you can extend the CAP to another 60 patients once you have recruited the first 60? Christoffer Rosenblad: I mean nothing is certain, so to say, because it's always up to the FDA and it's their decision. What is in dialogue, we have been told that we should be able to extend it if the safety data looks encouraging. So that's what we know. But this is solely the decision of the FDA and not our decision. I just want to clarify that. Simon Larsson: Okay. Okay. Yes. Okay. Makes sense. Final one from my end on the potential EU Heart Box approval. Do you think it could be the case that the notified body would want to see the U.S. heart data in April before making any final decisions? Or could an approval come earlier than that, that makes sense? Christoffer Rosenblad: It's a great question. I don't have a definite answer to the question. My gut feeling is that they want to see the U.S. data beforehand. That's what I guess. Hence, I would not expect anything before presentation end of April. And also moreover, so hard to predict time line. But we work hard on our end to make sure that we can get the highest attention from notified body, et cetera. And just to clarify, actually, the Heart Box and the Heart Disposable is CE marked, so we can sell those. It's a solution that means consultation for pharmaceutical ingredients that we are waiting for. Operator: The next question comes from Jakob Lembke from SEB. Jakob Lembke: My first question is on EVLP development in the U.S. And I'm wondering if you could sort of elaborate on the development among different customer segments, your lodged key customer, other core customers and new customers you won recently. Christoffer Rosenblad: Yes. We see a positive development on all customer segments in Q4, if you compare to Q3 and Q2. But we see a stronger from main customers and existing customers, so to say, who have EVLP practice up and running from the ones setting up programs, we see an increased interest, so to say, and a slight increase in sales, but we see the main impact coming from, let's say, the heavy users on EVLP. We also see an increased interest for more service components in the EVLP segment and hence, that's the partnership. So that's why we're working hard on strengthening both the partnership, but also our field force to enable it. Jakob Lembke: Okay. And then on the opportunity to deliver or do EVLP through the OPOs, my question is, do you have any ongoing discussions with other OPOs and sort of yes, how many could you have, let's say, in a couple of years, you think? Christoffer Rosenblad: Yes, we have ongoing discussions and high interest from OPOs for starting OPO programs. I would like to come back in later calls on the exact number once we have proved our first 2 to 3 OPO models, so to say, then we will have a clearer view on both the pipeline. We will have the right resource on the field to collect the interest, et cetera. But what is clear today is that reach for EVLP is not -- in the United States is not as strong as it should be to enable a higher usage of donated lungs in the United States today. And we need to increase that reach to enable a higher usage to be clear. Jakob Lembke: Okay. And then also, I'm wondering if you had any lung machine sales here in the quarter? Kristoffer Nordstrom: Yes, in the Q4, we had no sales per se, but we had this placement at this OPO that we just discussed. I think there was another placement as well in Europe, which takes the year -- the full year total XPS new accounts to 6 or 7. The pipeline for Q1 is promising, and we hope to have a few more, 2, 3 more, I think, in Q1. There is still a discussion whether we will sell these or if we will place them, but that says something about the underlying health of the EVLP business [indiscernible]. Jakob Lembke: Okay. That's very helpful. Then I have a question on Liver in Europe, which, as you said here on the call, has developed quite well. My question is if you could elaborate a bit on what markets are driving this? Christoffer Rosenblad: It's the core markets in Europe. I would say the main driver is where we have a service model in Italy, which is really driving highest penetration rates in Europe. We see strong growth in Benelux as well. We see Germany growing very fast from a slightly lower level. And then, of course, we have the other core markets in European, France and U.K., where we see a strong uptake as well. Jakob Lembke: Okay. Sounds very promising. And then just a final question on the -- what expectations we should have on capitalized development going forward? Christoffer Rosenblad: We will focus on -- the main money we spend right now is going into the heart trial. So it's partly pending approvals, how much we need to invest into heart trials. But we should expect that level to continue for -- up until approval for both in Europe and then later in the U.S. Jakob Lembke: Okay. But let's say you get a European approval here mid-2026, should we expect some of that to come down then after that? Kristoffer Nordstrom: Yes. I think the majority of the spending, and that was also the case in Q4 is directed towards the U.S. trial and the regulatory process over there. So that should come down slightly, I think. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: First off, on the European regulatory pathway here for the [indiscernible]. It sounds like you are increasingly becoming more confident in what's needed on your end to be achieved in order to obtain approval versus your previous communication. Is there anything you can add to that if that is true? Christoffer Rosenblad: Yes, I can confirm it's true. We had encouraging meetings both with our notified body and with medical agencies to clarify what we need to do. And we do have a higher confidence today that we are -- let's say, know what is needed. Ulrik Trattner: Great. And if we were to also sort of look at liver here and your upcoming meeting with the FDA regarding a 510(k) and I guess this will be for a HOPE device and not a DHOPE device. But can you give any type of outline here in terms of a time line if you have a positive meeting with the FDA in February? Christoffer Rosenblad: I would choose to not speculate on the time line at this point, though it would be premature. So I would wait for the FDA meeting to have a clear picture on time line going forward and what we need to do to achieve them and then we come back. Ulrik Trattner: Sure. But if you can clarify here on this potentially then being a HOPE product and not a DHOPE product. And you obviously achieved a lot of success in Europe on a DHOPE device. And I guess you would see more logic combining a DHOPE device with NRP, for example. So how would a HOPE device fit into the current landscape in the U.S. right now? Christoffer Rosenblad: In discussion with U.S. customers, we see that a HOPE device would fit very well into an NRP setting, absolutely. So we don't see any change there in application to use. We also see that in -- if we're going to -- if we will go from hyperthermia or HOPE up to normothermia and warm evaluation, then dual would be needed. But we believe for a setting where we only need to either time shift or improve outcome or combined with NRP, we believe that current hope would be sufficient enough for at least the customer segment. And we have to evaluate if we need further on to also look into hope. But at this stage, time to market is prioritized over especially normothermia. Ulrik Trattner: Okay. So is it fair for one to assume that you will look at DHOPE as a sort of sequential development process into the U.S., starting off with HOPE, building your customer base and then doing a PMA study for DHOPE? Christoffer Rosenblad: Where no decisions are taken today regarding the regulatory full strategy, that could be a possible way forward, absolutely. But that's something we need to go back to when we have a clear picture after meeting the FDA. Ulrik Trattner: And next question would be on the Kidney Assist Transport ramp-up in the U.S. throughout 2026. I know that you comment that full-scale commercial launch, and I guess that entails you're done with the tweaking of the box and the adapter for the dual arteries and the sizing of the box by sort of end of the year. But you have signed up OPO contracts. So just can you give us some rough guidance on how the commercial interests ahead of the sort of broader commercial launch? Christoffer Rosenblad: I mean it's interesting because it's -- once a clinic start to use it, they are very pleased with it, so to say. So key in '26 will be to add more clinics to get a greater or more clinics with a greater user experience as well as going into the OPOs to have them also experience what a great product it is. So that is the main task we see. We see a great interest from many counterparties in the field, and we want to continue with a slightly limited sales force we have now, but we still want to cater that interest to make sure that more kidneys can be used for transplantation. And when they get used, they will have a higher survival rate. And as I said in the presentation, we're also looking forward to investigator-driven studies coming out with -- showing that on the American transplant system as well. Ulrik Trattner: Great. And last question on my end. You successfully historically implemented quite significant price increases year-over-year. So what's the plan here for 2026? And also if that could offset potential tariff impact? Kristoffer Nordstrom: Yes. That's correct, Ulrik. We've been fortunate in the last years, been able to implement quite high price increases. We took a decision in the fall to push our price increases in the U.S. a little bit earlier. Usually, that's a January thing. So we increased prices in the U.S. around 5%. I think it was across the board in November to manage the tariffs. Europe, normally, there is a similar price increase in the beginning of the year as well. However, here, we have longer contracts due to tender, et cetera. So you don't really see the immediate effect there. But we -- overall, we believe that we have handled this in a good way and in a similar path as we have done in the past. Operator: The next question comes from Filip Wiberg from Pareto Securities. Filip Wiberg: I've got just a couple of follow-up questions here. So first is on the CAP. So 10 centers now up and running. You did 18 transplants in the quarter and I think you said they're up at 30 in total now, right? So my question is mostly in terms of their total heart volumes, like sort of a penetration rate. So what percentage of their total volumes have they used the heart box in, if you get the question? Christoffer Rosenblad: Got it. Got it. We probably need a longer-term view of that to come with a better question, but we can see that -- in the original trial, we could see that some centers had up to 20%, 25% of their volume going on the Heart Box. So the indication for use in the trial were extended criteria or it’s typically DCD more than 4 hours, about 50 years, more than 2 hours, et cetera. So fulfill that criteria. So we could see fairly high, let's say, clinic penetration in some centers during the original trial. And we need to come back after we -- after this trial is more up and running with a better view on the continuous access protocol and how that translates. Filip Wiberg: Okay. Yes, I was just trying to get a feeling around the potential after an approval just in these centers, which I suppose now are used to using device, but okay. But another one, you're planning to extend it right like after you or close to reaching the 60 patients, so will that -- will there be sort of a delay after the first 60 patients are done? Or can it start just right away after that? Christoffer Rosenblad: We plan to interact with FDA, so there is no delay on -- by request from our users. So it will follow the same protocol, same IRB, et cetera. So there should be a possibility to have no delays. Filip Wiberg: Okay. Very good. And then just last question, if you can talk a little more broadly on the market in the U.S. with some prior questions have been around lung here and if there have been some one-off effects or so. But are you seeing a continued improvement in like general market in the beginning of 2026 with then a continued improvement? Or what's the situation now? Christoffer Rosenblad: Yes. I must say, since October, we see a better sentiment in lung, which is the market we know the best, so to say. And we do see an increased usage of our products. And we have no reason -- I mean, we're just a couple of days into '26. So we have no -- we haven't seen any change so far on that sentiment that we saw in Q4, not turning -- continuing into '26. Again, in discussions with clinics, they share the same positive sentiment as they did in October when we met during the global EVLP Masterclass or Lung Masterclass. Operator: The next question comes from Ludwig Germunder from Handelsbanken. Ludwig Germunder: I have only two questions, please. The first one would be on EVLP, which is kind of a follow-up on the previous question. Could you comment anything about the new customers that you signed last year and how they have been developing during -- since they signed [indiscernible]? Christoffer Rosenblad: Yes, great. Absolutely, we can -- they have developed well. It takes a while to set up a good internal EVLP program. We see that in 6 to 9 months, they were up and running, and we see an increasing activity that we are now investing sales force to make sure that, that continues and accelerate during 2026. Ludwig Germunder: Okay. Great. And then on the -- you mentioned the move of production capacity and that is running according to plan. Could you just remind us, please, what that time line is? Christoffer Rosenblad: Yes, great. We plan to have to finalize the majority of the setup this coming summer to be ready, let's say, with all investments for the x10 ability to produce. We can already see in many products that we have that ability already for disposables, for example, for liver and kidney. Operator: The next question comes from Oscar Bergman from Redeye. Oscar Bergman: I got a quick couple of questions from my end. You mentioned that you have up to 25% market share for delivery in some core European markets. I remember the figure being 30% in Italy. I'm just wondering if this has come down. And if you can just comment some on TransMedics entrants in this market? Christoffer Rosenblad: Great. Thank you. Very good question. No, other way around in Italy, it's growing every day actually. We have a fantastic team in Italy, one of the best teams I ever met, very dedicated, customer-centric. They're always there. The customer call in the middle of the night, they're actually there. So it's a great team, great customer interaction. So it's constantly growing. Hard to comment on what other people are doing in Italy or elsewhere. We haven't seen anything so far. Oscar Bergman: Okay. And then on the kidney product, you did some redesigning for the U.S. market. Just wondering where you stand today in terms of this process and when you will be able to scale up commercially? Christoffer Rosenblad: The project is ongoing, and we are working on a couple of avenues commercially in parallel. One of them being acquiring more clinical data, which we are doing together with investigators; two, getting into more hands, so we get more clinics up and running and three, pilot into some OPOs who knows that it will come -- the improved product will come early next year in around a year's time to pilot in an OPO setting. So that's what we are doing in parallel, so to say. Oscar Bergman: Okay. And then if we assume that the Heart Box with a CE mark sometime during the summer, then how quickly will you be able to sort of hit the pedal to the metal and then start accelerating commercially? Christoffer Rosenblad: It's a great question. The answer is very fast within some limits, so to say, it needs to get listed, reimbursement, et cetera. Through the year, I mean, in the next couple of months, we will have a better view on that because we are working in parallel with reimbursement in some markets. But judging from customer interest, it will be a very instant uptake in many markets in Europe. So -- but we have high, high, high interest in France, Germany, Italy, U.K., et cetera. But there might be administrative delays. But from a clinical side, there will be no delay at all. Oscar Bergman: Okay. And just a final question, Christoffer. You mentioned that you do some restructuring of the Service segment in the U.S. Can you just elaborate more practically what this means? Christoffer Rosenblad: In terms of Organ Recovery service, what we've practically done and if you go back and listen to the Q3 report, we described it or the conference call described a little bit more in detail there. But we have restructured the service to also enable NRP with the partnership as can now recover TA-NRP in our organ recovery. More importantly, we have educated everyone in our team, et cetera, to be able to do it. And we also doubled the number of hubs where we travel from to reduce cost, and we also doubled the footprint on -- or let's call it, surgical footprint to enable fast growth in this segment. So those are the main items we have done to gear up for growth. Thank you so much, everyone. I see that we now are over time and need to conclude this conference. And if I turn to the last slide with a reminder that we will meet in the future next time is April 22 to listen to the interim report January to March ‘26, which we will actually broadcast most probably from ISHLT. Thank you for today, and see you next time.
Operator: Good day, and welcome to the WSFS Financial Corporation Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to turn the call over to your host for today, Mr. David Burg, Chief Financial Officer. Sir, you may begin. David Burg: Great. Thank you very much, and good afternoon, everyone, and thank you for joining our fourth quarter 2025 earnings call. Our earnings release and earnings release supplement, which we will refer to on today's call can be found in the Investor Relations section of our company website. With me on this call are Rodger Levenson, Chairman, President and CEO; and Art Bacci, Chief Operating Officer. Prior to reviewing our financial results, I would like to read our safe harbor statement. Our discussion today will include information about management's view of our future expectations, plans and prospects that constitute forward-looking statements. Actual results may differ materially from historical results or those indicated by these forward-looking statements due to risks and uncertainties, including, but not limited to, the risk factors included in our annual report on Form 10-K and the most recent quarterly reports on Form 10-Q as well as other documents we periodically file with the Securities and Exchange Commission. All comments made during today's call are subject to the safe harbor statement. I will now turn to our financial results. Our businesses continued to perform very well in the quarter, providing strong momentum moving into 2026. For the fourth quarter, WSFS delivered a core earnings per share of $1.43, a core ROA of 1.42% and core return on tangible common equity of 18%, which are all up meaningfully on a year-over-year basis. These results closed out a successful 2025 that included a full year core EPS of $5.21, core ROA of 1.39% and core return on tangible common equity of 18%. Our 4Q core EPS is up 29% over the prior year, and our 2025 full year EPS increased 19% over the prior year. These core results for the fourth quarter exclude several non-core items, which resulted in a $5 million impact to net income as well as the $0.09 impact to EPS in the quarter. These items are outlined on Page 5 of the supplement. Net interest margin was 3.83% for the quarter, down 8 basis points linked quarter, driven by the rate cuts and a onetime interest recovery last quarter, which accounted for 4 basis points of the decline. Importantly, our NIM is up 3 basis points year-over-year while absorbing 75 basis points of interest rate cuts since the fourth quarter of 2024. We continue to successfully reprice our deposits, and our exit deposit beta for December was 43%. Core fee revenue increased 2% linked quarter and 8% year-over-year driven by double-digit growth in Wealth & Trust, capital markets and home lending. Our Wealth & Trust business continues to perform very well and grew 13% year-over-year with 29% growth in WSFS Institutional Services and 24% growth in BMT of Delaware. For the full year 2025, WSFS Institutional Services was the fourth most active U.S. asset-backed and mortgage-backed securities trustee with nearly 12% market share, moving up 2 spots in the rankings relative to 2024. Total gross loans grew 2% linked quarter or 9% annualized, driven by broad-based growth across our businesses. In commercial, growth was led by C&I, which delivered growth of 4% linked quarter or 15% annualized. And overall, we saw the largest quarterly fundings in over 2 years. Our residential mortgage and WSFS originated consumer loans continued to build on a strong momentum and grew 5% linked quarter. Total client deposits increased 2% linked quarter or 10% annualized, with growth across trust, private banking and consumer. Importantly, our noninterest-bearing deposits grew 6% linked quarter and now represent 32% of our total client deposits. Turning to asset quality. We saw a meaningful improvement across our problem assets due to favorable net migration and payoffs and ended the year at the lowest level in over 2 years. Nonperforming assets were essentially flat compared to the prior quarter and ended the year down approximately 40% compared to year-end '24. Delinquencies increased 46 basis points linked quarter due to several previously identified non-performing and problem assets moving to delinquent status in the quarter, 14 basis points of this increase was driven by non-performing loans. The remainder is primarily comprised of 2 office loans and 1 multifamily condo loan in our footprint. One of the office loans was already resolved in January, while the other is a medical office expected to be sold in the first half of '26, which would result in a full repayment of our loan. We continue to work with the borrower on the remaining loan and believe we're well secured. Net charge-offs increased 16 basis points to 46 basis points of average loans, primarily due to the partial charge-off of a nonperforming land development loan. Net charge-offs were 40 basis points for the year, excluding Upstart, which is on the midpoint of our prior outlook. During the fourth quarter, WSFS returned $119 million of capital including buybacks of $109 million or 3.7% of our outstanding shares. This took our total buybacks for the year to $288 million, representing over 9% of our outstanding shares. On Slide 15 of the supplement, we provided our 2026 outlook, which assumes a continued stable economy and three 25 basis point rate cuts throughout the year in March, July and December. Overall, we expect to deliver another year of high performance and growth with a full year core ROA of approximately 1.40% and double-digit growth in core EPS. As a reminder, we intend to maintain an elevated level of buybacks in line with our previously communicated glide path towards our capital target of 12%, while retaining discretion to adjust the pace of buybacks based on the macro environment, business performance and potential investment opportunities. We expect mid-single-digit loan growth overall with low single-digit growth in our consumer portfolio, where we expect continued momentum in residential mortgage and other real estate secured consumer loans, partially offset by the continued runoff of our Spring EQ partnership portfolio. Building on a strong momentum in deposits in 2025, we expect continued broad-based deposit growth across our businesses in '26. Our outlook calls for deposit growth in the mid-single digits from 4Q levels. Our outlook for NIM is approximately 3.80% for the year, which incorporates the impact of the 3 additional interest rate cuts I mentioned. We continue to focus on deposit repricing opportunities while growing our portfolio and expect to maintain an interest-bearing deposit beta of low to mid-40s throughout the year. While the path and timing of future rate cuts remains uncertain, it's important to note that the impact of additional rate cuts on our financial results will not be linear. As we continue to manage our margins through several levers, including deposit repricing actions, our hedge program and the securities portfolio strategy. We continue to see momentum and growth opportunities in our fee businesses, which contribute approximately 1/3 of our total revenue. Our overall fee revenue will grow mid-single digits, excluding Cash Connect. Wealth & Trust is expected to continue the strong momentum and again grow double digits in 2026. Cash Connect revenue is expected to decline due to interest rates but will be more than offset in expenses. Our focus in Cash Connect continues to be on driving the profit margin which has increased meaningfully in 2025. Our outlook for net charge-offs is 35 to 45 basis points of average loans for the year, consistent with our 2025 results. While we have seen strong improvement in problem loans and nonperforming assets, commercial loan losses may remain uneven. Our outlook calls for an efficiency ratio in a high 50s for the year. We plan to maintain strong expense discipline, but we'll continue to leverage opportunities to invest in the franchise, which, coupled with normal seasonality, may result in some variances quarter-to-quarter. We're excited about the future and remain committed to delivering high performance. Thank you, and we will now open the line for questions. Operator: [Operator Instructions] Our first question comes from Manuel Navas from Piper Sandler. Manuel Navas: On the loan growth, can you talk a little bit about the better commercial trends? And kind of what are you seeing out there in terms of sentiment? There's some better line utilization, the footings were up. Just kind of talk about what you're seeing in commercial that's driving this kind of strong originations and a good outlook. David Burg: Yes. Sure. And well, good afternoon I'll start off. So in commercial, as you know, in the first half of last year, there was quite a bit of uncertainty in the economy with the tax bill pending some of the tariffs and legislative issues that were ongoing. And I think as you heard Rodger mentioned a couple of times in our calls in the first couple of quarters of the year that small business owners and entrepreneurs were, when faced with that kind of uncertainty, we're kind of delaying some business decisions. And so what happened over the course of the year was we continue those discussions with clients. We saw that pipeline really build in the third quarter and our pipeline reached over $300 million in the third quarter. And in the fourth quarter, when some of those things crystallized, we -- the environment -- people felt better about making some of those decisions with the passage of the tax bill, a little bit more clarity on legislative front. And so we saw very strong originations and fundings, and we continue to see good momentum. We're not going to see that kind of growth every single quarter. But we feel good about the momentum going forward from here. Manuel Navas: I appreciate that. Can I switch over to capital return for a moment. David Burg: Sure. Manuel Navas: This was a really strong quarter in terms of buybacks. What are kind of your parameters there? Is it just that CET1 ratio? This quarter also had return on AOCI, a little bit lower pricing, tangible book value per share growth you hit the 110% total payout. Like what should be the guidepost beyond CET1 going forward? David Burg: I think, Manuel, we look at all of those factors, I would say, primarily CET1 and TCE, which does incorporate that AOCI volatility. And of course, if we see our price dip, we take advantage of those opportunities. But generally, our approach is, as you know, the majority of our capital philosophy, our capital return philosophy is through buybacks. Our dividend is kind of in the mid-teens. So about 85% of our capital returns is through buybacks. And we are continuing on this kind of multiyear glide path to get to the capital to our capital target. And so I think we have the capacity and you can kind of think about it as returning roughly 100% of net income a year. But I think importantly, we will talk about up and down depending on what we see. If there are investment opportunities, we want to take advantage of those. And similarly, if there's some kind of stress in the economy or the market, we may slow that down. So I think that's kind of the glide path, but all of the factors you mentioned are things we take into account. Operator: Our next question comes from Russell Gunther from Stephens. Russell Elliott Gunther: I wanted to start on Cash Connect, if we could. So 3 cuts baked into the outlook. I know 4Q tend to see some seasonally lower ATM volume. But as you look at the year ahead, what type of revenue hit are you guys anticipating here? And then within that, if you could talk to just overall margin expectations, you mentioned the improvement, I think from what was a high single-digit margin to a low double-digit one now. So just helpful to get the puts and takes positive and negative over the course of '26 in terms of profitability improvement here. David Burg: Yes, sure, sure, Russell. So yes, when you look at Cash Connect, as you mentioned, the interest rates do have an impact on the pricing, on the top line, but that's more than offsetting the expenses. So we do have a margin benefit there. I think the way to think about it is roughly about $2.5 million annual impact per 25 basis point rate cut is kind of roughly what you should think about. On the topline. And so the impact of the rate cuts, like you said, about 3 rate cuts for the year, that's really kind of the way to think about the impact on the topline for Cash Connect. But you mentioned the margin. That's really been the story that we've been focused on because some of that macro pricing. But not only are the interest rates accretive to margin, but we've also been taking a number of other actions to continue to drive margin. And those are: number one, pricing. We've leveraged some of the scale that we have in the market to increase pricing across our products, and that's been a meaningful benefit. Number two, we've had a couple of things that we're doing around expenses, and that includes both optimizing kind of in-transit cash as well as just efficient management of expenses in the business. And the third thing that we're doing is we're taking a look at the client portfolio across that business and thinking about and there's a page in the supplement, which shows the mix of that business between Smart Safes and bailment and you can see that Smart Safes have increased year-over-year from about 25% of total volume to about 33% of total units, rather. And the Smart Safes generally come with higher margin and higher kind of value-add products. And so as we continue to grow that business, which we think is kind of a growth vector within that business, that should also be accretive to our margins, and that's part of our strategy. So it's a combination of not just rates, but all of those actions that have allowed us to drive the margin. And the goal is that we continue to drive that into the mid-single digits and hopefully higher. Russell Elliott Gunther: That's very helpful, David. And then just switching gears overall to expenses. Great to see the high single -- the high 50 deficiency. But outside of the lower result we'll get like from the Cash Connect as we just discussed, are there areas of outright reduction that can support a lower run rate for the year? Just trying to think through what's a decent core not just for noninterest expense growth rate for WSFS? David Burg: Yes, Russell, I would say a couple of things there. Our efficiency for the year this year was 59%. We said high 50s. So we'd like to be in that range or a little bit better next year. We don't want to give a specific number because as you know, we want to take advantage of opportunities and invest in the franchise. And so if those opportunities exist with talent additions, or technology, we want to take advantage of those opportunities. And so that's why quarter-to-quarter, there may be fluctuations. But to give you a little bit of a sense of other things that we're doing on expenses, we do have a number of different productivity actions that we're taking. For example, we've been optimizing our real estate portfolio, and that's been a nice tailwind for us and will continue to be. So we're really leveraging those opportunities hard. Another one is we have divested a number of products or businesses that are not central to our strategy. Those include upstart -- earlier in the year, powder mill, we exited the joint venture with Commonwealth and all of those things are also taking out expenses for things that are, again, not central to our strategy. And in addition to all of that, I think we're having really good strong discipline around our head count and expenses overall, including particularly in the shared functions. So I mean all of those things give us confidence, but importantly, we want to really continue to invest in the business if those opportunities... Russell Elliott Gunther: I hear you. I appreciate it. And then just last one for me. Curious as to the anticipated mix of deposit growth. So you guys are basically looking to match fund loan growth. Just wondering any willingness to flex with the below peer loan-to-deposit ratio around 76%, right? Just maybe fewer market rate deposits. And then I guess an adjacent question really would be just expectations around the overall size of the balance sheet, if you can touch on the investment portfolio and cash balances, how they could trend over the course of the year? David Burg: Sure. So first on deposits. So that's a trade-off that we do take into account. We've been running off, if you look over the course of the year, we've been reducing a little bit of our CD book, and that's been really price driven. So it's not an intentional runoff but we've been aggressive on pricing there, and that's really because of the strength of the deposit growth in other businesses, we were able to do that, particularly for clients that are -- that only have the CD relationship. So we will continue to look at opportunities to flex pricing. But as you know, a lot of our deposit growth has come from noninterest-bearing deposits. And those are clearly kind of core operating deposits that we certainly want to continue to bring in and our super-accretive in the long run. So I would say, we are trying to be fairly aggressive on pricing while continuing to grow core clients and relationships. And on your question around securities portfolio, we have -- over the course of the year, we've been bringing down our portfolio a bit, I'll say, over the course of the past couple of years from elevated levels. Now we've reached the point where it's in the low 20s, about 21%. And our intention is to keep it here. So from this point forward, we're going to -- anything that really that comes off the securities portfolio, we will look to reinvest it in the same type of securities that we essentially have. So agency, not taking a lot of credit at all credit risk in any way, MBS, those types of securities. But we're going to keep it flat at this level. Operator: Our next question comes from Kelly Motta from KBW. Kelly Motta: Just at a high level, you over the past year or so, exited a couple of businesses where the risk-adjusted returns aren't there. It feels like given your guide and outlook, these the headwinds are abating somewhat. Are there any -- as you strategically look at your diversified businesses, are there any things that you're continuing to evaluate that you could share or kind of thresholds of profitability you look at of these kind of niche businesses and deposit and loan verticals that you have. David Burg: Yes. I'll start off, and I'm sure Rodger will weigh in as well. So Kelly, we continue to -- we have an initiative here, we call it relook where we continue to look at different parts of our business and think about the fit and the strategic fit of that going forward. And that's something that we continue to do. And like you said, we've done a good job of shedding some of those things. At the end of the day, I can't really discuss anything specific that's on the horizon right now, but it's really, I would say, part of our strategic plan and part of our ongoing strategy to always evaluate those type of things. Rodger Levenson: Yes, Kelly, it's Rodger. I would just add to what David said is I think if you look at the actions we took in '25, those were primarily decisions made and WSFS look very different than we are today. And because they were low scale, low profitability partnerships or businesses that we had, we thought it just made sense for the reasons that David said to move on from those. I don't think there's a large group of followers to that, but I do think, as David said, there's opportunities to relook at a lot of things that we're doing based on the evolution of the company, and I think this was an important year to kind of start to build some of that muscle. We've always been very disciplined, obviously, about evaluating our profitability by business line and shared service area. I think this will -- this exercise will help us continue to do that. going forward. So it's -- when you go through a period of rapid growth like we did 4, 5 years ago, I think as you settle into your scale and you see whether you're getting that higher growth you're looking to free up capital and resources to continue to invest in those areas and in areas where we're not seeing that to either redeploy that capital or resources. So it's an important part of our strategic plan and will continue to be going forward. Kelly Motta: Got it. That's helpful. Maybe a question on M&A, if I could. It's been several years now since the last deal. I know you've been internally focused and clearly, you've had a nice glide path with what you're doing organically, but just as we get another year out entering 2026. I'm wondering if you have any updated thoughts here given the integration and work you've done so far? Rodger Levenson: Yes. This is Rodger again. I'm sure you're referring to bank M&A, which I'll address in a second. But as David said a couple of times, we're continuing to invest very heavily in the business, whether it's the fee businesses or the banking business, and that could come through one-off lift apps or talent or small firms or it could come to something larger. As it relates to traditional banking we've been clear over the last year or so that if something came along that would strengthen our position, our very strong position in the greater Philly Delaware region, we would absolutely consider that. And I think we have demonstrated now our ability to execute on those very well. But we also feel good about the organic growth. And so we can continue to achieve our objectives as we outlined for '26 by focusing on the organic opportunity, and then we'll supplement those with inorganic opportunities should they come along. Operator: Our next question comes from Christopher Marinac from Janney Montgomery Scott. Christopher Marinac: I wanted to look at sort of risk-adjusted returns in the loan portfolio, and particularly as Upstart is now behind you. Do you see those getting stronger? Or does the rate environment sort of limit what you can get on a risk-adjusted return? David Burg: Chris, it's David. Yes, I think -- so when you look at our loan pricing, our risk-adjusted returns, it's really a combination of the different businesses that we have. Like you said, when you -- if you look at the consumer business, we've divested Upstart and really, most of the portfolio is now a real estate secured portfolio. And so when we think about kind of risk-adjusted returns and going a little bit to the previous question, really, we want to focus on things where we feel we have a competitive advantage and are able to originate better than others in the market. And that's really around the home lending product. And that goes both to -- and that really goes to risk-adjusted returns and our ability to not just grow but also grow at the right price points. And so that's why when you think about our growth going forward, it's really on the residential side on the home equity line side, installment line side, but kind of in that real estate secured portfolio, where losses are -- have a very different profile than on the unsecured portfolios that we've seen. On the commercial side, we continue to be -- the primary product is really the C&I relationship product, and that's really where we continue to see the growth. We are not the lowest price point in the market. We are -- we sell kind of our relationship, our ability to provide different products, our ability to provide superior customer service and that personalized touch. That's really what we think is our competitive advantage. And so we're not the lowest price point in the market, but we think we're the best service in the market and the most responsive in the market. And so that's what we're going to continue to lean on. So C&I is our primary product, but commercial real estate continues to be an important product that we're going to continue to grow with the right sponsors with whom we have relationships and who are known in our footprint. Rodger Levenson: Chris, this is Rodger. Obviously, 100% agree with what David. The other component which you'll hear us continue to talk about more is getting more out of our client relationships, particularly C&I, but across the platform by referrals throughout our franchise, especially on the wealth side. So I think it's taking that total relationship view and allocating that to various products is where we see an opportunity to get a little bit more overall profitability through the franchise just because of the strength of the relationship. I think we've done a good job on that front, but we also feel like we're just getting started, particularly on those referrals into wealth and vice versa. Christopher Marinac: Great. I appreciate it. And then, David, just a quick question on taxes. Is that sort of 24%, 25% range still a good number to think about going forward? David Burg: Yes, yes, that's a good number. Yes, the tax bill really didn't have a material impact on our business, maybe a little bit of a negative impact because some deductions are no longer allowed charitable deductions, for example, up to a certain point. So a small impact, but generally, that's the right range. Operator: Our next question comes from Janet Lee from TD Cowen. Sun Young Lee: I want to step back and understand the driver behind your strong -- very strong noninterest-bearing deposit growth in the quarter. I assume a lot of that has to do with wealth and trust momentum that has been growing. In terms and aside from the deposits, the wealth and trust revenue on the fee side is also growing double digits. So I want to understand, is it a function of your overall institutional trust market increasing? Or are you taking market share? I want to understand the competitive dynamics there and whether that $340 million of noninterest-bearing deposit increase in the quarter should normalize in the quarter ahead? David Burg: Janet, it's David. Thanks for the question. So yes, I think generally, we expect that our noninterest deposit growth will be consistent with our interest bearing deposit growth. So we want to continue to at least maintain that NIB ratio and, of course, try to grow it. So I'm not sure the growth that you saw this quarter, the 6% quarter-over-quarter growth, that's probably not -- we're not going to put up that kind of growth every single quarter. But generally, we want to continue to grow those at least in line with total deposits. And I would say importantly, the growth that you've seen came from 2 businesses. One is trust and two is private banking, predominantly in this particular quarter. But importantly, when you look at the composition of noninterest-bearing deposits across our business, it's pretty broad-based. About 40% of that is in consumer. About 35% of that is across trust and private banking and about 25% of that is in commercial. So every business is contributing meaningfully to that noninterest-bearing balance and really comes with the relationship growth and the relationship account growth that we have. So again, while private banking and trust have been and predominantly trust have been the engines this quarter, I think the composition is pretty broad across the business. Sun Young Lee: Got it. And in terms of credit problem assets and NPAs were down quarter-over-quarter, NCOs increased a bit. So given the favorable migration in those problem assets, which I believe you cited at the lowest level in over 2 years, how should we think about -- how do you -- how does this impact your expectations around where your NCO could land versus that 35 to 45 basis points guide? David Burg: Yes. So it's the -- so you're absolutely right in terms of our problem assets, and we've had the migration, we're down about $95 million. It was a combination of just migration as well as payoffs and paydowns that contributed to that. I would say in terms of our net charge-off guide, this year, if you exclude upstart, we were 40 basis points, and we assume we're going to be in the same position next year. Really, commercial is going to continue to be uneven, and that's really kind of the message. So you may see some fluctuations there. Some of the nonperforming assets, you may see some of those go to loss. But at the end of the day, I think we continue to feel good about our portfolio. And one of the things that differentiates us in our commercial real estate portfolio is the fact that we have a very high level of recourse. So -- we have -- in our office portfolio, we have 80% recourse in our multifamily portfolio with 86% recourse. And so those, in addition to the asset collateral makes us feel better about those portfolios, but they will continue to be uneven. And then on the consumer side, with the divestiture of the upstart portfolio, really the majority of it is real estate secured. And so that portfolio from a net charge-off perspective has been low and continues to be very well. Operator: Our last question comes from Manuel Navas from Piper Sandler. Manuel Navas: Hopping on to try to clarify something. Is the double-digit EPS growth on core or reported EPS? David Burg: It's on -- it's looking at core relative to core, Manuel. Manuel Navas: Okay. Great. A quick question on the NIM with that guide has there been any shifts in your hedging profile? Any other kind of wildcards in the NIM outlook? David Burg: No, no wild cards. As you know, our NIM -- as you see, our NIM outlook is for 3.80%. We finished -- the quarter was 3.83%. Our exit rate for the quarter in December was also 3.83%. We are -- we're trying to manage the interest rate cuts that are -- that we're forecasting or assuming in outlook for next year. And we do that through 3 ways. Deposit pricing being the main one, but also the hedging program in the securities portfolio. And on the hedging program, we are -- to give a quick update there, we have about $1.3 billion of hedges that are currently in the money. And with another rate cut, we would have $1.5 billion of hedges that are in the money. So that's an important tool that we use to mitigate subsequent rate cuts. And then the securities portfolio, as I mentioned earlier, we're reinvesting that now and kind of keeping it flat, and that's providing an uplift because the security portfolio is yielding. The yield on that portfolio is like 2.35%, 2.4%, and we're reinvesting that at about 4.3%, 4.4%. So so about 200 basis point uplift, which is offsetting some of the interest rate impact. So all of that put together, that's why the impact for next year is a bit less than what the sensitivity would suggest. But that's -- those are the things we continue to manage. Manuel Navas: And with that, you described really strong deposit growth with this outlook. And I think you talked a little bit about it in the trust business, but -- where do you see all the growth across all your other businesses? What are kind of the opportunities for deposit growth? David Burg: So yes, so our outlook, our goal is really for continued mid-single-digit deposit growth. As you know, in institutional services, we've continued to increase share and we believe we're going to continue to do that. So that continues to be a growth engine. Rodger mentioned the referrals that we are working on within commercial and wealth, and we think there's a huge opportunity for us around that, that we haven't tapped yet. So that's -- that should power additional deposit growth as well. And again, growing the C&I portfolio is also an important source of deposits for us. So the combination of all those things, I would say as well as small business is also an important contributor of deposits that we think the growth is going to accelerate there. So we do feel good about the mix of businesses and all of them contributing. Operator: And with no further questions in queue, I would like to turn the conference back over to David Burg. David Burg: Okay. Thank you, everyone, for joining the call today. If you have any specific follow-up questions, feel free to reach out to Investor Relations or me, and have a great day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.