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Operator: Good day, and thank you for standing by. Welcome to the ZoomInfo fourth quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jerry Sisitsky, VP of Investor Relations. Please go ahead. Jerry Sisitsky: Thanks, Daniel. Welcome to ZoomInfo's financial results conference call for the fourth quarter and full year 2025. With me on the call today are Henry Schuck, Founder and CEO of ZoomInfo, and Graham O'Brien, our Chief Financial Officer. During this call, any forward-looking statements are made pursuant to the safe harbor provisions of U.S. Securities laws. Expressions of future goals, including business outlook, expectations for future financial performance, and similar items, including, without limitation, expressions using the terminology may, will, expect, anticipate, and believe, and expressions which reflect something other than historical facts are intended to identify forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk section of our SEC filings. Actual results may differ materially from any forward-looking statements. The company undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call, except as required by law. For more information, please refer to the forward-looking statements in the slides posted to our Investor Relations website at ir.zoominfo.com. All metrics on this call are non-GAAP, unless otherwise noted. A reconciliation can be found in the financial results press release or in the slides posted to our IR website. And with that, I'll turn the call over to Henry. Henry Schuck: Thank you, Jerry, and welcome, everyone. We ended the year strong with record quarterly revenue and results that beat the top end of our guidance. In the fourth quarter, we delivered revenue of $319 million, up 3% year over year, and adjusted operating income of $123 million, representing a margin of 38%, once again returning to rule of 40 performance. In 2025, we delivered $1.25 billion in revenue with an AOI margin of 36%, and we grew free cash flow per share by more than 10% for the year. We also returned more than $400 million in capital to shareholders through share repurchases, all while investing in the business to drive innovation and build the GTM intelligence platform of the future. Our upmarket strategy is working. Upmarket again grew 6% in our seasonally largest upmarket quarter, triple the upmarket growth rate from a year ago. We now have 1,921 customers, with more than $100,000 in ACV, the seventh consecutive quarter of adding logos to this cohort, and $100,000 customers now represent more than 50% of total company ACV. We also have a record number of million-dollar-plus customers. And in the quarter, we delivered a double-digit increase in logos year over year, accompanied by an even larger increase to the ACV within that million-dollar customer cohort. More than half of our total ACV is now on long-term contracts, and that mix increased five points in 2025 alone. Customers are increasingly making long-term investments with ZoomInfo, as they realize the clearly differentiated value of our platform. The migration to Copilot continues as planned, and as Copilot scales, we are pleased to see continued strong uplift as we renew customers at higher rates on the Copilot platform. Over 20% of our total ACV is coming from Copilot after it more than doubled in 2025. Success in our operations business continues to be driven by demand for actionable high-quality data, a key foundation to power AI use cases. Operations again grew more than 20% year over year in the quarter. Our comprehensive data universe is the data advantage that organizations need to bring agents and workflows to life. ACV from operations is now nearly a fifth of our total ACV. 2025 was a year of fast-paced innovation as we rebuilt our product and engineering motions to be AI-first and leverage AI and LLMs to improve our data quality and build out the broader ZoomInfo platform. Our data moat has always been the foundation. Over a decade of innovation and expanding patent portfolio, and technology for aggregating and unifying B2B data that is nearly impossible to replicate. AI development tools have lowered the cost of building software, but they don't erode our advantage at the data layer. They accelerate what we can build on top of it. We are more than a horizontal software company. And AI has been an accelerant, expanding the use cases we power and the workflows where ZoomInfo shows up. Historically, our data powered specific prospecting and enrichment workflows with AI expanding that surface area into two clear directions. First, demand for entirely new categories of data. We launched nine vertical datasets this year. Franchise ownership, restaurant operations, commercial fleet intelligence, addressing specialized markets that generic B2B data never served. Second, new go-to-market use cases. Customers are using our data to power AI agents, build audiences programmatically, and run end-to-end campaigns that didn't exist two years ago. Operations, our data-as-a-service platform, grew more than 20% year over year, as we invested in data quality alongside that growth, adding over 10 million contacts and expanding coverage across six European markets. Because our customers' AI agents and workflows are only as good as the data powering them. That expanding surface area is why we built GTM Studio. An orchestration layer where revenue operations teams unify CRM data, warehouse data, and ZoomInfo intelligence in one workspace to build audiences enriched with AI agents, and activate directly into downstream systems. We've seen strong traction, particularly from companies using AI tools like Claude and ChatGPT alongside our platform. No other vendor in go-to-market controls both the data layer and the application layer with end-to-end orchestration and execution. That's our structural advantage. But orchestration without execution is incomplete. Revenue teams still operate across six or more separate tools: CRM, contact databases, conversation intelligence, research platforms, AI assistance, and spreadsheets. That fragmentation wastes the intelligence we deliver. Most sellers today have no AI-native interface. GTM Workspace is our answer. A fully AI-native command center where sellers get full GTM context with natural language AI synthesizing CRM data, signals, and conversation history. Customers can go from idea to campaign to execution to ROI measurement in one system. Over 20% of our total ACV is now on our first AI platform Copilot after it more than doubled in 2025, and as we expand Workspace to existing Copilot customers, we're seeing strong renewal uplift and opportunity to consolidate tool budgets. This is an enterprise-grade workspace that deploys in weeks, not months. And we've made ZoomInfo available where go-to-market work happens. Beyond our own application, we integrated our data directly into Cloud through MCP server technology, allowing our customers to use AI agents for audience building, meeting prep, and email drafting all powered by our data. We deepened integrations with Salesforce, HubSpot, and Microsoft Dynamics. Whether customers access our intelligence through our application, through an AI agent, or through something they built themselves, the data flows to where work happens. Positioning ZoomInfo as the only platform that delivers intelligence, orchestration, and execution for modern go-to-market teams. As you consider the product innovation that has taken place in 2025, I would also emphasize that we deliberately took our time to get it right, and we worked closely with customers to refine these products. We have not and will not optimize for any single quarter's results, but rather for the multi-decade opportunity we see in front of us. We are now ready to go on the offense with these new products commercially available in 2026, and those efforts are underway now with extraordinarily encouraging early signals. Including with monday.com's enterprise demand generation team, who used GTM Studio to unify data across internal and external sources. Helping them build sophisticated audiences with enriched signals and activating them directly in their marketing campaigns. Reducing campaign build time, and enabling them to launch more targeted initiatives each quarter. They have described GTM Studio as a game changer. During the quarter, we closed upmarket opportunities with Hilton Hotels, Edward Jones, a leading financial services firm with more than 20,000 financial advisers, Kaseya, a fast-growing IT management and cybersecurity software provider for MSPs, and Ronstadt, a global provider of staffing, recruitment, and workforce solutions. We won a competitive RFP to transform a Fortune 500 company's contact data management across their $20 billion business after we analyzed 25 million contacts and demonstrated best-in-class contact management, including identifying new buying committee members to support their pivot to service-based solutions. The consultant they hired concluded that no other competitor came even close, proving ZoomInfo is the right strategic partner for go-to-market business transformation. We migrated a $30 billion global IT company to Copilot by consolidating fragmented contracts across teams and subsidiaries into a single enterprise agreement with global data access and developer capabilities. These customer success examples and thousands more continue to illustrate why we are a critical piece of the go-to-market tech stack for some of the largest and most successful companies in the world. We are data and software used in concert. Whether you're working in Claude, using a bespoke five-coded app, or using a battle-tested, scalable, and secure piece of enterprise software, every instance whenever go-to-market is happening at scale, our data will continue to be critical to powering users and agents. No amount of AI makes that need for data go away, and only enhances the value that we create for these companies. AI multiplies the surface areas where go-to-market work happens and gives us new opportunities to monetize our go-to-market context graph and go-to-market data. Turning to capital allocation, I would first reiterate our commitment to using the majority of the cash we generate to repurchase ZoomInfo shares for as long as that is the best and highest return use of our free cash flow. Given the unprecedented negative sentiment of public markets toward anything software-related, we believe our share price is completely disconnected from economic reality. As such, today, we announced an additional $1 billion authorization for share repurchases, representing roughly 50% of our market capitalization. We have already retired nearly one quarter of our shares since the start of 2023, and we intend to opportunistically deploy this additional $1 billion while continuing to double down on execution. We have been presented with a generational opportunity to create value. While we can't control market forces, we do control our execution and our capital allocation. Our strong free cash flow generation and efficient operating model enable us to uniquely take advantage of the prevailing negativity. Equipped with our best products and our best leadership team ever, in 2026, we will rev our distribution engine and bring the go-to-market AI platform to all go-to-market professionals. We are confident in our path ahead and in our ability to sustainably deliver revenue growth and industry-leading profitability. We will continue to grow free cash flow per share while defining the future of go-to-market with solutions that help our customers win in increasingly competitive markets. With that, I'll turn the call over to Graham. Graham O'Brien: Thanks, Henry. Q4 GAAP revenue was $319 million, up 3% year over year, and adjusted operating income was $123 million, a margin of 38%, both above the guidance ranges we provided and, again, above rule of 40 company performance. For the full year, GAAP revenue was $1.25 billion, up 3% year over year. Adjusted operating income was $446 million, a margin of 36%, and adjusted unlevered free cash flow was $455 million. All above the guidance ranges we provided at the beginning of the year and above our updated guidance as we beat and raised throughout the year. Through a combination of revenue growth, disciplined profitability management, and consistent share repurchases, we also delivered on our goal of meaningful growth in free cash flow per share. Growing adjusted levered free cash flow per share from $1.07 in 2024 to $1.20 in 2025, representing 12% growth. At current valuation levels, we are in the range of a 20% free cash flow yield. Further supporting our belief in the opportunity to unlock enormous latent value considering the operating trends of the business. Q3 was a strong upmarket growth quarter for us, and we were pleased to see the momentum continue into Q4. We grew upmarket by 6% year over year in the fourth quarter, tripling the growth rate year over year in our seasonally largest upmarket quarter. We have successfully shifted four points of business upmarket over the past year, and we exit 2025 with 74% of our business now upmarket. These upmarket customers buy more of the platform and renew at higher rates, driving better growth and profitability outcomes. We now expect to reach 80% upmarket mix exiting 2027, several years ahead of our initial timeline. ACV from the $100,000 customer cohort grew double digits and now represents more than 50% of total company ACV. And we now have the most million-dollar-plus customers in ZoomInfo history. We are also successfully diversifying our business model beyond seat-based pricing as we look to align price with the value we deliver to customers. Seat-based pricing contribution mix peaked in 2022, and we have progressively decreased that contribution every year since then. AI activities, ELAs, data, and platform access continue to contribute to increasing the mix of non-fee-based revenues, which we expect over time will lead to more durable growth. Net revenue retention was 90% in the quarter, with similar levels of contribution from upmarket and downmarket as in Q3. Turning to cash, GAAP operating cash flow was $143 million in Q4, up 30% year over year and seasonally stronger than anticipated. Unlevered free cash flow for the quarter was $135 million, 110% conversion from adjusted operating income and representing a margin of 42%. Q4 was stronger than expected due to timing of customer payments, and as a result, we would expect conversion to moderate in Q1. We have accounted for that Q4 overperformance in our 2026 unlevered free cash flow guidance. Stock-based compensation expense declined below 10% of revenue for the year, with improvements coming through a combination of revenue growth and an absolute decline in stock-based compensation expense. We believe this is an important consideration comparing the quality of our earnings relative to software benchmarks. Additionally, we continue to aggressively shift our equity compensation to performance-based plans, further aligning executive compensation with shareholder value creation. When looking at our gross share dilution, which is low in absolute terms, keep in mind that much of that dilution will only occur if we achieve rigorous growth and free cash flow objectives. We only want our team to win when shareholders do. In Q4, we repurchased 7.7 million shares of common stock at an average price of $10.26 for an aggregate $79 million. For the full year, we repurchased 40.5 million shares at an average price of $10.06, representing 12% of total shares outstanding, or an aggregate $407 million. Weighted average diluted shares outstanding for the quarter used in calculating non-GAAP diluted earnings per share was 327 million, and the non-GAAP share count exiting the year was 324 million. Over the past two years, we have returned nearly $1 billion to shareholders through repurchases. With the additional $1 billion authorization announced today, at the current stock price, we now have board authorization to repurchase more than 50% of the company's outstanding shares. As Henry indicated, we reiterate our commitment to using the majority of the cash we generate to repurchase ZoomInfo shares for as long as that is the best and highest return use of our free cash flow. And at these price levels, and with a healthier upmarket customer base and a promising suite of new innovative AI products that we're just now bringing to market, our conviction is as high as ever. We ended the quarter with $180 million in cash, cash equivalents, and investments, and we carried $1.3 billion in gross debt. As a result, our net leverage ratio is 2.4 times trailing twelve months adjusted EBITDA, consistent with the year-ago period. And 2.4 times trailing twelve months cash EBITDA, which is defined as consolidated EBITDA in our credit agreements, as compared to 2.2x in the year-ago period. The interest rate swap contract used to manage our exposure to interest rate movements related to our first lien term loan matured on January 30, 2026. Interest expense for the first lien term loan bears a variable interest rate based on SOFR, and as a result, we expect the interest expense on our outstanding debt to increase. We have also continued to restructure and rightsize our real estate footprint. And during the year, we recorded impairment charges as we reduced the carrying value associated with our Vancouver, Washington, and Renanah, Israel offices. We expect restructuring cash flows in 2026 related to funding tenant improvements for the excess space that we have sublet. With respect to liabilities and future performance obligations, unearned revenue at the end of the quarter was $478 million. Remaining performance obligations, or RPO, were $1.25 billion, of which $887 million are expected to be recognized in the next twelve months. Calculated billings were flat for the year, while current calculated bookings were up mid-single digits for the year. There is inherent volatility in both of those metrics, and I would continue to caution you from extrapolating too much from the trajectory of either. When considering balance sheet reserve entries, billing terms and policies, early renewal volume, and the impact of lower write-off on reserve rates, billings and current bookings growth rates more closely mirror each other in the positive low single-digit range, which is a better proxy for our current growth rate. In summary, we delivered strong Q4 results, carrying the momentum we had coming out of Q3 through to the end of the year. And we enter 2026 excited about the incremental tailwinds ahead. Transitioning to guidance, for Q1, we expect GAAP revenue in the range of $306 million to $309 million, adjusted operating income in the range of $105 to $108 million, and non-GAAP net income in the range of 25 to 27 cents per share. For the full year 2026, we expect GAAP revenue in the range of $1.247 to $1.267 billion, representing positive 1% annual growth for the year at the midpoint of guidance, and adjusted operating income in the range of $456 million to $466 million, representing a 37% margin at the midpoint of guidance. We expect non-GAAP net income in the range of $1.10 to $1.20 per share based on 325 million weighted average diluted shares outstanding, and we expect unlevered free cash flow in the range of $435 to $465 million. From a modeling perspective, items that I would call out as you think about 2026, we are more confident in the foundation of the business, and our guidance reflects that. Q1 2026 has two fewer days than Q4 2025, which should be considered when comparing sequential trends. And similar to 2025, I expect our AOI margin to decline sequentially in Q1 from Q4 and steadily build throughout the year as Q1 margins are impacted by payroll taxes and other benefit resets. Also, I would expect a non-GAAP tax rate of 12% in 2026, cash interest expense in the range of $60 million to $65 million, and CapEx as a percentage of revenue closer to 5%. In closing, we remain committed to properly managing expectations, delivering revenue growth, margin expansion, and aggressive share repurchases in 2026, which support our expectation of continued free cash flow per share growth. Now I will turn it over to the operator to open the call for questions. Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone. To withdraw your question, please press star 11 again. In the interest of time, we ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. Our first question comes from Mark Murphy with JPMorgan. Your line is open. Mark Murphy: Thank you very much. Henry, how are you assessing the health of the broader software industry currently? Just given all the concerns out there about AI disruption and because it is still a pretty material end market for you, do you see any signals that would either confirm or deny the concept that the fundamentals might be shifting around for some of those larger, preexisting software players that have been around a long time? Then I have a quick follow-up. Henry Schuck: Yeah. I mean, I think that, obviously, this is peak negativity in software businesses. But I think that our customers, when we're talking to them, their perspective about growth hasn't changed. They are still focused on growth, and they want to grow in an efficient way. And they're looking for new and innovative strategies to drive top-line growth in their go-to-market organizations. But that hasn't changed at all. Mark Murphy: And then thank you for that. Can you comment on whether any of the major top 10, top 20 kinds of AI-native startups are customers of ZoomInfo? I mean, if you think about the larger ones, OpenAI, Anthropic, Cursor, Perplex, Mistral, and then you kind of fan out from there. Is ZoomInfo participating in the growth of that AI segment of the economy? And if so, is there any way to dimensionalize that? Henry Schuck: Yeah. Many of the top 50 AI-native, fastest-growing companies are customers of ZoomInfo. Thank you. Operator: Thank you. Our next question comes from Elizabeth Porter with Morgan Stanley. Your line is open. Lucas: Hey, Henry and Graham. This is Lucas on for Elizabeth Porter. Thank you for taking my question. I was hoping you could touch on the path for margins as we get through FY 2026. And the business shifting upmarket where you mentioned margins are a few thousand basis points higher. So and then on the back of that, how can we think about the additional investments needed to penetrate your predominantly upmarket TAM in the future? Thanks. Graham O'Brien: Yeah. I can cover that. We were pleased to deliver margin improvement in 2025 relative to 2024. Our initial guidance assumes almost another point of margin improvement as we shift the business more and more upmarket. Upmarket business is now 74% of our total ACV. That's up four points in 2025. That's up, I think, about nine points over the last couple of years. As a reminder, that upmarket business, we estimate to have several thousand basis points higher margins than the downmarket business. So we'll continue to especially benefit from the better sales efficiency of that upmarket. When you think about the margin guide holistically, we're baking in a point or two of gross margin pressure there as we roll out some of the newer products of GTM Studio and GTM Workspace where there will be an AI action credit component that we believe all could drive revenue upside. It will also lead to potentially a little pressure on gross margins. So we're really confident in the kind of margin benefit we get from the upmarket business specifically in the sales and marketing line, more than offsetting that gross margin pressure in 2026. Henry Schuck: And while we're going to continue to invest in our new products and our new innovative solutions, we're going to do that while continuing to expand margin. Thanks, guys. Operator: Our next question comes from Brad Zelnick with Deutsche Bank. Your line is open. Brad Zelnick: Great. Thank you so much. So Graham and Henry, a lot of really healthy signals in Q4, both quantitatively and qualitatively new products. Henry, your comments about going on the offensive. You know, great brands, Hilton, Edward Jones, Kaseya. How do we reconcile that all with guidance for decelerating growth? What are your core assumptions for next year, specifically around downmarket? And anything else that frames the way that you're guiding us? Thanks. Graham O'Brien: Yeah. Brad. Our guidance philosophy continues to be setting targets that we can meet and exceed. In 2025, we outperformed our initial model. We beat by more than that initial model assumed. So while my approach to full year is similar to what it was last year at this time, I think it's fair to assume that our quarterly beats could be smaller. We're a more stable business due to our upmarket mix. I have better visibility into the trajectory of that business, and I'm more comfortable in guiding because of that business. Our guidance conservatively assumes that upmarket growth stays where it is or decelerates and the downmarket gets worse. I'll also note that we've included no revenue contribution from go-to-market studio or the other new products we're bringing to market in 2026 in the revenue guidance. While embedding an assumption on the associated cost of those products in our AOI cash flow and adjusted earnings per share guides. Brad Zelnick: Very helpful. Thank you. Operator: Thank you. Our next question comes from Alex Zukin with Wolfe Research. Your line is open. Alex Zukin: Hey, Thanks for taking the question. Maybe just the first one for me. Henry, you talked about how you're seeing customers connect their AI solutions to the ZoomInfo platform. And I guess I'm just curious, how are you monetizing that connectivity, the broader engagement presumably that you're seeing as those things get kind of orchestrated and plugged in? And how much do you expect kind of that type of engagement or growth to be a tailwind over the next twelve months? And even maybe comment on kind of some how how you're hearing the other horizontal op vendors approach this dynamic? Henry Schuck: Yeah. I mean, I think first, if we were just a software vendor, we wouldn't have this opportunity in front of us. I think when I was on a call last week with a large financial services firm, and they're building their own internal app where their financial team can go get answers and insights on any questions about businesses that they're prospecting into or wanting to learn from. And the first thing they asked us was, can we use your MCP server to plug into that? And they can. And so we're currently in the process of implementing our MCP server for them. That's a surface area we would never see before. We would enrich in CRM, or they would use our product in a traditional SaaS application. But now the surface area for where they want our data is expanding. And our technologies are plugging into those surface areas. Our guidance today looking forward through '26 doesn't take into consideration any tailwind from those new products or the expanding surface area where we see our data plugging into. That's a consumption-based model, very similar to our DaaS and operations business. Where when our customers consume that data, they're charged a consumption fee. Alex Zukin: Understood. And then, Graham, maybe following up on Brad's question about conservatism. If we look at the guide for the next year, if I look at CRPO coverage, it actually looks I think, identical to this time last year. And you obviously were able to kind of come in above and beyond where you guided originally. Would you call your guidance methodology kind of similar levels of conservatism vis a vis this time last year more conservative, kind of gauge it for us as to how we should expect the progression through the year. Graham O'Brien: Yeah. You know, the CPRO coverage gives me a good amount of comfort in the guide. There is a little bit of noise in the CPR when you think about early renewal volume and the kind of the quarter-to-quarter trends there. You know, I wouldn't say it's more conservative, and I would but I would also couple that with know, this is our initial guide for 2026, and the way we do this structurally is we'd expect this to be the most conservative guide from a full-year perspective that we do this year. Alex Zukin: Perfect. Thank you. Operator: Thank you. Our next question comes from Ryan McWilliams with Wells Fargo. Your line is now open. Cyrus: Hey, this is Cyrus calling for Ryan. Just two questions quickly. How were SEO trends in the fourth quarter? And how are you guys thinking about the contributions from seat growth and usage revenue as components of the fiscal '26 guide? Thank you. Graham O'Brien: What was the first part of your question? Our SEO trend in the fourth quarter. Cyrus: Yeah. Why don't I cover the second part first? On the seat-based versus consumption pricing models. I think, you know, what we, I think, called out in the script this quarter for the first time is that we are you know, we've been successful in diversifying our pricing models over the last few years. We were effectively at the highest contribution from seats back in 2022. We're meaningfully lower than that peak now. And with you know, these kind of next evolution of products that we're rolling out, I would I'm very confident in saying that that mix will continue to go down where we're more and more of our revenue will be coming from consumption, and closer to value-based pricing for our customers. Henry Schuck: I would add that with these new products, they with the early cohort of customers who are using our GTM Studio products, who have plugged in our API and our MCP technology into their own applications for enrichment and cleansing of the data, the feedback has been incredibly positive. And we are increasingly confident that that's going to be a positive tailwind for us in 2026. On SEO and AIO, what I'd tell you is first, the negative impact has stepped down modestly. But we haven't seen a return to prior levels. We had a period of time where we were reacting and then now and then finding ways to optimize against what was changing in the search landscape. But we feel really good about our strategy there. And I've already started executing against the strategy to improve the top of the funnel demand that was impacted by the changes on AI and SEO. And we're really optimistic and confident about the playbook that we're running there. Cyrus: Perfect. Thank you. Operator: Our next question comes from Taylor McGinnis with UBS. Your line is open. Taylor McGinnis: Yeah. Hi. Thanks so much for taking my questions. Maybe, first one, I think you mentioned that underlying, you know, bookings growth. So if you take out some of the noise, is in the low single-digit range. So could you just comment like what the catalyst path is for that growth rate going forward and when we could start to see underlying bookings growth start to improve. And I would imagine, to some degree, that's being weighed down by what you're seeing downmarket. So can you comment on the trends that you're seeing downmarket and how you're thinking about that going into 2026? Graham O'Brien: Sure. So upmarket growth is at 6% on 74% mix. Downmarket growth is negative 10% for the second quarter in a row on 26% weight. If you weight those, you get about a 2% ACV growth in aggregate figure. In 2026 and moving forward, we will get the benefits of mix. Right? So as that market goes from 74 potentially to 75, 76, we talked about getting to 80% by 2027. The more weight that we have from a growing business should translate into overall accelerating or better growth from that one to 2% range. In the downmarket business, you know, that's where we primarily feel the impact of the AIO challenges there. And as we get further into 2026, when we feel really confident about addressing those and getting a lot of that traffic back, we start to lap pretty negative comparisons that essentially should be a tailwind as we get into the middle of 2026. So I think that we'll have more achievable comparisons downmarket that should help to turn around what is a smaller and, you know, getting to become a healthier business, and that should become less dilutive to overall growth as we progress through 2026. Taylor McGinnis: Perfect. And then, Henry, maybe just one Oh, yeah. Go ahead. Henry Schuck: No. Go ahead, Taylor. I'll answer after. Taylor McGinnis: Yeah. I was just gonna ask. So, Henry, when you think about 20% copilot penetration and a lot of the good demand that you're seeing around the data side of the business. Just curious if there's any initiatives in 2026 to unlock the growth potential in those areas further. Henry Schuck: Yeah. I think first, one thing that I would add to Graham's commentary there is that there's more and more business from Copilot now in the customer base and in our ACV number, and we continue to see higher net retention rates from those customers who came on to Copilot versus our legacy non-AI solution. So we think that'll continue to be a tailwind for us. You know, we are aggressively moving our customer base onto Copilot and GTM Workspace and getting them access to our new AI tools. Those we believe will continue to be positive tailwinds to our business as well. Taylor McGinnis: Perfect. Thank you guys so much. Operator: Thank you. Our next question comes from Raimo Lenschow with Barclays. Your line is open. Raimo Lenschow: Hey. Thank you. Henry, if you think about, like, at the moment, there's as you said, maximum uncertainty in the space. If you, like from your perspective, like, in terms of the way out, do you think it's gonna be more confident on the copilot and that you kind of actually lot more than you know, just a data provider, or do you think that it's more customers and realize the value of the data that you're providing and the uniqueness of the data? Thank you. Henry Schuck: Yeah. I think, you know, a couple of things. One, we think we all feel much better about the stability of the customer base sitting here today than we felt a year ago. We think it's more durable. It's much more upmarket than it was a year ago. And so we start, you know, from a better place with better products and better data. Now when we think about, you know, the future growth of the business, you know, one, people, a lot of our customers still want a workspace for their sellers to operate out of, and they don't have native AI workspaces within their own businesses. And so we're gonna be able to continue to be a provider of the application layer above our data and insights asset. But a core part of that asset today which is very different than it was, you know, a year or two years ago, is our ability to bring first-party data together with third-party data to build that context service and that context graph that they then can work on top of. If I'm just building an account plan or a deck or preparing for a meeting, on just my CRM data, or just, with the data that's in an LLM, I miss a bunch of context about conversations I've had with that customer, about whether they visited my website, about executive changes, and we're able to bring all that first and third-party data together to build that context graph that then our customers build on top of. And so as I think through the future, you'll wanna that that's a meaningful change. And so when you think about our data being provided to our customers, it's not just our third-party data. It's the unification of that first and third-party data that then drives what they build on top of that. And so as we go forward, I do anticipate that more and more of our customers are gonna leverage our data and insights within applications that they build or within applications that they've already bought, and our technology will make it easier and easier for them to do that. Raimo Lenschow: Okay. Perfect. Thank you. Very clear. Thank you. Operator: Thank you. Our next question comes from Davis with Canaccord Genuity. Your line is open. Davis: Hey, guys. Thank you for taking the question. Graham, can you talk about realized pricing at renewals during Q4, maybe compared to the last few years? And then Henry, kind of along the same lines, anything you're thinking about from a pricing and or package perspective as we work through 2026 and you roll out these new products? Thank you. Graham O'Brien: The first cohort Yeah. The renewal outcomes were really positive in Q4 relative to the last few quarters. I think, you know, our customer base is becoming stickier. We're building products that are the customer retention customer retention. And, you know, I specifically have a call out to a pallet call out to a pallet. We talked about this in Talked about this Q3. Customers that were sold customers that were sold on new business came up from renewal and came up with and and came up Those customers performed significantly better significantly better than our legacy And that continuing to support. We're talking about we're talking about mid-single-digit renewal better renewal outcomes relative to our legacy products. Henry Schuck: And then DJ, on your question here, like, our first goal is to delight our customers and give them better products than we've ever had, than we've ever given them before. That's been a consistent focus of ours over the last number of years. And so what we actually believe is that they are going to use our data, use our insights, in vastly more ways. And so from a pricing and a packaging perspective, we think that we'll participate or we're gonna participate as they consume more and more of our data, more and more of our insights in more and more places. Davis: Daniel, why don't we go to the next question in the queue, please? Operator: Thank you. Our next question comes from Koji Ikeda with Bank of America. Your line is open. Koji Ikeda: Yes. Hey, guys. Thanks so much for taking the question. I wanted to ask about net revenue retention at 90%. Flat with the third quarter. I realize this is somewhat of a backward-looking metric, but I was also a bit surprised it didn't expand this quarter given heavy enterprise renewals and the upmarket growing percent? And so maybe walk us through this NRR metric a little bit and how this expands from here. Thank you. Graham O'Brien: Yeah. When I think about the NRR metric, and split it out upmarket versus downmarket, our upmarket net retention in period is still at 100%. So, you know, we're really focused on the path to getting that to 105%, but that held in really well. And downmarket is still a little bit above where it was in the first half of the year. You know, I'll note that the PUBCO, the net revenue retention, 90%. Did get better. It just it didn't round in the quarter. So I still think we're confident in the path to continuing improving that retention metric. Operator: Thank you. Our next question comes from Parker Lane with Stifel. Your line is open. Parker Lane: Hey, guys. Good afternoon. Graham, one for you. If you look at the uptick in 100,000 plus customers quarter over quarter, very nice. Wondering if you could give us a sense of what percentage of customers landed there in the quarter versus expanded there and what that trend looks like relative to last year's 4Q and some of the recent quarters you've seen? Graham O'Brien: Yeah. You know, we're still have a really strong and actually improving upmarket motion, which upmarket new business motion, I should say, where we are able to land more and more of these customers, at that 100k or higher price point. It's still small relative to the activity in the customer base. So the you know, our ability to upsell a customer that's spending below 100k to above 100k still gonna be, you know, on a volume basis contributing the most. Other the flip side of that is we're having, you know, a lot more success with customers not downselling out of that 100k cohort, which was, you know, more prevalent in 2023 and 2024. So once customers start spending the 100k, we have a lot they're a lot stickier at that price level. You know, we were really pleased to see the significant logo ad there. But we're even more confident in the kind of, the future ACV growth within that quarter. Think we still have an opportunity to continue to grow the logos and add logos into that cohort. We're just short of our all-time high. Of logos in that cohort. But the real success and I think a lot of the growth in the future gonna be come from taking a customer that's spending 150k and working with them to, you know, get them on a package that is 300k or 500k. In other words, the ACV growth from those customers already spending 100k will contributing the lion's share of ACV growth in that cohort in the future. Parker Lane: Got it. Thanks, Grant. Operator: Thank you. Our next question comes from Tyler Radke with Citi. Your line is open. Tyler Radke: Yes. Thanks very much for taking the question. Wanted to just get your sense on how you expect this consumption pricing model to evolve? Like, what are your aspirations for where this could be the percentage of the business? And how do you think about this in terms of an accelerant to the overall growth profile? Henry Schuck: Yeah, man. I think you see the beginnings of that with our operations business, is growing over 20% year over year, but it's happening in a much less programmatic way than what than the products that we're releasing today will provide for. And so a customer in our operations business may plug in our APIs for enrichment in a CRM, or they may take a data file that they integrate with Snowflake and that's a much more, you know, manual business motion for us. Than our new products, which plug in seamlessly into, Quad or OpenAI and allow them to take advantage in a much easier way of our data and our insights. And so we think consumption trends should follow, very much what you see in operation. Tyler Radke: Great. And then follow-up for Graham. Nice to see the upsized buyback here. How are you thinking about just deploying that just considering I think you have about $150 million of cash? Are you expecting to raise additional debt? Or is this sort of just prioritizing the cash flow that comes in towards buybacks? Graham O'Brien: Yeah. No. I think we'll probably go into the back half of this quarter with anywhere from $170 million to $200 million of cash on hand. To deploy. I still wanna keep $125 or so million on hand at any given quarter end. We also, you know, continue to generate a lot of free cash flow. It's a really impressive free cash flow profile that we have. So I think our guidance implies $400 million or so of free cash flow available for allocation. And then, you know, if depending on where the share price is, we always have the opportunity to explore other options to go be opportunistic in this market. Tyler Radke: Thank you. Operator: Thank you. Our next question comes from Brian Peterson with Raymond James. Your line is open. Jonathan Carey: Hi, guys. Thank you. This is Jonathan Carey on for Brian. So I wanted to get at the AI debate in maybe a little bit of a different way. So Henry, on the budget process, would you say enterprise customers have changed their thinking such that there's actually a segment, like an AI or innovation budget that ZoomInfo is tapping into that's been segmented out? And if that is the case, then what's your sense for how that incremental budget has been carved out? Henry Schuck: Yeah. I mean, I think there's definitely incremental budget for AI initiatives inside of companies, particularly in the enterprise. And, you know, historically, we wouldn't be involved in that budget or in those conversations. And today, we see our pathway into those conversations with our MCP and API technologies. And all of the AI initiatives that are happening at these businesses need high-quality data to work on top of. Particularly when you see, like, a lower quality data when managed by humans. Can be managed in a one-to-one or one-off basis. When lower quality data gets into the hands of agents and starts getting worked out at scale, that becomes a bigger and bigger and bigger problem that you can't unwind yourself from. And so there is an appetite one, for more data, but specifically for more high-quality data to drive those internal AI initiatives. And so that was a budget line item that we historically didn't have access to. And today, we are finding our way into. Jonathan Carey: Very clear. Thank you. Operator: Thank you. Our next question comes from Surinder Thind with Jefferies. Your line is open. Surinder Thind: Thank you. Henry, can you maybe talk about just the current copilot penetration? And I think you had set a three-year target when it was launched to kind of substantially have all of your customers on the new product. Can you talk about actually where we are in that cycle and what that really means for where ACV is today and where it will ultimately get to? Graham O'Brien: Yeah. I can cover, then Henry can add on if he's got anything else. You know, we're at 20% penetration of the overall customer base. Let's say that we are on schedule, but a little bit ahead of schedule relative to the migration plan that we rolled out back in 2024. So we'll continue to migrate that core customer base to a Copilot experience over the next two years or so. And, you know, we'll continue to be successful in getting uplift as we do that. A lot of our customers are on longer-term contracts. We have opportunities to move them off cycle, but a lot of them do, you know, end up waiting until they come up on a renewal event. And I'll, you know, I'll point back to the migration is going well. Really pleased to see, though, that the renewal outcomes after actually being on Copilot for a year are better than, you know, what we saw from legacy SalesOS. So that's where the real upside starts to kick in as we move more and more customers both from a new business and an existing business perspective onto a Copilot experience. Surinder Thind: So I apologize. Just to clarify for my benefit, the ACV is 20% Right now, Copilot is 20% of ACV. But is that also reflective of the base penetration, or is that different from the adopted at this point relative to where how many clients have yet to adopt? Graham O'Brien: Right. So I guess what I would say is that is 20% of the total ACV of the full company. Not all of that ACV is targeted for migrations. Things like, you know, operations or ZoomInfo marketing solution. Of the base that was on SalesOS 20% is, you know, significantly higher. It's closer to 30% plus, that have been migrated. Surinder Thind: Thank you. Operator: Thank you. And our final question comes from Rishi Jaluria with RBC. Your line is open. Rishi Jaluria: Oh, wonderful. Thanks so much for taking my question. I'll keep it at one. But I want to understand, so from a pricing and business model perspective, great to see, kind of the stats on increased mix towards consumption and data, right, to kind of insulate from the seat-based pressures that may or may not occur out there. I mean, I know that's a crystal ball. But I want to maybe understand, you know, at the same time that we're having these conversations and aligning pricing with value, you know, customers love predictability. Right? It's not just on us on Wall Street that, it. So how are you working with your customers to navigate that so there's we don't end in a position down the line, even if it's a few years from now, where customers are, you know, maybe facing sticker shock or paying a lot more than they thought? Maybe just help us understand how you're thinking about that. Thank you. Henry Schuck: Yeah. We've built in a lot of transparency into how consumption pricing works across our different consumption-based models. And so customers have visibility into how they're consuming effectively credits and dollars, as they deploy our solutions. They have controllability of that spend. And then, you know, our intention is to work really closely with our customers as they roll these things out so that we can be ahead of any surprises from a consumption and cost perspective with them. Rishi Jaluria: Alright. Helpful. Thank you so much. Operator: Thank you. And we do actually have an additional question from Clark Wright with DA Davidson. Your line is now open. Clark Wright: Hi. Thank you. Henry, this is for you. How do you inflate the data quality advantage you've historically had and the associated pricing power stemming from that asset, especially as we think about AI scraping tools and the continued innovation in that space? Henry Schuck: I think the biggest thing that we're seeing there is I mentioned it a minute before, but the quality of data is becoming an increasingly important metric that customers are looking at as they deploy AI agents on top of their data foundations. And so, you know, maybe historically, I would have been okay with 70% accurate data. But today, when I have AI agents operating at scale on top of that data, that creates more and more problems that I can't manage at scale. And so the value of quality data is increasing in our perspective and in our customers' minds. And so we're gonna you know, we have a different seat at the table than we've had historically when it comes to quality. Clark Wright: Got it. Thank you. Operator: Thank you. This concludes today's conference call. Thanks for participating, you may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Amkor Technology, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Diego and I will be your conference facilitator today. At this time, all participants are in a listen-only mode. After the speakers' remarks, we will conduct a question and answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Jennifer Jue, Head of Investor Relations. Ms. Jue, please go ahead. Jennifer Jue: Good afternoon, and welcome to Amkor Technology, Inc.'s fourth quarter 2025 earnings conference call. Joining me today are CEO, Kevin Engel, and CFO, Megan Faust. Our earnings press release was filed with the SEC this afternoon and is available on the Investor Relations page of our website, along with the presentation slides that accompany today's call. During this presentation, we will use non-GAAP financial measures, and you can find the reconciliation to the comparable GAAP financial measures in the slides. We will make forward-looking statements today based on our current beliefs, assumptions, and expectations. Please refer to our press release for a disclaimer on forward-looking statements and our SEC filings for a discussion of the risk factors and uncertainties that may affect our future results. I will now turn the call over to Kevin. Kevin Engel: Thank you, Jennifer. Good afternoon, everyone, and thank you for joining us today. Before I get to results, I want to begin by saying how honored I am to speak with you for the first time as CEO of Amkor Technology, Inc. I'm grateful to the board for placing their confidence in me to lead the company into the next phase of our journey. I want to acknowledge Giel Rutten for his leadership and vision, which guided us to where we are today. Having spent more than two decades with Amkor Technology, Inc., I've seen firsthand the strength of our people, the trust of our customers, and the ability to evolve with the industry, adapting with agility and executing through market transitions and periods of uncertainty. Amkor Technology, Inc. is an exceptional organization with a team dedicated to delivering customer value and advancing leading-edge technologies. My leadership approach is grounded in transparency, disciplined execution, and a strong customer focus. I'm energized to lead Amkor Technology, Inc. as we enter the next chapter of growth. I'll turn to our fourth quarter performance. Amkor Technology, Inc. delivered strong fourth quarter results to close out a dynamic year. Q4 revenue was $1.89 billion and EPS was $0.69, outperforming the high end of our guidance. All end markets exceeded expectations, with the largest upside coming from communications, driven primarily by strong iOS demand. For the full year, revenue grew 6% to $6.7 billion. Computing continued its multi-year acceleration. Automotive delivered strong advanced content growth. Consumer demand improved, and communication stabilized with a key socket gain. Our team executed exceptionally well, navigating shifts in the market conditions and a fluid geopolitical environment with agility and precision, which enabled us to deliver strong fourth quarter results. As we look back on 2025, it was a year marked with meaningful progress across each pillar of our strategy. We delivered record advanced and computing revenue, driven by deep customer engagements across AI and HPC. We successfully ramped our first high-density fan-out programs into high-volume production, expanding across multiple customers and positioning our platform for strong tailwinds in 2026. Operationally, we made solid progress in Vietnam, reaching breakeven in Q4. We also broke ground on our Arizona campus, with construction of Phase One now underway. Collectively, these accomplishments strengthen our strategic position, expanded our global footprint, and reinforced our alignment with the fastest-growing megatrends shaping the semiconductor industry. Let me share an update on our strategic initiatives. Our strategy remains firmly grounded and well-aligned with current market dynamics. As we move into the next phase of growth, we see opportunities to further strengthen our execution while staying anchored in our three strategic pillars. First, elevate our technology leadership. Second, expand our geographic footprint. And third, enhance strategic partnerships and focus markets. These pillars have been central to our progress and will continue to shape our path forward as we support accelerated demand for advanced packaging and deliver greater resiliency, flexibility, and value to our customers. On technology leadership, we will continue to invest in advanced packaging platforms, including HDFO, flip chip, and test, which are critical to next-generation AI and high-performance computing. In 2026, our focus is on launching new programs across these platforms. We have two additional programs in final qualification for HDFO supporting AI data centers, in addition to the two HDFO PC devices we've discussed previously. Our Korea team is preparing for launching both programs into high volume in the second half of the year. The majority of our 2026 equipment investment is focused on HDFO and test. As AI and HPC demand continues, we are well-positioned to enable the next wave of advanced products. We are expanding our footprint to provide customers with diversified regional options for advanced packaging and test. Our presence across Asia, Europe, and soon the U.S. gives customers meaningful supply chain flexibility. In 2026, our priorities include meeting construction milestones of our Arizona facility, expanding advanced packaging capacity in Korea and Taiwan, and continuing to scale in Vietnam. The ongoing ramp in Vietnam, including the migration of SiP products from Korea, is expected to free up manufacturing space in Korea for HDFO and test growth. This provides needed flexibility until our Arizona facility comes online. We're also working closely across the ecosystem—foundries, fabless companies, IDMs, and OEMs—to align technology roadmaps and scale capacity. In 2026, our focus is on enhancing these partnerships with clear milestones and investment commitments. For example, one of the HDFO CPU devices ramping this year includes customer commitments to support our capacity investment, demonstrating how tightly our three pillars come together to support AI market expansion. Across all three pillars, we remain focused on margin improvement driven by operational excellence, optimization in Japan, Vietnam ramp-up efficiencies, a more favorable pricing environment, and a sustained mix shift towards high-value advanced packaging. We look forward to sharing more details at the Investor Day in May. For full year 2026, we expect revenue growth to be driven by continued acceleration in computing, expected to grow over 20%, and continued strong growth in advanced automotive. The remainder of our business is expected to grow in the single digits. We continue to monitor export control and trade policies as well as dynamics around substrates, advanced silicon, and memory supply. We have considered these items in our guidance for Q1. With a strong technology roadmap, targeted capital investments, and deep customer partnerships, Amkor Technology, Inc. is well-positioned to enable the industry's next wave of innovation. I will now turn the call over to Megan to provide more details on our fourth quarter performance and near-term outlook. Megan Faust: Thank you, Kevin, and good afternoon, everyone. Fourth quarter revenue was $1.89 billion, down 5% sequentially and up 16% year on year. The sequential decline reflected typical seasonal trends in communications and consumer, following strong Q3 builds, partially offset by continued strength in advanced automotive. In Communications, revenue grew 28% year on year in Q4 and 1% for the full year, reflecting a stronger footprint in the current generation of iOS phones and healthy demand across both iOS and Android ecosystems. Computing revenue increased 6% year on year in the fourth quarter and 16% for the full year, driven by strength in AI-related PC devices and networking infrastructure. Automotive and Industrial revenue increased 25% year on year in Q4 and 8% for the full year, driven by strength in advanced automotive content for ADAS applications. Mainstream automotive continued a gradual recovery in Q4, marking the third consecutive quarter of sequential growth. In Consumer, revenue declined 10% year on year in the fourth quarter, reflecting the product life cycle of a high-volume wearable product introduced in 2024. For the full year, consumer grew 9%, with growth driven by both a full year of the wearable product and a broad improvement across traditional consumer applications. Gross profit for the quarter was $315 million, which included a benefit of approximately $30 million from asset sales as noted in guidance for the quarter. Gross margin was 16.7%. Operating expenses for the quarter were $130 million. Operating income was $185 million, and operating income margin was 9.8%. Our effective tax rate for the quarter was 4.8%, primarily due to discrete tax benefits related to the recognition of deferred tax assets. Net income was $172 million, resulting in EPS of $0.69. EBITDA was $369 million, and EBITDA margin was 19.5%. Now let's turn to our full year performance. 2025 revenue increased 6% to $6.7 billion. All end markets grew, and we achieved record revenue in the computing end market. Advanced packaging revenue also set a new record, growing 7% year on year, driven by growth in computing, automotive, and consumer. Full year gross profit was $939 million, and gross margin was 14%, which includes a 90 basis point headwind from the ramp-up of our Vietnam facility. Operating income was $467 million, and operating income margin was 7%. Our full year effective tax rate was 15.4%, lower than anticipated due to the discrete tax benefits recognized in the fourth quarter. Net income for the year was $374 million, resulting in EPS of $1.50. EBITDA was $1.16 billion, and EBITDA margin was 17.3%. Capital expenditures for 2025 were $905 million, lower than our guidance due to the timing of cash payments for our Arizona facility. These investments remain in our plan and will shift into 2026. Full year free cash flow was $380 million. Throughout 2025, we proactively positioned our balance sheet with added strength and flexibility, meaningfully enhancing liquidity. At year-end, we held $2 billion in cash and short-term investments, and total liquidity was $3 billion, a 30% increase from the prior year. Total debt was $1.4 billion, and the debt to EBITDA ratio was 1.2 times. Now turning to our outlook. Q1 2026 revenue is expected to be between $1.6 billion and $1.7 billion, representing a 25% year-on-year increase at the midpoint. We see strong growth year on year in communications, computing, and the automotive and industrial end markets. Gross margin is projected to be between 12.5% and 13.5%. We expect operating expenses to increase to approximately $135 million as we continue to invest in R&D for anticipated growth. Our full year effective tax rate is expected to be around 20%. Net income is forecasted to be between $45 million and $70 million, resulting in EPS between $0.18 and $0.28, a strong start to the year. 2026 CapEx is expected to increase to a range of $2.5 billion to $3 billion. 65% to 70% is projected for facility expansion, including phase one of our Arizona campus. About 30% to 35% is projected for HDFO test and other advanced packaging capacity. The remaining spend is projected for R&D and quality programs. In closing, our fourth quarter and full year 2025 results reflect Amkor Technology, Inc.'s focus and discipline on executing our strategic pillars. We enter 2026 with strong momentum, a clear strategy, and an investment agenda to enable our next chapter of growth. This concludes our prepared remarks. We will now open the call up for your questions. Operator? Operator: Thank you. And at this time, we'll conduct our question and answer session. The star keys. And your first question comes from Charles Shi with Needham and Company. Please state your question. Charles Shi: Hi, thanks for taking my question. Kevin, Megan, especially Kevin, welcome on board. I'm looking forward to working with you, going from here. Maybe the first question regarding your CapEx guidance. That's well above what we thought. And so when you announced when Amkor Technology, Inc. announced the plan in Arizona, that was a $7 billion total CapEx investment. So we automatically thought that was, like, a more incremental. You're gonna do that over multiple years. But if we will we kinda have to guess that the embedded in your pretty large CapEx guidance, a good amount of that investment can gonna be a little bit more front-loading than we thought. So wonder, is there something we kinda missed or what has changed over the last three or four months? I didn't notice you mentioned that there was customer commitment for data center HDFO project that may feel like that has played a role there. Mind if you give us some sense on why the CapEx numbers are so high and what's the reason for that? Thank you. Kevin Engel: Yeah. Sure. Thanks, Charles. Good to hear from you. So I think you kind of have to break it into two pieces. If you look at the CapEx projection, again, what Megan highlighted in her prepared remarks, is about 65% to 70% of that is for facilities. So then you take that percentage and let's talk about the U.S. spend. So when we talk about the U.S., the $7 billion, we talked about a two-phased approach. Phase one is can think about half of that $7 billion, and then the construction is about 60% of that. So and then if you think about the construction time frame that we talked about, we talked about the building being completed in 2027, you know, basically around the middle of the year. So if you kinda overlay that together, you can imagine that between this year and the first half of next year, you get an idea of that capital spending for the phase one build-out. In general, if you talk about the other portion of the CapEx, the 30% to 35% that's equipment, I think there's a couple of key things to highlight there. Obviously, that's not equipment for U.S. manufacturing, that's all in support of Korea supporting the HDFO and test as well as 300-millimeter capacity expansion in Taiwan. That is an increase year on year pretty significantly, about a 40% increase on equipment, and that just highlights the strong demand that we're seeing in this advanced packaging area. On the commitment side, let me touch on that. So obviously, we're not going to talk about the details of commitments, but in general, that comes in multiple forms. Could be, you know, items like a prepayment agreement, or loading agreements, other things that give us confidence we're going to have high utilization in that facility once it's ready. Thanks. Maybe a follow-up question on the CapEx. So Charles Shi: for at least for your Arizona facility, you do have a 35% investment tax credit. You may also have that chip stack, the direct funding that's available to you. We know that there are U.S. companies benefiting from those programs. There's a little bit of variance in terms of how they guide CapEx, some were guiding growth CapEx, some were guiding net CapEx. So, Megan, this is a question for you. What that is what's that number CapEx number? Is it the gross? Or is it the net? And if it's gross, how should we think about how to flow through the benefits government subsidies into the numbers, into our models? Thank you. Megan Faust: Yeah. Great question, Charles. So those government incentives as well as the investment tax credits as well as the grants, are going to come in on a lag. So you're highlighting a really good point that the Arizona CapEx is going to be front-loaded. And so our Arizona investment most likely could peak in '26 because we'll start to have those benefits come through subsequent to the investment periods. So to come around to your original question, there's really minimal offsets in our guide with regards to investment benefits. And going forward, we will net those. But this is a net position, but there's really minimal in the 2026 guide. Operator: Thank you. Yourself questions today in the time allotted. And your next question comes from Craig Ellis with B. Riley Securities. Please state your question. Craig Ellis: Yes. Thanks for taking the question. I wanted to follow-up on some of the full year end market color, which was very very helpful. And as I do, Kevin, welcome. Good luck in the role, and I look forward to working with you. So I'll start with computing. In the 20% year on year growth, can you help us with color on how the potential size of the two data center HDFO programs might compare to the existing PC-related programs? And as you look at the data center contribution in 2026, would you expect those programs to be at full volume by the time we exit the year or are they still ramping up as we exit the year? Just some additional color on how that plays out will be helpful. Kevin Engel: Okay. Hey, Craig, and thanks for the remarks. We think about the compute segment, you know, maybe I'll focus on the Q1 color first. We talk about 20% year on year growth for the year, you know, what we're talking about there is, again, you need to remember that compute is, PC as well as data center. If we look at the PC market, you know, in general, that's showing some headwind. So I'd say that's relatively soft compared to data center. If we pivot that over to onto the technology side, when we look at the 2.5D and HDFO platforms, we're expecting that to nearly triple over the course of this year. Commenting on the devices that are ramping, we would expect one of those to be in very high volume. It'll be a pretty steep ramp. The other one is also ramping hard to project if it will really be full volume towards the end of the year, but definitely meaningful revenue contribution. Craig Ellis: Got it. That's helpful. And then Megan, going back to one of the questions Charles asked just on investment. It certainly seems like you'll have a lot of help from credits and government funding next year. But to the extent that you would need to augment your current cash balance with supplements, are you able to take advantage of debt markets that historically have been very attractive such as Japan to provide any additional cash as we work through this first phase of increased investment? Megan Faust: Hi, Craig. Yes. So as we had mentioned, a significant portion of funding will come from government incentives on the total project. So that could be upwards of $2.85 billion. I also want to comment before we talk about the debt capacity that we do have, I would say commitments from customers. Also, we have some that have already been executed and others that are in discussion. So we expect that that will also contribute to funding. And then as it relates to the Amkor Technology, Inc. finance piece, we have been preparing for this for some time to give us, I would say, the flexibility on how to manage that. So, yes, we do have access to debt capacity in various forms. Especially being at only 1.2 times debt to EBITDA. So we are evaluating those options carefully and we will manage that in order to optimize that return to shareholders. Craig Ellis: That's very helpful. Thank you. Operator: Your next question comes from Randy Abrams with UBS. Please state your question. Randy Abrams: Yes. My first question, I wanted to just touch more on the outlook outside of the Advanced Packaging, the other segments. For the single-digit growth, can you talk about the puts and takes within that per comms, the iOS versus Android and also the SIP programs. If you expect much on the consumer or communication SIP, and then into the auto industrial. You just wanna see a bit more color what you're seeing across the other markets outside the compute. Kevin Engel: Hey. Hey, Randy. So let me have a couple of comments here. You know? So some of this will be more market-driven data rather than what we're seeing internally, but let me give you some color at least. On comms, you know, obviously, market data would project that the phone units are roughly flat. I think there's some potential benefits there, you know, as there continues to be more of the shift towards premium tier. And typically, that would benefit Amkor Technology, Inc. due to our content and the more premium phones. We think in compute, again, the PC market projected to be slightly down on units. So that's a little bit of a headwind, but then we can expect the shift to AI applications as well as more ARM-based where, again, that benefits Amkor Technology, Inc. a little bit. You know, basically, because we're moving from a vertically integrated, you know, kinda IDM model versus outsourced found or fabless company type model with ARM. Then on auto and industrial, again, overall unit sales in cars to be roughly flat. Continued migration over to hybrid and EVs. That's helping to continue to increase the semi content per car. So we basically are seeing on the mainstream side, you know, very slow recovery. We have seen three quarters of positive direction in mainstream. We expect to continue that slow progression out of the trough. Then on the advanced side, again think about things like computing in the car, ADAS, infotainment, that's an area we're seeing very strong growth for this year. So very positive momentum there. So I think overall and then on the consumer side, again, I think that'll be heavily driven by consumer sentiment and new product launches potentially. In general, what we see across that kind of non-AI, non-advanced auto area is that it will be single-digit type growth. Randy Abrams: Okay. Thanks for the color on those. And if I could follow-up, and it might be a question more for Megan on the outlook for the margins. I think first, just into the first quarter, is that the leverage effect in the one-time coming out for the lower guide for Q1? And then as we go through the year with the mix more toward the advanced packaging, which I think you said is accretive, but wanna see as it ramps in the ramp-up phase, if you're at the point it's accretive, how to think about the incremental leverage with the stronger growth out of the compute segment? Megan Faust: Thanks, Randy. Yes, so for Q1, the guide at the midpoint of 13% there is the, I'm going to say, asset sale that happened in Q4 that's going to impact that flow through. Without that, the flow through would pretty much be in line with our 30% model. We are sequentially, there is some favorable product mix and then that's being offset by some incremental costs. When I look year over year, there is a, I would say, material content impact as well as some potential currency headwinds that are that. So Q1 is typically our seasonally lowest top line, but also bottom line. As it relates to the full year, we're able to see good progression in the profit initiatives that Kevin had outlined in prepared remarks. Such that we would anticipate, you know, being able to achieve that 30% incremental flow through absent that, you know, the one-time asset sale. Randy Abrams: Okay, great. Thanks, Kevin and Megan. Operator: Your next question comes from Ben Reitzes with Melius Research. Please state your question. Ben Reitzes: Yes. Hi, how are you doing? Welcome, Kevin. Good to be talking with you. I wanted to ask about comms again, because I know it was mentioned in the prior question, but be a little more specific because Qualcomm's guidance, obviously indicated to much a pretty severe decline in the Android. And you tend to have much higher exposure to your large customer and the premium tier. So just wondering if you could be a little more specific about the guide for the quarter and the year in terms of comps. It would seem like it'd be significantly meaningfully better than flat just given those premium tier and who you're exposed to, but I just wanted to be sure. Thanks. Kevin Engel: Yes. Thanks, Ben. So a couple of things. I think when we think about iOS, obviously, and I'll talk more about Q1 at this point. If you think about iOS, we're exiting a pretty solid, you know, cycle in the phone launches. So I'd say that we're pretty positive on what we're seeing for Q1. For Android, you know, you're right. I think what we're seeing is that and maybe this is related to memory and other things, but we're continuing to see, you know, relative strength in Android and, you maybe a little bit of a step down. But in general, nothing that's concerning for us. And that could be related to the shift to more premium where we participate a little more heavily. Ben Reitzes: Okay. Got it. Thanks. And then with regard to the Arizona project, do you mind just clarifying a little bit more on your partnership with TSMC? How is that progressing? How does that impact that CapEx guidance of yours? And how is the partnership going? Obviously, significant shortages being reported out of them or like be some and it seems like they really need your help. So hoping for a bit of an update there on them. Thanks. Kevin Engel: Yes. Thanks for the question. Obviously, U.S. manufacturing is still a couple of years away. So when we think about the constraints today, different dynamics we're trying to support those dynamics out of our Korea facility. Little bit out of Taiwan as well. You would think about the partnership with TSMC, I'd say that discussion continues. We have a very strong ongoing relationship on technology. As well as what type of manufacturing is going to be needed in the U.S. And then you can imagine that that collaboration also kind of spirals down to end customers that are going to ultimately benefit from that U.S. supply chain. If I think about the overall interest level for the U.S. is continuing to increase. If you go back to our, as an example, our groundbreaking in October, that groundbreaking had many customers that attended that, just again reinforcing their interest. And it was really across all of the markets that we support. So it's communications, comms, automotive, as well as even customers that support consumer products. So we feel really good about the momentum from the customer perspective and expect that to increase as we start to build out the facility. Ben Reitzes: Okay. Thanks, Kevin. Operator: Your next question comes from Steven Fox with Fox Advisors. Please state your question. Steven Fox: Hi, good afternoon. First question, Megan, I'm kind of struggling with the plan for the balance sheet for the coming year, fully recognizing that obviously you're going to have government benefit inflows after you put the cash out. But relative to doing a couple of $100 million of free cash flow in 2025, and I assume excess cash on the balance sheet. Can you maybe help us maybe prepare for how much of a debt increase you're going to have to do during the year, the timing, and how quickly you've been deleverage after that maybe in 2027? And then I have a follow-up. Megan Faust: Yeah. Great question. So as it relates to our approach for funding, we are, I would say, pursuing various different mechanisms. I had mentioned earlier that we're in discussions with customers, and so we're evaluating that in parallel with what if any, we would need to do this year with respect to the balance sheet. So there's not any updates on timing or magnitude at this time. As you mentioned, we do have significant liquidity that exists today. So we are confident in how we'll be able to manage the balance sheet and that CapEx need for 2026. Steven Fox: I guess just a couple of things maybe you could help with. Do you give us a sense for what you can run the business on? Like how much cash you need to run the business in '26? And should we be of a better material increase in interest expense later in the year? And then just a follow-up on the business in general. Megan Faust: Sure. I'll answer your second question first because I think it's important to note that we'll actually expect a decrease in interest expense even in the event where we may increase debt. And that's associated with capitalizing interest as far as the construction project. Then the first part of your question, you know, really centers around the amount of cash that we would say we'd be comfortable having on the balance sheet. And I would say we can operate with $500 million on the balance sheet. That's a comfortable level for us. Steven Fox: Great. That explains a lot. And then just from a bigger picture with the expansions that are going on in Korea and I guess more broadly with the advanced packaging. I know you mentioned sort of a 3x increase year over year. Like how do we think about sort of that flowing through in terms of a curve of ramping and, you know, whether there's any kind of income statement impacts or margin impacts that we should consider as you ramp? Thank you very much. Kevin Engel: So let me start with the profile and Megan can talk a bit more about the other financial aspects. So if we look at the ramp profile, again, we have these PC-related products that are ramping earlier in the year. One is already in production today. Then as we get into the second half of the year, there'll be a pretty sizable step up in the CPU data center type devices. I would expect it to definitely be back-end second half loaded related to revenue growth. And Megan, can you add anything on the Megan Faust: Sure. So those investments that we've been putting in place even in '25, and I would say the equipment will be front-end loaded in '26. That is going to put pressure on depreciation expense. And as we ramp those, as Kevin mentioned, in the second half of the year, we will see efficiencies such that we will be able to get some accretive outcome from those products. Operator: Thank you. And your next question comes from Steve Barger with KeyBanc Capital Markets. Please state your question. Steve Barger: Thanks and I'll echo the congratulations to you, Kevin. Maybe first for Megan, as you think about revenue growth and mix for 2026, do you expect to recover the 90 basis point headwind from ramping Vietnam last year? Meaning you can get gross margin back in line or better to 2024's 14.8%. Or will something in mix make that hard to get all the way to? Megan Faust: Hi, Steve. Great question. So we are seeing great ramp in '26 as far as our visibility today. So yes, want to reiterate Kevin's remarks that we did have, I would say, breakeven in Q4, which was a significant milestone for us in Vietnam, and we see that continuing in Q1, which usually is the lowest quarter. So that's a really good foundation. As it relates to the whole year, if you think about with or without, I think you've nailed it. There will be a product mix story in Vietnam related to the products that we have there, which is SIP. But what we will have is, I would say, good fall through to the bottom line as it relates to that business. So we are going to have, I would say, not meaningful gross margin impact, and it's more about product mix at that point going forward. Steve Barger: Got it. Thank you. And Kevin, with compute showing the strongest growth this year, can you just help nail down what you expect for AI-related packaging revenue this year? Or maybe what AI-related advanced packaging revenue as a percentage of total revenue is? We get this question a lot from investors and just any light you could shed on that would be great. Kevin Engel: Yeah. Not a whole lot more color I can give there. I can, you know, obviously, in general exited '25 at about 20% of revenue. So you can take that and then obviously, you know, there have been some estimates that we've given in the past related to the growth rate for the advanced going back into last year. That's about all I want to show. I mean, definitely we're talking about, but definitely we're going to see continue to see accelerated growth in that AI data center slash, you know, even PC area. Operator: Thank you. And your next question comes from Peter Peng with JPMorgan. Please state your question. Peter Peng: Hey, thanks for taking my questions and congratulations, Kevin. Looking forward to working with you more closely. Just on your computing, you guys are ramping pretty aggressively and talked about three times. I guess, maybe if you can talk about whether you know, there's any constraints and how much capacity you have to capture additional opportunities? Kevin Engel: Yeah. Thanks, Peter. So when we think about limitations, won't say necessarily constraints, but limitations on growth. I'd say there's a couple of things there. So obviously, in general, and this is predominantly on the R&D side. We think about the amount of NPIs that customers want to run making sure the calls are successful. And that is creating some constraints where we're prioritizing larger opportunities specifically in Korea. Think another dynamic is space. You know, in the prepared remarks, talked a little bit about how SIP is migrating over to Vietnam. That helps to free up space in our Korea facility. Also over the course of 2025, we basically converted some of our existing building space into clean room area. So we saw a little bit of an increase in space in '25. And then we're continuing to build out a new building where we had the groundbreaking last year that new building will come online as we exit 2026. So overall by the time we exit 2026, we'll basically be increasing our Korea space around 20% since the beginning of '25. So space is definitely an area that we're accelerating. And then obviously, the equipment delivery, you know, as Megan said, that will be more front-end loaded in the year. Make sure that we're able to support these second half launches. Peter Peng: Got it. And then in your prepared remarks, you also talked about, you know, two additional programs and final qualification. Can you maybe provide some color where whether this is existing customers for new products, these are new customers, any color on that? Kevin Engel: Well, either they're existing customers, but they're one of them is new to the HDFO platform. So I'll say that. You know, they're both we've mentioned before, they're both CPU-related. And yeah. So, you know, a lot of positive momentum that we've been working with these customers for quite some time on rolling out that next-generation technology to them. Operator: Thank you. And at this time, I'm showing no further questions. I would like to turn the call back over to Kevin for closing remarks. Kevin Engel: Thank you. Now let me give a quick recap of our key messages. 2025 was a pivotal year for Amkor Technology, Inc. We delivered strong results, advanced our strategic initiatives, and we strengthened our position in the fastest-growing areas of the semiconductor industry. As we enter 2026, we are doing so with strong momentum, a clear strategy, and deep engagements with partners across the ecosystem. Our first quarter guidance is $1.65 billion, reflecting a 25% year-on-year growth rate. I'm confident in our ability to execute with discipline, and for Amkor Technology, Inc. to enable and capture the next wave of advanced packaging growth. Thank you for joining the call today. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Operator: Good day, everyone, and welcome to ON Semiconductor Corporation Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please note, this conference is being recorded. Now it's my pleasure to turn the call over to the Vice President of Investor and Corporate Development, Parag Agarwal. Please go ahead. Thank you, Carmen. Parag Agarwal: Good morning, and thank you for joining ON Semiconductor Corporation's Fourth Quarter and full year 2025 results conference call. I'm joined today by Hassane El-Khoury, our President and CEO, and Thad Trent, our CFO. This call is being webcast on the investor relations section of our website at www.onsemi.com. A replay of this webcast along with our fourth quarter and full year 2025 earnings release, will be available on our website approximately one hour following this conference call. The recorded webcast will be available for approximately thirty days following this conference call. Additional information is posted on the Investor Relations section of our website. Our earnings release and this information includes certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of certain limitations when using non-GAAP financial measures are included in our earnings release which is posted separately on our website in the investor relations section. During the course of this conference call, we will make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially from projections. Important factors that can affect our business, including factors that could cause actual results to differ materially from the forward-looking statements, are defined and described in our most recent Form 10-Ks, Form 10-Qs, and other filings with the Securities and Exchange Commission and in our earnings release for the fourth quarter and full year 2025. Our estimates or other forward-looking statements might change, and the company assumes no obligation to update forward-looking statements to reflect actual results, change assumptions, or other events that may occur except as required by law. Now let me turn the call over to Hassane. Hassane, Hassane El-Khoury: Thank you, Parag. Good afternoon, and thank you all for joining us on this first call of the year. In 2025, amid a challenging demand environment, we delivered $6 billion of revenue and non-GAAP gross margin of 38.4% by staying disciplined in our execution and tightly aligning to our long-term strategy. With focused investments, we advanced our technology leadership while positioning ourselves better in the growth markets that define our future. We strengthened our portfolio through organic investments, acquisitions, and partnerships. We launched a multi-market growth engine with our Treo platform. We delivered more than $250 million in AI data center revenue across the PowerTree. We expanded our content in automotive for zonal architecture. We further optimized our cost structure through FabRite actions and we returned $1.4 billion of free cash flow through share repurchases. Over the last five years of our transformation, we have evolved from a manufacturing company to a product-centric company, launching more breakthrough products than we had in the prior decade, and strengthening our portfolio with technologies that position us to win the most critical market transitions. Our disciplined investments, combined with our FabRite actions, have created operating leverage in our model and set the foundation for long-term growth and margin expansion. On the new product front, market proliferation continues with our Treo platform. We doubled the number of products sampling year over year, reinforcing Treo as a key contributor to our long-term mix shift towards high-margin product revenue and supporting our new design funnel, which is now over $1 billion. Treo is already being designed into a broad set of automotive applications, including zonal architectural, ultrasonic sensors, and LED drivers, and we are proliferating into industrial applications like HVAC, energy storage systems, or ESS, and medical. With customers like Dexcom, who designed our low-power analog front end in their continuous glucose monitors or CGM. We broaden our leadership in wide band gap technologies by introducing our lateral and vertical GaN or VGaN strategy with a differentiated product roadmap solving our customers' problems at favorable margins. This year, we are preparing to sample more than 30 new GaN devices spanning 40 to 1,200 volts, including both discrete devices and integrated driver plus GaN solutions. To deliver lateral GaN to the market, we announced new foundry partnerships to broaden regional supply options, giving us the product breadth and manufacturing flexibility to serve high-growth applications with revenue beginning in 2026. For VGaN, we are already collaborating with GM on the development of electric drive systems. As a reminder, VGaN is built on proprietary GaN on GaN technology, is manufactured in our fab in the US, and positions us for a multiyear competitive advantage in high voltage and high power density applications spanning AI data centers, EVs, renewables, and aerospace defense and security. We expect first VGaN revenue in 2027. Turning to the demand environment, we are seeing seasonal patterns and are encouraged by improving order trends across our core markets, contributing to fourth quarter revenue of $1.53 billion, non-GAAP gross margin of 38.2%, and earnings per share of $0.64, both exceeding the midpoint of our guidance. Automotive inventory digestion is largely behind us, AI data center is increasingly becoming a meaningful growth engine for the company, and we believe we have seen the bottom for industrial with global PMI trends pointing to early signs of expansion. In automotive, we continue to expand our content as the industry accelerates towards a zonal architecture for software-defined vehicles and autonomous driving. We are proliferating our eight-megapixel image sensor for front-facing vision and have introduced our Treo-based advanced ultrasonic sensors for ADAS. In Zonal, we have already exceeded $400 million in design funnel for our SmartFETs, eFuses, and pent-based T1S Ethernet transceivers as customers rearchitect their vehicles. Most OEMs have already started their migration towards zonal, and industry estimates suggest that in the next five to eight years, nearly 40% of new vehicles will feature this architecture. All of this is incremental to our existing leadership in silicon and silicon carbide devices in XEVs. In industrial, we are expanding our opportunity in machine vision, factory automation, drones, and robotics, with new families of image sensors, with competitive performance, differentiated features, and strong interest from customers seeking a US-based supplier. In aerospace, defense, and security, revenue increased 70% year over year, driven by North America and Europe. We secured a strategic design win for a solid-state circuit breaker using our SiC JFET, demonstrating our ability to win in high-barrier industrial segments where mission-critical performance depends on resilient, reliable power distribution and optimized size and weight. Turning to our AI data center business, as previously mentioned, we delivered more than $250 million in revenue in 2025. With the rapid expansion of AI compute infrastructure and our unmatched ability to deliver power efficiency across all stages of power conversion, this market remains one of the strongest and fastest scaling opportunities for us. Over the last year, we have reinforced our role as the only broad-based U.S. power semiconductor supplier addressing power density bottlenecks that limit AI growth, aligning with national priorities for a resilient AI infrastructure. With a broad portfolio of silicon, silicon carbide, SiC JFET, GaN, and our newest VCORE assets, we are perfectly positioned to deliver the power efficiency requirements our customers need. Going through the PowerTree, starting outside the data center, we lead the utility string ESS market with more than 50% worldwide share. We are ramping our IGBT hybrid power module to multiple global customers and seeing strong interest in our next-generation SiC MOSFET hybrid power module, delivering even higher power efficiency nearing 99.5% and the highest power density at 430 kilowatts with a first win at SunGro in their global platform. We are already sampling our 1,200-volt ultra-low RDS SiC JFET for AI data center platforms, and our AI data center funnel is increasing as AI workloads scale and more platforms move to higher voltage bus architecture, expanding opportunities from power supplies to battery backup disconnect and hot swaps. At the UPS stage, we won a high-end design with a leading US power supply supplier that cuts their system footprint by about 50% using our SiC power module to increase power density and improve thermal performance. We expect production volumes to begin this quarter. At the rack level, we have secured designs for our SiC and silicon MOSFET and our SiC JFET in both the BBU and PSU systems with Delta, Lite-On, and Great Wall to serve both their Western and China customers as the AI ecosystem continues to build out. At the XPU board level, we extended our reach by securing several next-gen design wins with our multi-phase controllers, smart power stages, and point-of-load devices. We began sampling our dual five-by-five VCORE solutions as well as two-phase power modules using a next-generation regulator architecture that dramatically improves transient response for AI and server processors. Referred to as TLVR or transinductor voltage regulator. As we integrate our recently acquired VCORE assets, we are strengthening our portfolio and positioning ourselves to win the next-generation architectures. As we move into 2026, we are encouraged by a market environment that is showing clear signs of improvement across automotive, industrial, and AI infrastructure. The groundwork we have laid out over the last several years has positioned us to benefit as demand conditions continue to get better. Our portfolio is aligned to the highest growth opportunities in power and sensing, our manufacturing footprint is structurally stronger, and our customer engagements are deeper and more strategic. I'll now turn it over to Thad to give you more details on our results and guidance for the first quarter. Thanks, Hassane. In 2025, our teams remained focused on disciplined execution and long-term value creation for all stakeholders against the backdrop of uncertainty and limited demand visibility. Thad Trent: We strengthened our financial foundation through structural cost actions, tighter operational rigor, and a relentless focus on expanding our customer base. These efforts allowed us to navigate the macro environment, maintain our strategic investments in intelligent power and sensing, and position the company for margin expansion as market conditions improve. There are three key areas I'd like to highlight as we exit 2025. First, we delivered a record free cash flow margin of 24% in 2025. Free cash flow increased 17% year over year to $1.4 billion due to tight expense control and lower CapEx as our large capacity investments are behind us. We returned approximately 100% of our free cash flow to shareholders through share repurchases in 2025, demonstrating a disciplined capital allocation strategy. And we also announced a new $6 billion share repurchase program in November after repurchasing $2.6 billion under the prior program that expired at the end of 2025. Second, we are improving the quality of our revenue and margins through investments in differentiated products. We have been reshaping our product mix through targeted investments, improving long-term margin potential while supporting our leadership in high-growth markets. We continue to rationalize our portfolio by exiting volatile non-core businesses while reallocating investments to differentiate power sensing and analog mixed signal technologies. And the third point, we have positioned the company for margin expansion by aligning our manufacturing footprint and product mix, enabling meaningful operating leverage in our model. As part of our FabRite strategy, we reduced our fab capacity in 2025 by 12% as we improved our operational efficiency. In the fourth quarter, we announced additional measures to further rationalize our manufacturing footprint. These actions together will lower our 2026 depreciation by approximately $45 to $50 million, and we expect to see the gross margin impact in the second half of the year. Our Q4 gross margin includes approximately 700 basis points of underutilization charges which will dissipate with increasing utilization as market conditions improve. These actions, along with other operational improvements, position us for margin expansion in 2026. As we look ahead, our financial priorities remain consistent: drive sustainable and predictable results, expand margins, and increase earnings and free cash flow. Shifting to results for the fourth quarter, we met the midpoint of guidance with revenue of $1.53 billion in line with normal seasonality. Automotive revenue was $798 million, up approximately 1% quarter over quarter. We continue to see stabilization in the automotive market as much of the inventory digestion is behind us. Revenue for industrial was $442 million, up approximately 4% quarter over quarter driven largely by the traditional industrial business and factory automation. Following eight quarters of year-over-year declines, Q4 marked the first quarter of year-over-year growth in our industrial revenue, increasing 6% over 2024. Our AI data center revenue, which is classified in the other segment, grew quarter over quarter and contributed more than $250 million for the full year. For the fourth quarter, revenue for the other category decreased 14% quarter over quarter due to seasonality and soft demand conditions in areas outside of AI data center. Looking at the fourth quarter split between the business units, revenue for the Power Solutions Group or PSG was $724 million, a decrease of 2% quarter over quarter and a decrease of 11% year over year. Revenue for the Analog and Mixed Signal Group or AMG was $556 million, a decrease of 5% quarter over quarter and 9% year over year. Revenue for the Intelligent Sensing Group or ISG was $250 million, a 9% increase quarter over quarter driven largely by the industrial market, and a decline of 17% over the same quarter last year as we repositioned the business for the long term. Turning to gross margins in the fourth quarter, GAAP gross margin was 36% and non-GAAP gross margin improved to 38.2% as we're seeing the initial impact of our FabRite actions executed in 2025. As planned, manufacturing utilization is down quarter over quarter to 68% to align to seasonal revenue trends in 2026. We expect utilization to increase to the low 70% range in the first quarter and additional FabRite actions to drive margin expansion through the year. GAAP operating expenses were $351 million, including $59 million in restructuring expenses. Non-GAAP operating expenses declined 3% sequentially to $282 million at the lower end of our guidance range. GAAP operating margin for the quarter was 13.1% and non-GAAP operating margin was 19.8%. Our GAAP tax rate was 16.2%, and non-GAAP tax rate was 16%. Diluted GAAP earnings per share was $0.35 and non-GAAP earnings per share was $0.64, above the midpoint of our guidance. GAAP and non-GAAP diluted share count was 402 million shares. We repurchased $450 million of shares in the fourth quarter, and as I indicated earlier, in 2025, we deployed approximately 100% of free cash flow to repurchase $1.4 billion of shares. Turning to the balance sheet, cash and short-term investments were approximately $2.5 billion with total liquidity of $4 billion, including $1.5 billion undrawn on a revolver. Cash from operations was $555 million, and free cash flow was $485 million. 2025 free cash flow was a record at 24% of revenue, and we expect to deliver strong free cash flow in 2026. Capital expenditures were $69 million or 4.5% of revenue. Inventory decreased by $58 million to 192 days from 194 days in Q3. This includes 76 days of strategic inventory, which is down from 82 days in Q3 as we continue to deplete this inventory over the next two years. Excluding the strategic builds, our base inventory is healthy at 117 days. Distribution inventory increased slightly to 10.8 weeks from 10.5 in Q3 and is within our target range of 9 to 11 weeks. Looking forward, let me provide the key elements of our non-GAAP guidance for 2026. As a reminder, today's press release contains a table detailing our GAAP and non-GAAP guidance. We anticipate Q1 revenue will be in the range of $1.44 billion to $1.54 billion in line with normal seasonality at the midpoint. This marks the first quarter with expected year-over-year growth since the downturn started over three years ago. We expect to exit $50 million of non-core revenue in the first quarter. Excluding these exits, our revenue would be above seasonal. Our non-GAAP gross margin is expected to be between 37.5% and 39.5%, which includes share-based compensation of $7 million. Our FabRite actions that I described earlier and other operational improvements are expected to contribute to gross margin expansion of 30 basis points at the midpoint, a quarter in which margins have historically declined with seasonality. Non-GAAP operating expenses are expected to be between $285 and $300 million, which includes share-based compensation of $29 million. We anticipate our non-GAAP other income to be a net benefit of $7 million with our interest income exceeding interest expense. We expect our non-GAAP tax rate to be approximately 15% and our non-GAAP diluted share count is expected to be approximately 397 million shares. This results in non-GAAP earnings per share in the range of $0.56 to $0.66. We expect capital expenditures in the range of $35 to $45 million. To close, with stabilization across automotive and industrial markets and our momentum in AI data center, we are entering 2026 from a position of strength. We have built a structurally different company with a more resilient model, a sharper product mix, and a clear strategy to expand margins and generate strong free cash flow. As demand improves, we are positioned to scale efficiently and convert that demand into profitable growth. With that, I'll turn the call back over to Carmen to open it up for questions. Operator: Thank you so much. And as a reminder, to ask a question, press 11 on your telephone, and wait for your name to be announced. To remove yourself, our first question comes from Ross Seymore with Deutsche Bank. Please proceed. Ross Seymore: Hi, guys. Thanks for asking a couple of questions. I guess the first one is going to be a near-term and the second will be a longer-term question. On the near-term question, what was going on in the Other category? Everything else was better than expected, but Other was pretty weak. And then, I guess, you sound better on your tone about everything to do with the cycle and secular, etcetera. But you're kind of still at seasonal. So when do you think you could be above seasonal given the point of the cycle that we're at right now? Thad Trent: Yeah. Two things, Ross. One is if you exclude the exits, we are above seasonal. Right? So if you look at the reported numbers, they're in line with seasonality similar to what we've been saying for a couple of quarters here. But if you exclude the exits, we are above seasonal. On your question about the other buckets, so we saw strength in AI data center. There's clearly growth there. We have normal seasonality in Q4 in that other bucket. This is down. And then there are also about $40 million of exits that are in there. So that's why that bucket was down sequentially. Ross Seymore: Got it. Thanks for that. And I guess as my longer-term question, perhaps, for Hassane, you talked about the AI data center side of things. The $250 million or slightly more than that. I know you don't want to get anchored to a specific number for this year, next year, etcetera. But can you just talk a little bit about the TAM you think you can address in that? When do you think it could be 10% of sales or something larger like that? And how ON differentiates to give you the confidence that you can gain that share? Hassane El-Khoury: Yeah. So I'll obviously, I will stick with I'm not guiding specifically in '26 or the AI data center yet, but I'll give you why the confidence in the continued growth at a, I would say, at a pretty good rate growth rate accelerated from '24 to '25 and will continue. I described a little bit on how we tackle from a technology perspective from the wall to from the outside data center all the way to the board. With that is how we differentiate. If you look at it, we're the only company or one of the very few companies that are able to do the high voltage, think 800 volts with our 1,200 volt devices all the way to the SPS type devices closer to the core. You have to be able to do that conversion with the highest efficiency at every step of the conversion. But more importantly, our architecture is moving forward are collapsing the conversion tree. Which means you have to be able to do high voltage and low voltage. We're the only ones company that has vertical GaN. Which is the highest power density at the highest voltage. Again, a competitive advantage. We will flex to continue to gain share with the high voltage power supply makers. And closer to the XPU we're in with the standard companies you talk about, not only with the standard GPUs, but also the nonstandard GPUs or ASICs and so on. So we're approaching it with a broad portfolio, number one, and more importantly, we're targeting where the market is going to be in a few years which is the high voltage rail, which is exactly where we play very well in automotive already. Those two are angles we are flexing. They're the angles that already delivered the $250 million in '25 from almost nothing. And that will continue to grow with the proliferation of the roadmap. And after that, of course, the VCORE, which we've acquired in 2025, that will add cumulatively to the power devices we have. Thank you. Operator: Thank you. One moment for our next question. It comes from Vivek Arya with Bank of America Securities. Please proceed. Vivek Arya: Thanks for taking my question. You mentioned, I think, $40 million of non-core exit in Q4. I think $50 million in Q1. Is this the kind of quarterly run rate that we should expect through '26? And and Hassane, if you set kind of these things on on the side, then can ON get to your long-term, you know, 12% kind of top-line growth target conceptually if for this year, if the macro environment is getting better? Hassane El-Khoury: Yeah. So I'll answer. First off, on the exits, we talked about the $50 million. If you think about it for the whole year, it would be higher than that. 300, you have the couple quarters, kinda Q2 and Q3, and then you can apply kind of the seasonality where we'll be exiting. But it's not flat at 50 because it's a 300 total. So that's point number one. Point number two on the growth. So if I take into account the exits for Q1 or even for the year, Vivek, you can think about our core business has been growing above market even in the downturn almost. This is the stuff we've been investing in and that's delivering already over or multiple of market growth. That's why, you know, in Thad's prepared remarks, he clearly articulated that if I if you account for the $50 million exit in the first quarter, we're actually above seasonality. As a baseline. That's what, you know, products that we've been introducing over the last few years are starting to contribute on a base. To answer your question longer term, we expect '27 to resume that over market growth if you think about it that way. Now that we net out the exits? Does that make sense? Vivek Arya: Yeah. Thank you for that, Hassane. And then maybe, Thad, on gross margins. I think you gave a new number for depreciation. I was hoping you could just give us kind of a walk of, you know, for gross margin. So let's say, conceptually, if you are if you do go through these exits and you are, you know, and in kind of the run rate of your long-term model, how should we think about your fab utilization and then gross margin kind of broad, you know, bracket this year? Thad Trent: Yeah. So for Q1, we expect utilization to be in that low 70% range. Depending on what the market does and what the what this potential recovery looks like, we'll match utilization to whatever the market does. Sitting here today, I think we're going to be for Q2 and beyond, we're gonna be running kinda mid-seventies, you know, plus or minus. If there's a sharper recovery, we will match that very quickly, and that will all fall through to gross margin. As I said in my prepared remarks, we believe there's margin expansion through the year. We have the FabRite activities that will start to hit the company later in the year. And as utilization goes up, that will impact later in the year as well. So we sitting here today, we feel good about the gross margin progression from this point. Vivek Arya: Thank you. Operator: Thank you. Our next question is from Alex Fernandez with Jefferies. Please proceed. Blayne Curtis: Sorry, it's Blayne Curtis. Thanks for taking the question. I just want to ask on the AI data center. Obviously, a huge focus. You did throw out a kind of target for the year that you exceeded. I was just curious. Thoughts about growth in that segment for '26. Hassane El-Khoury: Yeah. So, Blayne, as I mentioned, we will see growth. Actually, we're starting off the year with a better growth than we did starting off last year. So I'm very bullish about that segment, but I'm not giving a guidance on that segment specifically. But it will be a driver of our baseline revenue net of the exits. Thad Trent: We do expect that our AI data center revenue in Q1 will grow high teens percentage-wise. To give you an indication of our trajectory here. Blayne Curtis: Awesome. Thanks. And then I wanted to just ask, on the exits of the business. I mean, these are lower margin but I also I was just curious the impact to utilization. Can you kind of net that out for us? Like, you're walking away from $90 million a quarter over two quarters. Is that a positive or a negative for gross margin? Thad Trent: It's neutral today. So the margin on that business today is near the corporate average. The reason we're exiting is because we're seeing margin pressure and pricing pressure on that business. That business has been volatile historically. And a part of the business why we've called it our non-core business that we would exit over time. So it really doesn't have an impact on gross margin. We've got the capacity. It's not going to be a headwind to utilization. So you can see that even with these net of these exits, you know, with a what I answered in the previous question is that our utilization, we expect to go up throughout the year. Blayne Curtis: Thanks, Thad. Thank you. Operator: Our next question comes from the line of Joshua Buchalter with TD Cowen. Please proceed. Joshua Buchalter: Hey, guys. Thanks for taking my question. Maybe can you quickly walk through the puts and takes on gross margins in Q1? I mean utilization rates are coming up, but margins are down sequentially. I know there's a timing element, and it doesn't immediately match utilization rates. But you know, any other puts and takes on excuse me, pricing or other factors we or mix should be considering when we're thinking about gross margin? Thank you. Thad Trent: Yeah, so, Josh, the key element here is that the Q1 midpoint of our Q1 guidance is up 30 basis points on gross margin. So if you go back to our utilization in Q3, which was 68%, if you remember, we I'm sorry. We took it up to 74. We're down Q4 with 68. So we took it up to improve the mass market. So we've got a number of things. Typically, Q1 is seasonally down. And gross margins are down. The fact that we're actually expanding gross margins 30 basis points shows you that our FabRite initiatives of taking cost out are offsetting the headwind. So it's actually up quarter on quarter. Joshua Buchalter: Okay. That'd be my mistake. Sorry about that. And could you maybe provide outlook by end market for Q1? In particular, I was hoping you could comment on the auto market. It sounds like the inventory restock is so sorry. The inventory correction is complete. You know, should we expect autos to grow sequentially in the March? Thank you. Thad Trent: Yeah. I'll give it to you by end market. So auto is roughly flat. As you remember, the Chinese New Year has a little bit of a headwind on auto. So when we think about sequential, it's roughly flat. Industrial, we're planning on it being down low teens. That's primarily due to seasonality and energy infrastructure. Again, with Chinese New Year. And some lumpiness in the factory automation. Our traditional industrial will be seasonal within that bucket. And then our other bucket is up low single digits, and that's driven by the AI data center that I referred to, up high single digits. And offset by seasonal declines as well as our non-core exits. Hassane El-Khoury: The AI data center is up high teens. Sorry. Joshua Buchalter: Got it. Thank you both. Operator: Thank you. Our next question comes from the line of Quinn Bolton with Needham and Company. Please proceed. Quinn Bolton: You've registered a clarification on the first quarter gross margin. You saw the uptick in utilization rates in the third quarter, and you said it usually takes a quarter or two to flow through. So is the first quarter really the benefit you saw in that utilization in Q3? Or is it more product mix and other factors? Thad Trent: It's a combination of both. I mean, you've got mix in Q1, but you've got a combination of the utilization impact, as well. Now Q4 stepped down, and then you have our cost benefits as well. With the FabRite activities. Quinn Bolton: With the Q4 step down in utilization to 68, would that hit you more in Q1, or would it hit you more in Q2? Just I know utilization from here is in the right direction. Just trying to get you know, is it a three-month lag or a six-month lag usually on that utilization of that? Thad Trent: It's about two quarters. But, you know, sitting here again, I think we're gonna have the kick in of depreciation that I mentioned, and I don't see that as a headwind in Q2 of next year. Hassane El-Khoury: This year. Got it. Okay. So, typically, basically, to drive it for you, the utilization going down would have in Q4, hit us in Q2. But we don't sitting here today, we don't see that because we're offsetting it with cost actions and the FabRite that will offset any utilization. So that's back to the strength of the gross margin based on the work we've been doing. Quinn Bolton: Got it. And then, Hassane, your prepared comment, I think you said you're gonna be introducing over 30 GaN-based solutions this year. Wondering if you could just give us do most of those target sort of mid or low voltage applications in the data center? Does it target, you know, products across all three of the target end markets? Just any more sort of color on where you're gonna be targeting some of those GaN solutions that you're introducing this year? Hassane El-Khoury: Yeah. It's basically across the voltage range that I mentioned, 40 to 1,200 volts. So that includes obviously, the lower voltage that target the data center. Call it closer to the XPU all the way to high voltage, 1,200 volts that go into, you know, the higher voltage and in automotive and industrial. So broader range of voltages targeting a lot of our end markets. You know, I mentioned one of the things we're working on, for example, with vertical GaN. With a traction vertical GaN-based next-generation traction with GM. As an example. Quinn Bolton: Got it. Thank you. Operator: Thank you. Our next question comes from the line of Joe Quatrochi with Wells Fargo. Joe Quatrochi: Maybe one on the data center side. You know, I saw that you had an updated slide in your deck relative to last quarter. And I think now your opportunity, you're talking about, you know, what that looks like per rack in 2030, which is a pretty significant increase versus the prior deck. I think you're at, like, $105,000 per rack versus, like, $50,000 for 2027. Just curious, like, what's driving that? And significant growth for RAC from '27 to 2030? Hassane El-Khoury: Yeah. So as new generation architectures start to firm up, we and we are introducing a lot more products to address it. So our overlap of products availability that we're making and investing in or have invested in versus the opportunity of content in the rack has increased. And this is kind of the list of new products I've been talking about, whether it's silicon carbide JFET or the vertical GaN or even the five-by-five or SPS point of load we have been heavily investing over the last year or so in order to capitalize on the content that the AI opportunity provides. So that's exactly the reason for the increase is more products mapping onto more content that we can address with our portfolio. Joe Quatrochi: Thanks. And then as a follow-up, you talked about strong free cash flow again in 2026. Just curious if there's any targets that we should be thinking about for this year. And then you're thinking about returning or what percent of that returning to shareholders? Thad Trent: Yeah. Our stated target is 25 to 30%. You know? In 2025, we delivered 24. I talked about expanding the free cash flow margin. And so I think we're gonna be in that range of within our target. Our plan, as you can see, with our announced repurchase authorization of $6 billion is to return 100% of our free cash flow to shareholders. Joe Quatrochi: Thank you. Operator: Thank you. Our next question comes from the line of Gary Mobley with Loop Capital. Please proceed. Gary Mobley: Hey, guys. Thanks for taking my question. You're clearly signaling better revenue visibility, albeit met with some CECL headwind and some business exits in the first quarter. But maybe if you can share with us a few more specifics on the forward-looking revenue KPIs like, you know, beginning of quarter starting backlog or, you know, any sort of customer expedites or just any sort of revenue visibility change that you've seen in just the last three months? Hassane El-Khoury: Yeah. Yeah. This is Hassane. So like you said, visibility or kind of the outlook is better sitting here than we were ninety days ago. And this is across all the KPIs. Book to bill is trending up. We are walking into the quarter with less turns needed than the prior quarter. Expedites, we're seeing more expedites than we did ninety days ago. So all of the metrics that you mentioned are exactly what is giving us that confidence in the outlook or improved visibility in the outlook. What we're talking about, for example, is we're not seeing the replenishment yet. But this is strong signals for stabilization in the market. And you've seen going back to seasonality inclusive of the exit highlights the strength of our base business, which is what we've been investing in. Gary Mobley: Thanks for that. And regarding your, I guess, refocus on GaN products, forgive me if that's not the right term, but you know, in vertical GaN, you've got, I guess, your own manufacturing, you know, supply chain. In lateral GaN, it sounds like you've forged, you know, two manufacturing relationships with Innoscience and GlobalFoundries, and I assume that's the geographic specificity that you were hinting to in your prepared remarks, but the question is, do you feel like you've invested enough there? Do you feel like you've built out, you know, rebuilt the product portfolio to the degree you hope, you know, across the different voltage spectrum and whatnot? Hassane El-Khoury: Yeah. I think if you look at it from a voltage range and a capability, having 40 volts through 1,200 volts native, and I say native is it's not about stacking two lateral GaN devices to get to the high voltage. This is a single 1,200-volt GaN on GaN high voltage device, which gives you the power density. I say yes. What maybe wasn't clear here and I did mention it in my prepared remarks, is the GaN with drivers, so not just the GaN devices. And those drivers are you can think about them as covered by Treo, which we already have invested in and is already in-house. So combined, devices and the smart drivers that we do on Treo that gives us the complete portfolio that we need to tackle GaN whether it's an AI data center, automotive, or the humanoids. Gary Mobley: Thanks, Hassane. Operator: Thank you. Our next question comes from the line of Christopher Rolland with Susquehanna. Please proceed. Christopher Rolland: Hey, guys. Thanks for the question. Mine is on silicon carbide. Both EV and AI. I guess, first of all, on EV, if you could give us an update, particularly geographically, you know, how that business is progressing and what to look forward to in the future. And then we're also on the AI side starting to hear about potentially using silicon carbide for substrates. This might require a movement to 300 millimeter, for example. Are you guys is this an opportunity that you guys might address? And is there an ability to convert your furnaces to 300 millimeter? Hassane El-Khoury: So let me first cover on the silicon carbide in automotive. We still see the silicon carbide opportunity, although XEVs taper down from a growth perspective, we're still a major share in China, which is all silicon carbide. Because they all are on the 800 volt. We are still gaining share in North America. And we continue to proliferate in European OEMs. And those obviously are still trending up from a unit perspective. So overall, the work is done. The design ins are done, and now we're working on proliferation within the OEMs and within the geographies. I spoke a lot about silicon carbide JFET, which is in the AI data center. We've seen tremendous design and growth part of that $250 million in AI data center is driven by silicon carbide JFET, so that continues to go there. As far as the 300 millimeter, we are not gonna be converting furnaces to 300. I think from an internal silicon carbide manufacturing, we're happy with our footprint. Remember, this was more on supply and regional resiliency than anything else. We will continue to focus on that from a supply from a resiliency but you're not gonna see a CapEx cycle going to the furnaces or substrate manufacturing. Christopher Rolland: Perfect. And as a second question, one of your competitors is buying Silicon Labs. And the rationale behind it was to fill out other parts from their catalog on their customer's boards. But in addition to fill their fabs. And from either of these perspectives, does this compel potentially an acquisition on your part? Or push you even more towards doing a deal or is the environment just from a valuation perspective, just a little too elevated right now? Hassane El-Khoury: Yeah. So I'll give you kind of our view. So one, you're not gonna hear me talk about doing M&A to fill a fab. We're gonna do for us, M&A is more strategically driven. And portfolio driven, and you've seen us do that over the last few years. Very targeted M&A regardless of size. But to fit a purpose of either portfolio completion or acceleration of something we were doing we'll continue to go down that path. From a compute perspective, I don't know if I've talked about it in on these calls, but our Treo platform already provides for an embedded compute capability. So our focus for now is really embedding compute where it makes sense to control the output, which is at the power stages or at the analog mixed signal or at the DSP for hearing aids and so on. So we have microcontrollers that are fit for purpose already going down to 22 nanometer. All the way to 65 nanometers. So where we see a gap, we are targeting that gap organically, and we already are in the market with that. As a general comment, we're always looking for value. We're always looking at complementing. And being a full-service provider for our customers. So that strategic conversation it's not to fill a fab or to bridge an immediate need. It'll be more for a margin or a market expansion than anything else? Christopher Rolland: Thanks, Hassane. Thank you. Operator: Our next question comes from the line of Vijay Rakesh with Mizuho. Please proceed. Vijay Rakesh: Vijay, you there? Operator: Sir, can I move to the next question? Thad Trent: Yes, please. Alright. Oh, sorry. I was on mute. Vijay Rakesh: Just on the Hassane, just on the FabRite and the EFK utilization improvement, I should look out to '27, do you expect gross margins to get back to the low forties looking at the margin accretion from EFK and FabRite? Thad Trent: Yeah. Like, in the short term, and even the long term. I mean, gross margin is gonna be driven by utilization. So, as I was saying earlier, we can match our utilization to whatever this recovery looks like. We've got lean inventory on our balance sheet. Lean inventory are right in our sweet spot on the distribution channel. We don't need to wait to burn through inventory before we can adjust utilization, and we can match that very closely. You know, if you think about the progression, yeah, getting to something with a four handle is within sight, assuming that the market continues to recover. Vijay Rakesh: Got it. And then on the AI data center side, I'm sorry to keep up your mind, but as you look out, given how big that market could be, do you expect that to get to, like, a 10, 15% of revenue run rate given some of peers seem to be targeting somewhere like that? Thanks. Hassane El-Khoury: Yeah. I mean, look, it's a matter of the when, not the if. Because we have the products. The market is there. The question is how quickly and does do we get in there? Remember, we started that journey last year with new products. So you give a design cycle and proliferation of products. And I see that happening. Again, it's a question of when. Vijay Rakesh: Got it. Thank you. Operator: Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed. Joe Moore: Great. Thank you. Hassane, you reiterated the long-term targets, the 53% gross margin. 40% operating margin. And I know it's been clear for a while that was gonna take a longer than your original thoughts. But can you talk to those targets? And is that, you know, an achievable number? And it seems like utilization gets you gets you part way there. Can you remind us what it takes to get to those levels over time? Thad Trent: Yeah. Let me walk through the bridge and kind of relates to Vijay's question there as well. So, you know, as I said in the prepared remarks, there's about 700 basis points of headwind from underutilization just in the Q4 margin. So if you take our utilization from, you know, the 70% range up into the low nineties, you're gonna get 700 basis points. So back to the market recovery. Matching that. And so that's just a matter of time to be able to get that. In addition, we believe there's another 200 basis points of FabRite activities that we can continue to execute to, so we're not done there. That's driving efficiencies in our manufacturing footprint. And, you can tell we've been working on that for several years, and now it's starting to pay off. Another thing is we've got the fab divestitures. From a couple years ago. It's a $160 million of fixed cost when we start manufacturing that inside. So that's, you know, roughly another 200 basis points. And then, you know, with the new products that are coming out that are all at favorable gross margins, that we're talking about here, you've got another 200 basis points plus that we can get out of that. So you start adding that all up. You're getting to that, you know, pretty close to that 53% gross margin target. That's why we're holding that target out there. Joe Moore: That's helpful. Thank you. I've asked you a couple times over the course of this quarter, but it seems like there's a number of indications that the automotive inventory is kind of lean. Yeah. You had an Experian kind of caused people a lot of trouble a few months ago. Now DVR four. I know you're not in those direct product areas, but you know, does that catalyze at some point a restocking in the automotive space and maybe, you know, why aren't we seeing that yet? Hassane El-Khoury: Well, I think I gave the answer. You think it would. But it's not. Because I think a lot of the automotive market, on the tier one layer, they're running on thin margins. And they can't afford the capital. Right or wrong, it's irrelevant. But neither me, and I think most of my peers that are exposed to auto have talked about the same thing that we're not seeing the restocking. Whatever the reason may be, which I think is setting automotive to a risky ramp when the demand does pick up. Joe Moore: Great. Thank you. Operator: Thank you. Our next question comes from the line of Chris Caso with Wolfe Research. Chris Caso: Yes. Thank you. First question I wanted to ask a bit more about GaN and specifically the manufacturing strategy. Think what you said there is that the Treo product you would do in-house. But what about the GaN switches? What's the manufacturing strategy there? And, you know, where do you think you are from a competitive standpoint in that technology? Hassane El-Khoury: Yeah. So if I understood it correctly, so from the GaN switch, this is what we're we have two sources. We have an engagement or a partnership with Innoscience and a partnership with GlobalFoundry. So we'll be doing the switches or the switching element with those partners. And then combining it with, call it, the control and drive on the Treo side of it. Combined in a smart switch. So the customer only sees a smart switch as far as the market. From an ON Semiconductor Corporation product. So we'll be going to market with a 100% ON Semiconductor Corporation product with a, call it, a foundry model bringing in the switches from a third party. Global and Innoscience. So that's our go-to-market today. And with that, we have a full coverage of what the GaN market needs and what customers are expecting. Chris Caso: Understood. Thanks. Just a follow-up question, you know, just so you can perhaps level set us as to what you consider to be normal seasonality for the June. And you've already mentioned some of the exits in the June, which are higher than the March. Is there anything else that we should consider looking into the June, understanding that you're not providing guidance? Thad Trent: Yeah. The June is typically up 3% to 4%. Naturally. Believe the exits are probably gonna be somewhere around $100 million, so doubling over the Q1 $50 million. But I think Q2 and Q3, you're probably looking at a million plus exits for both quarters. But to answer your question, seasonality is up 3% to 4% in Q2. Chris Caso: Got it. Thank you. Operator: Thank you. Our next question comes from Harsh Kumar with Piper Sandler. Harsh Kumar: Yes. Hey, I wanted to ask about the relative velocity of your two key end markets, Hassane. As you look at automotive and industrial, in the near term, it looks like industrial is rising faster. But I would think with the content and just the growth in the market, is it not fair for me to assume that maybe twelve months out that it flips over and automotive is a bigger driver of growth? And then I'll ask my second one as well, maybe for right now, for Thad. Is the 700 points of underutilization, I wanted to just understand that a little bit better. You've had a lot of exits, divests, you're writing off a bunch of products. $300 million this year. So what is the right level of revenue for me to think about getting rid of all of that 700 bps of underutilization on a quarterly revenue run rate basis? Hassane El-Khoury: Yeah. So Harsh, let me give you first the revenue. Your assumption is correct. If you think about it, our and let me give you numbers to illustrate and support it. So if you look at our content growth, we've always said we have content growth so we're not as tied to the SAAR as we are to content from an automotive growth perspective. We have added more products to that lineup in automotive, like Tenbase T1S Ethernet, power smart FETs, and so on. That will continue to expand our content. Over the last five years since we started this journey, our automotive actually grew 70%. Five years. That's pretty much on a flat SAAR. So that gives you kind of our target of the high single-digit growth on top of SAAR. So what you can think about it in the long term is we will resume that growth in automotive and we are sticking with the model and the outlook we've given in our last analyst day, which is high single-digit growth in auto. Driven by content, above the SAAR. And we've delivered that over the last five years. Of course, there's lumpiness given the cycle, but we've delivered on that. So you would expect that from ON Semiconductor Corporation with the additional content moving forward as well. Over a multiyear period. Thad Trent: Yeah. And Harsh, on the utilization and the charges for underutilization, the 700 basis points, so to you know, as that dissipates, we've gotta get up into the low 90 percentage utilization. In order to get there, if you take a consistent mix of where we are today, it's roughly about 25% higher in revenue. To get to a fully utilized based on a consistent mix. So, obviously, as new products ramp, that will help us as well. Harsh Kumar: Thank you, guys. Operator: Thank you. And this does conclude the Q&A session for today. I will pass it back to Hassane El-Khoury, President and CEO, for closing comments. Hassane El-Khoury: Alright. Thank you again for joining us today. And I'd also like to thank our employees around the world whose focus and commitment drive these results. Their innovation and execution are the reasons we continue to strengthen our position in intelligent power and sensing. And deliver for our customers in the most important market transitions. As always, we appreciate your support, and we look forward to our next update. Operator: This concludes our conference. Thank you for participating. You may now disconnect.
Claire McAdams: Good day, ladies and gentlemen, and welcome to Ichor Holdings, Ltd.'s Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, as a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Claire McAdams, Investor Relations for Ichor Holdings, Ltd. Please go ahead. Claire McAdams: Thank you, operator. Good afternoon, and thank you for joining today's Fourth Quarter and Fiscal 2025 Conference Call. As you read our earnings press release and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in our earnings press release, those described in our annual report on Form 10-K for fiscal year 2024, and those described in subsequent filings with the SEC. You should consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, we will be providing certain non-GAAP financial measures during this conference call. Our earnings press release and the financial supplement posted to our IR website each provide a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures. On the call with me today are Phil Barros, our CEO, and Greg Swyt, our CFO. Phil will begin with an update on our business, and then Greg will provide details about our results and guidance. After the prepared remarks, we will open the line for questions. I'll now turn over the call to Phil Barros. Phil? Phil Barros: Thank you, Claire, and welcome, everyone, to our Q4 earnings call. As we enter 2026, there's a lot to be excited about. Ichor Holdings, Ltd. is entering its next phase of growth with increased momentum and a clear strategy. Since we last spoke in November and again during our January webcast, customer demand in our primary served markets has continued to strengthen. Our current visibility is that we are now operating in a sustained demand ramp, driven by fundamental technology transitions and strategic capacity additions across our core markets. We're seeing increased adoption of gate-all-around architectures, accelerating growth in high bandwidth memory, and rising capital intensity in advanced logic and advanced packaging. These transitions increase etch and deposition intensity, and this is the segment of the market where Ichor Holdings, Ltd. is most highly levered. Our objective is to win share through this cycle, and being highly responsive to our customer demand is a core aspect of meeting that objective. Ensuring adequate supply and supporting our customers' strong ramp has been my number one focus since taking over as CEO. As a result, we are ramping labor headcount in our integration business and prepositioning inventory to enable us to address our customers' accelerating demand with strong, predictable execution. In addition, our recent design wins in commercial space are beginning to translate into meaningful revenue. We expect these design wins to convert into revenue growth that could outpace semiconductor growth this year. Based on current visibility, we see every quarter in 2026 as a growth quarter for Ichor Holdings, Ltd. Turning to our results. As provided on January release, Q4 came in largely as expected. Revenue was $224 million, above the midpoint of outlook. We finished fiscal 2025 with $948 million in revenue, up 12% year over year. This solid year-over-year growth was driven primarily by strength in etch and deposition and was partially offset by the softening build rates of EUV as well as decreased demand in certain trailing edge markets. Our commercial space business grew significantly in 2025, while still a small portion of our overall revenues, it has grown to the point where our fifth largest customer is now outside the semiconductor industry. Looking forward, expect growth in nearly every application with nearly every customer as we progress through 2026. Our outlook has further strengthened since entering the year, and our guidance today is for first-quarter revenues in the range of $240 million to $260 million. At the midpoint, this equates to double-digit growth from our Q4 trough. Based on current visibility, we expect sequential growth every quarter this year, leading to what we expect to be a strong growth year for Ichor Holdings, Ltd. During our January webcast, I introduced our key strategic initiatives for 2026. And I will now review the progress being made. First is our global footprint realignment. Over the past few quarters, our investments have been focused on expanding our Mexico machining capacity and building out our new manufacturing center in Malaysia, which is our largest facility in Ichor Holdings, Ltd.'s history. The Mexico expansion will be complete later this year, and Malaysia just began operation last month. These locations will be our high-volume manufacturing centers for Ichor branded products and will give us the capacity needed to meet the demand ramp we are now seeing. To enable this transition, we are in the process of relocating a portion of our machining assets to these critical sites, which will temporarily reduce our capacity for these components. While these transitions are important, they will not gate our ability to support our customer demand. The realignment of our global footprint touches all three of our strategic focus areas for 2026 and is aimed at strengthening our supply resiliency, ensuring business continuity, and bringing us closer to our customers. This realignment is also a key driver for us achieving our cost targets for Ichor branded products. It will also structurally eliminate the primary sources of margin and rent challenges we faced in 2025. Beginning Q2, we expect gross profit dollars will grow around twice the rate of revenues as we move through the year. We expect our global footprint realignment to begin driving meaningful margin improvement by midyear. This translates into significant earning leverage expected in the quarters ahead. Before closing, I want to touch on our product strategy in creating a differentiated Ichor Holdings, Ltd. 2026 is a milestone year for Ichor Holdings, Ltd. By year-end, we expect to have products in place to enable us to reach our long-stated objective of having Ichor branded products capable of supporting up to 75% of the content within the systems we make. Reaching this capability reflects our continued transition from an integration company to a product company and ultimately a key technology enabler for our industry. This level of vertical integration gives us the tools and technologies required to support our customers as they move into the Angstrom era, where they are adding and removing material one molecule at a time. As our customers enter this era, our goal is for Ichor Holdings, Ltd. to outperform by delivering technology, products, and execution required at this level of precision. With that, I will now hand over to Greg. Greg Swyt: Thanks, Phil. To begin, I would like to emphasize that the P&L metrics discussed today are non-GAAP measures. These measures exclude the impact of share-based compensation, amortization of acquired intangible assets, nonrecurring charges, and discrete tax items and adjustments. There is a useful financial supplement available on the investor section of our website that summarizes our GAAP and non-GAAP financial results as well as a summary of the balance sheet and cash flow information for the last several quarters. Fourth-quarter revenues were $223.6 million, above the midpoint of guidance, but modestly down from Q3. We believe Q4 represents the trough period during this cycle, with the recent softening in certain end markets and applications already showing signs of recovery. Gross margin for the quarter of 11.7% was 70 basis points above the midpoint of guidance, reflecting modestly better execution against the lower revenue volumes and unfavorable product mix during the quarter. Operating expenses for Q4 were slightly lower than forecast, at $23.4 million, and operating income was $2.7 million. As expected, our net interest expense for the quarter was $1.7 million, while our non-GAAP net income tax expense was slightly lower than forecast at $400,000. Our resulting earnings for the quarter were at the upper end of our expectations at $0.01 per share. Turning to the balance sheet, our cash and equivalents totaled $98.3 million at the end of the quarter, a $6 million increase from Q3. Working capital improvements generated $9 million of positive cash flow, and after $3 million of capital expenditures, free cash flow for the quarter was $6 million. DSOs for the quarter were slightly better than Q3 at 29 days, and inventory turns remained constant at 3.3. Our year-end balance of total debt outstanding was $123 million, down from $129 million a year ago. Our net debt coverage ratio currently stands at 1.7. Now I will discuss our guidance for 2026. As Phil mentioned, our revenue outlook has strengthened year to date. With anticipated revenues in the range of $240 million to $260 million, we expect gross margins to be in the range of 12% to 13%. Q1 operating expenses are projected to be approximately $24 million, reflecting the seasonal impact of payroll adjustments, audit fees, and other variable compensation costs. We expect the strong revenue ramp ahead for 2026 will be supported by a relatively consistent OpEx run rate of $24 million, which for the full year equates to an increase of about 5% compared to fiscal 2025. Net interest expense for Q1 is expected to be approximately $1.7 million, and we expect this level to be relatively consistent throughout 2026. For modeling purposes, net interest expense for 2026 should be approximately $7 million. We expect to record a Q1 tax expense of approximately $1.1 million. As you update your models for 2026, our assumed effective tax rate is currently expected to be in the range of 20% to 25%. The increase in our anticipated non-GAAP effective tax rate is attributed to the geographic distribution of our profits this year and the sunsetting of our Singapore pioneer status in early 2026. Finally, our EPS range for Q1 of $0.08 to $0.16 reflects our expectation for 35.1 million diluted shares outstanding. Operator, we are now ready for questions. Please open the line. Operator: Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To remove yourself from the question queue, press the pound key. In the interest of time, we ask that participants limit themselves to one question and one follow-up. One moment while we poll for questions. Our first question is from Brian Chin with Stifel. Brian Chin: Hi, great. Thanks for letting us ask a couple of questions and good afternoon. Maybe, Phil, the first question relative to the update you gave last month on Q1 revenue, your new midpoint is about $10 million higher. Can you firstly discuss sort of what has improved, I guess, since then? And also, when you think about the full year, if WFE forecasts for the industry are coalescing around 15% to 20% growth, let's say, how do you expect to grow relative to that benchmark? Phil Barros: Okay. Let me answer your first question first. In terms of what we're seeing in the first quarter versus what we saw first week, let me just put it this way. Every week, we get an updated forecast, and every week, we're seeing strengthening demand. So we are becoming more and more bullish on the market as we move through the year. And I would say that we're seeing a lot of movement, so that's why we're not gonna, you know, guide for the whole entire year. But I would say that your range of around 15% to 20% is kind of where we're coalescing as well. We think we're well set up to be in that range, if not outperform. Brian Chin: Okay. That's really helpful then. In terms of gross margins, you also published some slides last month that are very helpful, sort of crosswalk to potential 15% gross margin, sometimes second half at a $250 million plus revenue level. You're kind of there sooner, right? Point about the cycle strengthening. In terms of capitalizing on some of those attributes that get you from 11% gross margins to 15%, what's sort of embedded in that initial Q1 guide? And how quickly do you take down some of those other parts of it, including, I think it was like 160 basis points from production levels. You're kinda there already, and then you have some others from the insourcing and other items. Phil Barros: Yeah. As I kinda talked about during the prepared remarks, there's a couple things that we're doing there. I would call our short term or transient at this point. First things first is removing some of our capacity from one site to another. In particular, removing stuff from one of our machining facilities to another machining facility. To really set us up for long term success. I would say that that's gonna be in place before we exit the first half of the year. So that's gonna be a major benefit as we exit that. As you can imagine, that also brings down some of our capacity for our internal supply. So that's a short term once again, hit that we would or headwind that we would see in the first half of the year. Once again, we expect that to be flushed through the system as we exit the first half of the year. Hope that answers your question. Brian Chin: Got it. So you still think that 15% second half is sort of a good target and sort of a linear progression or maybe kind of incremental in 2Q and then sort of a pickup second half? Phil Barros: Yeah. That's how I would model it. Operator: Thank you. Our next question is from Craig Ellis with B. Riley Securities. Craig Ellis: Yes. Thanks for taking the question and congratulations on the nice print and the solid guide team. Phil, I wanted to start just by going back to your comments on sequential growth through the year. We've heard some companies express that the year will still be significantly back half weighted. As you look at sequential growth, can you talk about what your half on half expectations are? And then inside of the growth view that you have, we wanted to see a much higher mix of components and other higher margin products. Do you see an opportunity for that to start to kick in at some point during the year, or will things be much more gas panel oriented this year? Phil Barros: Yeah. I would say that the first half is gonna be heavy gas panel related. And as we move into the second half of the year, a lot of our growth in our gross margin is gonna come from increased component supply. So that's actually one of the major drivers of that first half versus second half margin profile. In terms of revenue, I would still say it's second half weighted. But we are seeing a lot of movement into the first half and a lot of momentum into the first half. I wouldn't call that pull ahead. What I would call that is just additional demand pulling forward. Craig Ellis: That's helpful. And then can you just go further on the Malaysia business relocation? Given the strength of demand that you're seeing, can you just provide some points that investors can look to that would give comfort that that wouldn't have any adverse impact on either revenue execution or COGS and expense execution? Phil Barros: Yeah. I'd actually say that part of our headwind in the first half is because we did turn on the facility. So you could think of that as a headwind in the first half. So that's baked into our Q1 guide. What I would say is that's a facility that's two miles away from our current facility, which is, I would say, our second largest facility today. So it's not too far away from our current facility that builds essentially every weldment for every factory that we have. So it's a strong factory for our business. What I would say is what we're moving to Malaysia is additional capacity. Right? As we move through '26 and into '27, we believe that we're gonna see a continued ramp. And we're gonna need additional machining capacity in particular and capacity within our components business. And that's a lot of what we're putting into that facility. That's where last year, we spent a lot of our CapEx. It was in standing up that particular facility. I would say that the headwinds are baked into Q1. And we really see the tailwinds in 2027. Craig Ellis: That's helpful. Thank you, Tom. Good luck. Operator: Our next question is from Krish Sankar with TD. Krish Sankar: Hi, thanks for taking my question and congrats on the really strong results. Phil, the first question I had for you on the March guidance, really impressive growth, almost 12% sequentially. Is there a way to dissect it both by technology? Is it coming from Depo, Rich, or Little, and also by end markets? Like NAND or DRAM or foundry. Any color on March would be helpful. And then I have a follow-up. Phil Barros: Yeah. I would say that a majority of it's coming from Depenet. So that's the vast majority of the growth we're seeing this quarter. We are seeing a slight increase in our non-semi business. I would say that EUV is pretty well flat quarter over quarter. But we do expect that to start picking up later this year, kind of late in the year. In terms of mix of technologies, I would say it's pretty it's I think the short answer to that is yes, because everything's growing at this point. And that's the reason a lot of people are calling this a super cycle is we're seeing every segment of our market grow, and grow significantly, and that's really what's driving, you know, the positive trajectory as we go into '26. Krish Sankar: Got it. Got it. And then on the gross margin comments, if I heard it right, you kind of said that gross profit dollars should grow at two times the rate of revenue growth. And it's also more second half weighted. How much of it is really like the gross margin growth is coming from revenue leverage versus insourcing? Greg Swyt: Yeah. Hey, Chris. It's Greg. So, you know, the revenue growth the margin growth is coming through actually a combination of the overall first half is as Phil said, you know, really the machine deployment that's hindering a little bit of our first half margin profile. And so that'll start to ramp as those tools come online in the second half. So you can call that incremental volume leverage, getting those tools up and running and getting the leverage out of that. And then the second thing is increasing our machining and components mix strengthening. As those tools come online and we're delivering those products. And then finally, our non-semi business is also as we're going into the year, that's strengthening, and that will also bring some flow through in the second half of, on the non-semi business. Phil Barros: Yep. So let me just add one more thing on that, Greg. Don't mind? Yeah. What I would say is in my prepared remarks, I talked about systematically eliminating some of the margin challenges we faced last year. What I mean by that and just to be quite frank is in order to meet our cost targets on our products, getting these into the new factories, once again, these are factories that in particular, in Mexico has already stood up, is running pretty high volumes. We're building out and finishing out the build-out there. Very high confidence level that that's gonna come through. So little risk there. Little to no risk there. I would say Malaysia is a little higher risk in terms of qualifications, but that's, once again, that's more to get volume out than it is anything else. Krish Sankar: Got it. Got it. Thanks, Sung. Thanks, Greg. Operator: Our next question is from Charles Shi with Needham and Company. Charles Shi: Maybe the first one, so you talked about the view is sustained the ramp of the business. Wonder if you can characterize your current demand visibility, how far out it is right now. As of today. I recall you to say you have pretty good view about within that the next six-month window. Is it further out that you see anything for 2027 at this point? Thank you. Phil Barros: Yeah. What I would say is, typically, our six-month window is pretty hard. In terms of we know what customers are gonna those are gonna go to and what that demand profile looks like. So you're exactly right. Six months out is very solid. And what I would say is that with our current visibility, if you look at what our Q3 and Q4 outlook looks like in terms of what our customers are telling us, what they're slotting in inside their demand windows, at this point in time, it's very solid in the second half compared to what you would normally see walking into the year. So that's why, you know, we have a lot of confidence in the second half of the year. And then, obviously, you hear it from our customers directly. They're talking about what they're seeing in 2027. I would say that our view on 2027 is very similar to what they say. Operator: Thank you. Our next question is from Linda Amwali with D. A. Davidson. Linda Amwali: Hi, guys. Thank you for letting us ask questions. My first question was a follow-up on the litho business. I think you said that you were expecting like, flattish quarter over quarter and then to pick up later in the year. I want to assume that the challenges given the inventory actions that your customer have been resolved, and maybe some of the end market demand trajectory that wasn't favorable is not favorable, or what has this been changing that business? Phil Barros: Yes. I'd say two things. First is we have seen that customer as they guided that they're gonna be starting to see a pickup in orders. And so we expect to see a similar level of pickup in orders. What I would say is that they do have a level of inventory that they need to digest. Based on our current visibility, we think they will digest that by roughly Q3 this year. Which would show some uptick in Q4. There's still a little bit of unknown there, so I would caution that a bit. But with that said, I do believe based on their feedback and what they've told us and what they're guiding, that they do expect to see growth in the second half of this year, entering into next year. Linda Amwali: Okay. Got it. And then, going back on the broader industry demand, DRAM and NAND prices seem to be surging. Are you looking at this as mostly driven by capacity shifts toward AI applications, or are there any other drivers that you guys can call out? Phil Barros: Yeah. I would say AI applications are definitely the drivers. Obviously, there's a lack of capacity in the DRAM and NAND, and that's driving a lot of demand profile we're seeing. We also see foundry and logic also being strong this year. So we're seeing, like I said before, really across the board, every one of the major aspects of our market. Strong and continue to strengthen. Linda Amwali: Got it. Thank you for your time. Operator: Our next question is from Dave Dooley with Steelhead Securities. Dave Dooley: Yes. Thank you for taking my questions and congratulations on a nice quarter and outlook. I guess the first question I have is and you've kind of addressed this, but I was wondering about the inventory levels at your two biggest customers and you know, what the situation with that is. And, typically, at the beginning of cycles, I think you might grow a bit faster than your two big customers just because they start to replenish inventory. And I was wondering if that's what you see unfolding during '26 and '27. Phil Barros: Yeah. The way I would put it is our revenue forecast or what we're forecasting is starting to match what they're saying, which is a good indication that inventory levels are coming down. And inventory levels need to be replenished. And that's kind of what we're seeing in terms of customer demand and what they're pointing towards us. Remember, the bulk of our business, which are gas panels, there's not a whole lot of inventory that's held on those systems. I would say that the one exception would be that EUV customer where it's a non-configurable system, it's the same every time. So they can build up an inventory level, which they can hold on to. What I would say is we're starting to match what our customers are saying, which is a good indication to me that the inventory has really burnt through in terms of the last cycle. Dave Dooley: Okay. And then, I think you mentioned in your prepared remarks, I think in the press release, that you expected to gain share in '26 and '27. Was wondering if you might help us understand what areas that you will gain share in. Phil Barros: Yeah. So I think I mentioned it during my January webcast, but one of the major focuses little difference between me and the past is it's really good about driving growth within the business. And when I say we want to drive growth within the business, it's in all aspects of what we do. But in particular, where I want to spend a lot of our efforts in terms of growing share is first and foremost is in our commercial space business. Our non-semi business, the machining aspect of that that we've been chasing around for a while. On top of that, what I would add is all of our componentry. And then I also want to gain share in gas panel. So it's really across the board. And what I would say is, our customers really divvy out share based on platform. I want to get a little more balanced. In terms of what platforms we're on. So there's a little bit of work to do there as well. But I would say across the board, during a ramp cycle is really where, you know, share can be won and lost. And I believe we're preparing ourselves to win some share during this cycle. Dave Dooley: Great. Thank you. Operator: Our next question is from Christian Schwab with Craig Hallum. Christian Schwab: Thanks for taking my question. Congrats. Most of them have already been asked. I just have one. The growth trajectory at WFE is expected to remain robust again in '27. Do you think that from a component standpoint that you can operate near previous targets, say, 18% to 20% gross margins? Or will it take a little bit more time to get there? Phil Barros: Yeah. I don't want to throw out a timeline for the 18% to 20% at this point. It's a little early to guide that. But what I would say is with the current trajectory of '27, I think we can get back to some historical levels in terms of revenue. And I would anticipate with the components kicking in and things of that sort that we should see significant earnings leverage as we move forward through 2027. Like I said, I don't want to at this point in time and this far away from the next year, guide what we think in terms of gross margins are gonna be at that point. Christian Schwab: That's great. Thank you. No other questions. Operator: Our next question is from Edward Yang with Oppenheimer and Company. Edward Yang: Hey, Phil, thanks for the time and congrats on the quarter. You mentioned commercial space as a growth opportunity. And could you just remind us what percentage of your business is that and how the margin might compare versus corporate? Phil Barros: Yeah. I wouldn't want to call it the margins because that gives a little too much away. So I won't comment on that, but it is accretive to our general margin profile. What I would say is that they're a sub 5% customer today. Our goal in the kind of medium term is to turn them into a 10% customer. Obviously, with what we're seeing in terms of the semi ramp, that's gonna raise the bar for that. So it's gonna be a little harder for the team to meet that, but that's still the goal. But that is our goal, and I would call them medium term in terms of what we want to do with that particular customer. Edward Yang: Okay. Great. And, given the growth outlook, you know, how are you thinking about CapEx, CapEx and 2025 as a percentage of revenue when absolute dollars was up year over year. Do you expect that to grow from these levels or moderate back to norms? And related to that, you have taken some restructuring actions significant restructuring actions, the last couple of quarters. Are we past any sort of additional accruals for restructuring at this point? Greg Swyt: Hey, Ed. It's Greg. I'll take those. On the CapEx front, you know, we did about a little close to 4% this year or '25. So about $36 million. And a lot of that investment was in our new facility in Malaysia. Shifting to '26, we will be moderating it down and moving towards a more manageable rate of around 3% of revenue, but that requires, you know, more on the equipment to be deployed now to the facility in Malaysia. And then we're rebalancing some machining equipment within North America as we execute on that realignment of the North America machining facilities. And so it'll moderate down to about 3% in '26. And that'll give you an indication of what we think we should spend there. And then on the restructuring, yeah, we did take about $10 million in Q4. And that was still obviously a heavy lift for the full year. But the majority of that effort is now complete. We still expect to see some activities as we wind down these facilities that we're realigning in the US, but it won't be at the magnitude that we saw in the full year nor in Q4. Operator: Thank you. There are no further questions at this time. I'd like to hand the call back over to Phil Barros for any closing comments. Phil Barros: Yes. Thank you, operator, and thank you, everyone, for joining our call today. In closing, I wish to convey our confidence in the new Ichor Holdings, Ltd. and our expectations to deliver strong earnings leverage through this cycle. I look forward to our next update at our Q1 call in May. In the meantime, please reach out to Claire to arrange any follow-up meetings that you may have. With that, I conclude today's call. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Corporation Third Quarter Fiscal Year 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Wushuang Ma, Vice President and Treasurer. You may begin. Good evening, and thank you for joining us. Wushuang Ma: With me today are Preston Wigner, our Chairman, President, and CEO, and Johan Kroner, our Chief Financial Officer. During the course of this call, we will be making forward-looking statements that are based on our current knowledge and some assumptions about the future. These are representative as of today only. Actual results, performance, or achievements could differ materially from anticipated results, prospects, performance, or achievements expressed or implied in such forward-looking statements. We assume no obligation to update any forward-looking statements except as required by law. For information on some of the risks and uncertainties related to these forward-looking statements, please refer to the reports we file with the ICC and under cautionary statements regarding forward-looking statements in our current earnings press release. Finally, some of the information we have for you today may be based on unaudited allocations and may be subject to reclassification. Our comments today may also include certain non-GAAP financial measures. For details regarding those measures, including reconciliation of those non-GAAP measures to the most comparable GAAP measures, please refer to our current earnings press release and other public materials. This call is being webcast live and will be available for replay on our website through May 9, 2026, and by telephone through February 23, 2026. This call is copyrighted and may not be used without our permission. Other than the reference to replay, we have not authorized or disclaimed responsibility for any recording, replay, or distribution of any transcription of this call. I would like to now turn the call over to Preston. Good evening, everyone. Thank you for joining us today. Preston Wigner: Fiscal year 2025 was an extraordinary year for Universal Corporation. We are following that year with solid performance to the end of our 2026. I am proud of our company's dedication and commitment to delivering results for all our stakeholders. During the third quarter of our fiscal year, our team executed well and advanced the strategic priorities that support long-term value creation. I will start with our tobacco operations segment, which generated solid quarterly results in comparison to a robust third quarter last fiscal year. Customer demand remained firm for most tobacco styles following several years of undersupply. We continue to leverage our diverse global footprint, long-standing customer relationships, and deep local expertise to optimize results as the market transitions into an oversupply environment. Turning to the ingredients operations segment, we continue to advance our strategy in order to build durable commercial and operational fundamentals that support sustained growth. Sales revenue for our value-added products has started to make up a significant portion of our overall ingredients revenue. However, our segment results reflect higher fixed costs from the significant investments we made, which have compressed margins. Additionally, market headwinds, such as the broader softness in the consumer packaged goods sector, weighed on our business, directly and indirectly, and tariff impacts were more pronounced during this quarter. These headwinds reinforce the importance of our disciplined and deliberate approach to investing in the resources and capabilities needed to provide resiliency and grow our ingredients business for the long term. While our global commercial and operational teams focused on delivering strong results, we also took several meaningful steps to strengthen our company and position ourselves for the future. We refinanced, upsized, and improved our corporate credit facility, which significantly expanded our liquidity and improved financial flexibility. And earlier today, we were excited to announce the appointment of our new CFO, Steven F. Deal, effective April 1. Steve brings strong financial, business, and strategic expertise to his new role, and I look forward to working closely with him to advance our company's strategies and deliver value to our stakeholders. I will now turn the call over to Johan to review our financial and operational performance in more detail, after which I will share a few additional thoughts. Johan Kroner: Thank you, Preston. Good evening, everyone. For the nine months ended December 31, 2025, consolidated revenue was $2.21 billion compared to $2.25 billion in the prior year period. Operating income was $183.4 million versus $190 million for the same period last year. Net income was $75.9 million versus $85.7 million for the same period last year. In our tobacco operations segment, revenue was $1.94 billion compared to $2 billion in the prior year period. Segment operating income was $185 million versus $194.4 million for the same period last year. In our Ingredients Operations segment, revenue was $265.2 million compared to $249 million in the prior year period. Segment operating income was $1.4 million compared to $7.9 million for the same period last year. For the 2026, consolidated revenue was $861.3 million compared to $937.2 million in the same quarter of last year. Operating income was $82 million versus $104.1 million for the third quarter of last fiscal year. Net income was $33.2 million versus $59.6 million for the third quarter of last fiscal year. Johan Kroner: In our Tobacco Operations segment, revenue was $779.9 million compared to $853.9 million in the same quarter of last year. Segment operating income was $84 million versus $102.6 million for the third quarter of last fiscal year. In our Ingredients operating segment, revenue was $81.3 million compared to $83.3 million in the third quarter last year. Segment operating loss was $100,000 compared to segment operating income of $3.7 million in the third quarter of last fiscal year. Turning to liquidity and capital structure. During the quarter, with strong support from our existing and new banking partners, we refinanced our senior unsecured credit facility and upsized the facility by $250 million. The new facility significantly expands our available liquidity, lowers our borrowing cost, enhances our financial flexibility, and positions us well to advance our long-term strategic priorities. As of December 31, 2025, our net debt was $995 million compared to $945 million at the same point last year. Our liquidity availability, which includes cash and availability under our committed and uncommitted credit lines, totaled $917 million. I will now turn the conversation back to Preston. Preston Wigner: Thank you, Johan. We are pleased with our solid results through the first March of the fiscal year. As anticipated, the leaf tobacco market is moving into an oversupply environment. Managing evolving market dynamics is an area where Universal Corporation has demonstrated consistent strength for more than one hundred years. We are proud of our resilience and our ability to deliver strong performance under all market conditions. Our long history of tobacco leadership motivates us to build and grow Universal Ingredients to support our long-term success. Back in 2018, we made the decision and developed a strategy to diversify into food and beverage ingredients. As part of that strategy, we made three acquisitions in 2020 and 2021 to gain a broad product portfolio, established customer relationships, and experienced management teams. These moves created Universal Ingredients and established the foundation for a scalable, differentiated platform capable of delivering and offering new innovative solutions-based products to our customers. To support that strategy, we invested in building commercial sales, R&D, and product development capabilities, and in adding industry-leading production capabilities. These investments culminated in the completion of our Lancaster, Pennsylvania facility expansion, just over a year ago. Since completing the expansion, our focus has been on leveraging these new resources and capabilities to grow Universal Ingredients and convert customer interest into sales. We are excited about the progress we have made since those early days in 2018. We continue to navigate inflationary pressures and the impact of tariff headwinds. We are focused on increasing sales to absorb fixed costs from our growth investments in Universal Ingredients. We are encouraged by the continued steady interest in our enhanced capabilities and the growing breadth of our solutions-based product portfolio. We are committed to continuing the progress we have made to date and scaling the platform to support stronger earnings, improve resilience, and enhance margins. Before we conclude today's discussion, I want to highlight our continued progress in advancing our sustainability priorities. We recently released our annual sustainability report, which highlights significant progress across our environmental and social commitments. Notably, we increased renewable electricity consumption nearly sixfold year over year, with approximately 17.7% of our global electricity sourced from renewable energy. These actions support our approved science-based emissions targets and our commitment to achieve net zero greenhouse gas emissions across the value chain by 2050. We also further demonstrated our support for farming communities globally, advancing our good agricultural practices and agricultural labor practices programs to maintain momentum across our social responsibility and farmer sustainability initiatives. Our disciplined execution and clear strategic focus provide a strong foundation as we move into the final quarter of the fiscal year. We are confident in our ability to execute on our strategy and continue creating long-term value for our stakeholders. Thank you again for joining us today. We will now open the call for questions. Operator: As a reminder, if you would like to ask a question, press 1 on your telephone keypad. Your first question comes from the line of Daniel Scott Harriman from Sidoti. Your line is live. Daniel Scott Harriman: Thank you. Good afternoon, guys. Thank you so much for taking my questions. I will start this afternoon with ingredients. And with the mention of the tariffs and, obviously, the overall market weakness within consumer packaged goods, I was hoping you could help us understand how those issues are affecting both the traditional business within ingredients and then also the newer solutions-based offerings. And then in tobacco, you know, you called out fiscal 2025. And while sales were down in the quarter, that is not necessarily a fair comparison considering the supply backdrop last year, and margins have been holding up pretty well. So given that last year was a high watermark for the segment, how do you view the underlying performance of the tobacco segment this quarter considering solid sales and the, like I said, the maintained margins? Preston Wigner: Yeah, Daniel. I will start with ingredients. So last year, the third quarter was a good quarter for ingredients. We had revenues and volume both up over the prior year's quarter. And this year, we have been impacted by market headwinds, product mix, and the higher fixed costs. Now I will talk about all three. So on those market headwinds, which are affecting the industry and not just the sectors where our customers are, there is weakness in that consumer packaged goods sector and other food and beverage sectors. And those inflationary pressures are putting pressures on the consumer goods prices and therefore, from those customers, pressures on us on our pricing, and compressing our margins, as well as tightening demand. As their sales might decrease, then their orders from us will decrease. If it impacts them, it will impact us. And we have seen that, maybe in particular, with sales this quarter of our sort of traditional core products. On the tariff side, we have talked about this a little bit in the past. We have had direct tariff impacts. We have had indirect tariff impacts. Those impacts were just a little more pronounced this quarter than in the first half. On a direct tariff impacts, we have got tariff costs that are impacting the cost of the product that we import into the US and incorporate into the products that we sell. And so we have got tariff costs in those raw materials that having difficulty this past quarter capturing all of that in our sales to our customers. And then on the indirect impact, our customers have tariff impacts, which are impacting the sale of their products. Those tariffs might be impacting components of their products or packaging of their products, which has decreased their sales. And again, if their sales are decreasing, then potentially their orders to us are decreasing. On the product mix side, we had just a different mix of products with little higher margins in the third quarter last year than we did this year. Some of those could be attributed, for example, to customer ordering based on forecasts of how they think their products were going to perform last year. So they might have ordered higher margin products from us last year ramping up for their sales into the market. And if those sales did not turn out the way they had forecasted, then potentially this quarter, they would have had fewer of those sales or different products that they would be ordering from us with slightly different margins. So it is a little bit of a margin mix. And then lastly, on the higher fixed costs, we have been talking about that for a while. We are still focused on scaling the business to absorb the costs and the investments we have made to grow the ingredients business, including the expansion of our capabilities of the Lancaster extracts facility. We continue to try to absorb those costs, which are impacting our margins and impacting our earnings. So we are positioned to offer innovative solutions-based products to our customers. And our sales are up 7% year to date, versus last year, despite this challenging market. And our goal is to maintain that momentum. Sales of our new products have contributed to our increased sales, and we are focused on continuing to increase those sales and increase new and existing customer interest in Universal Ingredients. We continue to add to our active product development pipeline that leverages our broad product portfolio across the full Universal Ingredients foundation. And we think those capabilities and the products that we offer can help our customers deliver new or improved or unique products to navigate the existing headwinds that are impacting them. So our focus on the ingredient side every single day is to convert that customer interest and the product portfolio into increased sales and volume across the factory floor. So I am really encouraged by the dedication of the team who is putting in the hard work on a daily basis. I am really pleased with the progress that we have made and how far we have come since our early days of 2018. So on the tobacco side, as you mentioned, this has been a solid quarter and year to date for our tobacco business. Last year was an extraordinary year for us, and last year's third quarter was really robust. We had very strong demand in the undersupply market last year. We moved a lot of tobacco in the third quarter, including accelerated shipments in the third quarter. And pricing both for our farmer pricing, green pricing, as well as our sales prices, were high, resulting in high dollar margins. And we also shipped more of certain higher margin dark tobaccos last third quarter, which supported the high operating margin last third quarter. You know, this year, year to date, our tobacco segment revenues and operating income were only down slightly from last year's extraordinary results. Quarter to quarter, tobacco segment revenues and operating income are good, except in comparison to such a big third quarter last year. Last year's year to date in third quarter numbers were the highest that we have seen in a number of years. And just looking at the last four years for us, which were all solid years, our current year to date tobacco numbers are the second highest during that period. And our third quarter tobacco segment revenues were second highest, our tobacco segment operating income is within $4 million of being second highest for that period. So last year cast a big shadow, but we are still performing well this year and this quarter. This year's large crops, especially in Brazil and Africa, and still firm customer demand have given us opportunities to keep up with last year's sales. And we have also increased our third-party processing based on the size of those crops. But pricing is down slightly from last year, and we have had additional write-downs in certain dark air-cured tobacco that impacted results. And the comparative mix of products, which I just mentioned a second ago, that we sold this quarter, third quarter versus last year's third quarter also had an impact, with some higher margin styles shipped at higher volumes last third quarter versus this third quarter. And then there is also some shipment timing impacts to the quarter to quarter comparison. So we have leveraged our tobacco expertise, our diversified footprint, and our strong customer relationships to navigate what has been a really complex year. And we are moving from undersupply to oversupply. And with all of that, I am really proud of the job we have done around the world to deliver the results we have delivered and to support all of our stakeholders. Daniel Scott Harriman: That is really helpful, Preston. Thanks so much, and best of luck for the rest of the year. Johan Kroner: Thank you, Dan. Operator: Your next question comes from the line of Ann Gurkin from Davenport. Your line is live. Ann Gurkin: Good evening, everybody. Hi, Ann. I would love to pick up with the conversation around the tobacco segment. Do you think you would be able to exit fiscal '26 with margins relatively in line with what you delivered in fiscal 2025? I thought Q3 was better than I would have expected, and it is very impressive. So I was just curious if you can give me any kind of direction as to the full year tobacco segment margin. Preston Wigner: Yeah. I would say, you know, we are still working hard on the quarter. We have got some tobacco to ship. Some of that tobacco is higher margin tobacco that may have otherwise shipped in the third quarter. It is really going to come down to mix and to timing of shipments. Yeah. Can we get all that tobacco out in the fourth quarter? Ann Gurkin: Okay. And any comments on the customer's inventory level or duration positions? With your key customers? Any comments, any insight you can share there? Preston Wigner: Yeah. We are in near constant communication with the customers. And I think with customers, it is a little bit of a mix. You know, some of those customers last year and into this year, they have been buying what they need and maybe restoring some of their durations. And looking at their duration policies. Some still have lower durations and you know, they will decide in the upcoming years whether they will return to those historically high duration levels or try to maintain a tighter duration and assume some of that risk as we go into oversupply. Ann Gurkin: Okay. And then do you have a worldwide uncommitted lease inventory number? Johan Kroner: Yep. So estimated unsold, secured, and burly stock was about 102 million kilos at December 31, 2025. It is about the same as it was on September 30, 2025. Ann Gurkin: Right. Switching over to the ingredient segment, I would be curious what your biggest surprise was from the Q3 results versus Q2 on a sequential basis. Preston Wigner: You know, I think the market headwinds and the impacts and the length of those impacts we have seen in the third quarter on our customers, I think that has had a bigger impact than maybe I would have thought a year ago. We are hearing and we are seeing lots of customers trying to keep up sales, trying to keep up volumes and their own margins and results through the third quarter. But, you know, that will be cyclical, and we will continue to perform, continue to get in front of our customers, and get our products sold. But I would say that is to me, that is probably the biggest surprise. Ann Gurkin: Okay. And if you break out the revenue component, can you break it out in volume, price, and new customer wins? Preston Wigner: No. We do not have that breakdown for public disclosure. It is and it is also a little bit of mix, you know, the mix this quarter versus Ann Gurkin: Okay. Preston Wigner: Same quarter last year. Ann Gurkin: Anticipate in the next several quarters pricing catching up with the higher tariff costs or input costs? Preston Wigner: I think we are optimistic with continuing sales that maybe the higher cost inventory we have that is carrying those additional tariffs, we can get that through the system in the coming quarters. And then get that behind us, that will certainly help. Ann Gurkin: Okay. And then can you quantify the amount of inventory write-down in the ingredients that occurred in the quarter? Johan Kroner: We had some, Ann, but that is, like, standard, you know, the methodology that we use. We just looked at some of the at the end of the quarter and determined whether or not the net realizable value was below the cost. So we took a little bit, but it was primarily in the dark air-cured space where we had to take some write-downs. Ann Gurkin: So it is more write-down in the tobacco space than it was in the ingredient space? Johan Kroner: Oh, yes. Yes. Ann Gurkin: Okay. Okay. And then I am just curious. With the CFO announcement, congratulations, but I think you put out a press release in January of a CFO, and then now you have another announcement today. I am just kind of curious if you can walk me through what is going on. Preston Wigner: Yeah. We filed an 8-K announcing that we withdrew our offer from Mr. Mattel to become our CFO, and our 8-K really speaks for itself. Instead, we were thrilled to have our press release this morning. And Steve cannot wait to join these calls and talk to you. Ann Gurkin: I cannot. That is great. Preston, I also want to tell you how much I enjoyed your presentation at ICR. I am so glad you all participated in that conference. Preston Wigner: Oh, good. Thank you. Terrific presentation. I have a couple of questions if I can still ask questions. Ann Gurkin: Alright. In relation to that presentation, you talked about participating in the next generation supply chain for tobacco companies. Can you just flush that statement out a little bit for me? Preston Wigner: Yeah. As part of our strategy, we want to make sure that we have opportunities to participate in some way in that supply chain. Some of that we do today. So if they have got tobacco-based products, like heat-not-burn, for those customers, we want to make sure that that tobacco is coming from us. And then as they develop and expand other products, we want to have opportunities to be part of that supply chain for that as well. Whether it is liquid nicotine or going forward with our Universal Ingredients abilities with flavors. So all of that, we would like to have that as part of our strategy, part of our growth going forward. Ann Gurkin: Okay. Great. And then you talked about investing in commercial sales and the platform and opportunities to cross-sell across the two segments. I was wondering if you can get an update on your ability to leverage that investment. And are you recognizing, realizing wins or cross-selling successes? Any kind of update there. Preston Wigner: I think that cross-selling referred to products within the Universal Ingredients platform, I think. And that is a big part of what we are doing in terms of building that active pipeline, getting those commercial sales teams in front of existing customers selling new products, in front of new customers, selling new products, getting those in the pipeline, back through. And we do not have them broken out separately, but that is a big part of the increased sales and also on the flavor side as well. Ann Gurkin: Okay. Great. And then just one more question. What tax rate should I use for the year? Johan Kroner: It is a good question, Ann. As you could see in the filings, it ticked up a little bit. We had some a hard look at our taxes. There were some taxes implemented in certain countries by law that had an impact on this. So, you know, like I said before, you know, it is normally between 28-32%. We have been below that in the last couple of years, but we are ticking up slightly because of some of these changes. And, of course, it depends on the mix. Where do we make it? And the currency it is earned in. So all those things come into play in the next quarter. Ann Gurkin: Okay. That is great. Thank you all very much for your time. I appreciate it. Johan Kroner: Thank you. Thanks, Ann. Operator: There are no further questions for the question and answer session. I would like to turn the call over to Preston Wigner for closing remarks. Preston Wigner: Thanks, Jordan. Thank you for taking the time to join us today. We look forward to connecting again on our next earnings call. Operator: That concludes today's meeting. You may now disconnect. Have a great day.
Operator: Hello, and thank you for standing by. Welcome to Upwork Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Gary Fuges, Vice President of Investor Relations. You may begin. Gary Fuges: Thank you, and welcome to Upwork's discussion of its fourth quarter and full year 2025 financial results. Joining me today are Hayden Brown, Upwork's President and Chief Executive Officer, and Erica Gessert, Upwork's Chief Financial Officer. Following management's prepared remarks, they will be happy to take your questions. But first, I'll review the safe harbor statement. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. Forward-looking statements include all statements other than statements of historical fact. These statements are not guaranteed future performance, but rather are subject to a variety of risks, uncertainties, and assumptions, and our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and on our Investor Relations website, as well as the risks and other important factors discussed in today's earnings press release. Additional information will also be available on our annual report on Form 10-K for the year ended 12/31/2025, when filed. In addition, reference will be made to certain non-GAAP financial measures. Adjusted EBITDA, adjusted EBITDA margin, and free cash flow are non-GAAP financial measures, and all other financial measures are GAAP unless cited as non-GAAP. Information regarding non-GAAP financial measures, including reconciliations to their most directly comparable GAAP financial measures, can be found in the press release that was issued this afternoon on our Investor Relations website at investors.upwork.com. Finally, unless otherwise noted, reported figures are rounded, comparisons to 2025 are to 2024, and comparisons of the full year 2025 are to the full year 2024. With that, I'll now turn the call over to Hayden. Hayden Brown: Good afternoon, and welcome to Upwork's fourth quarter and full year 2025 Earnings Call. In 2025, we completed a three-year journey to fundamentally transform the business and position Upwork to extend our leadership in the AI era. We reinvented our product, customer experience, and operations to enable Upwork to become the human plus AI solution for the market. Today, we're seeing the early benefits of the new Upwork in our full year 2025 financial performance, which included over $4 billion in GSV, $788 million in revenue, and $226 million in adjusted EBITDA. Both revenue and adjusted EBITDA were at record levels, with revenue growth of 2.4% and adjusted EBITDA margin of 29%. We finished the year with a strong Q4, that included year-over-year growth of 3% in GSV, 4% in revenue, and a 27% adjusted EBITDA margin. We're entering the year well-positioned to accelerate growth and generate strong margins in 2026 and beyond by capitalizing on the $1.3 trillion market opportunity in front of us. In this new era of work, reshaped by AI, Upwork is positioned to lead the shift towards flexible, skills-based talent. I'll unpack our fourth quarter operating achievements across the three growth pillars we shared at our November Investor Day: AI, SMB, and enterprise, and share our 2026 goals for each. Erica will discuss our Q4 and full year 2025 financial performance and 2026 guidance, and then we'll take your questions. There's no doubt that AI is reshaping how work gets done. From what we see every day on our platform, AI and humans do their best work together. Our research published in November shows that human plus agent collaboration increases job completion rates by up to 70% compared to agents working alone. And we're not an outlier. Third-party reports from Anthropic, LinkedIn, and Workday further support Upwork's vision for a future of work that keeps humans at the center with AI amplifying their results. We're evolving the Upwork marketplace to harness this reality. In Q4, we embedded more AI functionality in the marketplace that helped clients and talent work together more easily, generated more than 50% GSV growth from AI-related work on the platform, and laid the foundation to integrate agents to deliver work outcomes. With respect to Upwork's AI-native marketplace, we continue to advance our search and recommendation functionality, and Ooma, Upwork's AI agent, to help clients hire faster and more effectively. In total, we estimate that these improvements contributed $100 million in incremental GSV in 2025. In Q4, we introduced AI-generated work summaries to give clients a richer, multidimensional view of a freelancer's experience and to enable more confident and better-fit hiring decisions. This new feature is already delivering an increased spend per client. By continuously adding AI functionality to our marketplace, we're removing friction between talent and clients and improving monetization on our platform. We're also seeing strong, durable growth in AI-related work as companies move from AI experimentation to execution. As business leaders work to translate AI promises into tangible business impact, many are turning to independent professionals to help with strategy, integration, and implementation. GSV from AI-related work surpassed $300 million on an annualized basis in Q4, up more than 50% from the prior year. This performance was driven by categories like generative AI and creative production, and AI integration and automation, which nearly doubled year over year in Q4. Further, in Q4, we saw the number of clients engaging in AI work increase over 50% year over year, with GSV from these clients exceeding our average spend per client by about three times. While this is still a minority of the total work done in the Upwork marketplace, AI work is becoming more material every day and is an exciting indicator of our AI tailwind. Finally, on agents, in Q4, we outlined our AI agent strategy and introduced the human and agent productivity index, or HAPI, the first-of-its-kind real-world evaluation framework measuring agent performance with humans in the loop. Early learnings validated that human plus agent collaboration delivers superior outcomes to agents alone, and this is shaping our next phase with agent-human pairs already in testing in our product today and rolling out to all customers by year-end. Turning to our second growth pillar, SMBs remain a major growth driver for Upwork, and we're seeing strong traction here with Business Plus, our purpose-built SMB solution. Since launching at the end of 2024, Business Plus has scaled quickly, demonstrating the strength of the product and its fit with this segment. In Q4, we kicked off new targeted marketing efforts with the launch of our first dedicated campaign going after small businesses. This campaign highlights how Business Plus addresses SMBs' most pressing needs, from access to top talent to team-based hiring and credit-based payment terms. In Q4, active Business Plus clients grew 49% sequentially, with 38% of these clients being new to Upwork. Business Plus is one of our fastest-growing products ever, and its clients spend almost two and a half times more than our marketplace average. These results position Business Plus as a scalable, high-value growth engine at the center of our SMB strategy. Erica Gessert: Turning to enterprise. Hayden Brown: 2025 was a pivotal year with the introduction of Listed. Enabled by the acquisition of two companies, Listed's offering is designed to support every major contingent work contract type and integrate directly into the workflows used by the world's largest companies. Enterprise customers tell us they want these capabilities and can't get them from anyone else in the market today. In Q4, we focused on bringing teams and platforms together and finalized and launched the first phase of a go-to-market strategy to expand with existing customers and pursue a focused set of about 3,000 prioritized enterprise accounts, each with more than $50 million in annual contingent spend. Today, Listed has built a strong pipeline, including dozens of existing and new logos, and is already seeing early success. Lyft has already won two new clients. Given that enterprise sales cycles can take a year or more, we're encouraged by this early progress and remain confident in our ability to execute on the ambitious growth targets for Lyfted that we outlined in our Investor Day. Looking ahead to 2026, we're continuing to build on the progress we made last year across our three growth pillars. In AI, we're taking our AI-native marketplace to the next level. In 2025, Ooma was like Tesla's self-driving mode: powerful, capable, and ready to take the wheel. In 2026, Ooma will become a Waymo chauffeur for clients and talent, transforming a client's goals into job requirements, postings, and recruiting plans, coordinating with talent and AI agents, and managing projects from inception to delivery. We're launching a fundamentally different customer experience powered by our growing data moat. This means customers can get more complex, higher-value work done even more easily on the platform, leveraging the data and insights we've built over time. We're also continuing to nurture growth in our AI work categories. Demand for AI-skilled talent continues to increase. Our recent in-demand skills report found that demand for top AI-enabled skills more than doubled year over year, and that human expertise commands a premium across work categories. We're helping talent develop and deploy deeper AI skills, including through our partnership with OpenAI, to offer AI training, certifications, and upskilling to global independent professionals on Upwork. Through a range of ecosystem partners like OpenAI, we see an opportunity to continue to extend our reach in new ways. With respect to AI agents, in 2026, we will deepen human-agent collaboration across the marketplace. Our work with third-party agent developers will enable us to offer a differentiated, human and AI experience for delivering high-quality work outcomes. Our unique human and AI agent benchmark provides both a critical training ground for agents and a quality bar for ensuring great work outcomes. With spend on AI agents projected to reach $120 billion by 2028, we're positioning Upwork to capture a meaningful share of this emerging market. For SMB, 2026 is about expanding and scaling our offering. We're doubling down on SMB-specific features for onboarding, team hiring, and AI-driven curation, and running targeted marketing programs for Business Plus to drive broader adoption. As we said in our November Investor Day, our goal for Business Plus is to double in GSV to represent over 5% of our total annual GSV in 2026. At the end of Q4, we're already pacing ahead of plan to reach these 2026 targets, underscoring our early progress in capturing more of the $530 billion SMB market. Finally, in enterprise, our 2026 playbook also remains consistent with what we shared at our Investor Day. Our focus for the first half of the year is on integration and implementation of the Lyfted platform, as we continue to nurture the growing pipeline of enterprises interested in this solution. On the back of sales efforts that are already underway, we expect to ramp the Lyfted business in the second half of this year and then drive scale in 2027 as we unlock the $650 billion enterprise market opportunity. In parallel, we'll look to accelerate our roadmap and time to market through targeted acquisitions. Through thoughtful M&A over the last two and a half years, we successfully raised our game in AI and enterprise. We continue to look for strategic investments that further accelerate our AI, SMB, and enterprise growth initiatives. 2025 marked the capstone year in our transformation of Upwork. We rebuilt the company for the age of human plus AI work while demonstrating strong financial performance. Now we're positioned to lead as the operational backbone for customers navigating this new era. The opportunity ahead is massive, and we're entering 2026 prepared to build on our momentum. With that, I'll turn it over to Erica. Erica Gessert: Thanks, Hayden. Before reviewing our Q4 and full year 2025 results, I would like to take a minute to say how proud I am to be a part of the fantastic Upwork team. Our teams executed relentlessly over the past three years, working with discipline and speed to transform Upwork, preparing us to lead in the future of work. We grew GSV to over $4 billion in 2025, with fourth quarter GSV accelerating to 3% growth year over year. At over $1 billion, we continue to evolve the Upwork and Listed platforms to serve the highest value customers and use cases, which is showing up in key leading indicators on our platform. In addition to the AI and Business Plus growth metrics Hayden shared, average GSV per active client increased throughout the year, growing 7% year over year in Q4 to a record level of over $5,100. And overall spend per contract increased 10% year over year, resulting in the highest ever average spend per contract over any twelve-month period at Upwork. While Marketplace GSV growth was relatively flat in the fourth quarter over last year, this was driven primarily by fewer low-value, high-volume contracts. Given the positive fundamentals around larger clients, we expect positive GSV and revenue growth in each quarter of 2026. We ended the quarter with 785,000 active clients. GSV per new client increased 5% year over year and 3% quarter over quarter, representing our sixth consecutive quarter of annual growth for this key value signal. Our churn rate declined over the course of 2025, with fourth quarter churn reaching its lowest level in over eight quarters. Churn in Q4 was over 130 basis points lower than the churn rate in Q4 2024. These improving churn rates, as well as growing yields in our acquisition marketing, mean that we expect to resume sequential active client growth in Q1. Our Q4 results reflect the success of several key customer experience improvement initiatives, starting with GSV from Business Plus, which increased 24% quarter over quarter. Revenue from Freelancer Plus grew 29% year over year, helping to drive total ads and monetization revenue growth of 24% year over year. These and other enhanced value proposition strategies enabled us to grow our Marketplace take rate to 19% in Q4 2025, up from 18.1% in Q4 2024, which helped drive 5% year over year growth in Q4 2025 marketplace revenue. Enterprise revenue decreased 3% year over year in Q4 as anticipated, following our 2025 pause in selling our legacy enterprise plans as we shifted to our new strategy with Lyfted. As discussed at Investor Day, we are targeting 25% GSV growth for our enterprise business this year, with significant acceleration in the second half when integration is complete and we onboard and ramp customers onto the new Lyfted platform. As Hayden discussed, we are seeing strong signals of customer interest, and we're focused on executing on our integration plans with speed to capture this opportunity. As such, we continue to expect Lyfted to ramp in 2026 and to be meaningfully accretive to GSV, revenue, and adjusted EBITDA in 2027. Gross margin was 78% in Q4 and a record high of 77.8% for the full year 2025, as we continue to execute disciplined cost management across every part of our business. Non-GAAP operating expense was $107 million in the fourth quarter, or 54% of revenue, on par with Q4 2024, even as we absorbed approximately $6 million in incremental operating expenses and integration costs from the two acquisitions supporting the Lyfted strategy. For the full year, non-GAAP operating expense was $405 million, or 51% of revenue, compared to 57% of revenue in 2024, reflecting our strong execution and cost management with our business. Adjusted EBITDA was $53 million in the fourth quarter, exceeding the high end of our Q4 guidance range and reaching a record fourth quarter adjusted EBITDA margin of 27%. For the full year, adjusted EBITDA was a record $226 million and reached our highest ever annual EBITDA margin of 29%. Free cash flow for the fourth quarter was $57 million. We generated a record $223 million in free cash flow in 2025, which we expect to use to support organic growth initiatives, M&A to accelerate our growth strategies, and additional share repurchases. In the quarter, we used $34 million in cash to buy back approximately 2 million shares and used a total of $136 million in 2025 to purchase more than 9 million shares as part of our commitment to driving long-term shareholder value. Cash, cash equivalents, and marketable securities were approximately $673 million at the end of the year. Now turning to guidance. For the full year 2026, we continue to expect GSV growth in the range of 4% to 6% and revenue growth in the range of 6% to 8%, or between $835 to $850 million. Starting in Q2, we expect GSV, total rate, and revenue to increase sequentially throughout the remainder of 2026, driven in part by Lyfted completing its integration efforts and beginning to ramp GSV and revenue in the second half of the year. We also continue to expect full year 2026 adjusted EBITDA margin of approximately 29%, or between $240 million to $250 million. While we are incurring about two percentage points of margin dilution from investments in the Lyfted growth strategy in 2026, we are maintaining our margin rate on a year-over-year basis. We expect to exit 2026 at a margin in the low thirties, as a number of longer-term cost optimization strategies start to bear fruit in the back half of the year. We expect full year 2026 non-GAAP diluted EPS to be between $1.43 and $1.48. For 2026, we expect to generate revenue in the range of $192 million to $197 million. In 2025, we delivered major platform improvements and a return to growth through our focus on higher-value clients and more complex work. The key long-term growth levers we've identified on our Upwork platforms—AI, SMB, and enterprise—are all progressing well, including the growth metrics across Business Plus, the AI category, and other leading growth indicators that Hayden and I shared today. This gives us confidence in achieving our top-line growth outlook for the year while also continuing to invest in growth and optimize our cost base. For adjusted EBITDA in the first quarter, we are guiding to a range of $45 million to $47 million, which represents an adjusted EBITDA margin in the range of 23% to 24%. Our margin outlook in Q1 is lower than is typical for our business due to the rapid pace of our Lyfted integration projects, investments to support growth on the Lyfted platform, and some incremental marketing investments to support additional growth opportunities in the marketplace. With the long-term cost optimization initiatives we have implemented, we have strong confidence in our 29% margin outlook for the year and in our ongoing progress toward our long-term 35% margin target. We expect Q1 2026 non-GAAP diluted EPS to be between $0.26 and $0.28. In closing, Upwork is well-positioned for accelerating multiyear growth starting this year. I'm excited about the growth opportunities ahead and look forward to building on our current momentum in 2026. We are entering the year with strong progress on our key growth levers, on a highly profitable foundation, and with a very strong track record of producing operating leverage. We have proven our commitment to growing shareholder value, and our strong balance sheet and tremendous free cash flow yield give us flexibility to maximize value and continue to solidify our market leadership. I know I speak for everyone at Upwork when I say we are excited about 2026 and the great growth prospects for our business. And with that, we would be happy to take your questions. Operator: Thank you. Then wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Eric Sheridan: Thank you so much for taking the question. Maybe one, just putting a final point on the way you're framing 2026. When you think about the investment you're making exiting 2025 and moving into the front half of '26, whether it be AI features on the platform or Business Plus expansion or even Lyfted, how should we think about those investments scaling as you move deeper into 2026? But more importantly, how should we be thinking about some of the contributions to GSV and revenue growth building and momentum as you get deeper into 2026 and the exit velocity of 2026? Thanks so much. Erica Gessert: Thanks, Eric. This is Erica. You know, we've always anticipated when we guided to, you know, the 4% to 6% GSV growth and 6% to 8% revenue growth at our Investor Day, always anticipated a ramp throughout the year in kind of both GSV and revenue. As we mentioned on the call, you know, Lyfted, the investment side of Lyfted, we're, you know, engaging in right now. Really moving as quickly as possible with our integration that includes your kind of initial investments in sales and marketing there as well as finalizing our initial entity structure. We expect to onboard and ramp new customers and existing customers onto the Lyfted platform in the back half of the year. So we're going to see some acceleration there on the enterprise side. Similarly, on the marketplace side, we have a very strong kind of growth trajectory of our growth levers. The AI category growing over 50% year over year, Business Plus growing 24%, and actually, its ramp into Q1 is even stronger than we expected when we planned for the year. So we feel very good about the growth trajectory of these growth levers and expect them to ramp throughout the year and exit at our high point for growth rates on both Lyfted and the marketplace. Eric Sheridan: Great. Thank you. Operator: Thank you. Please stand by for our next question. Next question comes from the line of Ron Josey with Citi. Your line is open. Ron Josey: I wanted to ask a little bit about search and recommendation functionality that Hayden, I think you talked about from an AI perspective. Just wanted to hear about the early benefits here and help us understand how research recommendation functionalities can, you know, improve overall visibility. And then on Erica, back to sort of Eric's question on visibility on the margin side, talk to us about the sales and marketing initiatives that you're running from a Business Plus perspective. And the results you've seen thus far? Thank you. Hayden Brown: On the AI and search side, we've made a few types of investments here that already started having an impact for us last year, and we'll continue to ramp this year both in terms of features that are live and new features we'll be shipping. To give you a little bit of color on that, you know, we launched Ooma Recruiter as one example, which is a key feature currently in the business plan that's really accelerating time to hire by getting clients to a shortlist of really high-fit candidates very quickly. We've also been launching some features around things like conversation search and messaging where we can get a much richer idea of a client's goals and needs and then go into our, you know, tremendous talent pool and target the right prospects for that based on that more enriched search experience. So some of the things are already live and having an impact, and we'll continue to ramp across our customer base this year. And then, of course, we're also doing more this year to take the investments in the platform and really make some changes to the user experience both on the side of kind pre-hire, so the search and match side, as well as the collaboration and project management area. These are places where we're investing this year, we're shipping new experiences that really are transformative and are much more AI-powered with much of those experiences. And what we're seeing in early testing is, you know, they really are having a positive impact on customers as they go through our funnel and are able to offload more of the work to Ooma and move more quickly towards their goal. So that's ongoing and definitely going to propel our goal this year. Erica Gessert: And hey, Ron, to your question on marketing and specifically on Business Plus, we did start to have some Business Plus dedicated campaigns launching in Q4 and have continued some of those into Q1. The great thing about Business Plus is these customers spend 2.5 times the platform average in GSV, and new customers who onboard onto Business Plus have a higher spend profile than the average. And so these are very good investments for us. And one of the reasons we're stepping our kind of marketing up a little bit around the marketplace side in Q1 is because we are seeing some very nice yields in terms of the spend that we've been doing. And so, you know, the great thing about kind of how we've been managing our cost base is we will have this year to spend a little bit more on the sales and marketing side, we have other longer-term, you know, kind of cost optimization projects coming through that we expect to benefit the back half of the year. That includes some back-end automation we've been working on for a couple of years now as well as a location strategy to hire and kind of lower-cost locations. So all those things will benefit us in the back half, enable us to kind of continue to grow our margins and invest in marketing. Ron Josey: That's great. Thank you, Erica. Thank you, Hayden. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of John Young for Brent Thill with Jefferies. Your line is open. John Young: Hi. Thank you. This is John Young for Brent Thill. May I ask two questions? One, in terms of the Q1 guide on maybe revenue and the GSV, are there any special seasonal factors there given, you know, I think people expect a little more in Q1? Excuse me. Excluding the ramp in Lyfted, especially, I guess, in the marketplace segment. And then second, anything Sorry about that. Second, on the top of the funnel, if you could talk about any impact from SEO versus GEO and performance marketing, that'd be great. Thank you. Erica Gessert: John, I'm so sorry. Could you repeat the question? We were having some technical difficulties on our end. John Young: Okay. Yeah. I did hear the echo. The first question was on the Q1 guide for GSV and revenue. I mean, wondering if there are any special seasonal factors given, I think, people expect a little more. I mean, I know you're ramping Lyfted more in the second half, but I don't know if there's any other factors in the marketplace segment. And then for the top of the funnel, I don't know if you've seen any impact still in SEO versus GEO and the different performance marketing channels. Thank you. Erica Gessert: For the first question, the Q1 guide, I apologize. We're having a little bit of audio difficulty here on our end, but hopefully, everyone can hear me. On the Q1 guide, look, Q1 is manifesting as we expected when we guided at our Investor Day in November. This was always going to be a little bit of a bridge quarter for us, first and foremost, as you referenced on the enterprise side with the investments upfront in Lyfted and really the acceleration in revenue and GSV coming when we start to transfer people onto the platform. On the marketplace side, you know, we have been focusing on growing these larger customers with longer-term relationships, and that's been extremely successful for us. It's showing up across our platform in our lowering churn rates and other things like that. But there is some ramp to the spend with these customers. And so, you know, if there's been any kind of smaller impacts on the margins to volumes, it's really been at the very lowest end, smallest contract types, kind of sub-$100 contracts. Every leading indicator on our platform for future growth, including GSV per active, up 7% year over year, spend per contract, up 10% year over year, and importantly, spend per new continues to grow, which is a very important value signal for us. We feel really good about the underlying growth trajectory of our business and are confident in our guide for the year. On the top of funnel question on SEO and GEO, I think, you know, we actually have seen some very, very good yields on the GEO side, but it's super early days. You know, these are very, very new channels for everyone. And I also think there's some interplay still between SEO and GEO. So we feel really confident and positive about, you know, what we're seeing from a signal point of view on that side of the house, but it's also very early days. John Young: Thank you. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Maria Ripps with Canaccord. Your line is open. Maria Ripps: Great. Thanks so much for taking my questions. First, can you maybe expand a little more on active client trends in Q4? And I guess, what are some of the dynamics that you are seeing that should drive active client growth starting this quarter? I think you mentioned marketing campaigns, but is there anything else to highlight? Erica Gessert: Yeah. So, obviously, you know, we talked about it on the call. Our churn rate's been coming down kind of sequentially throughout 2025 and down 130 bps throughout the year, year over year in Q4. So the ongoing benefits to churn rate, this is if you know, the active client number is a trailing twelve-month number, so those are going to continue to compound and benefit us as we go into 2026. So that is one of the dynamics helping us, as well as the fact that we are seeing some good top-of-funnel yields as we go into Q1. And so we're feeling pleased with, you know, also the kind of top-of-funnel acquisition, which is going to benefit us and help to resume active client growth. Maria Ripps: That's helpful. And then, given expanding demand for AI work, do you feel like you have sufficient AI talent on the platform? I guess, is that a bottleneck in any sense? Are you doing anything different to maybe attract AI talent to the platform? Hayden Brown: Sure, Maria. We are really pleased with the AI category growth that we've already seen, you know, up more than 50% year over year. This is our fastest-growing category, and subcategories within the AI group are, you know, really on fire, which is exciting for us. We expect this to be a trend throughout this year and into future years. We are not seeing strong indications of a talent gap on the platform. However, we're always looking at making sure we have exactly the right talent to do this work, you know, augmenting the pool we have of 350,000 AI experts already working with our clients in the last year alone. And that's where we're doing things like the partnership with OpenAI, where, you know, we're helping them on the side of certifying 10,000,000 talent that they've committed to with their OpenAI for jobs initiative, and we're definitely excited to see a place where those talented individuals can come and find work. So, you know, we're not seeing a bottleneck here. We're excited about the growth and think it's extremely durable based on, you know, what we're seeing in the ecosystem and our best case is 2025 and 2026 rather. Maria Ripps: Got it. Thank you so much. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Matt Condon with Citizens. Your line is open. Matt Condon: Thank you so much for taking my questions. My first one is just great to see the two new clients in the enterprise side of the business. But is there any color you can give on just existing clients' demand that you're seeing from them, whether it be test budgets or any other signal that would give us confidence as we move into the back half of the year? My second one is just on the variable freelancer fee. Just wanted to see how that's progressing as you roll that out more broadly across the marketplace. Thank you so much. Hayden Brown: Sure, Matt. On the Lyfted side, we are very pleased that we're tracking some plan with this work. And yes, we've seen both the new client interest, including the two clients you referenced, given the sales cycle in enterprise is so long, we're very pleased to already have those two clients coming on board with us. But you're right. We're also in conversations with our existing customers who are moving us in for RFPs and contracts that we would not have been in contention with before. And so, you know, our funnel is quite healthy, and that's a mix of both new demand and folks that are really new to our story, also existing customers who now are considering us for work that was previously really not in the cards for us. So all the signs there are extremely promising in terms of the green shoots, and we see a really good path to accelerating this business over the course of the year. Erica Gessert: Yeah. And then just on the variable freelancer fee, you know, we are really excited about the strategy. We had some real success with the very early testing that we did in 2025. We are going to be rolling out the variable freelancer fee to more categories starting in Q1 and kind of doing more of a gradual rollout throughout the year. And so that's another reason that, you know, we have a lot of confidence in the ramp for the year from a revenue point of view and GSV because, you know, we are kind of rolling this out gradually and will continue to test. But this has been a super successful strategy for us and actually really speaks to the strength of our data science bench here, which has been really creative and come up with something that is, you know, using the supply and demand dynamics on the platform to drive both GSV and revenue. Matt Condon: Thank you so much. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Bernie McTernan with Needham. Your line is open. Bernie McTernan: Great. Thanks for taking the questions. Appreciate it. Maybe just to start on Business Plus, it was the large number, 38% of clients are actually being new to Upwork. I was just surprised. It seems like it's a pretty strong acquisition tool. I thought it might be more of an existing sell-in. So maybe you just talk to the go-to-market there and what you're seeing that's successful. And then on the just to clarify, on the fourth quarter, given the marketplace take rate of 19%, I think it implies the enterprise GSV was up a lot year over year. So basically, should we expect a step down in Q1 before we ramp back throughout the year? Just how to think about the shape of the GSV trends on enterprise. Thank you. Hayden Brown: On the side of Business Plus, you're right. This has actually proven to be an extremely effective client strategy, and I think we're still very early in fully deploying the opportunity around that. And we did this first targeted SMB marketing campaign in Q4, we saw some really positive results from that. We are seeing, you know, great acceleration both in terms of volume, 49% client growth quarter on quarter, and defense. Which is really important because this is a key part of our strategy for moving upmarket to larger small businesses, you know, those that maybe have 50 plus employees, have much more sustaining spend, are looking to get more complex work done. This is really the sweet spot for that product, and we're already ahead of plan as we enter Q1 in terms of the contribution of Business Plus to GSV against the target we have of exiting the year, 5% plus GSV coming from Business Plus. So all signs are really showing that this is something that is appealing to both new and existing customers, and I think there's a lot of time room for us to continue to both expand the value proposition, but also execute the marketing and other things behind that growth that's going to be durable this year and beyond. Erica Gessert: Yeah. And on the GSV trends on enterprise, there obviously is some contribution from the acquisitions in terms of the year-over-year growth, but overall, overall kind of enterprise revenue, you know, we are in a sort of holding pattern right now in terms of the revenue that we're recognizing from our legacy business. Just to remind everyone, we stopped selling new enterprise plans, and actually, we stopped both the land and expand motion on legacy enterprise at the beginning of 2025. And so, you know, to the extent there is some, you know, some minor churn at the low end on enterprise right now, we don't have new customers coming on the platform right now to replace it. So in Q1, we do expect there to be some kind of slight decline in overall enterprise revenue sequentially. But that's all in anticipation of, you know, the build on Lyfted and really ramping up very quickly once we put the new platform, light up the new platform. Bernie McTernan: Understood. Thank you. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Rohit Kulkarni with ROTH Capital Partners. Your line is open. Rohit Kulkarni: Hey. Thanks. This data point on AI clients spending three times your average spend per client. Can you comment on what's specifically driving that higher spend? Is it higher rates? Longer duration, more scope of projects, more projects at the same time? And then just to clarify on this, when we reconcile your first quarter and full year guide, it implies a path where revenue growth exits this year in possibly mid-teens from where you are right now? So pretty significant back-end loaded acceleration. Can you talk about whether that's a fair way to think about it? And apart from enterprise, is there something that gives you confidence in that stronger second-half growth? Erica Gessert: Yeah. Sure. In terms of the AI category, Rohit, so several of the factors you mentioned are true about the spend on the AI category. First and foremost, the average kind of hourly rate or wage in the AI category is about 40% higher than, you know, kind of average, you know, kind of tech wages on the platform. So it is a significantly higher rate. There is also just a higher volume of work. So if you think about some of the spend and actually where we're seeing very fast growth, it is in, you know, kind of AI infrastructure work, also, you know, generative AI kind of prompt engineering type work. And some of these are, you know, quite big or long-term projects. So yeah, so overall, there's a good reason to see to believe that this is going to continue to grow, and we really see no end in sight to the growth of the category. In terms of sorry. What was the oh, wait. I think the other question was the exit rate for revenue growth. Yeah. Enterprise is a big factor here because, you know, the 25% year-over-year GSV growth that we're targeting for enterprise that's really all in the back half of the year. So that is ramping in the back half of the year, like we said, once that platform lights up. But we also have a lot of confidence, and we do expect that marketplace, GSV, and revenue will continue to ramp from a growth rate point of view throughout the rest of this year. And the reason for that is that we are all of these kind of growth drivers in the platform are scaling up. Business Plus continues to grow and scale every single quarter. The AI category growing 50% year over year, we have visibility into that and expect that at least continue current growth rates throughout 2026. And then, like I said, things like the Variable Freelancer Fee, which will also be ramping all of these are drivers to enable the growth of GSV and revenue throughout the year. Rohit Kulkarni: Okay. And if I could ask a question, like a big picture question to Hayden on agents, fascinating stuff in the prepared remarks. When you say human-agent collaboration, elaborate what does the workflow actually look like in practice? As in and then Upwork, where do you see humans add value, and where do you see agents fully automate tasks, and how does Upwork actually end up benefiting on either of those two sides? Hayden Brown: So, you know, there's a I'd say, what raging debate about is it AIs or humans, or is it AI and humans? And we are looking at the data on our platform with this every single day, and it is very clear that the solutions that are winning the market today bring together the fact that what agents can do with human judgment, with human as an overlay and a supplement to what the AI agents are capable of, even the most powerful one. We launched this benchmark last year. It's called the HAPI benchmark, which really benchmarks humans and agents together. That really showed that when you bring a human into the mix, agents are able to complete work with a 70% or more success rate than when they're just operating alone. So there's a big step up when you're breaking up this equation. So all of that is a backdrop for our strategy, which is really about bringing our incredible asset into the talent network that is skilled, is capable, that is AI-equipped. Alongside agents, whether they are our own agents like Ooma, but also the, you know, huge and growing ecosystem of third-party agents so that those humans and agents can collaborate seamlessly to deliver outcomes for our clients. And you're right, Rohit. This is not a, you know, a user experience that exists anywhere else, and we are really building it from the ground up here at Upwork. We have a product in testing today where clients can submit jobs or submit work they're trying to get done. And human and agent pairs collaborate on delivering those results. That's the experience that we are using as kind of the initial framing for what we'll be rolling out over the course of this year where we bring humans and agents together as collaborative workers inside of our ecosystem, delivering work for customers. But our view is that this is, you know, we are in the early innings of a huge opportunity. I think it's a $130 billion of the Gen six spend by 2028. And we believe we can participate in a meaningful part of that by enabling third-party agents and our talent to collaborate together to deliver incredible work outcomes right through our platform. Rohit Kulkarni: Great. Thank you both. Operator: Thank you. Our next question comes from the line of Josh Chan with UBS. Your line is open. Josh Chan: Hi, good afternoon, Hayden and Erica. Just two questions from me. I guess the first question is on EBITDA. I was wondering if you could bridge us from the 59% to almost $60 million of EBITDA you did in Q3 to the $53 million in Q4 and then the Q1 guide. I know that revenue is a little bit lower, but just curious to hear what moving pieces are leading to that EBITDA cadence over the last couple of quarters. And then I guess secondly, on enterprise, what are some of the milestones that you are looking for to achieve in order to hit your kind of 2026 aspirations? I know you mentioned winning two clients. So how many clients do you need to win by midyear to get there? Just something to help us understand the pace of what we should be looking for would be helpful on that side. Thank you. Erica Gessert: Yes, Josh. On the EBITDA bridge, in Q4, is when we really Q3, we closed the Ascend deal. And so had only about, I think, half a quarter of their cost base in our results. So we the fourth quarter of the two cost bases. But more importantly, we incurred in Q4 we started to incur a number of kind of integration costs that are temporary in nature. To in order to kind of enable that business largely on the kind of platform enablement side. Similarly, in Q1, we're I think we're projecting about $6 million of investment in Q1, much of which is temporary in nature as we kind of invest in the final international entity structure and other things for the Lyfted platform. Also, in Q4, we, you know, it tends to be a slightly lighter adjusted EBITDA quarter. And that's largely because of kind of bonus accruals and other things that happened in that quarter. Hayden Brown: On the side of the enterprise milestones, Josh, you know, we feel great about where the pipeline is right now in order to achieve those growth goals that we have for later in the year. Just to give you a sense, you know, we're going after a target set of about 3,000 enterprise customers who all spend each one, $50 million or more on strategic labor. And so a shift in our strategy now that Lyfted is coming into fruition really lets us go after much bigger customers with much bigger contracts than what we were eligible for in the past. And so to hit our growth goals, we don't need, you know, hundreds of customers to onboard. We need a small number of high-quality clients who are ramping their computer program with us, and that's what we're very focused on, and we see the signs of that happening. So key milestones we look out across the year. The first one will be launching migrating clients onto the Lyfted platform once our integration work is complete, and we're targeting the middle of the year for that. And then, of course, on the back of those migrations and turning on both new and existing customers with that functionality, we will see those step-ups in GSV and revenue that we're expecting in Q3 and Q4. Josh Chan: Great. Thank you both for the color. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Brad Erickson with RBC Capital Markets. Your line is open. Brad Erickson: Hey, guys. Thanks. Two for me. One, you shared you know, you talked a lot today about all the way AI is driving growth, GSV, active customers, etcetera. So when we kind of put that in the context of GSV up 3% in Q4, what are the parts of the marketplace business that are still kind of seeing headwinds? And any help you can give us there about kind of the persistence of that? And then I have a follow-up. Hayden Brown: Sure. You know, we are really excited about the momentum we see in the AI categories. And would say, you know, we continue to see on the flip side, you know, a minor impact from categories like writing and translation, which for many quarters and now even years, you know, have been declining due to automation broadly and AI more recently. So that's one small factor, but I'd actually say the bigger factor behind, you know, some of our more modest growth rates in the immediate term is really just like a it's a transition quarter for us. We've really been launching our enterprise sales strategy fast ramping the SMB strategy around Business Plus. Fast ramping. Those things are really coming into effect over the course of this year. And at the same time, I'd say on the margin, this is a labor market that's not great and certainly hasn't improved. We saw in December the lowest BLS data on job openings since September 2020. And I think that's just indicative of the slowness in the market overall, even though which, of course, tracks due to our platform to an extent, even though we're growing faster than competitors, we're growing when folks like staffing firms are reporting, you know, negative growth numbers still. So I think the comparison is we're taking share, and we're positioned well with our growth strategies. A lot of these tailwinds are going to be very durable like AI, and we're very focused on achieving a plan that's already. Erica Gessert: I would just add that real quick to this, which is that, you know, if we're seeing headwinds, it's not so much on a category level aside from writing and translation, which has been consistent on our platform for a while. But we are we see some kind of little bit of negative growth on these very, very small, very transactional projects, kind of sub-$300 or less. And so, honestly, that just reinforces the power of our strategy to focus on these longer-term relationships, which are durable, they ramp over time, they improve our churn rates, we maintain these for a long time. So, I think this is going to be the winning strategy. It's really been working for us, and you can see it in the leading indicators in our base. With GSV per client, GSV per contract, GSV per new customer. All of these things going up into the right. So we, you know, we feel good about it. Brad Erickson: Yep. That's great. That makes a lot of sense. And then second, just I think you mentioned M&A in your prepared remarks. Just curious kind of what interesting there between maybe product type of acquisitions or maybe better access to certain channels or maybe something else strategic? Just help us kind of what do you what do you guys spitball as a management team around potential M&A? Hayden Brown: Sure. So our guidance and our outlook for this year is definitely not predicated on any additional M&A. We are going to achieve our plans just based on our organic levers that are working for us. However, we have done some fantastic and very beneficial M&A over the last two and a half years. That includes, you know, AI-related acquisitions and enterprise-related acquisitions. And so we will continue to run a playbook as working for us. And if we see targets out there, are really lined up against our AI, our SMB, or enterprise strategies, those are the places where we would get more interested. Brad Erickson: Got it. Thanks, guys. Operator: Thanks, Brad. Please stand by for our next question. Our next question comes from the line of Marvin Fong with BTIG. Your line is open. Marvin Fong: Great. Good evening. Thank you for taking my questions. Maybe to start, on the two new listed customers, it's a great sign of validation of the strategy. Just very early days, I understand. But would love to hear anything you could say about these two clients. I mean, to the extent you're able to speak to know, how much they spend on contingent labor or just many employees they have in general. Or even if you can't give us that, just anything on, you know, how that sales process evolved? Did the deal close as you'd expected on the timeline you'd expect? And then I have a follow-up. Hayden Brown: Sure. So we can't disclose too many specifics on these customers, but I can tell you they're really in the sweet spot of that ideal customer profile we have. You know, with, you know, tens of millions of dollars of contingent work spend, with programmatic work happening through this part of their business. Continued work program. And I'd say they, like many of the other customers that are in our funnel, you know, they have really lit up when we pitch them on this listed proposition and the fact that we could provide a differentiated solution that gave them, you know, compliant contracting across all five types of contingent work through a single platform with the highest quality talent that's out there. So they really were, I think, indicative of the product-market fit that we've been building towards with the listed strategy. And we have, you know, many more customers like them in our funnel, which you know, we're pleased to be nurturing over the year. We know this is a long sales cycle. Some of these buyers only make a decision once annually around, you know, going with a vendor in the space. So we're nurturing those relationships. It's working, and we're very excited about what that's going to do in the back half of the year. Marvin Fong: Great. Thank you. And my follow-up, just on the Q1 guidance, just trying to square all the points being made. I think you said clients would be up sequentially, yet the revenue guide is down sequentially. Is there something going on with the GSV per client? Or I know you also said enterprise revenue would be down sequentially. Any more color on the moving parts would be great. Thank you. Erica Gessert: Yeah. So enterprise revenue, we do expect to be down sequentially. And again, it's really as we kind of invest for the future and make the listed platform kind of transaction-ready. You know, overall, I think we're very comfortable with the guide for Q1. And the reality is that when customers join us on the platform, right, as new customers come on, their spend ramps over time. So we do expect that our kind of new customer account will resume growth sequentially in Q1. But it takes time for those customers to kind of dip their toes in the water and then ramp with us. So we don't get as big of an impact in Q1 from kind of increasing new customer counts. Marvin Fong: Okay. Perfect. Thank you both. Operator: Thank you. Ladies and gentlemen, I'm no further questions in the queue. That does conclude today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Proficient Auto Logistics, Inc. Common Stock Fourth Quarter Financial Information Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bradley Wright, Chief Financial Officer. Please go ahead. Bradley Wright: Good afternoon, everyone. I am Bradley Wright, Chief Financial Officer of Proficient Auto Logistics, Inc. Common Stock. Thank you for joining us on Proficient Auto Logistics, Inc. Common Stock’s fourth quarter 2025 earnings call. Under SEC rules, our Form 10-Ks covering the three- and twelve-month periods ending 12/31/2025 and 2024 will include financial statements for both predecessor accounting entity Proficient Auto Transport, and the successor entity, Proficient Auto Logistics, Inc. We are not required to provide, and the Form 10-K will not contain, pro forma financial data for the combined companies. Our earnings release provides comparative summary financial information for the fourth quarter and for the twelve months ended 2025 to the same periods of 2024 for the combined companies. Note that these results are preliminary as our financial audit for 2025 is not yet complete. Our earnings release can be found at the investor section of our website at proficientmodellogistics.com. Our 10-K, when filed, can also be found on the investor section of our website. During this call, we will be discussing certain forward-looking information. This information is based on our current expectations and is not a guarantee of future performance. I encourage you to review the cautionary statement in our earnings release describing factors that could cause actual results to differ from those expressed by the forward-looking statements. Further information can be found in our SEC filings. During this call, we may also refer to non-GAAP measures that include adjusted operating income, adjusted operating ratio, EBITDA, and adjusted EBITDA. Please refer to the portions of our earnings release that provide reconciliations of those profitability measures to GAAP measures such as operating earnings and earnings before income taxes. Joining me on today's call are Richard O'Dell, our Chairman and Chief Executive Officer, and Amy Rice, our President and Chief Operating Officer. We will provide a company update as well as an overview of the company's combined results for the full year and for 2025. After our prepared remarks, we will open the call to questions. During Q&A, please limit yourself to one question plus one follow-up. You may get back into the queue if you have additional questions. I will now turn the call over to Richard O'Dell for the company update. Richard O'Dell: Thank you, Brad, and good afternoon, everyone. I would like to start by thanking our team members for their dedicated efforts in 2025. Together, we delivered over 2,300,000 vehicles in 2025 and grew our business to over $430,000,000 in revenue, up 11% versus 2024. Our team responded quickly and effectively to significant changes in the market throughout the year to meet customer needs for reliable, quality service. Reflecting on 2025, the automotive market peaked in March and April ahead of tariff impacts, and the remainder of the year was weaker than our expectations. As we discussed in our last earnings call, the fourth quarter started out at a slower pace with October SAAR at 15,300,000 units. While November and December volumes improved modestly, the full-quarter SAAR result finished lower year over year and lacked a more typical seasonal year-end volume push. Despite this trend, our fourth quarter revenue and unit volumes each increased over 11% year over year, as a full quarter of the Brothers acquisition and new business wins more than offset the weaker core market. With regard to profitability, adjusted operating ratio for the fourth quarter was modestly better than the prior year. Results for the quarter were unfavorably impacted by a reduction in operating leverage due to the core market volume decline, as well as higher-than-usual insurance claims expense from the recognition of a major claim in the quarter under the higher retention levels of our new insurance program. Importantly, these factors muted underlying cost control and efficiency improvements for the quarter. We remain confident in continued momentum in operating ratio reduction from the foundational improvements achieved over the course of 2025 and additional opportunities ahead of us. Closing out the quarter, as part of our annual goodwill impairment review, we recorded a non-cash goodwill impairment charge of $27,800,000 during the quarter. This charge represents an updated fair value based on a discounted cash flow analysis and primarily reflects downward changes in market conditions since the time of our initial public offering. Importantly, this charge is non-cash and does not impact our liquidity, cash flow, or the underlying operations of our business. As we look ahead to this year, January SAAR finished lower than forecasted and, while still being finalized, may be the lowest monthly SAAR in several years, as severe winter weather across multiple regions disrupted dealership operations and delayed consumer purchase decisions. As weather impacts ease, we expect healthy dealer inventory levels, continued sales incentives, and a stronger tax refund season to support improved consumer demand over the coming months. We continue to see underlying resiliency in the automotive market as replacement demand, an aging vehicle fleet, and lower interest rates support a stable demand environment. While automotive OEMs continue to face cost pressure and the pricing environment is not as strong as we would like to see, Proficient Auto Logistics, Inc. Common Stock provides highly reliable, quality service and is critical infrastructure in the automotive transportation supply chain. We continue to show discipline in our pursuit of new business and in the retention of incumbent business to ensure sustainable profitability and reinvestment. Our financial performance in automotive trucking is not universally healthy in this market. We are well positioned to improve our performance in a down market, generate strong cash flow, and respond quickly and efficiently to customer needs as the market improves. The company has an increasingly stronger balance sheet position, and we will advance our strategic objectives for continued margin expansion and market share gains. I will now turn it back over to Brad to cover key financial highlights. Bradley Wright: Thank you, Rick. First, to reiterate a few high-level financial statistics. Total operating revenue for the full year 2025 of $430,400,000 was an increase of 10.7% versus 2024. Operating revenue for the fourth quarter of 2025 of $105.4 million was an increase of 11.5% over 2024. Adjusted EBITDA of $40,200,000 for full year 2025 was essentially unchanged from the combined 2024 result. However, recall that the first half of 2024 was pre-IPO with different financial and market characteristics. In 2025, as compared to 2024, performance was meaningfully improved. To that point, fourth quarter 2025 adjusted EBITDA of $9,200,000 was an increase of 32% over the same quarter in 2024. Although revenue per unit was lower in 2025 by about 6%, reflecting the market shift away from spot traffic opportunities, which we have now fully cycled. Proficient Auto Logistics, Inc. Common Stock continues to refine its operations and position for higher profitability even in the current market, which will be amplified through operating leverage when volumes improve. Our healthy cash flow characteristics have allowed for a meaningfully improved leverage position. Over the past three quarters, net debt to trailing twelve-month adjusted EBITDA has gone from 2.2x as of June 30, to 1.7x September 30, and finished at 1.5x on 12/30/2025. While the June 30 level of debt was not outsized and well within our covenants, the current position enhances our flexibility for future capital structure decisions. In 2025, the vast majority of our growth came from market share gains and acquisition, as with the exception of pre-tariff momentum early in 2025, the underlying new vehicle market did not grow. In 2026, the forecast for SAAR is lower than 2025 actual, and this forecast has weakened since we last reported, reflecting a Q4 that lacked a typical seasonal peaking. Therefore, any growth in our 2026 revenue and related profitability improvement is expected to be a result of our internal initiatives, essentially unaided by the general market. At this time, we are confident that we can achieve year-over-year growth in revenue for the full year, and we reiterate our objective of 150 basis points of full-year improvement in our adjusted operating ratio. That said, we will fully cycle the larger share gains from early in 2025 as well as the Brothers acquisition as of the first quarter. While we have gained new business in bid processes and expect that to continue, the competitiveness of the pricing environment is such that we are forced to bow out of certain incumbent pieces of business when the price point moves below a level where we can attract and retain drivers and produce an acceptable return. We have not experienced material gains or losses. We are seeing both gains and losses in this environment, and we are prioritizing profitability above the pursuit of top line growth alone. Amy Rice: Regarding 2026, as I mentioned, we have year-over-year improvement from last year's market share gains and the Brothers portfolio. However, recall that the first quarter is seasonally the lowest quarter of the year. Thus far in 2026, we have seen extended plant shutdowns and significant weather interference. Expect Q1 revenue to be higher than 2025 but lower sequentially from Q4 2025. Expect modest improvement in adjusted operating ratio due to our restructuring initiatives producing results and an expected normalizing of claims performance relative to last quarter. Absent improvement in market conditions, we expect CapEx spending to be relatively light again in 2026. Total equipment CapEx was approximately $10,200,000 in 2025 and expected maintenance CapEx of between $10,000,000 to $15,000,000 in 2026. We maintain our fleet average life between five and six years. Trailing twelve-month adjusted EBITDA less CapEx was approximately $30,000,000 for 2025. When compared to our market capitalization, even in light of a share price increase of over 60% in the last three months, this level of net cash flow to total market capitalization equates to an 11% yield. Finally, total common shares outstanding ended the year at 27,800,000, essentially unchanged from the end of the previous quarter. Operator, we will now take questions. Operator: To ask a question, please press *11 on your telephone and wait for your name to be announced. Our first question comes from the line of Tyler Brown with Raymond James. Your line is now open. Tyler Brown: Hey, good afternoon. Bradley Wright: Good afternoon, Tyler. Tyler Brown: Hey. Hey, Brad. You threw out a few numbers there. On one, I just want to make sure I have it. You are expecting revenues to be down sequentially and the OR to improve sequentially or year over year? Bradley Wright: We expect modest improvements sequentially, Tyler. Tyler Brown: Okay. Sequentially. Okay. Perfect. Very helpful. Okay. And then, Richard, there has been a lot of talk out there about tightening capacity, obviously, across the whole space. But I am just curious what you guys are seeing in the auto hauling markets specifically. Do you think that auto hauling has any unique exposure to non-domiciled CDLs? Is it more or less of an issue than the broader complex? Just curious if you have any thoughts anecdotally. Richard O'Dell: Sure. I think the non-domiciled issue is becoming a current issue. The interim final rule is now sitting with the OMB, and as a result of state audits and states changing policies, prospective to a final rule, we are starting to see more enforcement action in more places. So that impacts both somewhat of a current driver population. I think it meaningfully impacts the recruiting of new drivers because that entire population of would-be drivers is precluded from entering the market. We are lightly insulated there because we generally do not hire drivers who are new CDL recipients. We require drivers that have experience driving a large truck before they move into auto haul, as it is specialized. So we are somewhat insulated. But yes, I do think it is taking capacity out of the market. It is not being felt in terms of pricing characteristics in our space because the volume level is so low right now that you do not feel that fast, the exit. Tyler Brown: Okay. Yes. That is helpful. So from a company-owned perspective, it is not an issue. But are you seeing a decline in motor carrier numbers in your active sub-haul population? Because there have been a number of out-of-service placements. I am just curious if you are seeing that at a deeper level. Richard O'Dell: We would not see it as actively because what happens in a down market, the third-party carriers that we are using are those who choose to participate in our freight very regularly. But folks who choose to participate in our freight more episodically would not have opportunities for dispatch in this volume environment. So to the extent that some of those fringe players may be exiting the market, not only for us but in general in the auto haul space, that will be felt when there is a surge and a need for capacity that is no longer there. Tyler Brown: Okay. And maybe this is a question for all three of you. But do you think that rates will be up in 2026? Ex-fuel. Richard O'Dell: So you are asking about revenue per unit. Tyler Brown: Correct. Richard O'Dell: I think we should be stable, largely stable on a revenue per unit basis. We have seen significant volatility in our RPU over the course of the last, call it, twelve to eighteen months as we were cycling the reduction in spot traffic and dedicated traffic. The level where we are now, we are very stable from an RPU perspective. Tyler Brown: Okay. And then my last one, just real quick. Brad, obviously, it sounds like cash flow should still be good into 2026. How should we think about prioritizing capital allocation between M&A, debt paydown, and even repurchases? Is that even a possibility? Thank you. Bradley Wright: Yes, Tyler. I think the priorities will be largely as they have been, which is to continue paying down debt. Now, we made significant progress there, as I highlighted, over the last year, particularly the last three quarters. That does give us some flexibility and some dry powder, and to the extent that an M&A opportunity came along, we have got a lot of flexibility to use cash or to take on additional leverage or however we might choose to approach that. But I think just on a recurring quarter-in, quarter-out basis, I would expect us to continue to strengthen the balance sheet first. Again, we never rule out share repurchases, but that is probably at the lower end of the priority list at this point. Tyler Brown: Okay. Alright. Thank you very much. Operator: Thank you. Our next question comes from the line of Bruce Chan with Stifel. Your line is now open. Bruce Chan: Hey, good afternoon, everyone, and thanks for the question here. Just to focus a little bit more on the revenue mix and the pricing. You all mentioned a couple of things at work there with the absence of spot opportunity in a competitive market. I guess, first on the spot side, Richard, you mentioned a few of the points of optimism this year just around the age of the consumer fleet and any tax rebates or refunds. How do those factors play out through the spot versus contract opportunity? How much are you embedding in your outlook for flat revenue per unit? Then maybe on the competitive front, just to address that, I guess I am a little surprised that, given the cost trajectory in the business, carriers are still pricing so aggressively. So maybe any more detail on what you are seeing in that competitive environment there? Bradley Wright: Yes. So, on your first question, with respect to what our expectations are for the spot market or what it would take to see the spot market recovery, I mean, if the market tightens and inventories tighten, then you see there is more of a sense of urgency for delivery of vehicles that get maybe presold. Or if inventories get low and demand is high, then you see more spot moves. So it would just take a healthier demand environment to get a recovery in the spot market. Richard O'Dell: Yes, which from my perspective, at this point, any spot opportunity is upside relative to where we have been over largely the last year. So there is very little spot opportunity in the current market. I do not expect there to be a meaningful amount of spot opportunity in the market that we foresee in the near term. But to Brad’s point, any tightening that would introduce that opportunity would represent upside. Bradley Wright: Or driver shortages for other competitors that have contracts. Right? If they cannot handle their contract business, then it goes to the spot market. Richard O'Dell: And then to your question on OEM pricing, you know, what we are seeing is there is an impact on the OEM side of that equation, and there is an impact on the carrier side of the equation. On the OEM side, as we have seen in recent earnings releases, peaking large impairment charges around EV investments and coming off of a year where they bore a significant portion of tariff expense, the OEMs are looking to improve their performance in 2026. They have got really stringent cost mandates in place for their procurement departments. That is what we are seeing in the OEM environment. On the carrier side of things, we are seeing a lot of carriers with underutilized capacity, where the amount of volume that they are carrying is less than they would like to be carrying, and it is resulting in carriers bidding at rates that, in many cases, are below a threshold that we think represents healthy reinvestment. We are having to show discipline about what we are willing to pursue, what we are willing to defend, and when we walk away because we do not think that that rate level is sustainable in the market over a, call it, three-year price term. Bruce Chan: Okay. Great. Yes. That is super helpful. Then maybe just, for a final question here, I think you mentioned the insourcing and the cost control programs. I think we are a little more than a year and a half or so post-IPO. Any updates that you can share with us on progress there, any new opportunities that you may have identified? Bradley Wright: That have now gotten a lot of traction or that will kick in in the first quarter. The consolidation of all of our health care programs, that kicked in on 01/01/2026. Consolidation of our insurance programs—liability and cargo damage, etcetera—in August is also something that we expect to see result in cost savings during 2026. You know, the early-on stuff has now kind of cycled at this point: the water, oil, and gas programs, the spare parts, that kind of stuff. We continue to push on that, and we will see marginal improvements there as well. But I think it is the insurance and benefits that will kick in the largest portion of the savings in 2026. Richard O'Dell: One other comment I would make there, Bruce, is as we move into new vendors and new programs, there is a sort of flushing out of old contracts and prior expense. There is some doubling up in the system during that transition period. As we move forward, we use the opportunity to take what I would describe as transitional and integration costs out of the system over time. Bradley Wright: Yes. I guess the other thing that I failed to mention is we did some restructuring late in the year last year that reduced some headcount, and also got us out of one physical location. That will actually create additional savings in 2026. Bruce Chan: Okay. Great. Thank you. Operator: Thank you. Our next question comes from the line of Alexander Paris with Barrington Research. Alexander, your line is open. Alexander Paris: Hi. Thank you. Thanks for taking my question, guys. So I have just a couple of questions. First, I think a point of clarification. The market share gains and the Brothers acquisition, we still have one more quarter of a benefit before it cycles through. Did I get that right? Bradley Wright: For Brothers, yes. On the market share gains, that was during the first quarter, so less of an impact there. Alexander Paris: Okay. Got you. Then on the organic front, and then I am going to finish with M&A. On the organic front, you had said last quarter that there are still a number of OEM contracts that were awaiting awards. At that time, just like this time, you said that some contracts you walked away from due to pricing and so on. I was just wondering if we can get a little update on the color of contract awards during the fourth quarter or prospectively? Richard O'Dell: Sure. Hi, Alexander. We did see several open bids matriculate to the award stage over the last couple of months. What I would describe is takes: we did pick up some new locations in a number of customer accounts. We also lost some incumbent locations in those same customer accounts, again by virtue of rate dynamics and where the late stages of negotiation went with respect to rates and profitability. So net-net, we are pleased with where we ended up. But in a more disciplined environment, we would like to retain our business as well as gain new markets. In the current environment, we are having to make some hard choices with respect to incumbent fitness as we pick up some new markets. As we look ahead, there are a number of what I would describe as ordinary-course bids—these are not national and headlining bids—that will play out here over the first and second quarter. We continue to see opportunity to bid on new traffic. Our customers are still acclimating to our broader network and capability, and we are having much more meaningful discussions with customers about what we can do across a wider swath of their network. So we are encouraged and optimistic about our opportunity to pick up some new business. Alexander Paris: Great. That is helpful. Then, anecdotally, and without mentioning the OEM, I had heard a fairly large contract was awarded last year, and you stepped away due to pricing. But I have heard that that same OEM is coming back and rebidding some lanes because some of these smaller carriers that bid real low are having service issues. Have we been seeing those kinds of things this year? I know you said earlier that it will usually end up in spot, but the absolute rebidding of certain lanes seems to have happened much sooner than they typically do. Richard O'Dell: You bring up an interesting point, and it is one that we think about. As we get into the late stages of a negotiation, you ask yourself, would I rather be the carrier that wins this business at a rate that I am not entirely confident I can deliver, or would I rather be the carrier waiting in the wing if the carrier who wins it cannot entirely deliver? We have made some of the latter in terms of our choices. To your point, we do think that there is some business that has been awarded that may ultimately come back to market, and we have tried to position ourselves in a way our customers know we have got capacity, we have got interest, and we are available to support in the event that they have service disruption. Alexander Paris: Great. That is helpful. And then my final question, I will finish on M&A as I said I would. Given the weak market, given the weak SAAR, given pricing pressures and service delivery challenges, would you—maybe you can give us a little update on the M&A pipeline? Do you expect to make acquisitions in 2026? Bradley Wright: Yes. We continue to develop a pipeline. We have one that we are actively engaged on. I would expect that we still would expect to maybe do one to two acquisitions a year. Alexander Paris: Right, which is in line with what you had said at the IPO time, and it is actually what you have delivered over the last twelve months or so. Bradley Wright: Correct. Alexander Paris: Alright. Well, thank you. I will get back in the queue. Bradley Wright: Alright. Thanks. Operator: Thank you. As a reminder, to ask a question, please press *11. Our next question comes from the line of Ryan Merkel with William Blair. Your line is now open. Ryan Merkel: Hey, everyone. Thanks for the questions. I want to start on 4Q. The OR missed, I think, your expectations, and I just want to be clear on why that happened. Sounds like the core revenue was a little bit weaker than you thought. What was the core revenue in 4Q, and was the weakness just that November and December seasonality did not come back as you thought? Richard O'Dell: Yes. So on the revenue front, when we guided at the last quarter, we gave a range of where we thought 4Q would end up. In the end, it ended up a few million shy of what we had anticipated. That reflects a November and December that did not come to fruition the way seasonally it typically does. So yes, we saw some weaker volume and general revenue there that would have been contributory from an OR perspective. But there were some specific drivers in the quarter, which I will let Brad talk about. Bradley Wright: Yes. So we referenced in our commentary that we had elevated claims expense. When we consolidated our insurance programs, we got significant reduction of premium, but we also took on a little more self-insurance. As a result, we do expect that there will be a little more volatility, or we are subject to it anyway. We had one accident in the fourth quarter where we did have to basically reserve up to our retention amount. That had an impact on OR for the quarter, and we would not expect that to recur in Q1. Ryan Merkel: How big was that, Brad? Bradley Wright: The full retention that we have on our liability is $500,000, and we reserved all of that. Ryan Merkel: Alright. And then on the 2026 guide, let us start with revenue. Just want to make sure I heard it right. So I think you said you do not expect any help from the market. Talk about what you expect from the market. I think you will have one point of M&A that will carry over. You said flat pricing. You are thinking a couple of points of volume. Am I understanding that right? Bradley Wright: You are kind of breaking up a little bit, but I think the point is, we do not expect general core market volumes to be higher than 2025, and pretty flattish revenue per unit as well. But we do still expect that we will be able to generate some increase in our overall full-year revenue through market share gains. As Rick mentioned, we will always be looking at strategic additions as well, but we do think that we have got some optimism around market share gains that would push our revenue up organically anyway. Ryan Merkel: Okay. So it sounds like mid-single-digit revenue in 2026 is in the ballpark. Bradley Wright: Well, just from organic market, I would say you are probably a little high. But it is hard to say this early in the year. Ryan Merkel: Yes, I get it. Okay. And then on the OR improvement, 150 basis points. Is that just all cost saves, and can you tell us how much in dollars you have for cost saves in 2026? Bradley Wright: Yes. So I think most of that would be—most of it is cost savings. Of course, to the extent that we push revenue higher, we get some fixed cost leverage as well. Richard O'Dell: A meaningful portion of that, Ryan, as well is the ongoing initiative to shift more of our revenue base from the subhaul segment into the company driver segment. We get better asset utilization of our fleet, and we think that on an apples-to-apples basis, the OR on a company-delivered move is as much as 300 to 400 basis points better than on a subhaul move. We do expect to see progress there, which on the one hand is cost driven, but on the other hand is how we operate. Ryan Merkel: Okay. Very helpful. Thanks. Operator: Thank you. This concludes the question-and-answer session. I would now like to hand the call back over to Richard O'Dell for closing remarks. Richard O'Dell: Well, obviously, the market environment was challenging in 2025. Like I said in my opening comments, certainly pleased with the execution of our employees dedicated to providing quality service to our customers in a challenging environment. I think what we did demonstrate in 2025 is that our collective network is attractive to our customer base. We grew revenue at 11%. As we continue to mature our network and focus on our cost initiatives, we have high-level confidence in our ability to improve our operating margins. In the meantime, cash flow is strong, the balance sheet is improving, and we like where we are positioned in the marketplace, but we just need the marketplace to be a little bit better. I think there are some green shoots out there that could indicate certainly the second half of 2026 can be better. So we are looking forward to that. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
William Elliot: Everyone, and thanks for joining us to discuss CAR Group's H1 FY '26 results. Over the next 30 minutes, I'll provide a brief summary of our half year results and our strategic progress, and this will be followed by a Q&A session, where I'll be joined by members of our leadership team. Joining me today in Melbourne is Rachel Scully, our EGM of Investor Relations; and dialed in, we also have Craig Fraser, the MD of carsales in Australia; SB Kim, the CEO of Encar in South Korea; David McMinn, the CEO of Trader Interactive in the United States; and Eduardo Jurcevic, the CEO of Webmotors in Brazil. So we'll start with Slide 5, which demonstrates the continued strength of CAR Group. We've delivered a great result and extended our track record of growth. On a constant currency basis, we delivered 13% growth in revenue, 12% growth in EBITDA with EBITDA margins remaining strong at 54%. Adjusted net profit after tax increased by 12% in constant currency, and these results reflect the high quality of our earnings as well as our disciplined approach to scaling the business. Our long-term financial performance underscores the effectiveness of our strategy, a reflection of our commitment to making vehicle transactions faster, simpler and more seamless for our customers. What this trend also demonstrates is the resilience of our business model. And by diversifying across geographies, products and verticals, we've built a business that's capable of delivering consistent growth regardless of the macro conditions. Turning to our operational highlights, the core of our business is consumer engagement. And all these metrics, as you can see, are exceptionally strong. We've got healthy levels of inventory with 2.4 million vehicles online. Our dealer base has grown nicely, which proves that our value proposition is resonating with our customer base. And most importantly, our audience metrics are very strong with unique audience, sessions and leads all up strongly on pcp. And whilst the growth was led by Australia, Brazil and South Korea, we've seen a notable improvement in the U.S. market, which is now showing positive momentum against the prior year. Turning to Slide 8, which underscores the strength and diversity of our retail brands. And our strategy, as many of you will know, is to identify and invest in large high-growth markets where our proprietary technology and IP deliver long-term sustainable value for shareholders. And the returns from our International portfolio to date has been incredibly strong, and we continue to see significant runway to grow in all of our regions and all segments of our portfolio. Our brands remain the primary destination for buyers and sellers in every market we serve. We've got very strong market leadership positions in each market, and the leadership is underpinned by our commitment to product innovation as well as strong local relevance. And importantly, we're driving excellent growth in unique audiences across every region, which you can see here. This reflects the ongoing success of our investment in customer experience and also marketing, and it drives higher value for our sellers, and it also solidifies our market-leading positions. And most importantly, it's great to see the U.S. with double-digit growth. On to our outlook slide. Based on the strong momentum we've seen in the first half, our full-year guidance remains unchanged. Our diversified portfolio and disciplined execution give us a very high degree of confidence in delivering against our FY '26 expectations. And as a reminder, for the full year, we expect to deliver pro forma revenue growth of between 12% and 14%, pro forma EBITDA growth of 10% to 13%, adjusted NPAT growth of 9% to 13%. And all these figures are in constant currency. The outlook is testament to the strength of our global strategy and the operational momentum we've got across every segment. Our strategy is focused on three core pillars: strengthening our core marketplaces through continuing reinvestment, extending our platforms with new products and high-value experiences, and diversifying through innovation and disciplined investment. What makes this possible is operational excellence. And by leveraging advanced technologies, particularly AI, we're lifting performance across the group. We are driving efficiencies that enable us to invest in new growth opportunities whilst also sustaining high margins. And ultimately, it's our culture that ensures this execution. We've recently launched our new global AI hub, CG/lab, which is based in Brazil, where there is a strong pipeline of amazing AI talent, including some existing people working in our Brazilian business. CG/lab is building shared core agentic AI capabilities once and then deploying them across our marketplaces, which is going to enable speed, efficiency and economy of scales across all of our businesses. The key areas of focus for CG/lab will be developing end-to-end buyer and seller agents and integrating our experiences into generative platforms. Importantly, CG/lab won't result in incremental investment for the group. We're innovating within our current investment levels, and this is supported by the efficiencies across the business that we're getting using AI, particularly in the software development. Our AI strategy is built on three unmatched advantages. First is our clear #1 brand that customers rely on in increasing numbers. Second is the unique data at scale; and third, the integrations that we have across the entire ecosystem, including with dealers and OEMs. This combination of trust, data and reach allows us to deploy AI in ways that others cannot replicate. And we're already seeing a direct uplift in engagement, conversion and transaction confidence as a result of this. Buyers are finding cars faster through conversational search. Dealers are sourcing vehicles more effectively and creating higher-quality listings. And importantly, we're delivering incremental revenue from AI. We see this today through the adoption of premium dealer tools and increase in high-quality leads and also higher inspection volumes. We also see a significant revenue growth opportunity going forward as we continue to rapidly scale these AI capabilities. A fundamental driver of our competitive advantage is the infrastructure we've built beneath our marketplaces. Over many years, we've developed very deep integrations with CRMs, dealer management systems, finance providers and a whole heap of other critical platforms in the vehicle industry. And this creates a technical ecosystem that is unique to our marketplaces and incredibly difficult to replicate. Three recent strategic acquisitions represent a natural extension of our strategy here. We've acquired ERP systems that power dealership operations in Brazil and South Korea as well as a specialized CRM business in the verticals we operate in the United States. By bringing these platforms into our portfolio, we're able to provide even more value to our dealer partners. They give them the operational capabilities and market insights they need to run their businesses more effectively. And critically, these deeper integrations also give us richer data on inventory pricing and vehicle history for our consumers. Overall, this ecosystem for dealers enables us to provide unique market insights on pricing trends, inventory velocity, buyer behavior that no individual dealer could access on their own, and it helps them to make smarter decisions about what to stock, how to price and when to act. And for consumers, the connected ecosystem translates into a better experience as they benefit from things like real-time inventory accuracy, personalized recommendations, transparent transaction pricing, instant financing decisions, seamless trade-ins, vehicle inspections and the confidence that comes from transacting on a platform that they trust on and rely on every day. We're transforming how customers discover vehicles on our platform. In Australia, on carsales, we've released conversational voice-based search to 100% of our iOS audience, with Android to follow shortly. And this makes finding the right car more intuitive and natural. Customers can now search similar to the way they think and talk rather than filtering through rigid category structures. This is just the beginning in terms of our use of voice-based conversational search, and we see it as a significant opportunity to improve the customer experience going forward. In resilient Webmotors, we've gone even further with a fully AI-driven search experience rather than structured search on [indiscernible]. And the early results indicate that buyers are twice as likely to submit a lead if they use this advanced AI search capability, which is a significant improvement. We're also integrating with LLM environments like ChatGPT to ensure we're present wherever customers do their research, just as we've been doing with traditional search engines for many years. AI is also strengthening our dealer value proposition across our entire portfolio. It's making their operations more efficient and their inventory more compelling. In Australia, we've embedded AI dealer insights directly into [ AutoGate ], our dealer management platform. And it's providing intelligent sourcing recommendations, real-time pricing insights as well as AI determined premium ad placements. And this helps dealers make smarter inventory choices with less effort. In Korea, Encar is using AI in a transformational way with regard to its Guarantee inspection product. We've cut inspection times in half from 30 minutes down to 15 minutes whilst also improving the accuracy of the product. And at Trader Interactive, we've launched AI merchandising tools that help dealers create stronger listings with less effort. We've got the auto stock picker, AI-generated descriptions as well as image enhancements. These capabilities are all deepening our integrations with dealers and reinforce the value we're delivering to them across their entire workflow. Smart inquiry qualification has been rolled out across all of our platforms and is delivering material results on both sides of the marketplace for buyers and sellers. For buyers, we provide always-on 24/7 support that answers questions instantly and also accelerates the path to dealer. On Encar, our AI home agent has supported a 55% increase in completed transactions, which is amazing. And for dealers, it's about high-quality leads. The AI serves high-intent conversations and qualifies buyers before dealers engage. On Webmotors, lead nurturing automatically warms up early inquiries, and dealers are seeing 4x more buyer engagement as a result. Moving now on to some country-specific highlights. Starting with Australia, we're seeing really strong traction on two key initiatives that deepen our market position. C2C payments has now processed $268 million worth of transactions since launch. Importantly, it's taking away friction in the private seller process, which is going to unlock future growth opportunities. And this is evidenced through buyers using C2C payments, having a 2.5x higher Net Promoter Score than those who don't. And then on the dealer side, we've modernized [ AutoGate ], which I mentioned a little bit about before. And so dealers are getting AI-powered time to sell insights AI call transcriptions, AI systems for our live market auction platform and automated opportunity identification, and it's making [ AutoGate ] even more of a central tool for dealer hub operations. Two more Australian highlights that underscore our market strength. Instant Offer continues to perform very strongly, which has been driven by spending more on brand awareness and driving better pricing. The launch of trade-in extends Instant Offer even furthering by capturing sellers at the moment they're buying their next vehicle, which broadens our addressable market. And then on media, our revenue from new OEM entrants is up 29%, which is very important given the dynamics in the Australian market, and it provides us with a much more diversified advertiser base. As you can see from the financial performance in North America, we're seeing excellent momentum. On dealer products, we've just rolled out a tiered packaging offering of Core, Pro and Ultimate. And that deepens our integration with dealers and creates clear upgrade path. The new products span things like listing badges, vehicle history reports, AI merchandising. We've got pricing insights, finance integrations and lead nurturing. And the repackaging has resulted in a circa 6% to 7% uplift in dealer yield, which is really impressive. On media, the growth we are achieving is also very impressive. Direct media revenue up 49%. And Xenara, our in-house agency, also performing very well. It's grown its customer base by 300%. And we're now landing major new accounts like BRP, one of the world's largest powersports OEMs; and Winnebago, the leading outdoor recreation manufacturer. Three more North American opportunities, which are showing great traction. As you know, the marine market represents a significant opportunity. It's a $1 billion addressable market, and Boatmart is gaining momentum. Average lead per dealer up 110% and site visits are up 30%. Our data business, SSI is continuing to accelerate. Great to see revenue growth jumping from 10% to 18% as dealers are increasingly relying on our market share insights to benchmark their performance across different segments and geographies. And then we've also launched our private concierge product, which expands private seller options in RVs and marines. It offers end-to-end support for sellers who want premium service and maximize return, complementing our existing self-serve listings and cash offer products. In Latin America, Webmotors is strengthening its market lead. National expansion beyond Sao Paulo and Rio is really working. We've got 4.4x the traffic of our nearest competitor, which is great to see. Our wallet loyalty program is also scaling very rapidly, and it's now used by over 10,600 dealers, and that's our key partnership with Santander. Wallet revenue is up 51%, and this deepens dealer engagement by embedding financial services directly into their workflow. Two more Latin American highlights to talk to. Our depth products, Feiroes and Acelerador, are also performing very well. Feiroes is up 151%, and Acelerador is up 61%. This surge in premium product adoption demonstrates the value that dealers are getting from our upgraded offerings. and also reflects Webmotors' amazing market leadership. On media, great to see the progress we're making in what is a massive $1.5 billion addressable media market opportunity. OEM revenue is up by 19%. We're also seeing really good adoption of some of the products that we've been able to take out of Australia and put into Brazil, things like sponsored cards, OEM showrooms, preorder campaigns and direct CRM integrations. In Korea, Guarantee inspections are continuing to scale rapidly. That's our flagship product in Korea, and we're driving great value for both consumers and also dealers. We've tripled our inspection center footprint. It's gone from 22 branches in FY '17 to 66 today, and we've got plans to take that to more than 90. Importantly, the launch of our Guarantee++ product adds more comprehensive inspections. And it's a premium tier, which creates substantial revenue upside moving forward. We're also using AI to really improve our inspection efficiency, which we mentioned earlier. Inspection times have been reduced by 50% while maintaining or improving quality. And this product really does position Encar as the trusted leader in Korea's used car market. Two more Korea highlights to call out. Dealer Direct is delivering exceptional growth, our online trading platform. Meet-Go transactions are up 102%, driven by increased marketing and also improved product discovery. Encar Home, our fully digital car buying platform, is also surging. We've got over 46,000 cars now listed for Encar Home, and that's up 16%. And even more impressive is completed transactions up 50%, which as we mentioned before, is being driven by the 24/7 AI agent that we've integrated into the service. On to financials now, the P&L summary. And before we dive into segment performance, we'll just go through the items below EBITDA. Net finance decrease, reflecting stable debt and lower interest rates. The effective tax rate of 20.5% is marginally higher due to the expiry of Trader Interactive tax losses and the noncontrolling interest increased as Webmotors' strong profit growth flows through to our minority share -- shareholder in Santander. This performance across the board enabled us to declare an interim dividend of $0.425 per share, which is up 10% on pcp and represents an 82% payout ratio. Our adjusted results exclude noncash amortization of intangibles and one-off costs from exiting the Australian tire business, and there's a full reconciliation in the appendix. Then on to the segment summary. We've delivered exceptional performance across all of our segments, revenue and earnings growth in every market. Latin America led this at 23% revenue growth. North America, a great outcome, delivered 13% revenue growth. Asia was up 17%, and Australia delivered solid growth at 8%. And this broad-based strength in revenue growth demonstrates the resilience of our global portfolio. On to Australia, which delivered 8% growth in both revenue and EBITDA. The automotive market in Australia remains very robust. Consumer intent is still firmly skewed towards used cars at 59%, and that supported our strong used car lead volume outcome for the half. Used car prices have stabilized now at 39% above pre-COVID levels, which has enabled dealers to maintain a very healthy and strong gross margins. Revenue growth in the Australian business was broad-based. Dealer was up 10% and that was mainly driven by lead volumes and depth product uptake. Private up 5%, which was driven by our Instant Offer product growth. Media, great to see that up double digit, up 10%, which is driven by advertiser and product diversification as well as a robust new car market. And then Data and Research was also up 6%, which was largely through new customer acquisition in our Redbook business. Really pleased with the North American performance. Revenue up 13% and EBITDA up 11%, great performance. From a market perspective, RV registrations stabilized and are now growing again, which is really pleasing. Powersports market returned to growth after a pretty soft market over the last couple of years, and trucks remained strong with 4% growth in registrations. The revenue growth in America was also broad-based. The key drivers in our dealer business were premium product uptake and yield improvements. We also had very strong growth in our media business, which was supported by CAR Group's advertising technology, contributions also from the marine business, our recent acquisitions as well as private value-based pricing. And this demonstrates the diversity of our model in the U.S. On to Latin America. Another outstanding half, revenue up 23% and EBITDA up 29% in constant currency. Brazilian auto market was very strong with 8.7 million vehicles transacted, which was up 13%, and this is despite interest rates still remaining elevated, and it demonstrates the structural strength of the Brazilian market and also our significant growth runway. Growth was driven by multiple factors. National expansion is clearly a major factor, and we're adding dealers and more audience as that continues to scale. The premium products are delivering great outcomes, wallet loyalty programs also driving higher revenue. And finance is great to see that up 20%, and that's driven by improved credit access and better loan processes. And our Chile business also had a great first half. Asia delivered very strong performance with revenue up 17% and EBITDA up 13%. Growth was driven by our key strategic initiatives. Guarantee now accounts for 60% of new listings, which is really impressive. And that growth in guarantee has been supported by our expanded inspection centers as well as the AI-driven efficiency gains we mentioned earlier. Encar Home transactions up 55%. And great to see our Dealer Direct product returning to growth, which is scaling rapidly due to the strong uptake of our Meet-Go product there to Dealer Direct. On to EBITDA margins. Margins remained strong at 54%, while we're continuing to invest for growth. Australia's margins were strong at 65%. Latin American margins were up to 38%, which is great to see driven by operating leverage from the amazing revenue growth we're getting there. North America saw a modest decline to 59% as we invest in our marine expansion. And then Asia declined slightly to 44% as we open new guarantee branches and also scale our Dealer Direct product. This margin performance demonstrates our ability to drive growth whilst also maintaining excellent profitability. Balance sheet and cash flow was strong again. We converted 95% of EBITDA to operating cash, reflecting the great working capital profile of marketplace businesses. Leverage is prudent at 1.8x net debt to EBITDA, which gives us great financial flexibility. CapEx held steady at 10% of revenue. AI is delivering meaningful cost efficiency for us in terms of software development, and we're building features faster and with less engineering resource. And we see that efficiency only increasing as we continue to optimize our AI-assisted development workflows. And right now, we're reinvesting those savings that we're getting back into accelerating our AI road map. And that's the right trade-off at this stage because of the direct return on investment and revenue returns that we're getting. But over time, there's optionality as to how we deploy these savings. On to Slide 37, which provides context supporting the outlook statement and nothing has changed here since August, so I won't talk to this slide. And then just to wrap up, it's been really excellent performance in the first half for CAR Group. We've delivered 13% revenue growth, and we're on track for our fifth consecutive year of double-digit growth, which is excellent. Earnings momentum remains strong as we invest in Marine, Scale Dealer Direct in South Korea. North America, great to see the growth there, demonstrated the strength of our portfolio with robust growth across multiple verticals. Our AI development, as you can see, is really developing rapidly. We're enhancing customer experience across all our platforms while also creating operational efficiencies, which is improving speed, accuracy and scalability across our platforms. We've reaffirmed our FY '26 outlook, which reflects the confidence we've got in our strategy and the momentum across the business as we begin H2. We're executing really well. We're investing for the future, and we're delivering strong returns for shareholders. Happy now to hand over to questions on the line. Operator: [Operator Instructions] Your first question today comes from Eric Choi with Barrenjoey. Eric Choi: Just first question, just on TI, I was wondering if it's on a potentially improving revenue trend now. It delivered 13% growth first half. But in the second half, pricing packages will be on 1 Jan versus your changes in April last year. And then you mentioned you won that Winnebago contract in media, and it looks like Marine is going to keep ramping. So my first question is, are there potentially more drivers of growth in second half '26 additional to what was in the first half for TI? Sorry, do you want the other questions as well? William Elliot: Yes, why don't we take them one at a time, Eric. I'm happy to take that one first. I mean, clearly, revenue growth has picked up in the U.S. in the first half, which is great to see. And David and the team are doing an excellent job. And the drivers you mentioned are correct in terms of all the things that have led to an increased result. Second half, we would expect all other things being equal, the upside to the first half would be that we did the price rise a little bit earlier, which should give us a little bit of incremental value. The only other thing I'd call out is that as we head into the high season for rec and particularly in marine and then in our other verticals in RVs and powersports, we will be investing in marketing. So yes, I just wanted to make sure that made that comment. Hopefully, that helps. Eric Choi: The second question. Great stuff on all the AI that you put in the presentation, super helpful. Can I just hone in on Slide 38, which says there's no incremental investment in AI required? Can we just clarify what that investment is today in dollar or people terms? And does that new statement still mean you can grow net AI spend in line with your group cost growth, which is kind of tracking at 10% plus? William Elliot: Yes. So I think very difficult to specifically isolate our total investment in AI. What I will say is that -- you can see our software development spend that gets capitalized was $60 million for the half. So that's on an annualized basis, there's $120 million of investment. And a growing proportion of that investment is going into AI. And that doesn't include probably close to double that spend that sits within the P&L. And so we're increasingly focused on using AI to enhance consumer experience. But the beauty is that we're delivering efficiencies, particularly in software development and customer service, which is helping to fund that growth. And so overall, we don't expect CapEx as a percentage of revenue to change as a result of this increasing investment in AI because we're funding it through efficiencies. Eric Choi: Good stuff. Can I fit in -- sorry, Will, just you're probably sick of this question, but just wanted to confirm, macro isn't having a material impact on your volume. So maybe if you can tell us what lead volumes were up for Australian dealer and maybe confirm that TI dealer counts must have been flat. And I guess, can we infer giving your full-year guidance is pretty much in line with first half performance, but you're seeing similar volume trends into the second half? William Elliot: Yes. No, I think that's a fair comment. The business historically has performed well in different macro cycles, and this half was no exception. And so we're continuing to deliver great performance regardless of the interest rate cycles. And great to see Trader Interactive pick up in the first half. That's probably the one that is more exposed to consumer sentiment and interest rates. But overall, I think the business has shown its resilience over a long period of time. In terms of lead contribution in Australia, that was about 4%, circa of the 10% growth we delivered in the first half was from leads. Operator: The next question comes from Entcho Raykovski with E&P. Entcho Raykovski: So if I can -- I mean, I can just start out as a follow-up on the AI spend question. I mean, a lot of focus on this in the market. And you said it's difficult to split out, but I wonder if you can provide an indication of the spend you're committing to the AI hub specifically. And then, how that's accounted for between regions? Like does it all sit in Brazil? Or are you sort of apportioning between regions? And you touched on this in the preso, but sort of how do you think about the timing of monetization of the products you're developing? A long question, but that's my first one. William Elliot: Thanks, Entcho. That's a good question. So the CG Hub, we're really excited about that there because it's one of the benefits we get being a larger group and being able to get efficiencies and economies of scale. And the talent, as many of you will know, in Brazil is outstanding and just the pool of talent is so large that it makes sense for it to be there. And obviously, given now that 50% plus of our revenue comes from the Americas, it's a great location for it to be based. So that's the first thing I just want to say about the hub. In terms of investment, we'll start with about 30 people in its early days, and that will certainly grow over time. The cost allocation, I think, will be done just a portion based on most likely revenue across the group, I would say, will be the way that we do it. So it's delivering services to the whole group. And I think the other thing worth noting is that to start with is going to a fraction of the overall investment that we're making in AI because we do have specific teams focused on AI in every single jurisdiction. And also, it's everyone's job. And so the investment that we're making overall is a lot bigger than that. Entcho Raykovski: Okay. Great. And then, I mean, it's sort of a related question, but what have you seen in terms of the lead nurturing initiative in Brazil? I wonder if you can give us any numbers on what sort of conversion you see from a lead, which is qualified versus nonqualified. How can you monetize this? Can you actually charge more for those leads? And just as a broader question, which I'm sure you're thinking about with the lead-based model, does it create a bit of a challenge if you're generating fewer leads, but they're perhaps better qualified leads? William Elliot: No worries. I'll hand over to Eduardo to answer that question on lead nurturing. Eduardo Jurcevic: Yes, for sure. Thanks for the question. I would like to say two things in terms of data. One is that the conversion is almost a double, which is very good. And also that the dealers that is using our CRM with the integration with AI, which is the premium version, they are receiving 20% more leads than others that they are not using. So it's very helpful what we are doing in terms of leads, in terms of volume of leads to. I know that could -- you think that you're going to decrease the number of leads with more quality, but we are not seeing this. Of course, we have also the national expansion helping to bring more audience and leads, but we are increasing the number of leads too. So it's a very good combination so far in terms of the results, what we are seeing with AI integrated with our platform. Entcho Raykovski: Okay. Great. Just a final -- maybe a very quick one. The ChatGPT integration in Australia and Brazil, are you able to provide any more detail just around the structure of any agreements with OpenAI to launch the integration? William Elliot: Yes. Thanks, Entcho. I think the philosophy just around the integration, and it will be the same philosophy with anyone who's providing research options at the top of the funnel is to connect where the audience is. Most of our traffic, the vast majority of our traffic comes directly to our sites. But like we have done with traditional search engines over time, we have our brands in those search engines to connect with audience where appropriate. And that strategy is no different with ChatGPT. Obviously, they're getting the majority of the traffic from an LLM perspective at the moment. So we're prioritizing our integration with them. There's nothing exclusive with them, is the way I'd describe it. Operator: Your next question comes from Roger Samuel with Jefferies. Roger Samuel: My first question is just on your guidance, which is provided on a constant currency basis, obviously. But with the depreciation of the U.S. dollars, how are you going to think about the impact of that on your reported numbers in FY '26? I mean should we be expecting maybe a few percentage points of headwind from FX and -- or do you think that you can offset that through better operations from TI? William Elliot: Thanks for the question, Roger. So just to be clear, our guidance that we provide is all in constant currency. So the guidance ranges are in constant currency, not in AUD. And you're right, there is a headwind from an FX perspective at the moment across multiple currencies. The impact for us is about 3% to 4% of a headwind in the second half, which would be an overall 2% difference between our constant currency growth for FY '26 and Australian dollar growth for FY '26. That's the impact if the currencies stay where they're at today. Roger Samuel: Got it. And in terms of your AI strategy, so you mentioned about integration with ChatGPT. But yes, just wondering, looking forward, you're not concerned that the eyeballs would divert from -- directly to your website or your apps into ChatGPT in the long term? William Elliot: If you look at our audience, Roger, in terms of the growth in unique audience over the last 6 months, it's been the strongest I've seen it for a very long period of time, and that goes to two things: improving our consumer experience and investing more in our brands and marketing. And we're going to continue to do that over time. And so we're really happy with the amount of traffic that we're getting directly, but we're not resting on our laurels. We're continuing to improve that consumer experience, which hopefully comes through in the presentation. We need to be connecting with consumers from a research perspective at the top of the funnel, like I said, that we do with traditional search engines, and that's why we're integrating with LLMs. Roger Samuel: Got it. Okay. And maybe just a last question on Encar. So you've launched Guarantee++. Perhaps you can give us an indication of what's the yield from that product? I mean we understand that the Guarantee ad right now is 5x the yield of standard. So it's Guarantee++ is a lot more than that? William Elliot: No worries. I'll hand over to SB to ask that question on Guarantee++. Sangbeom Kim: As you might be aware of Guarantee++ is still at the early stage of the product. So we did a pilot last year, and we are in the process of [ resigning ] in this year to make it adapted in different geographic locations. But the cost-wise is about 10% to 20% higher, but the pricing is roughly about 30% to 40% higher than the Guarantee 1.0. So we still believe it's much more profitable than the Guarantee 1.0. And also going forward, if we are able to secure that economy of scale or the synergy effect between existing branches and Guarantee 2.0, probably the yield will be improving over the period of time as well. Operator: The next question comes from Siraj Ahmed with Citi. Siraj Ahmed: I have 3 questions as well. Just first one, Will, in terms of guidance for the full year in constant currency, first half essentially came towards the top end, right? Anything in the second half, why it shouldn't be -- why full year doesn't come to the top end as well? Anything that moves from a regional perspective? William Elliot: Thanks, Siraj, for the question. Obviously, the momentum of the business is excellent. And so we feel confident delivering within our guidance. Clearly, we've performed closer to the top end in the first half, which is great, and we'll be targeting to do that in the second half as well. Siraj Ahmed: Second thing, maybe, Will, on TI, 13% growth, which is a great outcome. I guess, previously, you thinking about mid-teens, right, through the cycle. Just is it essentially dealer growth that's pulling that back? Or is there anything else when market normalizes that this could actually be above 15% as well? William Elliot: I think that's probably a good one for David to answer just on any changes as macro continues to improve. David McMinn: Yes. Thanks, Siraj. I mean, look, we're guiding to, as you know, 12% to 14%. I was really happy with 13% half 1. In terms of the key drivers of that, obviously, yield obviously plays a role with 4%. Our product was important. So our premiums as well as our digital agency product continues to flourish in this market, along with our media business, which is really nice to see that growing rapidly. And then combined, SSI and our acquisitions in marine sort of gave us about 3%. We will get an improvement in half 2 because of the rate timing, but we'll continue to invest that money as it relates to our rec brands as well as marine as the season picks up. Siraj Ahmed: Got it. Just last one. The Slide 15 is pretty -- that's a great slide, Will, in terms of AI, right, and the integrated ecosystem. Just wondering, from a regional perspective, are there any markets where you actually need to step up in terms of the integrated ecosystem? Just asking because general view is that TI needs more work and you have made progress. But just keen to hear your thoughts on just a regional perspective where you can actually make a bit more investment and be better. William Elliot: No, Siraj, it's a good question. And obviously, we think about it carefully in every market because they all have nuance and each of them has different strength in terms of their integrations into the ecosystem. Clearly, one of the strategic moves I mentioned at the start was acquiring a small CRM business that operates in the verticals that we have in the U.S. And that is quite strategic in terms of giving us access to the additional layer of data with our customers because it's a leading CRM in the verticals in which we operate. And so I think that will only strengthen the U.S. ecosystem. But outside of that, as you say, we've done a lot of work on making sure that we're integrated with both dealers, OEMs and all sorts of other platforms to make sure that we're delivering insight and data that others can't replicate. And so I think the U.S. is strong and will be strengthened by that acquisition. Operator: Your next question comes from Fraser McLeish with MST Markets. Fraser Mcleish: Will, just two for me. And I guess both of them around the sort of whole AI sort of risk issue that's sort of dominating market thinking at the moment. Just the first one, just on the sort of, I guess, robustness maybe of the commercial model, particularly the leads-based commercial model, if there is a bit of audience and inquiry leakage maybe at the margins, but going to AI to other platforms, given that you do charge price in some markets on a lead basis. And then the other one was just unique listings, I guess, are going to be increasingly important, which you have in private, I guess. Can you just talk about to what extent your listings, particularly in private could be considered unique? William Elliot: Thanks, Fraser. Good question. So in terms of the lead model, I think the reality for the lead model is we could charge in different ways. And as we do in some of our markets, we have leads and others, we don't. And I don't think it makes a huge difference. The one thing I'll say is we're very confident in our ability to continue to deliver the vast majority of our traffic directly through creating a great consumer experience and investing in our brand. The quality of the leads can change from time to time. So one of the things Eduardo was talking about before is if we're making our leads more valuable because they're converting at a better rate, we can always charge more for our leads as long as they're delivering great outcomes for our dealer customers. Then in terms of your question around unique listings and the impact of private, one of the major competitive advantages that we've had for a long period of time is having a mix of private and dealer inventory, and we do that as well as anyone in the world from a vehicle marketplace perspective. And I think where we're seeing LLM models start to become more prevalent, that's only going to continue to cement our competitive advantage having that very depth of inventory. Operator: Your next question comes from Lucy Huang with UBS. Lucy Huang: I got three questions as well. Just the first one on AI. Sorry to ask another one, but just wanted to get your thoughts on pricing power, I guess, in the environment of all the AI innovation that you're putting through? Like do you think over the medium term, you can monetize that through higher price rises or is it getting customers to take on more premium products that have better AI features -- just to kind of think about how you're thinking about monetization of the AI features that you're launching? William Elliot: Thanks, Lucy. In terms of AI product and pricing power, I suppose we don't think about those products as any different to any of our other products, in that if we're creating substantial value for our customers, whether that's private sellers, buyers, dealers, OEMs, then price will follow. So what we're focused on is making sure that the products that are supported with AI that they're delivering very strong outcomes. And I think I mentioned earlier in the call that we're seeing incremental revenue from these products that are supported by AI already, whether that's lead nurturing, whether that's some of the merchandising and sourcing products that we've got in market in Australia and the U.S. or the guaranteed inspection product that's been materially improved with AI. So we're monetizing already. We think it's only the beginning. Lucy Huang: Yes. No, that makes sense. And then just on TI, so with the pricing restructure to the 3 tiers: Core, Pro and Ultimate, are you going to talk through the split or which are most customers landing on at the moment? And how do we push the customers up the tiers over time? William Elliot: Thanks, Lucy. I might hand that one to David just to talk through the repackaging. David McMinn: Yes, good questions there. Look, as you just articulated, we rolled out the packages from October, November into December. They went live in Jan. We've got Core, Pro and Ultimate. They're simple to understand. It's a lot easier rate card. We built the price rise into it this year, which was nice. We added a bunch of new products that we articulated earlier on the call that are finance integration, history reports and AI stock selective advice stronger conversion as well as call transcripting, which is super helpful for dealers. It's early days because it's only just gone live, but it's going well. And in terms of moving forward and where we see it as being super valuable is, we can now demonstrate value in a lot clearer way, okay? So if someone's upselling, we're going to be able to speak to them about what they need to pay and what the response is going to be to move up that journey on the latter. And the same goes for downgrades. So in the past, because our model was only really subscription with thousands of ala carte products, it was very, very easy for dealers when things are not great to just peel off things that they didn't see as value driving such as branding. So we think that it's a great foundation. We're well set and simpler for our people, and it's also clearer for customers. Lucy Huang: That's super helpful. And then just one last one. Are you able to talk through Australian private trends, like how volumes have trended through the half and whether dynamic pricing is lifting to offset that? Because just noticed that it was called out that IO was probably the bigger driver of yield growth in private in the last 6 months. William Elliot: Thanks, Lucy. I'll get Craig to answer that question on the private trends in Australia. Craig Fraser: So we're still seeing a continuation of a shift from private inventory to dealer. And our IO business has performed very well in the first half. In terms of dynamic pricing, that's working really well for us. And what we're also seeing is a lot more value creation in our packages as we really double down on our C2C environment, but we are definitely seeing a transition from private inventory over to dealer, and that's been a trend over the last 18 months. Operator: Your next question comes from Bob Chen with JPMorgan. Bob Chen: Just a quick one, firstly, on margins. Obviously, your guidance suggests that the margin compression here this year with a lot of investment going on in North America and Korea. Do we expect to get through that this year and go back to a phase of margin expansion into the following years? William Elliot: Yes. Thanks, Bob. I won't provide specific margin guidance for next year. But you're right in terms of there have been some specific things that we've invested in this year, which have led to that small gap between revenue and EBITDA growth. I'd like to think that going forward, we're still delivering underlying operating leverage in our business. And that hasn't changed, and we still think that, that's going to be there going forward. And so should we not invest in those things to the extent that we have over the next 1 to 2 years, then I would expect to see revenue and EBITDA to grow more closely in line. Bob Chen: Okay. Great. And then just on, obviously, a lot of talent around AI and that investment in AI. It seems like it's all very well controlled in your current cost envelope. Like how should we be thinking about the incremental margin of these AI product enhancements and revenue that's sort of coming through? Does it track broadly similar to what you've historically done? Or is there actually maybe an accretive nature to some of these AI investments, given it's really sort of accelerating some of these new products you're coming into market with? William Elliot: No, it's a good question. We're very excited about the product evolution. And one thing in the last 6 to 12 months that you can see the amount of product we're releasing to market is growing, and that's off a fairly similar cost base. And so I think that just goes to the amount of product that we're getting through. And so that will give us the opportunity to monetize even more as we go forward. I think the other thing I mentioned is the benefits that we're getting at the moment and the efficiencies we're getting from AI around code development, customer service and other automation is being reinvested back into AI product development, including in CG lab, there is the potential for us to get some benefits if we were to choose to not reinvest all those efficiencies. But at the moment, the right call is for us to continue to accelerate our product. Bob Chen: Yes. Okay. Perfect. And just more broadly, I guess, from all that risk around AI and what people are sort of concerned about, I mean, have you seen anything from a competitive front, new sort of interesting sort of models coming in or competition coming in, leveraging native AI technologies that you do see as a bit of a risk or a threat for your business? William Elliot: Thinking about this issue isn't new at all for us, Bob, because we've been thinking about competition all the time, and that's the competitors in front of us, and it's the ones that you don't see. And so I think I mentioned before, our economic moat is very strong. We've been very critical to the whole ecosystem around vehicles for a long period of time. And then we're also making moves to even strengthen that further, including some of those strategic acquisitions I mentioned earlier. And so we've made a long-term deliberate strategy of making sure we're right at the heart of that ecosystem. Nothing has changed in the last 12 months. If you look at our unique audience, I think I mentioned before, I've never seen that as strong as it is currently, which is a testament to those investments that we've been making. Operator: Your next question comes from Tom Beadle with Jarden. Thomas Beadle: I've got a couple of questions, please. Just firstly, maybe a follow-up from Roger on the Guarantee++ product. I'm probably asking the same question in a different way maybe. But I'm just -- can you just help us frame that opportunity, please? So for example, if you just get -- move from that current penetration of guarantee from 59% to that aspiration that you have for 50% guaranteed, 30% Guarantee++, what revenue uplift would that mix shift provide? Do you want me to ask my second question or... William Elliot: Maybe we'll get [ Espeter ] answer that one first. Thanks, Tom. Unknown Executive: Sure. I'm afraid it's very hard to pin out the specific number, how it will be. But if we take a step back and looking about the role of Guarantee 2.0 in our existing business, it is a kind of bridge product between the Guarantee 1.0 and our home services, which is one is transaction model, right? So if you remember that home services, our average revenue per vehicle transaction is around $200, while Guarantee 1.0 is about $100, Guarantee 2.0 will be located in between to do that. I think it will help us to be increase the transaction volume based on the wider and deeper inspected information and the customer will feel more comfortable to buy the car via us. But at the same time, it is still the advertisement model. So it can guarantee the base revenue stream, even in the case that the transaction is not happening. So instead of specific number, I mean, I would help you to understand how that product is located in our strategic journey. Thomas Beadle: That's helpful. Just a second question on the cost side of things. I mean they probably came in a little bit higher than expectations in the first half. And I mean, I guess if we park the AI investment to one side, generally, what are you -- are you seeing any cost pressures in the business that are worth highlighting? I mean there's talk of general cost inflation at tech companies, things like cloud hosting costs are up 10% to 15% year-on-year potentially. I mean anything to highlight there, things like employee costs? William Elliot: No. Thanks for the question, Tom. Nothing's changed from that perspective in terms of any change in sort of cost trajectory. I think the only two things we called out for the reason where revenue is a little bit higher than EBITDA and it's marginal at best was the investment we're making in Marine in the U.S. and the investment we've made in branding in South Korea, particularly with respect to the Dealer Direct product. They're the two key things. And outside of that, cost base is in good shape. And I think the investments we're making are generating a good return on investment. I think that's -- we've got probably time for one more question. I'm not sure if you've got one more, Tom, I'll hand back to the operator for one more. Operator: We'll take one more question from Nick Basile with CLSA. We'll take one last question from Sriharsh Singh with Bank of America. Sriharsh Singh: Just one question from my side, following up from Siraj's previous question in U.S. I think most of us understand the platform moats in markets like Australia, Korea and Brazil pretty well, given unique inventory guarantee ad product and finance integration. Just on the U.S. market, do you see like -- one of the investor concerns is [ Claud ] launching, a direct plug-in for dealers and OEMs so that they can load the inventory into the LLMs. Do you see that as a risk because the inventory in U.S. is not as unique as it relates to new items, dealer led? Or -- and how do you plan to enhance your competitive moat in the U.S. in the coming year? William Elliot: Thanks for the question, Sriharsh. I don't see our competitive moat or dynamics in the U.S. is different to any of our other markets in terms of our integrations with dealers and OEMs. Clearly, I've mentioned before the move we've made around acquiring a CRM business, which I think only strengthens that moat further. Our brand in the niche verticals that we operate in is very strong. We deliver significant audience advantage versus our nearest competitor. And the things we're focused on is just creating an amazing consumer experience and making sure we invest in our brand. So we're very pleased with how everything is going.
William Elliot: Everyone, and thanks for joining us to discuss CAR Group's H1 FY '26 results. Over the next 30 minutes, I'll provide a brief summary of our half year results and our strategic progress, and this will be followed by a Q&A session, where I'll be joined by members of our leadership team. Joining me today in Melbourne is Rachel Scully, our EGM of Investor Relations; and dialed in, we also have Craig Fraser, the MD of carsales in Australia; SB Kim, the CEO of Encar in South Korea; David McMinn, the CEO of Trader Interactive in the United States; and Eduardo Jurcevic, the CEO of Webmotors in Brazil. So we'll start with Slide 5, which demonstrates the continued strength of CAR Group. We've delivered a great result and extended our track record of growth. On a constant currency basis, we delivered 13% growth in revenue, 12% growth in EBITDA with EBITDA margins remaining strong at 54%. Adjusted net profit after tax increased by 12% in constant currency, and these results reflect the high quality of our earnings as well as our disciplined approach to scaling the business. Our long-term financial performance underscores the effectiveness of our strategy, a reflection of our commitment to making vehicle transactions faster, simpler and more seamless for our customers. What this trend also demonstrates is the resilience of our business model. And by diversifying across geographies, products and verticals, we've built a business that's capable of delivering consistent growth regardless of the macro conditions. Turning to our operational highlights, the core of our business is consumer engagement. And all these metrics, as you can see, are exceptionally strong. We've got healthy levels of inventory with 2.4 million vehicles online. Our dealer base has grown nicely, which proves that our value proposition is resonating with our customer base. And most importantly, our audience metrics are very strong with unique audience, sessions and leads all up strongly on pcp. And whilst the growth was led by Australia, Brazil and South Korea, we've seen a notable improvement in the U.S. market, which is now showing positive momentum against the prior year. Turning to Slide 8, which underscores the strength and diversity of our retail brands. And our strategy, as many of you will know, is to identify and invest in large high-growth markets where our proprietary technology and IP deliver long-term sustainable value for shareholders. And the returns from our International portfolio to date has been incredibly strong, and we continue to see significant runway to grow in all of our regions and all segments of our portfolio. Our brands remain the primary destination for buyers and sellers in every market we serve. We've got very strong market leadership positions in each market, and the leadership is underpinned by our commitment to product innovation as well as strong local relevance. And importantly, we're driving excellent growth in unique audiences across every region, which you can see here. This reflects the ongoing success of our investment in customer experience and also marketing, and it drives higher value for our sellers, and it also solidifies our market-leading positions. And most importantly, it's great to see the U.S. with double-digit growth. On to our outlook slide. Based on the strong momentum we've seen in the first half, our full-year guidance remains unchanged. Our diversified portfolio and disciplined execution give us a very high degree of confidence in delivering against our FY '26 expectations. And as a reminder, for the full year, we expect to deliver pro forma revenue growth of between 12% and 14%, pro forma EBITDA growth of 10% to 13%, adjusted NPAT growth of 9% to 13%. And all these figures are in constant currency. The outlook is testament to the strength of our global strategy and the operational momentum we've got across every segment. Our strategy is focused on three core pillars: strengthening our core marketplaces through continuing reinvestment, extending our platforms with new products and high-value experiences, and diversifying through innovation and disciplined investment. What makes this possible is operational excellence. And by leveraging advanced technologies, particularly AI, we're lifting performance across the group. We are driving efficiencies that enable us to invest in new growth opportunities whilst also sustaining high margins. And ultimately, it's our culture that ensures this execution. We've recently launched our new global AI hub, CG/lab, which is based in Brazil, where there is a strong pipeline of amazing AI talent, including some existing people working in our Brazilian business. CG/lab is building shared core agentic AI capabilities once and then deploying them across our marketplaces, which is going to enable speed, efficiency and economy of scales across all of our businesses. The key areas of focus for CG/lab will be developing end-to-end buyer and seller agents and integrating our experiences into generative platforms. Importantly, CG/lab won't result in incremental investment for the group. We're innovating within our current investment levels, and this is supported by the efficiencies across the business that we're getting using AI, particularly in the software development. Our AI strategy is built on three unmatched advantages. First is our clear #1 brand that customers rely on in increasing numbers. Second is the unique data at scale; and third, the integrations that we have across the entire ecosystem, including with dealers and OEMs. This combination of trust, data and reach allows us to deploy AI in ways that others cannot replicate. And we're already seeing a direct uplift in engagement, conversion and transaction confidence as a result of this. Buyers are finding cars faster through conversational search. Dealers are sourcing vehicles more effectively and creating higher-quality listings. And importantly, we're delivering incremental revenue from AI. We see this today through the adoption of premium dealer tools and increase in high-quality leads and also higher inspection volumes. We also see a significant revenue growth opportunity going forward as we continue to rapidly scale these AI capabilities. A fundamental driver of our competitive advantage is the infrastructure we've built beneath our marketplaces. Over many years, we've developed very deep integrations with CRMs, dealer management systems, finance providers and a whole heap of other critical platforms in the vehicle industry. And this creates a technical ecosystem that is unique to our marketplaces and incredibly difficult to replicate. Three recent strategic acquisitions represent a natural extension of our strategy here. We've acquired ERP systems that power dealership operations in Brazil and South Korea as well as a specialized CRM business in the verticals we operate in the United States. By bringing these platforms into our portfolio, we're able to provide even more value to our dealer partners. They give them the operational capabilities and market insights they need to run their businesses more effectively. And critically, these deeper integrations also give us richer data on inventory pricing and vehicle history for our consumers. Overall, this ecosystem for dealers enables us to provide unique market insights on pricing trends, inventory velocity, buyer behavior that no individual dealer could access on their own, and it helps them to make smarter decisions about what to stock, how to price and when to act. And for consumers, the connected ecosystem translates into a better experience as they benefit from things like real-time inventory accuracy, personalized recommendations, transparent transaction pricing, instant financing decisions, seamless trade-ins, vehicle inspections and the confidence that comes from transacting on a platform that they trust on and rely on every day. We're transforming how customers discover vehicles on our platform. In Australia, on carsales, we've released conversational voice-based search to 100% of our iOS audience, with Android to follow shortly. And this makes finding the right car more intuitive and natural. Customers can now search similar to the way they think and talk rather than filtering through rigid category structures. This is just the beginning in terms of our use of voice-based conversational search, and we see it as a significant opportunity to improve the customer experience going forward. In resilient Webmotors, we've gone even further with a fully AI-driven search experience rather than structured search on [indiscernible]. And the early results indicate that buyers are twice as likely to submit a lead if they use this advanced AI search capability, which is a significant improvement. We're also integrating with LLM environments like ChatGPT to ensure we're present wherever customers do their research, just as we've been doing with traditional search engines for many years. AI is also strengthening our dealer value proposition across our entire portfolio. It's making their operations more efficient and their inventory more compelling. In Australia, we've embedded AI dealer insights directly into [ AutoGate ], our dealer management platform. And it's providing intelligent sourcing recommendations, real-time pricing insights as well as AI determined premium ad placements. And this helps dealers make smarter inventory choices with less effort. In Korea, Encar is using AI in a transformational way with regard to its Guarantee inspection product. We've cut inspection times in half from 30 minutes down to 15 minutes whilst also improving the accuracy of the product. And at Trader Interactive, we've launched AI merchandising tools that help dealers create stronger listings with less effort. We've got the auto stock picker, AI-generated descriptions as well as image enhancements. These capabilities are all deepening our integrations with dealers and reinforce the value we're delivering to them across their entire workflow. Smart inquiry qualification has been rolled out across all of our platforms and is delivering material results on both sides of the marketplace for buyers and sellers. For buyers, we provide always-on 24/7 support that answers questions instantly and also accelerates the path to dealer. On Encar, our AI home agent has supported a 55% increase in completed transactions, which is amazing. And for dealers, it's about high-quality leads. The AI serves high-intent conversations and qualifies buyers before dealers engage. On Webmotors, lead nurturing automatically warms up early inquiries, and dealers are seeing 4x more buyer engagement as a result. Moving now on to some country-specific highlights. Starting with Australia, we're seeing really strong traction on two key initiatives that deepen our market position. C2C payments has now processed $268 million worth of transactions since launch. Importantly, it's taking away friction in the private seller process, which is going to unlock future growth opportunities. And this is evidenced through buyers using C2C payments, having a 2.5x higher Net Promoter Score than those who don't. And then on the dealer side, we've modernized [ AutoGate ], which I mentioned a little bit about before. And so dealers are getting AI-powered time to sell insights AI call transcriptions, AI systems for our live market auction platform and automated opportunity identification, and it's making [ AutoGate ] even more of a central tool for dealer hub operations. Two more Australian highlights that underscore our market strength. Instant Offer continues to perform very strongly, which has been driven by spending more on brand awareness and driving better pricing. The launch of trade-in extends Instant Offer even furthering by capturing sellers at the moment they're buying their next vehicle, which broadens our addressable market. And then on media, our revenue from new OEM entrants is up 29%, which is very important given the dynamics in the Australian market, and it provides us with a much more diversified advertiser base. As you can see from the financial performance in North America, we're seeing excellent momentum. On dealer products, we've just rolled out a tiered packaging offering of Core, Pro and Ultimate. And that deepens our integration with dealers and creates clear upgrade path. The new products span things like listing badges, vehicle history reports, AI merchandising. We've got pricing insights, finance integrations and lead nurturing. And the repackaging has resulted in a circa 6% to 7% uplift in dealer yield, which is really impressive. On media, the growth we are achieving is also very impressive. Direct media revenue up 49%. And Xenara, our in-house agency, also performing very well. It's grown its customer base by 300%. And we're now landing major new accounts like BRP, one of the world's largest powersports OEMs; and Winnebago, the leading outdoor recreation manufacturer. Three more North American opportunities, which are showing great traction. As you know, the marine market represents a significant opportunity. It's a $1 billion addressable market, and Boatmart is gaining momentum. Average lead per dealer up 110% and site visits are up 30%. Our data business, SSI is continuing to accelerate. Great to see revenue growth jumping from 10% to 18% as dealers are increasingly relying on our market share insights to benchmark their performance across different segments and geographies. And then we've also launched our private concierge product, which expands private seller options in RVs and marines. It offers end-to-end support for sellers who want premium service and maximize return, complementing our existing self-serve listings and cash offer products. In Latin America, Webmotors is strengthening its market lead. National expansion beyond Sao Paulo and Rio is really working. We've got 4.4x the traffic of our nearest competitor, which is great to see. Our wallet loyalty program is also scaling very rapidly, and it's now used by over 10,600 dealers, and that's our key partnership with Santander. Wallet revenue is up 51%, and this deepens dealer engagement by embedding financial services directly into their workflow. Two more Latin American highlights to talk to. Our depth products, Feiroes and Acelerador, are also performing very well. Feiroes is up 151%, and Acelerador is up 61%. This surge in premium product adoption demonstrates the value that dealers are getting from our upgraded offerings. and also reflects Webmotors' amazing market leadership. On media, great to see the progress we're making in what is a massive $1.5 billion addressable media market opportunity. OEM revenue is up by 19%. We're also seeing really good adoption of some of the products that we've been able to take out of Australia and put into Brazil, things like sponsored cards, OEM showrooms, preorder campaigns and direct CRM integrations. In Korea, Guarantee inspections are continuing to scale rapidly. That's our flagship product in Korea, and we're driving great value for both consumers and also dealers. We've tripled our inspection center footprint. It's gone from 22 branches in FY '17 to 66 today, and we've got plans to take that to more than 90. Importantly, the launch of our Guarantee++ product adds more comprehensive inspections. And it's a premium tier, which creates substantial revenue upside moving forward. We're also using AI to really improve our inspection efficiency, which we mentioned earlier. Inspection times have been reduced by 50% while maintaining or improving quality. And this product really does position Encar as the trusted leader in Korea's used car market. Two more Korea highlights to call out. Dealer Direct is delivering exceptional growth, our online trading platform. Meet-Go transactions are up 102%, driven by increased marketing and also improved product discovery. Encar Home, our fully digital car buying platform, is also surging. We've got over 46,000 cars now listed for Encar Home, and that's up 16%. And even more impressive is completed transactions up 50%, which as we mentioned before, is being driven by the 24/7 AI agent that we've integrated into the service. On to financials now, the P&L summary. And before we dive into segment performance, we'll just go through the items below EBITDA. Net finance decrease, reflecting stable debt and lower interest rates. The effective tax rate of 20.5% is marginally higher due to the expiry of Trader Interactive tax losses and the noncontrolling interest increased as Webmotors' strong profit growth flows through to our minority share -- shareholder in Santander. This performance across the board enabled us to declare an interim dividend of $0.425 per share, which is up 10% on pcp and represents an 82% payout ratio. Our adjusted results exclude noncash amortization of intangibles and one-off costs from exiting the Australian tire business, and there's a full reconciliation in the appendix. Then on to the segment summary. We've delivered exceptional performance across all of our segments, revenue and earnings growth in every market. Latin America led this at 23% revenue growth. North America, a great outcome, delivered 13% revenue growth. Asia was up 17%, and Australia delivered solid growth at 8%. And this broad-based strength in revenue growth demonstrates the resilience of our global portfolio. On to Australia, which delivered 8% growth in both revenue and EBITDA. The automotive market in Australia remains very robust. Consumer intent is still firmly skewed towards used cars at 59%, and that supported our strong used car lead volume outcome for the half. Used car prices have stabilized now at 39% above pre-COVID levels, which has enabled dealers to maintain a very healthy and strong gross margins. Revenue growth in the Australian business was broad-based. Dealer was up 10% and that was mainly driven by lead volumes and depth product uptake. Private up 5%, which was driven by our Instant Offer product growth. Media, great to see that up double digit, up 10%, which is driven by advertiser and product diversification as well as a robust new car market. And then Data and Research was also up 6%, which was largely through new customer acquisition in our Redbook business. Really pleased with the North American performance. Revenue up 13% and EBITDA up 11%, great performance. From a market perspective, RV registrations stabilized and are now growing again, which is really pleasing. Powersports market returned to growth after a pretty soft market over the last couple of years, and trucks remained strong with 4% growth in registrations. The revenue growth in America was also broad-based. The key drivers in our dealer business were premium product uptake and yield improvements. We also had very strong growth in our media business, which was supported by CAR Group's advertising technology, contributions also from the marine business, our recent acquisitions as well as private value-based pricing. And this demonstrates the diversity of our model in the U.S. On to Latin America. Another outstanding half, revenue up 23% and EBITDA up 29% in constant currency. Brazilian auto market was very strong with 8.7 million vehicles transacted, which was up 13%, and this is despite interest rates still remaining elevated, and it demonstrates the structural strength of the Brazilian market and also our significant growth runway. Growth was driven by multiple factors. National expansion is clearly a major factor, and we're adding dealers and more audience as that continues to scale. The premium products are delivering great outcomes, wallet loyalty programs also driving higher revenue. And finance is great to see that up 20%, and that's driven by improved credit access and better loan processes. And our Chile business also had a great first half. Asia delivered very strong performance with revenue up 17% and EBITDA up 13%. Growth was driven by our key strategic initiatives. Guarantee now accounts for 60% of new listings, which is really impressive. And that growth in guarantee has been supported by our expanded inspection centers as well as the AI-driven efficiency gains we mentioned earlier. Encar Home transactions up 55%. And great to see our Dealer Direct product returning to growth, which is scaling rapidly due to the strong uptake of our Meet-Go product there to Dealer Direct. On to EBITDA margins. Margins remained strong at 54%, while we're continuing to invest for growth. Australia's margins were strong at 65%. Latin American margins were up to 38%, which is great to see driven by operating leverage from the amazing revenue growth we're getting there. North America saw a modest decline to 59% as we invest in our marine expansion. And then Asia declined slightly to 44% as we open new guarantee branches and also scale our Dealer Direct product. This margin performance demonstrates our ability to drive growth whilst also maintaining excellent profitability. Balance sheet and cash flow was strong again. We converted 95% of EBITDA to operating cash, reflecting the great working capital profile of marketplace businesses. Leverage is prudent at 1.8x net debt to EBITDA, which gives us great financial flexibility. CapEx held steady at 10% of revenue. AI is delivering meaningful cost efficiency for us in terms of software development, and we're building features faster and with less engineering resource. And we see that efficiency only increasing as we continue to optimize our AI-assisted development workflows. And right now, we're reinvesting those savings that we're getting back into accelerating our AI road map. And that's the right trade-off at this stage because of the direct return on investment and revenue returns that we're getting. But over time, there's optionality as to how we deploy these savings. On to Slide 37, which provides context supporting the outlook statement and nothing has changed here since August, so I won't talk to this slide. And then just to wrap up, it's been really excellent performance in the first half for CAR Group. We've delivered 13% revenue growth, and we're on track for our fifth consecutive year of double-digit growth, which is excellent. Earnings momentum remains strong as we invest in Marine, Scale Dealer Direct in South Korea. North America, great to see the growth there, demonstrated the strength of our portfolio with robust growth across multiple verticals. Our AI development, as you can see, is really developing rapidly. We're enhancing customer experience across all our platforms while also creating operational efficiencies, which is improving speed, accuracy and scalability across our platforms. We've reaffirmed our FY '26 outlook, which reflects the confidence we've got in our strategy and the momentum across the business as we begin H2. We're executing really well. We're investing for the future, and we're delivering strong returns for shareholders. Happy now to hand over to questions on the line. Operator: [Operator Instructions] Your first question today comes from Eric Choi with Barrenjoey. Eric Choi: Just first question, just on TI, I was wondering if it's on a potentially improving revenue trend now. It delivered 13% growth first half. But in the second half, pricing packages will be on 1 Jan versus your changes in April last year. And then you mentioned you won that Winnebago contract in media, and it looks like Marine is going to keep ramping. So my first question is, are there potentially more drivers of growth in second half '26 additional to what was in the first half for TI? Sorry, do you want the other questions as well? William Elliot: Yes, why don't we take them one at a time, Eric. I'm happy to take that one first. I mean, clearly, revenue growth has picked up in the U.S. in the first half, which is great to see. And David and the team are doing an excellent job. And the drivers you mentioned are correct in terms of all the things that have led to an increased result. Second half, we would expect all other things being equal, the upside to the first half would be that we did the price rise a little bit earlier, which should give us a little bit of incremental value. The only other thing I'd call out is that as we head into the high season for rec and particularly in marine and then in our other verticals in RVs and powersports, we will be investing in marketing. So yes, I just wanted to make sure that made that comment. Hopefully, that helps. Eric Choi: The second question. Great stuff on all the AI that you put in the presentation, super helpful. Can I just hone in on Slide 38, which says there's no incremental investment in AI required? Can we just clarify what that investment is today in dollar or people terms? And does that new statement still mean you can grow net AI spend in line with your group cost growth, which is kind of tracking at 10% plus? William Elliot: Yes. So I think very difficult to specifically isolate our total investment in AI. What I will say is that -- you can see our software development spend that gets capitalized was $60 million for the half. So that's on an annualized basis, there's $120 million of investment. And a growing proportion of that investment is going into AI. And that doesn't include probably close to double that spend that sits within the P&L. And so we're increasingly focused on using AI to enhance consumer experience. But the beauty is that we're delivering efficiencies, particularly in software development and customer service, which is helping to fund that growth. And so overall, we don't expect CapEx as a percentage of revenue to change as a result of this increasing investment in AI because we're funding it through efficiencies. Eric Choi: Good stuff. Can I fit in -- sorry, Will, just you're probably sick of this question, but just wanted to confirm, macro isn't having a material impact on your volume. So maybe if you can tell us what lead volumes were up for Australian dealer and maybe confirm that TI dealer counts must have been flat. And I guess, can we infer giving your full-year guidance is pretty much in line with first half performance, but you're seeing similar volume trends into the second half? William Elliot: Yes. No, I think that's a fair comment. The business historically has performed well in different macro cycles, and this half was no exception. And so we're continuing to deliver great performance regardless of the interest rate cycles. And great to see Trader Interactive pick up in the first half. That's probably the one that is more exposed to consumer sentiment and interest rates. But overall, I think the business has shown its resilience over a long period of time. In terms of lead contribution in Australia, that was about 4%, circa of the 10% growth we delivered in the first half was from leads. Operator: The next question comes from Entcho Raykovski with E&P. Entcho Raykovski: So if I can -- I mean, I can just start out as a follow-up on the AI spend question. I mean, a lot of focus on this in the market. And you said it's difficult to split out, but I wonder if you can provide an indication of the spend you're committing to the AI hub specifically. And then, how that's accounted for between regions? Like does it all sit in Brazil? Or are you sort of apportioning between regions? And you touched on this in the preso, but sort of how do you think about the timing of monetization of the products you're developing? A long question, but that's my first one. William Elliot: Thanks, Entcho. That's a good question. So the CG Hub, we're really excited about that there because it's one of the benefits we get being a larger group and being able to get efficiencies and economies of scale. And the talent, as many of you will know, in Brazil is outstanding and just the pool of talent is so large that it makes sense for it to be there. And obviously, given now that 50% plus of our revenue comes from the Americas, it's a great location for it to be based. So that's the first thing I just want to say about the hub. In terms of investment, we'll start with about 30 people in its early days, and that will certainly grow over time. The cost allocation, I think, will be done just a portion based on most likely revenue across the group, I would say, will be the way that we do it. So it's delivering services to the whole group. And I think the other thing worth noting is that to start with is going to a fraction of the overall investment that we're making in AI because we do have specific teams focused on AI in every single jurisdiction. And also, it's everyone's job. And so the investment that we're making overall is a lot bigger than that. Entcho Raykovski: Okay. Great. And then, I mean, it's sort of a related question, but what have you seen in terms of the lead nurturing initiative in Brazil? I wonder if you can give us any numbers on what sort of conversion you see from a lead, which is qualified versus nonqualified. How can you monetize this? Can you actually charge more for those leads? And just as a broader question, which I'm sure you're thinking about with the lead-based model, does it create a bit of a challenge if you're generating fewer leads, but they're perhaps better qualified leads? William Elliot: No worries. I'll hand over to Eduardo to answer that question on lead nurturing. Eduardo Jurcevic: Yes, for sure. Thanks for the question. I would like to say two things in terms of data. One is that the conversion is almost a double, which is very good. And also that the dealers that is using our CRM with the integration with AI, which is the premium version, they are receiving 20% more leads than others that they are not using. So it's very helpful what we are doing in terms of leads, in terms of volume of leads to. I know that could -- you think that you're going to decrease the number of leads with more quality, but we are not seeing this. Of course, we have also the national expansion helping to bring more audience and leads, but we are increasing the number of leads too. So it's a very good combination so far in terms of the results, what we are seeing with AI integrated with our platform. Entcho Raykovski: Okay. Great. Just a final -- maybe a very quick one. The ChatGPT integration in Australia and Brazil, are you able to provide any more detail just around the structure of any agreements with OpenAI to launch the integration? William Elliot: Yes. Thanks, Entcho. I think the philosophy just around the integration, and it will be the same philosophy with anyone who's providing research options at the top of the funnel is to connect where the audience is. Most of our traffic, the vast majority of our traffic comes directly to our sites. But like we have done with traditional search engines over time, we have our brands in those search engines to connect with audience where appropriate. And that strategy is no different with ChatGPT. Obviously, they're getting the majority of the traffic from an LLM perspective at the moment. So we're prioritizing our integration with them. There's nothing exclusive with them, is the way I'd describe it. Operator: Your next question comes from Roger Samuel with Jefferies. Roger Samuel: My first question is just on your guidance, which is provided on a constant currency basis, obviously. But with the depreciation of the U.S. dollars, how are you going to think about the impact of that on your reported numbers in FY '26? I mean should we be expecting maybe a few percentage points of headwind from FX and -- or do you think that you can offset that through better operations from TI? William Elliot: Thanks for the question, Roger. So just to be clear, our guidance that we provide is all in constant currency. So the guidance ranges are in constant currency, not in AUD. And you're right, there is a headwind from an FX perspective at the moment across multiple currencies. The impact for us is about 3% to 4% of a headwind in the second half, which would be an overall 2% difference between our constant currency growth for FY '26 and Australian dollar growth for FY '26. That's the impact if the currencies stay where they're at today. Roger Samuel: Got it. And in terms of your AI strategy, so you mentioned about integration with ChatGPT. But yes, just wondering, looking forward, you're not concerned that the eyeballs would divert from -- directly to your website or your apps into ChatGPT in the long term? William Elliot: If you look at our audience, Roger, in terms of the growth in unique audience over the last 6 months, it's been the strongest I've seen it for a very long period of time, and that goes to two things: improving our consumer experience and investing more in our brands and marketing. And we're going to continue to do that over time. And so we're really happy with the amount of traffic that we're getting directly, but we're not resting on our laurels. We're continuing to improve that consumer experience, which hopefully comes through in the presentation. We need to be connecting with consumers from a research perspective at the top of the funnel, like I said, that we do with traditional search engines, and that's why we're integrating with LLMs. Roger Samuel: Got it. Okay. And maybe just a last question on Encar. So you've launched Guarantee++. Perhaps you can give us an indication of what's the yield from that product? I mean we understand that the Guarantee ad right now is 5x the yield of standard. So it's Guarantee++ is a lot more than that? William Elliot: No worries. I'll hand over to SB to ask that question on Guarantee++. Sangbeom Kim: As you might be aware of Guarantee++ is still at the early stage of the product. So we did a pilot last year, and we are in the process of [ resigning ] in this year to make it adapted in different geographic locations. But the cost-wise is about 10% to 20% higher, but the pricing is roughly about 30% to 40% higher than the Guarantee 1.0. So we still believe it's much more profitable than the Guarantee 1.0. And also going forward, if we are able to secure that economy of scale or the synergy effect between existing branches and Guarantee 2.0, probably the yield will be improving over the period of time as well. Operator: The next question comes from Siraj Ahmed with Citi. Siraj Ahmed: I have 3 questions as well. Just first one, Will, in terms of guidance for the full year in constant currency, first half essentially came towards the top end, right? Anything in the second half, why it shouldn't be -- why full year doesn't come to the top end as well? Anything that moves from a regional perspective? William Elliot: Thanks, Siraj, for the question. Obviously, the momentum of the business is excellent. And so we feel confident delivering within our guidance. Clearly, we've performed closer to the top end in the first half, which is great, and we'll be targeting to do that in the second half as well. Siraj Ahmed: Second thing, maybe, Will, on TI, 13% growth, which is a great outcome. I guess, previously, you thinking about mid-teens, right, through the cycle. Just is it essentially dealer growth that's pulling that back? Or is there anything else when market normalizes that this could actually be above 15% as well? William Elliot: I think that's probably a good one for David to answer just on any changes as macro continues to improve. David McMinn: Yes. Thanks, Siraj. I mean, look, we're guiding to, as you know, 12% to 14%. I was really happy with 13% half 1. In terms of the key drivers of that, obviously, yield obviously plays a role with 4%. Our product was important. So our premiums as well as our digital agency product continues to flourish in this market, along with our media business, which is really nice to see that growing rapidly. And then combined, SSI and our acquisitions in marine sort of gave us about 3%. We will get an improvement in half 2 because of the rate timing, but we'll continue to invest that money as it relates to our rec brands as well as marine as the season picks up. Siraj Ahmed: Got it. Just last one. The Slide 15 is pretty -- that's a great slide, Will, in terms of AI, right, and the integrated ecosystem. Just wondering, from a regional perspective, are there any markets where you actually need to step up in terms of the integrated ecosystem? Just asking because general view is that TI needs more work and you have made progress. But just keen to hear your thoughts on just a regional perspective where you can actually make a bit more investment and be better. William Elliot: No, Siraj, it's a good question. And obviously, we think about it carefully in every market because they all have nuance and each of them has different strength in terms of their integrations into the ecosystem. Clearly, one of the strategic moves I mentioned at the start was acquiring a small CRM business that operates in the verticals that we have in the U.S. And that is quite strategic in terms of giving us access to the additional layer of data with our customers because it's a leading CRM in the verticals in which we operate. And so I think that will only strengthen the U.S. ecosystem. But outside of that, as you say, we've done a lot of work on making sure that we're integrated with both dealers, OEMs and all sorts of other platforms to make sure that we're delivering insight and data that others can't replicate. And so I think the U.S. is strong and will be strengthened by that acquisition. Operator: Your next question comes from Fraser McLeish with MST Markets. Fraser Mcleish: Will, just two for me. And I guess both of them around the sort of whole AI sort of risk issue that's sort of dominating market thinking at the moment. Just the first one, just on the sort of, I guess, robustness maybe of the commercial model, particularly the leads-based commercial model, if there is a bit of audience and inquiry leakage maybe at the margins, but going to AI to other platforms, given that you do charge price in some markets on a lead basis. And then the other one was just unique listings, I guess, are going to be increasingly important, which you have in private, I guess. Can you just talk about to what extent your listings, particularly in private could be considered unique? William Elliot: Thanks, Fraser. Good question. So in terms of the lead model, I think the reality for the lead model is we could charge in different ways. And as we do in some of our markets, we have leads and others, we don't. And I don't think it makes a huge difference. The one thing I'll say is we're very confident in our ability to continue to deliver the vast majority of our traffic directly through creating a great consumer experience and investing in our brand. The quality of the leads can change from time to time. So one of the things Eduardo was talking about before is if we're making our leads more valuable because they're converting at a better rate, we can always charge more for our leads as long as they're delivering great outcomes for our dealer customers. Then in terms of your question around unique listings and the impact of private, one of the major competitive advantages that we've had for a long period of time is having a mix of private and dealer inventory, and we do that as well as anyone in the world from a vehicle marketplace perspective. And I think where we're seeing LLM models start to become more prevalent, that's only going to continue to cement our competitive advantage having that very depth of inventory. Operator: Your next question comes from Lucy Huang with UBS. Lucy Huang: I got three questions as well. Just the first one on AI. Sorry to ask another one, but just wanted to get your thoughts on pricing power, I guess, in the environment of all the AI innovation that you're putting through? Like do you think over the medium term, you can monetize that through higher price rises or is it getting customers to take on more premium products that have better AI features -- just to kind of think about how you're thinking about monetization of the AI features that you're launching? William Elliot: Thanks, Lucy. In terms of AI product and pricing power, I suppose we don't think about those products as any different to any of our other products, in that if we're creating substantial value for our customers, whether that's private sellers, buyers, dealers, OEMs, then price will follow. So what we're focused on is making sure that the products that are supported with AI that they're delivering very strong outcomes. And I think I mentioned earlier in the call that we're seeing incremental revenue from these products that are supported by AI already, whether that's lead nurturing, whether that's some of the merchandising and sourcing products that we've got in market in Australia and the U.S. or the guaranteed inspection product that's been materially improved with AI. So we're monetizing already. We think it's only the beginning. Lucy Huang: Yes. No, that makes sense. And then just on TI, so with the pricing restructure to the 3 tiers: Core, Pro and Ultimate, are you going to talk through the split or which are most customers landing on at the moment? And how do we push the customers up the tiers over time? William Elliot: Thanks, Lucy. I might hand that one to David just to talk through the repackaging. David McMinn: Yes, good questions there. Look, as you just articulated, we rolled out the packages from October, November into December. They went live in Jan. We've got Core, Pro and Ultimate. They're simple to understand. It's a lot easier rate card. We built the price rise into it this year, which was nice. We added a bunch of new products that we articulated earlier on the call that are finance integration, history reports and AI stock selective advice stronger conversion as well as call transcripting, which is super helpful for dealers. It's early days because it's only just gone live, but it's going well. And in terms of moving forward and where we see it as being super valuable is, we can now demonstrate value in a lot clearer way, okay? So if someone's upselling, we're going to be able to speak to them about what they need to pay and what the response is going to be to move up that journey on the latter. And the same goes for downgrades. So in the past, because our model was only really subscription with thousands of ala carte products, it was very, very easy for dealers when things are not great to just peel off things that they didn't see as value driving such as branding. So we think that it's a great foundation. We're well set and simpler for our people, and it's also clearer for customers. Lucy Huang: That's super helpful. And then just one last one. Are you able to talk through Australian private trends, like how volumes have trended through the half and whether dynamic pricing is lifting to offset that? Because just noticed that it was called out that IO was probably the bigger driver of yield growth in private in the last 6 months. William Elliot: Thanks, Lucy. I'll get Craig to answer that question on the private trends in Australia. Craig Fraser: So we're still seeing a continuation of a shift from private inventory to dealer. And our IO business has performed very well in the first half. In terms of dynamic pricing, that's working really well for us. And what we're also seeing is a lot more value creation in our packages as we really double down on our C2C environment, but we are definitely seeing a transition from private inventory over to dealer, and that's been a trend over the last 18 months. Operator: Your next question comes from Bob Chen with JPMorgan. Bob Chen: Just a quick one, firstly, on margins. Obviously, your guidance suggests that the margin compression here this year with a lot of investment going on in North America and Korea. Do we expect to get through that this year and go back to a phase of margin expansion into the following years? William Elliot: Yes. Thanks, Bob. I won't provide specific margin guidance for next year. But you're right in terms of there have been some specific things that we've invested in this year, which have led to that small gap between revenue and EBITDA growth. I'd like to think that going forward, we're still delivering underlying operating leverage in our business. And that hasn't changed, and we still think that, that's going to be there going forward. And so should we not invest in those things to the extent that we have over the next 1 to 2 years, then I would expect to see revenue and EBITDA to grow more closely in line. Bob Chen: Okay. Great. And then just on, obviously, a lot of talent around AI and that investment in AI. It seems like it's all very well controlled in your current cost envelope. Like how should we be thinking about the incremental margin of these AI product enhancements and revenue that's sort of coming through? Does it track broadly similar to what you've historically done? Or is there actually maybe an accretive nature to some of these AI investments, given it's really sort of accelerating some of these new products you're coming into market with? William Elliot: No, it's a good question. We're very excited about the product evolution. And one thing in the last 6 to 12 months that you can see the amount of product we're releasing to market is growing, and that's off a fairly similar cost base. And so I think that just goes to the amount of product that we're getting through. And so that will give us the opportunity to monetize even more as we go forward. I think the other thing I mentioned is the benefits that we're getting at the moment and the efficiencies we're getting from AI around code development, customer service and other automation is being reinvested back into AI product development, including in CG lab, there is the potential for us to get some benefits if we were to choose to not reinvest all those efficiencies. But at the moment, the right call is for us to continue to accelerate our product. Bob Chen: Yes. Okay. Perfect. And just more broadly, I guess, from all that risk around AI and what people are sort of concerned about, I mean, have you seen anything from a competitive front, new sort of interesting sort of models coming in or competition coming in, leveraging native AI technologies that you do see as a bit of a risk or a threat for your business? William Elliot: Thinking about this issue isn't new at all for us, Bob, because we've been thinking about competition all the time, and that's the competitors in front of us, and it's the ones that you don't see. And so I think I mentioned before, our economic moat is very strong. We've been very critical to the whole ecosystem around vehicles for a long period of time. And then we're also making moves to even strengthen that further, including some of those strategic acquisitions I mentioned earlier. And so we've made a long-term deliberate strategy of making sure we're right at the heart of that ecosystem. Nothing has changed in the last 12 months. If you look at our unique audience, I think I mentioned before, I've never seen that as strong as it is currently, which is a testament to those investments that we've been making. Operator: Your next question comes from Tom Beadle with Jarden. Thomas Beadle: I've got a couple of questions, please. Just firstly, maybe a follow-up from Roger on the Guarantee++ product. I'm probably asking the same question in a different way maybe. But I'm just -- can you just help us frame that opportunity, please? So for example, if you just get -- move from that current penetration of guarantee from 59% to that aspiration that you have for 50% guaranteed, 30% Guarantee++, what revenue uplift would that mix shift provide? Do you want me to ask my second question or... William Elliot: Maybe we'll get [ Espeter ] answer that one first. Thanks, Tom. Unknown Executive: Sure. I'm afraid it's very hard to pin out the specific number, how it will be. But if we take a step back and looking about the role of Guarantee 2.0 in our existing business, it is a kind of bridge product between the Guarantee 1.0 and our home services, which is one is transaction model, right? So if you remember that home services, our average revenue per vehicle transaction is around $200, while Guarantee 1.0 is about $100, Guarantee 2.0 will be located in between to do that. I think it will help us to be increase the transaction volume based on the wider and deeper inspected information and the customer will feel more comfortable to buy the car via us. But at the same time, it is still the advertisement model. So it can guarantee the base revenue stream, even in the case that the transaction is not happening. So instead of specific number, I mean, I would help you to understand how that product is located in our strategic journey. Thomas Beadle: That's helpful. Just a second question on the cost side of things. I mean they probably came in a little bit higher than expectations in the first half. And I mean, I guess if we park the AI investment to one side, generally, what are you -- are you seeing any cost pressures in the business that are worth highlighting? I mean there's talk of general cost inflation at tech companies, things like cloud hosting costs are up 10% to 15% year-on-year potentially. I mean anything to highlight there, things like employee costs? William Elliot: No. Thanks for the question, Tom. Nothing's changed from that perspective in terms of any change in sort of cost trajectory. I think the only two things we called out for the reason where revenue is a little bit higher than EBITDA and it's marginal at best was the investment we're making in Marine in the U.S. and the investment we've made in branding in South Korea, particularly with respect to the Dealer Direct product. They're the two key things. And outside of that, cost base is in good shape. And I think the investments we're making are generating a good return on investment. I think that's -- we've got probably time for one more question. I'm not sure if you've got one more, Tom, I'll hand back to the operator for one more. Operator: We'll take one more question from Nick Basile with CLSA. We'll take one last question from Sriharsh Singh with Bank of America. Sriharsh Singh: Just one question from my side, following up from Siraj's previous question in U.S. I think most of us understand the platform moats in markets like Australia, Korea and Brazil pretty well, given unique inventory guarantee ad product and finance integration. Just on the U.S. market, do you see like -- one of the investor concerns is [ Claud ] launching, a direct plug-in for dealers and OEMs so that they can load the inventory into the LLMs. Do you see that as a risk because the inventory in U.S. is not as unique as it relates to new items, dealer led? Or -- and how do you plan to enhance your competitive moat in the U.S. in the coming year? William Elliot: Thanks for the question, Sriharsh. I don't see our competitive moat or dynamics in the U.S. is different to any of our other markets in terms of our integrations with dealers and OEMs. Clearly, I've mentioned before the move we've made around acquiring a CRM business, which I think only strengthens that moat further. Our brand in the niche verticals that we operate in is very strong. We deliver significant audience advantage versus our nearest competitor. And the things we're focused on is just creating an amazing consumer experience and making sure we invest in our brand. So we're very pleased with how everything is going.
Operator: Good afternoon, and welcome to Columbus McKinnon's Third Quarter Fiscal 2026 Earnings Conference Call. My name is Constantine and I will be your conference operator today. As a reminder, this call is being recorded. And I would now like to turn the conference over to Kristy Moser, Vice President of Investor Relations and Treasurer. Kristine Moser: Thank you, and welcome, everyone, to our call. On today's call, we will be covering our third quarter fiscal 2026 financial and operational results. On the call with me today are David Wilson, our President and Chief Executive Officer; and Greg Rustowicz, our Chief Financial Officer. In a moment, David and Greg will walk you through our financial and operational performance for the quarter. The earnings release and presentation to supplement today's call are available for download on our Investor Relations website at investors.cmco.com. Before we begin our remarks, please let me remind you that we have our safe harbor statement on Slide 2. During the course of this call, management may make forward-looking statements in regards to our current plans, beliefs and expectations. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that can cause actual results and events to differ materially from the results and events contemplated by these forward-looking statements. I'd also like to remind you that management may refer to certain non-GAAP financial measures. You can find reconciliations of the most directly comparable GAAP financial measures on the company's Investor Relations website and in its filings with the Securities and Exchange Commission, please see our earnings release and our filings with the Securities and Exchange Commission for more information. Today's prepared remarks will be followed by a question-and-answer session. We respectfully ask that you limit yourself to 1 question and 1 follow-up question. With that, I'll turn the call over to David. David Wilson: Thank you, Kristy, and good afternoon, everyone. Last week, we were very pleased to announce that we closed the Kito Crosby acquisition. We have been working diligently over the past few quarters towards closing this transformational acquisition and are excited to now get to work on delivering the benefits associated with bringing these 2 innovative companies with industry-leading technical expertise, customer-centric cultures and a shared vision for operational excellence together. We are welcoming the Kito Crosby team to Columbus McKinnon as we combine the best of our collective talent and capabilities to deliver an enhanced value proposition for our customers. Additionally, we expect to close the previously announced divestiture of our U.S. power chain hoist and chain operations by the end of this quarter. This will be the final step in aligning the combined company towards our next phase of growth. Let me now shift to our quarterly results. As part of our permanent financing, which was recently completed at attractive interest rates, we preannounced key metrics for the third quarter and are happy to share that we came in at the high end of those ranges. We delivered double-digit growth in sales, orders, EPS and backlog year-over-year as we saw continued stabilization in U.S. short-cycle order activity and capitalized on our strong project backlog. We continue to see an attractive global funnel of opportunities, and our backlog remains at healthy levels, positioning us well for the future. Adjusted EBITDA was $40 million with an adjusted EBITDA margin of 15.4%. This margin was flat to the prior quarter as our tariff mitigation actions offset normal seasonality. Adjusted EPS improved 11% from the prior year to $0.62. Additionally, we made meaningful progress on operational improvement, tariff mitigation and integration preparedness initiatives. While it's becoming increasingly difficult to estimate tariff costs as vendor price increases begin to replace tariff-specific surcharges, we believe that we came in slightly ahead of our $10 million net tariff impact in the first 3 quarters of fiscal 2026. We continue to expect that we will achieve tariff cost neutrality by the end of the year and margin neutrality in fiscal 2027. I'd like to thank the entire Columbus McKinnon team for their unwavering commitment to our customers and strong execution in the quarter. The team successfully managed through a complex set of strategic objectives and an evolving market landscape while delivering ahead of our initial expectations for the quarter. Orders were up 11% to $247 million. The U.S. grew 15%, driven by strength in lifting, automation and precision conveyance, and EMEA grew 3% despite the continuation of a weaker economic landscape that is causing slower order conversion. Globally, growth was balanced across both short-cycle and project orders, reflecting stabilization of short-cycle demand, traction on our commercial initiatives and implementation of tariff-related price increases. Our pipeline of quotation activity remains encouraging, and we continue to see a strong funnel of new business opportunities. We expect U.S. demand to remain healthy, driven by lower interest rates, favorable CapEx deduction rules as part of the new tax legislation and benefits from onshoring, all of which will serve as tailwinds for our business. As mentioned previously, in EMEA, we expect choppiness to persist given the forecast for a challenging demand environment in the near term. While the pipeline for new business continues to build, order conversion is expected to continue to be slower than typical. We are focusing our efforts on vertical end markets with tailwinds like metal processing, government and defense and heavy equipment as well as end markets where we've been building a leadership position like battery production, e-commerce, food and beverage and aerospace. Our backlog is strong, up 15% versus the prior year to $342 million with an increase across all platforms in both our short-cycle and project businesses as we've continued to deliver on our commercial initiatives and capitalize on U.S. market stabilization. I'll now turn the call over to Greg to share the details of our third quarter financial results. Gregory Rustowicz: Thank you, David. As David shared, Columbus McKinnon delivered strong results in the third quarter with double-digit growth in sales, orders, backlog and adjusted EPS. We delivered net sales of $258.7 million up 10.5% from the prior year driven by higher volume, pricing and favorable currency translation. We saw particular strength in lifting, linear motion and automation. Growth was strongest in North America, driven by stabilization of demand in the U.S., and we saw a modest organic growth in EMEA against a weaker economic backdrop. Pricing impacts continue to accelerate, and we expect pricing to continue to ramp over the next several quarters as we work through our backlog. Short-cycle sales increased 13% with outperformance in the U.S. benefiting from both pricing and volume growth. Project-related sales increased 8% as we converted backlog to revenue globally. Gross profit of $89.2 million increased $7.1 million or 8.6% versus the prior year on a GAAP basis, reflecting higher sales volume, price increases and favorable FX rates. We also had lower factory consolidation and start-up costs in the quarter compared to a year ago, which was partially offset by negative tariff-related impacts. On a GAAP basis, our gross margin was 34.5%, and on an adjusted basis, our gross margin was 35.1% -- adjusted gross margin contracted 170 basis points year-over-year due to unfavorable product mix and the impact of tariffs. Product mix this quarter was unfavorably impacted by the timing of sales for our higher-margin precision conveyance platform as well as a less favorable product mix in our U.S. lifting business. We also had more rail project shipments globally and less linear motion sales, which negatively affected margins. RSG&A expenses this quarter included $6.3 million of acquisition-related costs for the Kito Crosby transaction as well as our pending divestiture. Excluding these items, adjusted RSG&A as a percent of sales was unchanged from the prior year, even with the lapping of a favorable incentive compensation accrual release. As a result, we generated operating income of $16.2 million in the quarter on a GAAP basis and adjusted operating income of $24.5 million. Adjusted operating margin was 9.5% in the quarter. This resulted in adjusted EBITDA of $39.8 million in the third quarter with an adjusted EBITDA margin of 15.4%. Please note, the calculation of adjusted EBITDA and margin now includes an add back for stock compensation expense to be more consistent with our credit agreement definition. GAAP income per diluted share for the quarter was $0.21, up $0.07 or 50% from the prior year. Adjusted earnings per share was $0.62, up $0.06 or 11% year-over-year due to higher net income resulting from higher sales volume and pricing as well as lower foreign exchange losses in the current year compared to the prior year. Free cash flow in the quarter was $16.5 million, reflecting higher earnings, favorable working capital, increases in customer deposits and lower cash taxes, partially offset by $6.7 million of transaction-related cash payments. As David previously mentioned, we're pleased to have announced the closing of the Kito Crosby acquisition. Now that we've closed the transaction, we have begun integration activities, including executing against our $70 million net run rate cost synergy target. In connection with the acquisition, we completed our permanent financing to fund the transaction, which included a new $1.65 billion Term Loan B based on 3-month SOFR plus 350 basis points, which was funded at 99% of face value. $900 million of senior secured notes with a coupon of 7.125% funded at par, $800 million of perpetual convertible preferred stock, along with a new $500 million revolving credit facility, which significantly increases the company's liquidity. We are pleased that our financing rates came in below our initial estimate of approximately 8%, accelerating our ability to pay down debt and delever the balance sheet. Additionally, we increased the amount of our Term Loan B and the capital structure which is prepayable without penalty. With significant cash flow generation expected, we have the flexibility to pay down debt ahead of scheduled amortization, which will further reduce interest expense. Additionally, we intend to use the proceeds of our pending divestiture of our U.S. power chain hoist and chain operations, net of taxes and transaction fees of approximately $160 million to pay down the Term Loan B. We expect that transaction to close later this quarter. Going forward, the company's primary capital allocation priority will be debt repayment. We expect that our significant combined free cash flow will enable us to reduce our net leverage ratio to below 4x by the end of fiscal 2028. Given the recently completed acquisition of Kito Crosby and the uncertainty around the timing of our pending divestiture, we are withdrawing our prior Columbus McKinnon stand-alone guidance for fiscal year 2016. As usual, we will provide guidance for fiscal '27 on our earnings conference call in May 2026 when we report our fiscal year '26 fourth quarter results. Certain transaction-related expenses, purchase accounting adjustments and early integration costs are expected to be recorded in the fiscal fourth quarter of 2026. The impact of these costs, along with higher interest expense is expected to be dilutive to GAAP earnings per share in the fourth quarter and for the full fiscal year of 2026. We also expect significant transaction and other deal-related costs in the quarter which will negatively impact free cash flow, both of which have been anticipated. We are enthusiastic about the recently completed acquisition of Kito Crosby and our ability to achieve our stated long-term objectives. Our operational and commercial teams remain focused on business continuity and delivering on our operational and customer service initiatives. In addition, our integration management office as a dedicated team of cross-functional leaders to advance our progress on cost synergy realization and drive revenue synergy upside. While the acquisition closing process has gone on almost a year, we have used our time wisely to advance our integration and synergy plans. I want to add that we are excited to welcome the Kito Crosby team to the Columbus McKinnon family. And going forward, we are one team with a common shared vision of the future. Operator, we are now ready to take questions. Operator: [Operator Instructions]. Your first question comes from the line of Matt Summerville from D.A. Davidson. Matt Summerville: A couple of questions. First, can you remind us a bit on the seasonality in the Kito Crosby business kind of compare and contrast versus that of the core business? And also talk about the timing in which this $70 million in cost-related synergies is realized, meaning how much is sort of in year 1 versus year 2 versus year 3? Any kind of help you can give there? And then I have a follow-up. David Wilson: Sure. Thanks, Matt. So as you know, Columbus McKinnon as a stand-alone business has its strongest quarter in the fiscal fourth quarter, which is the quarter that we're in, ending in March. Kito Crosby year-end is a December year-end, and they also typically have their strongest quarter seasonally in the fourth quarter for them, so our fiscal third quarter. And then nothing beyond typical trends in the industry that would be driving normal activity in the business, which in our business, as we compete in the same markets, we tend to see a first half that's more or less equivalent to the second half and a bit of a stronger second quarter and a stronger fourth quarter. So I think we expect to see something similar with their business profile. And then from a $70 million of synergies perspective, we expect roughly 20% in year 1, and that number going up to 60% realized in year 2 and then the full 100% of the $70 million realized in year 3. Matt Summerville: Got it. And then as you kind of think about I would assume the EBITDA cadence for Kito would follow a similar pattern. So if that's -- if I'm mistaken on that, please correct me. But then I was hoping you could do kind of a deeper dive kind of around the horn, if you will, on your major end markets in addition to what you said in your prepared remarks. So a bit of a deeper dive, if you will, there and maybe add a little bit of geographic color as you do it. David Wilson: Well, Matt, the first part of your question, you would expect that Kito Crosby is going to be in the 22% to 23% EBITDA margin range with the sales level that they have. So nothing unusual from that perspective. Yes. And then, Mark, I'm sorry, as it relates to markets, we benefit from broad-based exposure to many end markets as does Kito Crosby. In this past quarter, we're seeing general industrial space strength and investment in automation. We saw a lot of demand in the automation space. We also saw a really nice demand profile for e-commerce orders, and we're seeing those start to come back. Bright spots also included construction, aerospace and government, heavy machinery and food and beverage. And then some pockets of slower demand included general stocking distributors who managed inventory into the year-end. As well as energy and utilities, although this is impacted by project timing, and we expect that to improve. As it relates to geographic demand, orders in the U.S. were up 15% and orders in Europe were up 3%, but much of that was FX driven. And so we're -- we saw demand in Europe continue to be slower than anticipated. And as we provided comments in the prepared remarks, we anticipate that, that slower decision-making is going to continue into the coming quarter. Operator: Our next question is from the line of James Kirby from JPMorgan. James Kirby: Congrats on closing on the acquisition. I guess just on -- I know you aren't giving forward quarter or even next fiscal year guidance here. But just, I guess, based on the original assumptions embedded in the deal when it was announced a year ago, how are both businesses trending? And I hope you can comment on that now that the deal is closed relative to your initial assumptions? David Wilson: Sure. And what I would say is that we provided in our January 14 press release when we announced the divestiture, a pro forma fiscal year '26 guidance range assuming that we would own Kito Crosby for the full year as well as that we divested the chain and electric chain hoist business at the beginning of the year. So kind of a pure pro forma view, inclusive of $70 million worth of net run rate synergies. And in that set of assumptions, we were running somewhere between $2 billion and roughly $2.1 billion. We had in terms of revenue. And then we had EBITDA that was in the $440 million to $460 million range in the combined business. Now you'd have to get to a base business without the synergies, you'd want to back off $70 million from that on the assumed benefit over the 3 years. And then we could add back in the 20% for year 1 if you were thinking about the business from a go-forward basis. And that would be the TTM performance from March 31 backwards from a range perspective. I hope that helps, James. James Kirby: Got you. It does. I was speaking more in terms in the macro background. I mean -- and I'll weave that into my second question here, but obviously, a really strong start to the calendar year. ISM data was strong. Short-cycle is up 13% last quarter or the quarter you just reported. Is that -- and maybe just following on Matt's question, is that sustainable? Or do you think that is somewhat of a recovery from a slowdown last year? And maybe just more color into the sectors driving that order pipeline. David Wilson: Yes. So short-cycle business is robust. We did see a 10% year-over-year increase in short-cycle orders last quarter. And seasonally, it's sequentially down typically versus the second quarter as stocking distributors take some inventory out of the channel. But as we head into the first quarter of this year, we do see orders up slightly over prior year in the period-to-date through January. And so continue to anticipate that the short-cycle demand remains robust, notably in the United States. And we feel good about the demand funnel. Our funnel is quite healthy, and that is a reference to global activity and inclusive of EMEA, where decisions are a little bit slower given the overall view of large economies there, notably the IFO index for Germany as a leading indicator that we're looking at. But as you said, we see good trends in the U.S., and we're encouraged by that demand profile and would see that continuing for our business into the -- at least into the first half of this year. And James, just a follow-up on -- circle back on the beginning part of your question. So we did preannounce ranges for Kito Crosby's 12/31 results. A year ago when we announced the deal, we were pointing to about $1.1 billion in revenue and $263 million of adjusted EBITDA. And with the 8-K we put out on January 14, we ranged their sales at between $1.140 billion and $1.150 billion, so up probably 3% to 4% and adjusted EBITDA between $273 million and $283 million, so up nicely. Operator: The next question comes from the line of Steve Ferazani from Sidoti. Steve Ferazani: Just wanted to touch on the margins and tariff offsets a little bit. I'm trying to figure out the margin squeeze year-over-year this quarter. How much of that is from tariffs and how much of that is from mix? I think you pointed to some more rail -- lower-margin rail deliveries this quarter. And then what levers you need to pull that remain to get you to tariff margin neutrality in fiscal '27, your confidence to get there? David Wilson: Yes. Thanks, Steve. And I would say just at a high level, the biggest impact was backed was mix, followed by tariffs. And really, we had a mix issue as it related to more unit sales in lifting equipment versus parts sales. And that obviously bodes well for future aftermarket opportunities with bigger installed base, but that consumed a bunch of our capacity in the quarter and reduced the opportunity to produce and sell parts. We also had a lower revenue number for precision conveyance product. And that was just based on the timing and delivery. Orders in that business in the U.S. are up considerably. And we have a significant backlog still related to the PowerCo orders that we received previously from montratec. But based on phasing delivery in the quarter was lower on a relative basis, and therefore, those 2 factors really led to a reduction in margins. As you know, rail shipments do have an impact on overall margin and the mix of rail versus actuation or screw jack sales into the OEM space or the machine builders market is a mix challenge for us that we're navigating as the markets in Europe are still growing or picking back up in the wake of a slowdown for machine building activity. Steve Ferazani: And then, the confidence level -- yes, the confidence level and ability to get to margin neutrality. Is it in terms of tariff? David Wilson: Yes, absolutely. We still anticipate that as we exit this year, we're at margin neutrality relative to the tariff impacts, and we are -- that is cost neutrality, I should say, and then margin neutrality next year as we execute on the initiatives that we have in store. Steve Ferazani: Okay. Given the prolonged nature to get the Kito Crosby deal closed, I know you've been working on integration ahead of our planning your ability to capture that your confidence level to capture those 20% of the $70 million of synergies in year 1. Any chance you're going to beat that? And is that going to be bad? Are you thinking that's back half weighted? David Wilson: Yes. We're working our tails off to deliver on that and to hopefully overdeliver that, certainly what we're striving to be able to do but our commitment is to get to the 20% in the year. And that's the way that we're targeting those savings and communicating about those savings. But as you know, we have a full and robust list of opportunities. We've been working since October with a full-time staffed integration management office, taking advantage of the time between signing and close to get ready for day 1 and to position ourselves with actions that allow us to certainly meet and hopefully exceed those targets, and that's what we're striving to be able to do. And I would anticipate in the natural course of those savings building that they would be naturally back-end loaded. Operator: Our last question will be from the line of Jon Tanwanteng from CGS Securities. Jonathan Tanwanteng: Congrats on closing the deal. My first one is, did you benefit or were you impacted by any pull-ins or pushouts in the quarter? And the reason I'm asking is just because that's been an item in the last several quarters. And I'm wondering if that was a factor in this one, too. David Wilson: Yes, Jon, nothing that we would state as material. Certainly, last quarter, we did reference that. But in this quarter, no, nothing that was too material. Jonathan Tanwanteng: Okay. Great. And then second, could you talk about how much of the strength in the quarter and the orders that you're seeing is from the U.S. chain hoist business just because that's going to be divested in the near future. And I'm just wondering what that looks like if that may not have been there. David Wilson: Yes. There was nothing material in the chain hoist orders or in the chain production orders that was that would have kind of in any outsized way, influenced the order number out of what would be typical. And so when we think about the performance in the quarter on a relative basis, I would say that orders were more or less in line for that piece of the business relative to prior periods. And so I don't think there's anything to specifically call out as it relates to demand that would go away and that business specifically being a big influencer of the order rate that we had in the third quarter. Jonathan Tanwanteng: Okay. Great. That's helpful. If I could squeeze one last one in there. I mean you did a bit better in the quarter. It looks like Kito is doing well as well, but you did pull the guidance, I understand due to timing, but it seems like the underlying trends are stronger compared to when you last guided. Is that fair to say? David Wilson: Yes. I mean I think the business in the U.S. is robust, and we feel confident about the performance in that region. I think in Europe, we continue to see some softness as it relates to demand and timing of orders related to the overall macros. And on an overall execution basis within our business, we have a strong backlog. It's up materially year-over-year. And we demonstrated in the last couple of quarters our ability to execute on that backlog. The challenge has been a bit of mix and how that mix is translating into revenue. And I would expect that to continue as we execute through this fourth quarter. But in general, trends are robust and the combined businesses will be, I think, delivering into markets that are going to receive the combination well. and we're going to be targeting the execution of synergies. And so I think this is a terrific opportunity to bring these businesses together. And over the course of this year and the coming 2 years, really deliver a lot of value for our shareholders. Jonathan Tanwanteng: Great. Thank you, David. David Wilson: Thank you, Jon. Operator: Thank you. That concludes the Q&A section of the earnings call. I will now turn the call back over to Mr. Wilson for closing comments. Sir, please go ahead. David Wilson: Thank you, operator. Before we close, I want to take a moment to reiterate the Columbus McKinnon investment thesis, having now closed the Kito Crosby acquisition. We believe this acquisition will be transformative, and I'm excited about our collective future. On a combined basis, we will be doubling our revenue base as we become a scaled global provider of Intelligent Motion solutions for material handling. This will better position us to deliver solutions for our customers, which meet both their routine needs and their most complex intralogistics challenges. We will also have improved leverage from scale across our global geographies and product portfolios. Geographically, both companies have strong positions that we will leverage and grow in North America. Additionally, we will benefit from our complementary positions in EMEA and Asia Pacific, and we have significant room to grow together in Latin America. Our combined product portfolio will allow us to assemble a holistic offering for our customers across all geographies and simplify the customer experience over time. We will also focus on delivering a one-stop experience for our customers, finding their buying and servicing processes. And our greater scale and combined free cash flow will enable investment in digital customer experiences that ensure we are at the forefront of the industry in terms of ease of doing business. Our operations will benefit from leverage across our combined material spend and the combined benefits of the Columbus McKinnon Business System, including 80/20 and Kito's expertise in lean manufacturing and process tools. In addition, we have plans to improve the financial profile of the company. while delivering the $70 million of identified net annualized cost synergies that we expect to achieve. Finally, our substantial cash flow generation potential is expected to rapidly delever the balance sheet to less than 4x net leverage by the end of our fiscal year '28. I firmly believe our best days are ahead of us. While I acknowledge the work that lies ahead, I am thrilled to be in this position. We have the right plan and team in place to ramp our integration efforts. Our newly combined teams are already partnering to enable synergized commercial initiatives and customer success. In tandem, our integration management office is laser-focused on delivering our cost synergy objectives and integrating these 2 great companies. I believe this combination will drive meaningful value for all of our stakeholders and usher in the next phase of growth for Columbus McKinnon. Thank you for your time and continued interest. As always, please reach out to Kristy with any questions. Operator: This concludes today's conference call. You may now disconnect.
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