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Operator: Good day, and thank you for standing by. Welcome to the Alpine Q4 Year-end 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jenna McKinney, Finance Director. Please go ahead. Jenna McKinney: Thank you. Joining me and participating on the call this morning are John Albright, President and CEO; Philip Mays, CFO; and other members of the executive team who will be available to answer questions during the call. As a reminder, many of our comments today are considered forward-looking statements under federal securities laws. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we undertake no duty to update these statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's Form 10-K, Form 10-Q and other SEC filings. You can find our SEC reports, earnings release and most recent investor presentation, which contain reconciliations of the non-GAAP financial measures we use on our website at www.alpinereit.com. With that, I will turn the call over to John. John Albright: Thank you, Jenna, and good morning, everyone. We are pleased to report a strong fourth quarter highlighted by 22.7% growth in AFFO per common share and $142.1 million of investments to complete an annual record of $277.7 million of investments for 2025. This record annual investment volume consisted in driving 8.6% growth in AFFO per common share for the full year 2025. Beyond investment volume, we successfully executed on all areas of our business plan during the year. Specifically, as it relates to property acquisitions, during the fourth quarter, we acquired 8 properties for approximately $40 million at a weighted average initial cash cap rate of 6.9%. For the full year, we acquired 13 properties for $100.6 million at a weighted average initial cap rate of 7.4% and Notably, these acquisitions are representative of our strategic barbell approach to acquisitions. It included investment-grade rated tenants such as Lowe's and Walmart, plus higher-yielding property investments like the headquarters and manufacturing facility for Germ-free labs. Alongside this 2025 acquisition activity in the fourth quarter, we also continue to successfully execute our strategic recycling plan, selling 9 noncore properties for $38.4 million at weighted average exit cap rate of 7.7% and bringing property disposition volume for the full year 2025 to $72.8 million, consisting of $67.4 million of income-producing properties at a weighted average exit cap rate of 8% and $5.3 million related to vacant properties. As a result of this combined 2025 property portfolio activity, 51% of our ABR is now generated from investment-grade-rated tenants. Notably, Lowe's, Dick's Sporting Goods and Walmart are now all within the top 5 tenants, collectively representing 29% and of our ABR. Further, Walgreens currently represents 4% of ABR and has fallen to our ninth tenant with only 5 remaining locations in our portfolio. More broadly, at year-end, our property portfolio consisted of 127 properties, totaling 4.3 million square feet across 32 states with a WALT of 8.4 years and 99.5% occupancy. Now moving to the exciting growth in our commercial loan portfolio. As a result of our long-standing reputation and deep industry relationships, we continue to see and capitalize on compelling opportunities to originate high-yielding commercial loans with quality sponsors at attractive risk-adjusted returns. During the fourth quarter, we originated 5 commercial loan investments and amended one commercial loan totaling a combined $102.3 million of commitments at a weighted average initial coupon of 13.5%, bringing our full year to $177 million of commercial loan originations at weighted average initial coupon of 12%, including paid-in-kind interest when applicable. The high-quality real estate projects underlying these loans are located in major MSAs, supported by strong sponsors and have been many years in the making, and we are excited to be a part of these projects. Additionally, during the fourth quarter, we sold a $10 million senior interest in our previously announced commercial loan secured by a luxury residential development located in Austin, Texas metropolitan area. This sale reduced concentration in one of our largest commercial loans. From time to time, we will likely consider additional sales of senior interest in larger loan investments to efficiently manage diversification while enhancing the yield of our net interest. At year-end, our net commercial loan portfolio was approximately $129.8 million, up from $48 million at the beginning of the year highlighting the significant scale and momentum captured by our platform during the past year. Additionally, we are targeting our commercial loan portfolio to generally run at approximately 20% of our total undepreciated asset value complementing our property portfolio investments and increasing our overall yield on our total assets, although timing of funding and repayments of loan investments may vary quarter-to-quarter. Combined, completed property acquisitions and loan originations were approximately $142.1 million for the fourth quarter at a weighted average initial yield of 11.7% and $277.7 million for the full year at a weighted average initial yield of 10.3%. The $277.7 million of investments completed was our most productive year in our company's history. To support this level of investment activity, we've not only generated capital through strategic asset sales, but also opportunistically access the capital markets. In November, we issued a $50 million of a new Series A preferred stock with an 8% coupon. Additionally, late in the fourth quarter of 2025, early in the first quarter of 2026, we utilized both our common ATM and the Series A preferred ATM programs raising the combined $18.3 million of equity. Lastly, as we look to 2026, we're excited about the outlook for the company. We believe our investment activity, equity raises and recent debt refinancings for which Phil will provide more details, have positioned the company well as we start the new year. Further, our Board recently decided to increase our quarterly common dividend per share of 5.3% to $0.30 per share beginning in the first quarter of this year. And with that, I will turn the call over to Phil. Philip Mays: Thanks, John. Beginning with a quick summary of financial results. For the fourth quarter, total revenue was $16.9 million, including lease income of $12.7 million and interest income from commercial loan investments of $4 million. Both FFO and AFFO attributable to common stockholders for the quarter were $0.54 per diluted share, representing 22.7% growth over the comparable quarter of the prior year. For the full year, total revenue was $60.5 million, including lease income of $48.7 million and interest income from commercial loan investments of $11.4 million. FFO and AFFO attributable to common stockholders were $1.88 and $1.89 per diluted share, respectively, representing approximately 8.6% growth over the prior year. Earnings growth for the quarter and the year was primarily driven by the investment activity John discussed, combined with disciplined balance sheet management. Moving to the balance sheet. Similar to our investment activity, we had significant amount of capital markets activity in the fourth quarter of 2025 and early in the first quarter of 2026. First, on November 12, we completed a public offering of 2 million shares of Series A preferred stock at a price of $25 per share with an 8% coupon. This preferred offering resulted in $50 million of gross proceeds before deducting the underwriting discount and other operating expenses with net proceeds totaling $48.1 million. We supplemented the preferred offering proceeds with a modest amount of issuance under both our Series A preferred and common equity ATM programs. Beginning with our preferred ATM program. From late fourth quarter to early in the first quarter of 2026, we issued just over 116,000 shares of our Series A preferred stock at a weighted average price of $24.92 per share for total net proceeds of approximately $2.8 million. Likewise, during this time, under our common stock ATM program, we issued just over 918,000 shares at a weighted average price of $17.13 for total net proceeds of approximately $15.5 million. Additionally, earlier this week, we closed a new unsecured credit facility and completely recast the company's unsecured debt. The new credit facility consists of a $250 million revolving credit facility with an initial term of 4 years with two 6-month extension options, a $100 million 3-year term loan, and a $100 million 5-year term loan. The proceeds from the new credit facility were used to fully repay and retire the company's prior revolving credit facility and term loans, resulting in the company now having no debt maturities for 3 years. Further, pricing for borrowings under the new credit facility improved by 10 to 15 basis points, and it provides for more flexibility and borrowing capacity related to our commercial loan investments. Please see our recent press release related to this credit facility for more details. We ended the year with net debt to pro forma adjusted EBITDA of 6.7x compared to 7.4x at the beginning of the year. Additionally, we had $65.8 million of liquidity, consisting of approximately $25.3 million of cash available for use and $40.6 million available under our revolving credit facility. However, with in-place bank commitments, the availability under our revolving credit facility can expand by an additional $31.4 million as we acquire properties and fund commercial loans providing for total potential liquidity of $97.3 million at year-end. Summarizing our investments at year-end, our property portfolio had annualized base rent of $46.2 million on a straight-line basis and our net commercial loan portfolio had loans with an aggregate face amount of $129.8 million at a weighted average coupon rate of 12.4%. One additional note regarding our commercial loan portfolio. Two loan investments totaling $7.2 million at year-end with a weighted average coupon rate of approximately 11.5% were repaid in January of 2026. Additionally, as we noted previously, our property portfolio includes approximately $3.8 million of ABR related to 3 single-tenant restaurant properties acquired in 2024 through a sale-leaseback transaction. Although these properties constitute real estate for both legal and tax purposes, GAAP requires them to be accounted for as a financing. Accordingly, current annual cash payments of approximately $2.8 million are reflected as interest income rather than lease income. To provide more information about this matter and our commercial loan program, we have added additional disclosures to our press release including the supplemental table providing details for both the loan portfolio and related interest earnings. We hope you find this additional information helpful in understanding our investments. Now turning to our 2026 outlook. Our initial earnings guidance for the full year of 2026 is $2.07 to $2.11 for FFO per diluted common share and $2.09 to $2.13 per AFFO per diluted common share. Key assumptions reflected in our initial guidance include investment volume of $70 million to $100 million, and disposition volume of $30 million to $60 million. I do want to note that our 2026 guidance and growth in earnings reflects dispositions generally closing earlier than acquisitions. Furthermore, our revenue for 2025 included $221,000 in the fourth quarter and $525,000 for the full year related to fees we receive for managing and selling the third-party properties that supported our portfolio loan. During the fourth quarter of 2025, substantially all these third-party assets were sold and the portfolio loan was repaid in full. Accordingly, these fees will not be a significant source of revenue in 2026. One last note. As John discussed, the Board has increased our quarterly common dividend to $0.30 per share beginning in the first quarter of 2026. Even with this increase, our dividend remains well covered. Specifically, this new quarterly common dividend rate represents just a 56% AFFO payout ratio computed on AFFO for the fourth quarter of 2025. With that, operator, please open the call to questions. Operator: [Operator Instructions] And our first question will be coming from Michael Goldsmith of UBS. Michael Goldsmith: First question on the loan portfolio. It looks like you set kind of an upward boundary of 20% of the portfolio. So can you just talk a little bit about how you came to setting it at that level? I guess, where the loan portfolio steps today, stands today relative to that and then just how much more you can do to kind of hit that max? And if you expect to hit that this year? John Albright: Yes. Michael, this is John. I think that really on 20% I felt like that was a reasonable number, and I'm making it too large, of course. And something that obviously is complementary to the company and the business. So it's really not incredibly magic number, but it's low enough where it's not a distraction to our investors and enough to be interesting investments for sure. And so I'll let Phil talk about kind of where we are. But as you could see from Phil's comments that we've already had a couple of loans repay. And so that will continue as we do find sources for new investments as well. Philip Mays: Yes, Michael. So probably the easiest way to think about kind of where we stand in the runway is, John mentioned 20% of total undepreciated assets. So end of the year, that would have been $770 million, so 20%, $155 million, $160 million. The portfolio had $130 million or so outstanding. So kind of runway for another $25 million, $30 million on top of opposite outstanding at the end of the year. Michael Goldsmith: And then my follow-up is you continue to reduce your exposure to some of the tenants that aren't in favor. Walgreens has moved considerably down the list, I guess, just where do you stand with that? Is there more work to do? Are you happy with where you're at? Just trying to get a sense of are we at the end of that activity? Or is there just a little bit more to do? John Albright: Yes, there's definitely a little more to do, and we're actively on selling an additional Walgreens now. And so we'll continue chipping away at it, and it will be gone at some point. But now that we've gotten it way down the list is not as sort of like super focused on it. We just want to take our time and find the right buyers and not just sell it, just to sell it. So we'll take the cash flow and be prudent about selling them, but we're working on continuing that sales process. Operator: And our next question will be coming from Jay Kornreich of Cantor Fitzgerald. Jay Kornreich: I guess just following up on that first question about the 20% threshold for the loan investments. That's really been such a strong source of growth for you guys and continues to be -- and as a large swath of the investments this past year was focused on that. So I guess, even though you've outlined how much more room you have to 20%, I mean, why not push much greater beyond that 20% threshold? Do you guys, I guess, consider doing that? Do you want to do that as you think about your opportunities in 2026? John Albright: No, I don't think we -- I mean certainly we could. I mean there's enough volume out there, but it's really not wanting to flip the script, if you will, as far as our primary sources business, which is the net lease properties, core properties. So this business has been fantastic. It gets us deeper into developer relationships and tenant relationships and it provides us a source of future net lease investments. And it's very much complementary, but I don't want it to be sort of a distraction. Jay Kornreich: I appreciate that. And then just one follow-up. You talked about some of the capital raising you did in the fourth quarter. And I guess I wanted to talk about the $10 million on the ATM that you adapt. And just curious about how you think about deploying more equity capital at these current stock prices I guess, assessing your cost of equity. I'm assuming that's really being more used for the higher-yield divestment loans. So just curious how you think about deal spreads relative to your cost of capital versus the investment loans, just how you target that and think about issuing more. John Albright: Yes. I mean we'll be prudent about it. But clearly, as you mentioned that most of it is to fund these highly accretive investments. And so even though the stock price is not kind of where we'd like it, it does work, the math does work. And certainly, as you've seen with many companies that investors seem to have a lot more interest in companies where there's more liquidity and ability. And so a lot of -- you think about it, we bought back a lot of stock last year. And we're, in essence, reissuing some of those shares. So it's not any sort of massive dilution sort of activity. It's just being prudent with funding some of these very accretive investments. Operator: And our next question will be coming from Wesley Golladay of Baird. Wesley Golladay: Just a question on the dividend. You definitely raised it again. And when you think about that, is that mainly driven by the earnings growth that you have and having to pay out a dividend that's a little bit higher? And why not trying to retain more cash flow? John Albright: Phil, I'll let you address that. Philip Mays: Yes. So it was earnings growth but also just taxable income growth. So that kind of balanced the 2. I didn't catch the last part of your question there, Wes. Wesley Golladay: Just seeing why basically increased because you had to pay it out just because you're issuing stock here, just why not just retain more cash flow versus raise the dividend? Philip Mays: It's a lot of it's growth in taxable income. When you think about the loan portfolio, right, there's no depreciation that goes with that. So even though it's 20% of total assets and the properties make up more, there is no kind of tax cover or depreciation to go with it. So it does help drive taxable income up. So the raise was really just to kind of be where we need to be to pay out taxable income. Wesley Golladay: Got it. That makes sense. One question on the loan where you have the developer for the Phase I. Are you starting to see any lot sales there? And when can you expect to get repaid? And then a follow-up would be, would you expect the second loan to start funding before the first one starts paying off? John Albright: Yes. I mean the loan is already starting to be repaid as lot sales are happening. And it is going to the senior participation we sold off. And so I would not -- the loan that we have out now won't be fully repaid by the time that the second portion is funded. But you can expect really the activity on the repayment will probably come more to us late spring. So it will really be going to the first mortgage sort of participation first. Wesley Golladay: And then I guess when you look at your pipeline of potential loans, what are you seeing in there? I mean you have a big residential loan here. Do you have other sectors that you're looking at, does it diversify it a bit? John Albright: Yes. So we're really pleased with the pipeline for sure. We're talking about more kind of grocery-anchored development and also investment-grade credit development with terrific tenants and new relationships. It's old relationships with new relationships for Pine. And so we're very excited as we continue to work on the pipeline. So more to come. Operator: And our next question will come from R.J. Milligan of Raymond James. R.J. Milligan: Just wanted to follow up on the loan book. John, longer term, as some of these loans are paid off, do you expect to continue to redeploy that capital and maintain that 20% allocation over the next several years? Or do you expect that to come down over time? John Albright: Thanks, RJ. No, we intend and see the opportunity to keep it at that 20%. The pipeline is very strong right now. So as loans burn off, they will be -- we fully intend them to be refilled. R.J. Milligan: Got it. So this is a longer-term 20% allocation part of the Pine strategy? John Albright: Correct. R.J. Milligan: Great. And then, Phil, I just had -- wanted some housekeeping on fourth quarter. Obviously, a pretty big number and beat relative to consensus. I think there may have been some onetime items in the fourth quarter. I was wondering maybe you can sort of talk about those and sort of how we get to a good run rate going into first quarter of this year? Philip Mays: Yes. Thanks, RJ. There are several onetime items in there. And just a good way to see it is when we -- in one of our schedules, the debt to EBITDA, we have a line item that says nonrecurring items in there, and it was a little over $300,000 for the quarter. That's primarily the management fees that I talked about on my prepared remarks that are going away and then also prepayments only we got from one of the loans that paid off early, that made up that 300-and-some thousand. So that's a couple of cents that nonrecurring. And then also keep in mind, the fourth quarter doesn't have the full burden of the prep outstanding and the management fee that goes with that. So the $0.54, if you take it down for all those items, you're probably at $0.50, $0.51 on a run rate at the end of the quarter. Operator: And our next question will be coming from Gaurav Mehta of Alliance Global Partners. Gaurav Mehta: I wanted to follow up on the balance sheet and wondering if you would comment on your leverage expectations in 2026? Philip Mays: I mean we're pretty happy with where we currently stand. And we're in a nice pricing tier on our debt. So I think kind of where we're currently at is about where we expect it to run for the year. But obviously, that depends on the opportunities we see. Gaurav Mehta: Second follow-up on the investment opportunities. In the prepared remarks, you commented on falling a barbell approach in '26. Just wondering if you could comment on, I guess, the opportunities that you're seeing both on the investment and non-investment grade part of the portfolio for acquisitions? John Albright: Yes. We're very excited about some of the opportunities we see on the net lease side, where we had the ability to possibly bring in new investment-grade credits further up into the top 5, top 10 tenancy. And so we're really focused on that. And so we have a good portfolio that opportunities that we're looking at right now. So pretty excited about the composition of the net lease portfolio this year. Operator: Our next question will be coming from Jason Weaver of Jones Trading. Jason Weaver: Congrats on a big year in '25. First, on the acquisition and disposition guide, which is down a lot versus '25 with the capital base growing. Is there anything we can read into that, just taking from a point of conservatism? Is it some sort of hesitance about market conditions? Or is there something else that is out there? John Albright: Yes. We just want to be really have a cadence that something we feel very, very comfortable hitting without having such a big number that you feel like you're forced into buying things that maybe you're not too excited about. So we just want to be real careful on curating a super strong portfolio and not being forced into more commodity assets. Jason Weaver: Got it. That's fair enough. And then next, I wonder if you can clue us into the expected funding mix on any new investments and as well as the unfunded commitments, whether that will be done with some combination of ATM draw versus credit facility credit facility drawdown. And sort of what mix thereof are you looking to target? John Albright: I'll just kind of start off and let Phil dive deeper. But clearly, our mix in the past probably is somewhat reflective of what's going to be in the future. And that's still recycling, still selling down noncore sort of credits and using that for investments. And then obviously, we talked about a little bit of the loans naturally maturing and paying off. But then there'll be a mix of perhaps the ATM and the line, but keeping everything pretty modest. Operator: And our next question will be coming from Craig Kucera of Lucid Capital Markets. Craig Kucera: Phil, you included the PIK interest earned in AFFO, and I understand that makes sense this quarter because there was hardly anything that wasn't collected in cash. Is that your expectation for the foreseeable future? Philip Mays: Yes, I think we'll stick with that. What we also did, Craig, just to be clear on how much PIK is in there at the bottom of the table, we added a schedule that shows the cash interest and the PIK interest, and we'll continue to also include that. So you'll know exactly what is included. But just felt like that was an easier way to go. Craig Kucera: Yes. No, that was helpful. I did see that. changing gears in your discussions with your developers that still have unfunded commitments, do you expect those guys to pull down most of that capital in 2026? Or I know a lot of those loans mature later in '27 and even '28, but just some thoughts on that? John Albright: Yes. We fully expect that those will be drawn down for sure. It's part of the project. And as the project gets going, that's fully kind of specified for those needs. Craig Kucera: And in the schedule of your commercial loans, you mentioned that Phase 2 in Austin has some conditions that are unmet. Can you give us some color on what that is and when you think those conditions might be met and the loan is funded? John Albright: I'll let Phil answer that. Philip Mays: Yes. So on the funding, probably 2Q. But keep in mind, as with the first phase, we sold off our participation of $10 million. So just kind of using round numbers. The first phase was $30 million. The second phase is $30 million. we sold off a participation already for $10 million. There's likely to be another sell on that. And so altogether, we might sell off another $10 million, $20 million, so the net hold might be closer to half. But yes, probably late first quarter, early second quarter, for the second phase funding and simultaneously with that, we'll also probably have some participation out of 10 or 20, somewhere in that range. Craig Kucera: Got it. So that's in the guidance then? Philip Mays: Yes. Craig Kucera: Appreciate that. And I guess when that first phase was initially structured, I think it was 17% for like 6 months and then dropped to 16% for 6. Once you sold that participation interest it's now yielding north of 20%. Can you walk us through the math of how it adjusts net of the participation interest? Is there any change in the way that, that loan is going to roll down? Philip Mays: The participation interest has a constant rate of 10%, and that hyperamortize so that gets repaid first, and then we get repaid second. Is that helpful? Craig Kucera: Yes. I'll probably just circle back to you offline just to make sure I'm getting the math right. And finally, you did mention you amended the loan this quarter. Was that just a loan extension? Or can you just give us some additional color on that loan? Philip Mays: Yes, it was just an extension. Operator: Our next question will come from John Massocca of B. Riley Securities. John Massocca: So maybe just going back to guidance a little bit. What's kind of the -- be kind of broad ranges, but expected yield on the investment volume you're kind of putting into guidance? And I guess, kind of implied in that question is how do you see the mix in that expected volume being demarked between structured investments versus net lease investments? Philip Mays: I think on the loan side, I talked earlier about the runway being $25 million to $30 million, and look, it could bounce around a little bit depending on when draws happen, when fundings happen and repayments. But out of that, out of the guidance, you should expect about that much to come from the loan side, and that will probably ramp up over the first half of the year. And then the balance of the guidance you can expect to be on the property side. John Massocca: And kind of where do you think that puts you from a yield perspective? Or where do you think yields are today for structured loans and the type of net lease investments you're looking at? Philip Mays: Yes. So the -- in the current book and what's expected to fund... John Albright: The yields -- the loan yields really are not too dissimilar to what we've done in the past. So there's no really tightening in the market, if you will even though there's a lot of capital out there, as we all know. It's just that the flexibility structure and the quickness of how we can react to opportunities leads to a little bit higher rates that we're able to achieve. Philip Mays: Yes. The rate at the end of the quarter is a decent rate to use for the balance of the year. John Massocca: And I guess on the net lease side, kind of where are you seeing cap rates today? I know you closed something subsequent to quarter end at an 8.5%. But is that maybe a little higher than what your target in the market today? Or is that kind of indicative of what you can invest at? John Albright: On the more investment grade sort of properties that we've been looking at, that will be lower than what we just did on that acquisition in Aspen. But very similar to the Sam's Club we purchased and so forth. So I would say, on cap rate direction, certainly, for quality properties is still very tight. But a lot of the investments we have made in the past in the past 5 years, we'll look at really strong real estate, very strong MSAs and maybe have a shorter lease duration where the likelihood of a tenant renewing is very high because the rental rates they're paying are very, very low. So they're almost like covered land plays, and we can get those at obviously higher yields than if it was like a fresh 15-year lease. And so that's where we like to play where we're picking up investment-grade credits in large MSAs that way below market interest rates. And so those cap rates will still be similar to kind of what we did last year as well. John Massocca: I appreciate that color. And then maybe on the -- you mentioned it in the context of the Austin structured investment. But are there opportunities for more participation interest sales on other structured loans in the portfolio or other deals that may be your kind of contemplated in guidance? John Albright: I mean we could sell off a lot if we wanted to, but we -- I mean, they are fantastic loans, and we'd rather hold them all, but we will certainly sell senior participations to fund activity if we need to. John Massocca: I guess as it pertains to kind of like you're seeing the world today, it's often is going to be primarily where that comes from? John Albright: I'm sorry, I missed that last point. Can you say it one more time? John Massocca: We just -- I mean you mentioned kind of what you were expecting to do on the participation interest sales side with the Austin structured investment. Is that kind of all that's really contemplated as we stand today? John Albright: As we stand today, and that's really -- we're really doing it as an accommodation for them coming in early on. Otherwise, you wouldn't even want to sell that participation. But certainly want to be good counterparties and keep that participation investor there in case we'd like to do another one. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Good day, everyone, and welcome to the i3 Verticals First Quarter 2026 Earnings Conference Call. Today's call is being recorded, and a replay will be available starting today through February 13. The number for the replay is (855) 669-9658 and the code is 6769466. The replay may be accessed for 30 days at the company's website. At this time, for opening remarks, I would like to turn the call over to Clay Whitson, Chief Strategy Officer. Please go ahead, sir. Clay Whitson: Good morning, and welcome to the first quarter of 2026 Conference Call for i3 Verticals. Joining me on this call are Greg Daily, our Chairman and CEO; Rick Stanford, our President; Geoff Smith, our Chief Financial Officer; and Paul Christians, our Chief Revenue Officer. To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation to the most directly comparable GAAP financial measure by reviewing yesterday's earnings release. It is the company's intent to provide non-GAAP financial information to enhance understanding of its consolidated GAAP financial information. This non-GAAP financial information should be considered by each individual in addition to, but not instead of, the GAAP financial statements. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding the company's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. You are hereby cautioned that these forward-looking statements may be affected by the important factors, among others, set forth in the company's earnings release and in reports that are filed or furnished to the SEC. Consequently, actual operations and results may differ materially from those discussed in the forward-looking statements. Finally, the information shared on this call is valid as of today's date, and the company undertakes no obligation to update it, except as may be required by applicable law. I will now turn the call over to the company's Chairman and CEO, Greg Daily. Gregory Daily: Thanks, Clay, and good morning to all of you on the call. We're excited with the start of 2026. As we anticipated and guided the market, revenue was only up 1% over prior year's Q1, but recurring revenue was up over 8%, more closely reflecting our expectation of long-term growth. SaaS revenue led with over 24% growth. We're now -- we've now had 4 quarters in a row over 20% SaaS growth, and we see that number staying north of that level through the year. While our recurring revenue sources, professional services and license are both down, we believe our focus on recurring sources will carry the day. We're very excited to announce our latest acquisition. Rick will share more, but this is a deal we're very proud of. Our best deals tend to be the ones we sell -- we source ourselves, and this is the latest example. It is a perfect fit within our transportation market. You will always be surprised at the durable, sticky niche software solutions you will find in the public sector. Well, here's another one. Helping states early detect uninsured motorists is only possible because of thoughtful, well-executed software business solutions like this. Because they already have integrations with the insurance carriers, they have an incredible defensive market positioning and their growth is compelling. The team that built this business is staying on, and we couldn't be more excited about what we can accomplish together. We remain exceptionally well capitalized and thoughtful about how to deploy our capital and expect to have great opportunities in 2026. As always, the focus is discipline. I will now turn the call over to Geoff, and he will provide more details on financial performance. When he's finished, Rick will address our latest deal in more detail. And finally, Paul will discuss revenue, and then we'll open up the call for questions. Geoffrey Smith: Thanks, Greg. The following pertains to the first quarter of fiscal year 2026, which is the quarter ended December 31, 2025. Please refer to the slide presentation titled Supplemental Information on our website for reference with this discussion. Revenues for the first quarter of fiscal 2026 increased 1% to $52.7 million or $52.2 million for Q1 2025, in line with expectations. The growth reflected 8% growth in recurring revenues, partially offset by a $3 million decline in nonrecurring professional services and software license revenues. Annual recurring revenues increased 8% to $169.6 million for Q1 2026 compared to $156.4 million for Q1 2025. 80% of our revenues for the quarter came from recurring sources, driven by SaaS revenue growth of 24%, transaction-based revenue growth of 12% and payments revenue growth of 8%. Maintenance revenues declined 8%, reflecting the emphasis on SaaS and new sales. Adjusted EBITDA declined $1 million to $13.6 million for Q1 2026 from $14.6 million for Q1 2025, in line with expectations. Adjusted EBITDA as a percentage of revenues was 25.8% for Q1 2026 versus 27.9% for Q1 2025. The dollar and percentage declines were driven by previously mentioned investments in our justice and utility markets, higher hosting costs and $2.6 million lower professional services revenues. While professional services are not high, the associated costs can follow revenue fluctuations with a lag. We expect the adjusted EBITDA margin to improve for the remainder of the year, and our long-term expectation remains 50 to 100 basis points per year. Adjusted diluted earnings per share from continuing operations was $0.26 for Q1 2026. Again, please refer to the press release for a full description and reconciliation. Our balance sheet is strong and well positioned for the future. As of December 31, we had $37 million of cash and no debt. As Greg mentioned, effective January 1, we purchased a provider of software for driver and motor vehicle insurance verification for $60 million in cash. Here's some color to help you incorporate this acquisition into your models. We paid approximately 15x EBITDA. The company is durably growing at a rate above 20% and has an EBITDA margin above 50%. We still have a $400 million revolving credit facility with a 5x leverage constraint. We intend to use any borrowings for acquisitions and opportunistic stock repurchases. The following sets forth guidance for continuing operations for FY 2026. The outlook does not include acquisitions that have not yet closed or transaction-related costs. revenues, $2.3 $223 million to $234 million; adjusted EBITDA, $61 million to $66.5 million; adjusted diluted earnings per share, $1.08 to $1.16. We expect recurring revenues to grow at double-digit rate for FY 2026, including the acquisition. However, we expect a decline in nonrecurring professional service revenue driven by the cadence of revenue recognition on certain projects in our utilities and transportation markets. Despite the lower outlook in those markets for fiscal 2026, they are well positioned to rebound in fiscal 2027 and beyond. Our long-term expectation for organic revenue growth remains high single digit. From a seasonality standpoint, software license sales and professional services represent the most variable line items to forecast and can distort seasonality in any given quarter. We currently expect our revenue distribution for FY 2026 to approximate the following: Q1, 23%; Q2, 25%; Q3, 25%; Q4, 27%. So I'll now turn the call over to Rick for comments on M&A. Rick Stanford: Thank you, Geoff. Good morning, everyone. As mentioned in last night's earnings release, on January 1, we closed our latest acquisition. This business operates in the transportation market and does business at the state level. The company's insurance verification product is feature-rich, including real-time verification, continuous insurance lapse updates, direct connection with insurance companies and seamless integration with state motor vehicle systems. The product can accommodate integration with every possible motor vehicle system in use by the states today, including i3s. This transaction will significantly expand our geographic reach in the transportation market, better positioning i3 to be the vendor of choice in ongoing modernization initiatives. Currently, we have the adjacent market for motor carrier software solutions such as IRP and IFA tax software and truck routing software. i3 is a major player in the motor carrier and motor vehicle software market with a combined 30 states and 4 Canadian provinces. We are thrilled to welcome this talented team to i3 and look forward to their many successes in the future. Relative to our acquisition pipeline itself is continually filled with some promising opportunities similar to this deal. Again, we remain diligent with regard to the value and strategic impact of potential acquisitions to our growth prospects. I'll now turn the call over to Paul for final comments. Gregory Daily: Paul, you may be on mute. Rick Stanford: It seems as if Paul is having technical difficulty. Operator: It seems like Paul's line has dropped here. Rick Stanford: Okay. That's fine. I'll take it from here. Thank you. Our focus on refining market offerings, especially in Justice Tech and transportation markets is providing -- is proving to be timely and effective as we continue to see an increased demand for technology that enable decision-making. This shift towards market-based solutions is evident through expanded solution scope within RFPs, increased emphasis on unified data structures to support analytics and growing expectations for continuous innovation and system evolution. In JusticeTech, we have seen an uptick in opportunities at both the state and local levels as we rolled out our new CourtOne offering, especially around case management systems and the CourtOne Jury Solution. These offerings are aligning well with current market demand, allowing us to engage meaningfully in opportunities as agencies modernize their systems. We are excited that the market leader of electronic insurance verification recently joined the i3 family. Their solutions augment the strength of our transportation market offering. Now some portion of the i3 Verticals transportation platform is live in 30 states and 4 Canadian provinces. Our partnership with West Virginia continues to be strong. We are in the process of fulfilling the recently won contract with the West Virginia Supreme Court of Appeals with i3 CourtOne. Additionally, the Arizona Department of Real Estate selected i3 to provide licensing and regulatory software across the state. We are seeing particularly strong activity across JusticeTech, transportation and regulatory and licensing markets. In addition, i3 Education is realizing the investment in i3 Marketplace. i3 Marketplace is a portal providing unified access complete with SSO, single sign-on and MFA, multifactor authentication to all i3 education models. It supports students, parents and administrators across schools and districts. i3 continues to gain traction with AI-enabled solutions. We also delivered an AI support upgrades to our current Georgia JusticeTech footprint, and we'll continue to push those changes into our other markets across the U.S. throughout 2026. Our focus on leveraging AI, along with our deep domain expertise is proving to be positive for both i3 and our customer base. This concludes my comments, Dave. At this time, we'll open the call for Q&A, please. Operator: [Operator Instructions] Our first question comes from Madison Suhr with Raymond James. Madison Suhr: I wanted to start on the FY '26 updated outlook and putting together some of the comments on the deal. It does seem like organic growth may have ticked down very modestly, maybe $1 million or $2 million. So I guess just for starters, is that generally correct? And if so, just any color on what's driving maybe the slightly modest headwinds relative to last quarter? Clay Whitson: Madison, you are correct, and it comes on the professional services line. I think we entered the year thinking professional services would go from $40 million to $33 million, $40 million in '25 to $33 million in '26. Our current view is that it will go to $31 million on professional services. Madison Suhr: Okay. Got it. That's helpful. And then obviously, the recurring side continues to be strong, 8% in the quarter. You guys talked about 8% to 10% for the year last quarter. I apologize if I missed it, but is that still the right way to think about the recurring side for this year? Geoffrey Smith: Yes. That's correct. Clay Whitson: With the exception of our acquisition, that will tick it up. It's mainly recurring revenue. Geoffrey Smith: Yes. 8% to 10% organic. Madison Suhr: Okay. Awesome. And then if I can sneak one more in just on capital allocation. Obviously, you guys did a deal. M&A is a key part of the strategy, a differentiator for you guys. But just given what we're seeing in the market and the dislocation for your stock in particular, I would love to just hear your thoughts on buybacks versus M&A here. And it does look like you guys might have bought back some stock in the quarter. Just any color on kind of the quarter itself from a buyback perspective as well. Geoffrey Smith: There will be more information about that in our 10-Q that comes out here. But to get out in front of that, yes, we did buy back a significant number of shares this last quarter. The outlook and approach has always been for us to be opportunistic with buybacks. We're in a really good place on our balance sheet. We think that our stock is inexpensive and a great investment for the current shareholders of the business at the levels we've been at. So that will continue to be the approach going forward. But you'll see a little bit of reporting about that in terms of quantity in the 10-Q. Operator: And the next question comes from Peter Heckmann with D.A. Davidson. Peter Heckmann: Congratulations on the new acquisition. Just a few additional details in terms of how you think about the opportunity there. I guess how do you think about this company's market share either by number of states or covered population? I think you said it was at the state level and at the county level. And then next, like is the revenue stream transaction-based? Or is it more of a subscription software model? Rick Stanford: So we -- thanks, Pete, for the question. We're very excited about the deal. We think the growth prospects going forward are going to be staggering to say the least. They're very good with their customers. They have their very first customer. They never lost one. We like their presence in the market. They're well known. It's not transactional today. We think that we can take this product into our motor carrier to some degree. And we know that current customers, a handful have been asking for, let's say, one neck to choke with payments and software. So we think we can get some payments play in there, too, but that's to be seen. But we're very excited about the deal. Peter Heckmann: Okay. Okay. So just as a follow-up, it sounds like there's significant opportunity to grow the number of existing relationships. Clay Whitson: Yes. Operator: The next question comes from Charles Nabhan with Stephens. Charles Nabhan: Good to see another quarter of strong SaaS revenue growth. I was wondering if you could expand on some of the drivers of that 20% plus growth as well as speak to the sustainability of that pace. Geoffrey Smith: So first off, the acquisition will add a whole new layer of SaaS growth. So we'll be well north of that number, north of 30% for the rest of this fiscal year on that. But the organic SaaS growth should stay in that general vicinity north of 20% as well. Drivers are -- it's the fruits of the emphasis that we put on SaaS in all our markets. It's coming from a lot of different markets, utilities, the public administration market, especially our board and licensing software, the justice market, it's -- all of the different markets contribute kind of in their own way there. So the -- again, rest of the year, expect organic to be north of 20%. The new acquisition, which is currently monetized primarily off SaaS. And as Rick said, there will be opportunities to add other kind of streams for that will be a great thing, but we'll be in a great spot on SaaS growth for a while. Charles Nabhan: Got it. As my follow-up, I wanted to get your thoughts on AI, approaching it from a couple of different angles. I'd love to hear how you're thinking about it in your internal processes as well as how you think about it from a the disruption potential for -- within GovTech from AI, whether it's fact or fiction and just generally how you're thinking about it given some of the recent stock movements. Rick Stanford: Yes. So Charles, this is Rick. I'll take a stab at this, and I'll let Greg and Clay chime in after. Look, we have pockets where adoption is very high with our customer base with extraction and reaction in the CAMA world. We have others where it's -- the adoption is not so great. We're continuing to push it both on the customer side and on the development side internally. That's the first thing we think about in our engineering group is how do we use AI to develop new features to our products. But at the end of the day, state, local and municipal agencies will need to create frameworks of processes, functions, structures, laws before creating engineering and security protocols. Initially, policies are going to be rigorous and hypercontrol for the fear of AI itself. So that will be a headwind to us near term, providing minimally viable products and services for constituent use. Without an overall agreed-upon plan in GovTech or guidance at the state or federal level, there's going to be inter jurisdictional inconsistencies that will cause confusion amongst state constituents. And that's something that's going to kind of put a clog in the engine. In short, we believe that it's going to be a good bit of time away from this concept of proliferation of AI within GovTech being a real working asset because of the headwinds I mentioned. Companies like i3 can accelerate the AI process. But the customer at the end of the day, is going to drive adoption at a slower pace than we can move forward. Would you add anything to that? Clay Whitson: I think that's right. We're excited about AI. It enables us to deliver better products more quickly to our customers. We have deep domain expertise, and we are the enterprise platform in most cases or the system of record for our customers. So we're deeply embedded in their everyday workflows. Gregory Daily: Just the relationship that we have. Their -- go ahead, I'm sorry. Charles Nabhan: No, no, I was just going to thank you for your thoughts. But always interested in hearing more. If I cut you off, I apologize. Operator: And the next question comes from Alex Markgraff with KeyBanc Capital Markets. Alexander Markgraff: Just a couple from me. Maybe first on the transaction. I think I heard 15 times just based on some historical comments, I think, a bit outside the sweet spot as you all have described it. Obviously, like some compelling financial profile details that you all shared. Just curious if this is a unique transaction for the multiple and maybe how many more of these sort of unique opportunities that might pull you upwards of that sweet spot there are that exist today? Clay Whitson: Well, from a price standpoint, most of the companies we bought historically have been growing organically in the 10% range. This one is north of 20%, and we see new customers coming on sustaining that growth. There are some synergies available and their margins are in the 50% range. So that's implied a higher multiple in the price. What was the second part of your question, Alex? Alexander Markgraff: Just as to whether or not there are more of these types of deals out there or in the pipeline that might sort of pull you up outside of that sweet spot for good reason, but notably pull you outside of that upper end that you've historically paid for deals. Rick Stanford: Yes, I'm glad you said for good reason. I mean we've made it known all along that while our sweet spot is 7 to 10x, if we find something that's growing, that's a perfect fit with incredible margins like this, lucky to have it. Alexander Markgraff: Okay. Super helpful. And then just on the product investments, I guess, it sounds like things are going [Technical Difficulty] plan there, and you're seeing some benefits in the sales pipeline around that. Still just as you described it last quarter, that sort of acceleration investment for '26, still the right way to think about it? And then just any changes to how you're thinking about that spend for the rest of the year would be helpful. Clay Whitson: I mean it's a continuation of what we introduced in our third quarter report last year, the investment in advance of revenues. We're glad we're doing it. It's according to plan. Really nothing has changed there. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Greg Daily for any closing remarks. Gregory Daily: Well, thanks, everybody, for listening and dialing in and showing interest. I wanted to kind of give a shout out to our large utility customer in Seattle. Good luck Sunday. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Aperam Fourth Quarter 2025 Results Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sud Sivaji, CEO. Please go ahead, sir. Sudhakar Sivaji: Thank you very much for joining our conference call today. All our comments were contained in the podcast that we published this morning, which supports our quarterly financial reporting and where applicable, our disclosure of regulated information. We also save more time for your pertinent questions during this call. Good afternoon to everyone joining this call. Together with my colleague, Nicolas Changeur, we're looking forward to answering your questions. So let's start straight away with Q&A. Thank you. Operator, if you could open the lines. Operator: [Operator Instructions] The first question comes from the line of Gresser Tristan from BNP Paribas. Tristan Gresser: I have 2. The first, could you help us understand a bit the current situation in Europe if your order books are improving at the moment or not? Are more buyers of stainless steel turning domestic? Are buyers of stainless steel still importing like nothing has changed? You also flagged that inventory has decreased, but imports have surged in Q4. So I'm also trying to square that one out and see how much of an overhang there is on the market in Q1, Q2? That's my first question. Sudhakar Sivaji: Tristan, thanks. So the discussion about the market in Europe currently is that our order books are recovering from Q4, but it's purely a seasonal recovery. Q1 is typically Europe comes back from its Christmas holidays and there's a seasonal recovery. So we don't see anything special additional like we said in the podcast. So it's seasonality purely. The second question you had was are importers turning to domestic? No, we don't see that specific activity. Typical buying patterns, both apparent consumption and real consumption, which drives our production is at seasonal normal levels. In terms of the inventories being low, the distributor supply chain, the statistics were at the end of Q3. And as you mark correctly from our podcast, imports surge was there at the end of Q4, probably as some distributors were trying to cover for CBAM discussions. So this will have, like we said in our podcast as well, some overhang in H1, but it's, I believe, a temporary overhang because, as you know, of the three bodies of the European Commission, two, the INTA, which is the association and the European Council have both come out and said 1st of July is the start of the new quota period for the trade safeguard duties. So we do believe that, that window is closing. So it's an overhang because of these imports end of Q4, but this overhang probably is going to affect the first half of the year a bit. And that's the reason we gave the guidance we gave. Tristan Gresser: Okay. No, that's very clear. And just following up on that. I think in your prepared remarks, you talked about the impact of CBAM depending on the behaviors of importers, basically, if they decide to take the risk or not to use actual default value. To what you're seeing so far, given that CBAM has been implemented now for more than a month, are they taking the risk? Or how do you -- how would you see that behavior being at the moment from importers? Sudhakar Sivaji: At this point in time, we don't see anything abnormal, Tristan, but I'll also be very clear, like you just remarked, it's just 1 month in, right? So you cannot make a pattern out of what's happening in the first month, so to speak, right? So that's why we said we'll have to probably wait for 2, 3 months and see that if they are. But what is absolutely clear is that if they take the risk, sometimes it will look like in 2026, they don't have anything to pay, but that is just because of the plan that has been put in that all payments would be retroactive in 2027. So -- we know that there is a lot of noise out there, and that's the reason, Tim and I recorded a video separately as well, just to be very clear showing that the default values are the standard values. And if somebody has to go for a real value, they have to actually show and accredit themselves to nationally accredited authorities in Europe. Tristan Gresser: Okay. No, that's very clear. And my second question is on the nickel situation. What's your view on the situation in Indonesia? Do you think the rally in nickel prices can be sustained? And I think we've seen higher stainless steel prices in the region already in Indonesia, China. I mean if imports are still coming in, that should definitely help to have those Asian prices at a higher level. Yes. Any help there to understand the situation would be great. Sudhakar Sivaji: So yes, the prices in Asia have gone up by the raw material price go up. So it's primarily a shift up compared to raw material prices, right? So I think that development is completely independent of what we have said trade defense led because in that case, there is a reduction of imports in H2. So it should be an add-on, so to speak, rather than one replacing the other. Operator: The next question comes from the line of Dominic O'Kane from JPMorgan. Dominic O'Kane: So I have 2 questions. The first question just moves on from the nickel question. Could you maybe just give us a sense of how the moves that we're seeing in the nickel price could impact your bridge over the next 1 to 2 quarters? I assume you are fully hedged for the next quarter, but can you just maybe give us some context around your exposure to the nickel price moves? Nicolas Changeur: Yes. So in fact, the -- so Nicolas Changeur speaking, good afternoon. So nickel have a moderate impact on our pricing. As you know, we are using scrap, and so the relative move of the nickel are very limited. We are mainly using nickel only in our prime nickel and so LME-related nickel with our fuel alloys business where we are fully hedged. Dominic O'Kane: And my second question is just around capacity utilization. So in a market where we may start to see demand in Europe coming back, can you just maybe give us a sense of what your capacity utilization currently is and if you have spare capacity that you could bring back into the market relatively quickly? Sudhakar Sivaji: Yes. So Dominic, absolutely. So first thing, our current utilization, depending on the player was between 65% and 75%. And typically, we've said the safeguard measures, which is different from what you asked in terms of underlying demand picking up. The safeguard measure, we had guided to from 7% to 10%, there should be a utilization lift just by the replacement of imports, which will now be reduced, right? So in our case, at Aperam, we have capacities available. As you know, we run electric arc furnaces, which can be switched on and off 3 times a day, and we have sufficient downstream capacity as well to match this utilization increase of 7% to 10%. Operator: The next question comes from the line of Maxime Kogge from ODDO. Maxime Kogge: So first question is again on nickel. Sorry for that. But I mean, you're explaining to us that nickel does not really have any impact on the stainless business given that you procure most of your nickel needs from scrap. But if I look at the alloy surcharges that you published and, you and your peers, we see a big increase actually in February. So I guess that's still related to nickel. Is there anything I'm missing there? Nicolas Changeur: Yes. But the business that is related to the this alloy is very limited, in fact, in Europe. So the impact is small. Sudhakar Sivaji: Maxime, we published the prices because there's still 1 or 2 customers who buy based on the alloy surcharge discussion, right? But as you know, in Europe, we moved to a fixed price discussion in 2019, and we have not looked back at all because the dumping of imports into Europe has contributed that we have all moved to a fixed price policy to compete with them. Maxime Kogge: So those alloy surcharges are not really that relevant. Fair enough. So regarding Brazil, there has been some announcements last week about higher duties for certain product categories. It affects stainless and electrical, so where duties are supposed to rise from 12.6%, I think, to 25%. So what's your take on that? And can you expect a positive impact in the coming quarters? Nicolas Changeur: Yes. We expect a positive impact. And we evaluate this impact at mid-single-digit EBITDA per quarter. As you know, we are already booked for Q1 and beginning of Q2. So basically, we see this picking up end of Q2 and beginning of Q3. Maxime Kogge: And you expect those duties to remain in place permanently because at this stage, you're only valid for 1 year, if I'm right. Sudhakar Sivaji: They said that they're going to review this for a year, but we remain confident if the dumping from Asian countries continues, the Brazilian government has been very keen on ensuring that there is a fair trade policy in Brazil. So we look at it for the next year, as you have said, but this is something which we will work together all the time, just we do. Maxime Kogge: Okay. And last one is on your guidance for recycling and renewables on the one hand, and alloys and specialties on the other hand. So there was traditionally an EUR 80 million to EUR 85 million guidance for R&R. Is this figure still achievable despite the miss that we saw last year? Should we expect the first contribution there from the diversification activities like bio-oil, biochar? And regarding A&S, so there was a EUR 100 million EBITDA guidance. You add to that the EUR 60 million contribution from Universal. And then there are the first synergies flowing in of around EUR 9 million. So does this figure add up to lead to something above EUR 160 million? Nicolas Changeur: Yes. So basically, we expect this to be pretty much in line. There is a ramp-up over the year of 2026 with the alloys business. So -- but overall, we expect by the end of the year to be basically at this level. In particular, as you know, oil and gas has been a little bit under pressure. There is also Boeing that is ramping back during 2026. So your numbers are fully right by the end of the year. Maxime Kogge: And for R&R also? Sudhakar Sivaji: R&R is at stable levels, Maxime. So alloy should reach that run rate, which you said, like Nicolas, for the last quarter, and that's our view currently, looking at oil and gas and Boeing. And R&R is at the stable numbers you have mentioned. Operator: The next question comes from the line of Inigo Castellanos from Kepler Cheuvreux. Íñigo Egusquiza: So I have three on my side. The first one is a clarification on the CapEx. You mentioned CapEx for 2026 is going to be around EUR 200 million. And then in the presentation and during your podcast, you are talking about some additional site upgrade CapEx of EUR 160 million over 3 years, if I am right. So can you explain a bit, I guess, that this EUR 160 million in 3 years is included in the EUR 200 million figure for 2026? And can we assume that this is going to be, I mean, EUR 200 million in the following years as well? This is the first question. Nicolas Changeur: Yes. So the EUR 160 million are absolutely integrated in the EUR 200 million. As you know, our continuity CapEx is around, let's say, EUR 150 million. So after you have those EUR 160 million over the next 3 years. So plus/minus in 2027, 2028, you can count around a similar level of CapEx if there are no new growth opportunities. Íñigo Egusquiza: My second question is on the outlook, you are giving for Q1 2026. You have mentioned in the press release that EBITDA in Q1 would be higher than in Q4, but also during the podcast, you gave some more indications regarding EUR 100 million quarterly run rate EBITDA in the first semester, but I understood slowing in Q1 and accelerating in Q2. Can you please elaborate a bit on that sequential number? And also in addition to this, how do you see the consensus EBITDA number for 2026, which according to Bloomberg is around EUR 520 million EBITDA? Sudhakar Sivaji: So Inigo, on the question, Q1, I think we have given a consensus it will be higher. But we also said that it's -- we are confident enough based on our Leadership Journey contributions to give that for the first half of the year, it will be $100 million run rate. And we said it will happen in 2 steps. So I think it gives you clearly kind of an indication how these 2 steps happen because we said we'll start slowly and we actually ramp up in the second quarter. So I think that gives enough guidance on how you plot these numbers from one quarter to another. On your question for the annual year, see, unfortunately, we have just discussed that. There are so many variables also on H2 and our order books, as you know, are typically 2.5 months long. Compared to other players in the industry, you have to consider that Aperam's stainless business in Europe's order book is considerably shorter because we run our own distribution division. As a result, we would like to give outlook only for Q1, right? The fact that we are doing for Q2 this time is primarily because we know that seasonally, Brazil will come back, and we know the contribution of our Leadership Journey, and that's the reason we are giving some color on Q2. Sorry about not being able to guide for the year. Íñigo Egusquiza: No problem. Thank you. Very clear answer to the question. And just a final question on my side. On the European Union trade defense protection measures, you are mentioning again that you expect the application to start July 2026. I don't know if you can elaborate a bit where do we stand? Why is taking, I would say, longer than expected, although you were pointing to that July as the application date. But where do we stand? Are we expecting for any European Union Parliament meeting to take a final decision? Any color would be much appreciated. Sudhakar Sivaji: First of all, thank you Inigo, for acknowledging that from the beginning, we've always said it's going to be most probably 1st of July. And our message hasn't changed. This application has to pass through 3 bodies. One is the European Council, the other one is the INTA and the third one is the European Parliament. And this is a process. Each of them make their own proposal, and they have to start a process to discuss among themselves to come to a common proposal. The good news is that everything is proceeding on plan for a 1st of July introduction, meaning the European Council and the INTA have made their proposal and have started discussions. And we expect around the third week of February for the European Parliament also to start this discussion and see what their version of the proposal could be. And after that, it is going to take them time to talk among themselves. It is important to remember this whole process has been triggered because the previous safeguards expire on the 30th of June. So legally, the European Commission always pointed out that the earliest it could start -- sorry, the latest it could start is 1st of July, and now I think they are going to respect that deadline. Operator: [Operator Instructions] the next question comes from the line of Adahna Ekoku from Morgan Stanley. Adahna Ekoku: I've got one left. On the normalized EBITDA guidance, so this is EUR 700 million to EUR 800 million. I believe previously, this was EUR 800 million before Universal. So could you just run through what's changed here? And if you could go through the kind of key building blocks of this bridge, that would be really helpful. Sudhakar Sivaji: Adahna, sure. I think let's start with EUR 350 million for 2025. And then when we add the EUR 150 million new Leadership Journey guidance we have given, without any trade defense and CBAM support, this EUR 150 million includes the EUR 500 million just on Aperam's own first. Secondly, the synergies of Universal were included -- are included in the EUR 150 million as well. So this is something to keep in mind, right? From EUR 500 million, you see that we have announced new investments, and we do expect another EUR 50 million additional EBITDA improvement from the investments we have announced. But this should happen ramping up in 2028, but the full effect in 2029 visible, so to speak. So it's post Leadership Journey 5. And the delta then from the EUR 550 million to the EUR 750 million is basically utilization improvement in Europe plus support from trade defense measures. What you are seeing now as a range from $700 million to $800 million to the previous $800 million is the difference is basically if CBAM is going to be immediately effective or is there going to be a ramp-up. That is the delta of the $50 million to $75 million that you look. Is that bridge clear? Or should I? Adahna Ekoku: No, that was very clear. Thank you. Operator: The next question comes from the line of Tommaso Castello from Jefferies. Tommaso Castello: I have 2 left. The first one is on Brazil, which obviously performed better than last year at EUR 75 million EBITDA. Should we consider that as a normalized run rate also for 2026 onwards? Nicolas Changeur: Yes, it will be a normalized low cycle for Brazil for next year, yes. Tommaso Castello: Okay, and then the last one... Sudhakar Sivaji: I'm sorry, just keep in mind that in 2024, it was exceptionally low because we had a hot strip mill investment. And as a result, there were for the first half of the year, losses in EBITDA. So the EUR 75 million is at the low end of the cycle, like Nicolas said. Tommaso Castello: Yes, yes, definitely. Thanks for that. And then the last one. I know it's probably hard to estimate. But, for example, carbon steel, we have some estimates on the potential impact of the new trade measures, basically cutting around 10 million tons of steel being imported -- from being imported into Europe. Now the stainless steel market is obvious smaller, but I was wondering if you had any estimates on how much the new trade measure could impact in terms of percentage of, yes, the volumes basically being shipped to Europe. Sudhakar Sivaji: So this is what we said earlier also, which was that we expect a 7% to 10% jump in utilization. So depending on what you take the stainless market and demand at, that gives you an estimate of the number. So it's a 7% to 10% jump in utilization. Operator: The next question comes from the line of [indiscernible] Capital. Unknown Analyst: Hi, can you hear me? Sudhakar Sivaji: Yes, Lucian, loud and clear. Unknown Analyst: Sud, and congrats on the results. Just going back to the Adahna's question. So if the normalized EBITDA was previously the target was EUR 800 million. You've got Universal on top, which should kind of add, say, EUR 90 million to EUR 100 million, so you get to EUR 900 million. So why is that now actually stepping back to EUR 700 million to EUR 800 million, especially considering safeguard measures that are going to be coming in, which should obviously be a further boost on top of that previous range? Sudhakar Sivaji: Absolutely. So Adrian, I think we have to understand in the past, when we have discussed, we said that the margin in Europe in 2025, for example, thanks to imports -- or rather no thanks to imports and the dumping is EUR 300 per tonne below the previous average, right? And our assumption, and that's the reason I split out what we can do on our own. And if you say the entire EUR 300 per tonne on the margin comes back, then we are back to that EUR 800 discussion. That is the reason I say EUR 500 million on our own, EUR 50 million due to the investments announced, it's EUR 550 million, and then it's up to trade defense measures in CBAM. So the delta to the previous EUR 800 million you're looking for is our 2025 margin being EUR 300 per tonne below compared to previous averages. And I think this is the official discussion we've had before as well, that the low cycle has been EUR 300. How much of this recovered? So it's not a change in the results. It's basically when we say EUR 500 million on our own because of the different business model, EUR 50 million due to the additional investments, and then based on CBAM and trade defense, are we going to recover the entire EUR 300 million or part of it is the delta to the number. Unknown Analyst: Got it. So yes, you're just setting the floor lower, which is good. And hopefully, there's upside to that. Sudhakar Sivaji: Exactly. So if you say that, that entire EUR 300 million is coming and additional trade defense, but those are theoretical discussions, and we wanted to just be clear what our performance and what is expected from the market. Operator: The next question comes from the line of Bastian Synagowitz from Deutsche Bank. Bastian Synagowitz: A few quick ones maybe. Just getting back to the European market. So I guess just coming back to the point you said, so you're saying that you're not seeing any abnormal demand or nothing extraordinary in your order book. But then I guess when we look at the quarter drawdown, it has come down significantly in the first couple of weeks of '26 as it should do as a result of CBAM. So just curious, do you read this as well as customers are currently really heavily absorbing their inventory? Is this what's currently happening? That's my first question. Sudhakar Sivaji: Look, customers are drawing down on the inventory not because of the regular inventory being drawn down because in Q4, as you know, there's been a significant surge. So there's a lot of inventory in the system. Bastian Synagowitz: Okay. But these are your reads as well that if you -- I guess, if quota drawdown is lower, demand doesn't really show up in your order book extraordinary, then it must be a much more significant drawdown of that extra inventory, right? Of the market share from quotas, yes. Sudhakar Sivaji: Sorry, you are correct. But fundamentally, there's 2 comments to that. One is the fact that realistically speaking, based on 2 weeks, you cannot estimate the entire quarter drawdown discussion. I hope you understand. And the second thing is that, yes, with the deliberate intention of consuming those inventories in this quarter is why importers have brought in all these inventories in Q4. So we do see that demand drawdown happening from inventories. Bastian Synagowitz: And just also getting back on CBAM. So I'm wondering where do you see the average CO2 footprint in the current import mix, the way you judge it versus particularly also the most efficient -- CO2-efficient sources of supply, which you now have on the import side. I'm pretty sure you've done the math. So maybe you could give us your views on how you see the battlefield there at the moment and how it has been impacted by CBAM. Sudhakar Sivaji: The battlefield is exactly as it's been defined by the commission's default values. If you look at it, the commission's default values on carbon dioxide emissions from different countries are basically at the levels which we expected them to be. The one thing is, of course, is there some circumvention because some of these countries probably using metal from Indonesia, that is something I'm sure that the commission will continue to monitor. But the default values basically set the exact map of how we see the different carbon footprints of the different countries are. Bastian Synagowitz: And then maybe a very last question on the next chapter of your Leadership Journey and I guess, the new investments, which from my understanding, are mostly tech to Europe. And Europe for the last couple of years obviously has not been a great ROI place as maybe -- as it comes to the different options. So are these investments still under the condition that, I guess, everything is really panning out the way we hope it to pan out? Or are there basically no regret moves and you will go ahead with those independently from whatever is happening? Sudhakar Sivaji: I would say that fundamentally, you have to look at it in 2 different directions. One is that 2/3 of these investments are diversification into specialties in alloys and stainless specialties. And another 1/3 is into automation and putting in new lines with higher productivity and higher efficiency. So if you look at it in -- if the demand picks up and the cycle comes back, these lines will be used or the one with higher productivity will be used to serve the upside structurally. If the demand goes in low cycle, we are a cyclical business, primarily in stainless, then we have the most efficient lines running, and you do know that we have a track record of variabilizing our costs depending on the demand. So that's the reason. So in a sense, yes, these are measures which are required because we want to move primarily into specialties in stainless and alloys. But at the same time, we take the opportunity to put in modern lines. See one primary principle of this, and we've mentioned this in the podcast is that we want to push the technology to make sure we are best-in-class and do not fall pray to the same thing which some other industries in Europe have fallen pray to. We want to be out there competing with the most modern lines being built in Asia and to take productivity gains in low cycles and upsides in high cycles. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Sud Sivaji for any closing remarks. Sudhakar Sivaji: So thank you for joining the call, everyone, and it was a pleasure answering your questions. As you know, Nicola and I, with the Investor Relations team will be on the road over the next couple of weeks, meeting a lot of you. You know, for us, a very eventful and exciting year has just begun, and we look forward to talking to all of you in 2026. As we say in Dusseldorf, have a fantastic carnival season, and we hope to talk to you soon. Thank you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line. Goodbye.
Operator: Greetings. Welcome to Strattec Security Corporation's Second Quarter Fiscal Year 2026 Financial Results Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the call over to Deborah Pawlowski, Investor Relations. Thank you. You may begin. Deborah Pawlowski: Thank you, and good morning, everyone. We appreciate you joining us for Strattec's Second Quarter Fiscal 2026 Financial Results Conference Call. Joining me on the call this morning are Jennifer Slater, President and CEO; and Mathew Pauli, Vice President and Chief Financial Officer. Jen and Matt will review our financial results, progress being made to transform Strattec and our outlook. You can find a copy of the press release and the slides that accompany our conversation today on the Investor Relations section of the company's website. If you are reviewing those slides, please turn to Slide 2 for the safe harbor statement. As you are aware, we may make some forward-looking statements on this call during the formal discussion as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today's call. These risks, uncertainties and other factors are discussed in the earnings release as well as with other documents filed by the company with the Securities and Exchange Commission. You can find these documents on our website as well. I want to point out that during today's call, we will discuss some non-GAAP financial measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release and slides. So with that, let me turn it over to Jen, who will be referencing Slides 3 through 5. Jennifer Slater: Thank you, Deb, and welcome, everyone. We delivered a strong second quarter despite a challenging macro environment, which included some supply chain challenges for the industry, moderating automotive production and foreign exchange pressures. We believe our results further validate the effectiveness of our transformation actions and our focus on protecting profitability as we work to drive process improvement, institutionalize new practices and leverage the great team we have built. Sales grew 6%, driven by pricing, favorable sales mix, higher content value, new program launches and tariff recovery. We achieved gross margin in the quarter of 16.5% with margin expanding 330 basis points over last year. The transformation is translating to the bottom line and delivering improved returns for our investors. Net income nearly quadrupled year-over-year to $5 million or $1.21 per diluted share. On an adjusted basis, earnings per share grew 163% to $1.71. During the second quarter, we generated $14 million in cash from operations, bringing our year-to-date cash flow to $25 million. We have an exceptionally strong balance sheet with $99 million in cash and total debt of just $2.5 million. Our financial position gives us the flexibility to continue to invest in the business, manage through market volatility and explore strategic opportunities. We continue to drive actions to reduce costs and put talent in the right positions to deliver innovation and agility. During the quarter, we implemented a voluntary retirement program, which combined with other fiscal '26 restructuring actions should generate $3.4 million in annualized savings. This layers on top of the cost reductions completed in the prior fiscal year and demonstrates our focus on operational excellence and an appropriate cost structure. We have assembled a great team here at Strattec that is demonstrating the ability to collaborate to drive improvements across the organization. We will continue to invest in developing our employees, bringing in additional talent where needed and providing the tools to improve processes and provide the data required for nimble decision-making. Our strong balance sheet and positive momentum provide us confidence that we can continue to execute through this cycle and create meaningful value for our shareholders. With that, I'll turn it over to Matt to walk through the financial details. Mathew Pauli: Thanks, Jen, and good morning, everyone. Let me walk through the second quarter financial results in detail. Looking at Slide 5, sales were $137.5 million in the quarter. We've demonstrated our ability to capture accretive pricing in a disciplined way, although we will lap some of the pricing benefits in the second half of the fiscal year. We also benefited from favorable sales mix, net new program launches and higher content value, including higher production volumes on the platforms we support. During the quarter, we also recovered $1.3 million of tariff costs, which show up in our net sales. As we've previously discussed, the tariff costs are recovered on a delayed basis and tend to not match up with the associated costs in any particular quarter. All of the positives we captured more than offset an overall weak automotive environment. Sequentially, we are expecting a slight improvement in sales in the third quarter as we begin to lap pricing and follow current automotive production forecasts. On a year-over-year basis, we expect the second half will be down approximately 3% to 4%. Turning to Slide 6. Gross margin increased $5.6 million to $22.7 million in the quarter. As Jen noted, gross margin expanded 330 basis points to 16.5%, driven by multiple favorable factors. Pricing actions contributed approximately $3.1 million of the improvement. Higher production volumes provided positive leverage as we built inventories by $7 million to provide better responsiveness to our customers and to help reduce expedited logistics costs. We also captured $1.7 million in restructuring savings from our cost optimization initiatives. These gains more than offset some headwinds. We had $1.2 million of higher labor costs in Mexico related to annual merit increases and incurred approximately $900,000 increase in tariff costs. We had approximately $1.6 million of negative foreign exchange impact and expect continued headwinds throughout the year. As a reminder, every 5% change in the dollar relative to the peso is an approximate $4 million annualized impact to our gross margin. Year-to-date, we've expanded gross margin 350 basis points to 16.9%. This reflects $8 million in cumulative pricing actions, including tariff recoveries, combined with higher production volumes and $3 million in restructuring savings. Offsetting these benefits were $2.3 million in elevated Mexico labor costs and $2.1 million in unfavorable foreign exchange. While we have much more work to be done, we believe we have raised the baseline of gross margin at the 15% to 16% level and are advancing towards our gross margin goal. Moving to Slide 7. Selling, administrative and engineering expenses, or SAE, increased $2.8 million (sic) [ $2.9 million ] year-over-year to $17.9 million or 13% of sales in the quarter. While the dollar increase appears significant, it's important to understand what's driving it. We incurred $1.7 million in expenses related to our voluntary retirement program, a onetime charge. We invested an additional $800,000 in business transformation costs, and we added $700,000 in talent investments to strengthen our capabilities and support our growth initiatives. These investments were partially offset by $1.1 million in lower executive transition costs compared with the prior year. Year-to-date, SAE remains controlled at 11.6% of sales, which, excluding the voluntary retirement charge, is within our expected long-term range of 10% to 11%. Interest income grew $500,000 on higher cash balances, reflecting our strong operating cash generation. Interest expense declined $200,000 on lower debt. and other income improved significantly due to the benefit of our peso hedging program. Let's move to Slide 8. Net income attributable to Strattec was $4.9 million for the quarter or $1.20 per diluted share compared with $1.3 million or $0.32 per share in the prior year. On an adjusted basis, net income was $7.1 million and adjusted diluted earnings per share grew 163% year-over-year to $1.71. We are also benefiting from our cash balances. We had interest income of $885,000 in the quarter. Our progress demonstrates that our transformation actions are flowing through to the bottom line. Adjusted EBITDA for the quarter was $12.3 million, representing an adjusted EBITDA margin of 8.9% compared with 6.1% in the prior year second quarter. Year-to-date, adjusted EBITDA was $27.8 million, up 55% versus the prior year with an adjusted EBITDA margin of 9.6%, up 290 basis points. Now let's turn to Slide 9, which highlights our cash position and capital flexibility. Operating cash flow for the second quarter was $13.9 million, up 48% compared to the prior year quarter. Year-to-date operating cash flow reached $25.2 million, up 21% versus the prior year. The improvement reflects higher net income that was somewhat offset with the investment in inventory that we made in the quarter to improve delivery times to customers. We expect the cash costs associated with restructuring and business transformation to impact the third quarter due to timing. We continue to expect to generate on an annual basis, about $40 million in cash from operations. Capital expenditures in the second quarter were $2.6 million, focused on new product programs and investments in new equipment. This resulted in free cash flow of $11.3 million for the quarter and year-to-date free cash flow of $21 million. Year-to-date, CapEx was $4.1 million (sic) [ $4.2 million ] and we expect that CapEx for the fiscal 2026 will be less than $10 million. We ended the quarter with a very healthy cash position of $99 million. We paid down another $2.5 million of debt in the quarter. Total debt, which is related to our joint venture is just $2.5 million, down from $8 million at the end of the prior fiscal year. We are consistent with our capital allocation priorities. First, we are prioritizing investments to support organic growth and new customer programs. Second, we are investing in process modernization and automation initiatives, which we expect to drive efficiencies and improve our manufacturing footprint. Third, we're preserving financial flexibility as we navigate the uncertain automotive market. And finally, we're evaluating M&A as a potential lever for longer-term growth. If you turn to Slide 10, I'll hand it back to Jen to review the conditions in the automotive industry and the actions we are taking. Jennifer Slater: Thanks, Matt. While North American automotive production is not looking as challenging as originally expected at the beginning of fiscal '26, industry forecasts still suggest a flat to moderate decline. While we have modest benefits from program launches and being on favored platforms this fiscal year, we are still subject to OEM production rates. To sum up, we are delivering on the transformation of Strattec. We've expanded margins significantly, nearly tripled net income and grown adjusted EBITDA by 55% year-to-date. We're building a stronger business with improved earnings power. We have a great balance sheet, giving us the capital to invest and the flexibility to manage through cycles While there are a number of obstacles we have yet to overcome, we believe our strategic focus on deepening our customer relationships and engineered access solutions, along with striving for operational excellence should enable sustainable profitable growth. We also have the opportunity to expand our customer set within North America by leveraging our technical expertise. We believe the talent we have invested in and the organizational muscle we are building are making meaningful contributions that are critical to the future of Strattec. We have good momentum heading into the second half of fiscal '26, and we're confident in the path that we are on. Operator: [Operator Instructions] Our first question is from John Franzreb with Sidoti & Company. John Franzreb: Congratulations on another great quarter. I'd actually like to start with the just finished period. Jennifer, I know there was concerns that supply chain disruptions might be problematic. I'm curious, was there actual revenue pushed from Q2 into Q3? Or did your customers pretty much work around it and it was pretty much nonissue? Jennifer Slater: Yes. I think there were 2 things that we talked about. One was a fire with supplier for some of our customers. There was some slight impact from that on certain platforms that customers are looking to make up for the full year. And then the other one was the chip challenge. And I would say that customers with suppliers work to get through that with minimal impact to sales in the quarter. John Franzreb: Always seems to be a chip challenge out there. Jennifer Slater: Yes. John Franzreb: Regarding the selling and administrative expenses in the second half, with the change in compensation, with new people coming on board, with early retirement plan, how should we think about that line item? Is that going to be closer to the second quarter's 13%? Or is it more of the first half's 11.8%, 11.6%? How should we think about how that line item plays out for the year? Jennifer Slater: I think maybe I'll start with a little bit of context on how we're evaluating that investment, and then Matt can talk a little bit more on the target. This is an area, John, we're continuously looking at where do we need to invest in continuing the progress on the transformation. So there's a lot of puts and takes in there, but we also want to make sure that we're not starving the long term for where we need to be with the business as we think through the investment. But I think we've set where we think the target of the business is, and that's where we're continuing to work through, and I'll let Matt answer more specifically. Mathew Pauli: Yes, we still expect it to be in the 10% to 11% in the back half of the year, John. And we've talked about merit, especially in Mexico in the past. What I think we'll see going forward in merit is it will be a little bit less than what we've had to do historically. So I think 2 years ago, it was kind of 20%, 12% this past year, but it will be a little bit less than that on a go-forward basis. So expect 10% to 11% from an SAE perspective in the back half of the year. John Franzreb: And regarding the $3.4 million in savings from the early retirement plan, when does that hit the bottom line? Is that immediately in the third quarter? I saw that you took the $1.7 million against that. How does that play out? Mathew Pauli: Yes. Just to clarify, the $3.4 million is the annual benefit for the restructuring actions and the voluntary retirement program that we did in fiscal '26. So we only saw about $400,000 of a benefit in the current quarter, and it will kind of get fully phased in roughly around $800,000 a quarter by the time we get to the fourth quarter. John Franzreb: Perfect. Regarding the free cash flow, you've had a great bunch of quarters. What's the pushback that's going to draw down the cash flow? It sounds almost like there's an inventory build going on, but I'm not sure if I just misheard that in the presentation. Mathew Pauli: Yes. I think we've talked about it in the past, we were intentionally building inventories, finished good inventories in the quarter just to improve our service delivery to our customers. So that was a headwind in the quarter. But also some of the restructuring costs and the business transformation costs that we incurred in -- or we expensed in the second quarter will impact cash flow in the third quarter. Operator: Our next question is from Brian Sponheimer with Gabelli Funds. Brian Sponheimer: Could you just talk a little bit about maybe some of the conversations you're having with potential new customers in North America? You mentioned that as a source of growth. And obviously, that's not a fiscal '26 or potentially '27 item, but maybe just where some of those conversations are going and what products they're centering on? Jennifer Slater: Yes. So we are focused on our access products and our digital key as we're talking to our existing customers and prospective customers. As you know, Brian, the sales cycle in automotive is a long sales cycle. So starting the discussions right now to get our customers comfortable with our product portfolio, the value we can provide and lining those up to timing of their model year launches. The very earliest it would be is '29, but it's more likely to be longer term as they're going through their product plans, qualifying us as a supplier and then specing those into the platforms. Once we are spec-ed into the platforms, we are on for the life of the platform, which is typically 5 to 7 years. Brian Sponheimer: Okay. One other one for me. Tesla had a very high-profile issue with the door handle that you're not on. But does this call -- does this impact you from a technology perspective on any prospective platforms that you had coming out in the next couple of years with a similar mechanism on proximity handles? Jennifer Slater: Yes. For door handles, it doesn't impact us for what we had planned for the future. But I would say that the benefit to us as we provide mechanical locking mechanisms as well is it's just reinforcing that while technology is changing, there still is a need for a secondary mechanical locking mechanism to enter into vehicles. So I see this as continued strength for our product offerings to the customers. Operator: [Operator Instructions] We do have a follow-up question from John Franzreb with Sidoti. John Franzreb: Jennifer, I'd be remiss not to ask this question every quarter. Just regarding the -- your product review, can you give us any kind of update of what you're finding as you go through a product line by product line review of the company's offerings? Jennifer Slater: Yes. That's a good question, John. And we talked about earlier in the year that we did have a product line, which was our switch business that we deprioritized because while we had some good technology there, it wasn't the right fit from a profit and the value that we could supply to our customers. We still are heavily focused on our power access products, which is our drive units, our latching mechanisms, door handles as well as our digital key technology, which is the next-generation technology of a traditional key fob. So when I talk about digital key, it's the actual key fob's next-generation technology. John Franzreb: Got it. And just a point of clarification, Matt. I think you said that you expect revenue to be up 3% to 4% in the second half. I'm not sure if you're referencing year-over-year or sequentially. Mathew Pauli: Yes. Just to clarify, the expectation is it will be down 3% to 4% on a year-over-year basis. John Franzreb: Okay. And that's year-over-year. Okay. Operator: There are no further questions at this time. So this will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Gustavo Rodrigues: [Interpreted] Hello. Good morning, everyone. My name is Gustavo, and it is a pleasure to have you joining us for our fourth quarter 2025 earnings video conference. As always, Milton will walk you through our performance. And afterwards, we will have our traditional Q&A session in which analysts and investors will be able to interact directly with us. Before handing the floor over to Milton, I would like to share a few instructions to help you make the most of today's event. For those accessing the webcast through our website, there are 3 audio options available, the entire content in Portuguese, the entire content in English or the original audio. [Operator Instructions] Today's presentation is available for download on the hot side screen and as always, on our Investor Relations website. With that, I will now hand over to Milton, and we will reconvene later for the Q&A session. Milton, over to you. Milton Maluhy Filho: [Interpreted] Good morning. Welcome to another earnings release. Today, we will review the results for the fourth quarter of 2025. I will also discuss our outlook for the coming year and provide guidance for 2026. In addition, I will share an overview of our journey so far, highlighting our progress over recent years and the key achievements in 2025 to provide greater transparency into our agenda at the bank, though not exhaustively. Let me begin by revisiting our history, first, reinforcing the pillars that have guided us and proven essential to our management model. Client centricity remains our top priority and the central focus of the entire organization. Delivering on this commitment has required a comprehensive cultural and digital transformation within the bank over the past years. While this is an ongoing process, the advancements have been highly significant. Our risk management culture is a distinct competitive advantage. We maintain a long-term perspective and the ability to thoroughly assess all risks to which the conglomerate is exposed daily. Risk management is fully integrated across all business areas and is not solely the responsibility of the risk division, which is why I emphasize this pillar as a competitive differentiator. Capital allocation is another key area of focus in our management and daily decision-making models. as well as in our remuneration structures. We maintain strict capital allocation discipline, choosing the right place to allocate capital at the right price and with appropriate returns, always with a client-focused forward-looking perspective, which is fundamental. The modernization of our technology platform and data architecture has been a critical enabler of all our achievements. We have made years of substantial investment and transformational changes in our platforms including the modernization and simplification of our legacy systems, which notably are now scheduled for decommissioning. Therefore, we remain highly optimistic about the potential of this agenda, particularly with the ongoing review of our data architecture. We have developed a much more centralized architecture with a single source of information for the entire bank, democratized data across the organization and a cloud-based data mesh. This evolution has significantly enhanced our capacity to apply artificial intelligence to our business from launching new products and improving client interaction to process optimization and productivity gains. This transformation has been instrumental in achieving these improvements. And last but not least, let's touch on strategic cost management and efficiency. This is not about cost for cost's sake. Efficiency is a core guiding principle across the bank. We have been able to invest significantly in this transformation while delivering strong results and profitability with revenue growth outpacing cost increases over the years as reflected in our efficiency ratio. With all these investments made in technology, platforms and digitalization of the organization, we have entered a critical phase of scalability. Operational scale is now essential, especially for certain business lines, which I will detail shortly. How does this translate into results? Our loan portfolio grew by 40% during this period, a significant increase. During this process, we also carried out a relevant derisking of certain portfolios that did not deliver adequate returns according to our portfolio management framework. which is one of the core disciplines within our risk management culture and capital allocation pillar. This relevant derisking protected us from several million in potential losses and from a deterioration of key delinquency indicators. It also left our portfolio significantly stronger and better positioned with higher quality to support future growth. In terms of numbers, we saw a notable expansion in ROE, rising from 19.3% in 2021 to 23.4%, a substantial increase in the period. Our efficiency ratio improved from 44% to 38.8%, representing a significant reduction as well. During this period, we distributed BRL 105 billion in cash dividends, equating to a payout ratio of 57.9% in the period. In other words, we generated strong value creation and profitability, maintaining discipline in cost and efficiency management, which translated into significant returns for our shareholders. And how do we measure value creation within the bank? Here, we can see a 2021 snapshot. The bank delivered net income of BRL 26.9 billion, generating value based on our models and the cost of capital in line with market methodologies of BRL 9.3 billion. In 2025, we reached consolidated net income of BRL 46.8 billion with value creation of BRL 18.5 billion, twice the value created over the period and double what we delivered in 2021. This represents very strong growth with quality, sustainability and consistency and above all, with a high level of discipline and value creation. This slide contains a lot of information, but my goal is to provide an overview of our 2025 performance. I will now delve into a few highlights, starting with stakeholder satisfaction. The first metric reflects how we are evaluated by our employees across the bank. We achieved an eNPS of 83 points, very close to historical highs, which demonstrates the significant progress we have made internally in terms of workplace environment, culture, entrepreneurship and our ability to attract and retain talent, creating a truly productive environment. It is within this environment that we are naturally able to take care of our clients. In 2025, we achieved an all-time high consolidated NPS with record levels in the middle and high-income segments, 2 segments that are highly relevant to the bank and remain central to our strategy. For our investors, we did not present this information through valuation multiples, share price performance or stock evolution over the period. We always maintain a very long-term perspective. The bank's total shareholder return over the past 5 years has been outstanding, demonstrating our ability to deliver value and earn investor recognition. That said, we chose to highlight this performance through the Extel survey, where we were ranked as leaders across all categories for the second consecutive year. I am very pleased and would like to once again thank our investors for their trust and recognition. Our sense of responsibility and dedication only continues to grow. From a technology standpoint, we achieved a significant reduction in incidents as a result of our modernization agenda. Incidents were reduced by 99%, which is a very relevant achievement given the size and complexity of our architecture, our platforms and our operations across multiple businesses. One theme that I consider central to this modernization is speed. It is our ability to deliver value to our clients with much greater agility and responsiveness. As a result, our delivery speed increased by 2,600%, representing a truly transformational shift. When we analyze scalability, a topic we have discussed extensively, we achieved a 45% reduction in our unit transaction cost, demonstrating that we have indeed been able to carry out this transformation with high quality, depth and very consistent results. In retail banking, both individual and business, we delivered numerous initiatives throughout 2025, making it a highly significant year. I will highlight a few. First, we migrated 15 million clients to the Super App with a primary focus on client experience as evidenced by an NPS of 80 points. From now on, we will have a full banking relationship with these clients. In terms of speed, we increased our delivery pace by 4 to 5x, developing new products, addressing client pain points and achieving high adoption and activation rates. The transaction volumes on these new features are substantial, including Pix on WhatsApp powered by AI, Piggy bank, Cofrinhos, limit transfers and collateralized cards, among others, a robust suite of offerings for our clients. The modernization of our platform enabled us to participate quickly in the new private sector payroll loan program. If you look at the data from inception to now, we have regained leadership in this area. We had already led in the previous private sector payroll loan model and have now returned to leadership in production over this period. We maintained our leadership in portfolio size with significant growth, quality and a long-term perspective. We also saw a notable increase in digital adoption among our clients. Our investments in technology, cultural and digital transformation and best-in-class client service have naturally optimized our footprint. In insurance, a segment where we have long recognized the need to catch up, we ended 2025 with a 130% increase in recurring results, more than doubling our outcomes in the period. Encouragingly, we continue to see strong prospects ahead with insurance now an integral part of our value proposition for both individual and business clients. In the corporate segment, I would like to highlight the BRL 1 trillion in transaction volume reached in acquiring. As a result, we have secured market leadership in credit which we had already achieved, maintained leadership in acquiring with discipline, focus, new technologies and products and in payment and collection flow. This underscores the importance of our client-centric approach in corporate retail banking. We launched Itau Emps, a 100% AI-powered platform with tremendous future potential as part of our value delivery and business model for corporate and retail. In Wholesale Banking, I would also like to highlight a few lines. We are ranked first in fixed income issuance and distribution, a highly competitive market that many of our large and mid-sized clients have increasingly accessed over the past few years. We closed the year with 26% market share and BRL 124 billion in originated transactions. Continuing in wholesale, as discussed extensively at Ita� Day, we created the Infrastructure and Energy segment with specialized focus and structure given the robust investment pipeline. We achieved leadership in Eco Invest Brazil, a very important program and recorded the highest fundraising among banks, already enabling BRL 12 billion in investments. We had yet another year in which we took the lead at BNDES and in the rankings for foreign exchange, derivatives and supplier risk. Once again, we stood out in credit, in structuring transactions in capital markets and in supporting our clients' day-to-day needs. We also achieved leadership for the second consecutive year in something extremely important in research, the Institutional Investor or Extel Brazil for 2 years in a row and in Extel LATAM in which we were the winner for the first time. It's a great source of pride to see the work our teams have been doing, once again covering our publicly listed clients with deep discipline and thoroughness. Turning to Wealth Management Services, WMS, I'd like to highlight 2 areas. First, in the trillion world, we have reached BRL 4.1 trillion in assets under management and administration. This is the volume the bank currently has under management and administration. Regarding the open platform, a topic often discussed, the bank operates by offering clients a highly diversified range of products. We grew 15% in the fourth quarter, reaching BRL 422 billion, which shows that it's possible to grow with quality, with strong curation, with discipline, with security and naturally maintaining a robust system with a very client-centric approach. I believe the numbers speak for themselves. We also saw significant growth in revenue from our retail brokerage business, an area previously identified as a gap with a threefold increase over the period. Now I will address the fourth quarter results, covering profitability, loan portfolio, net interest margin with clients, commissions, fees and results from insurance and conclude with the efficiency ratio. For ease of visualization, let's zoom in on the results. We posted net income of BRL 12.3 billion, a robust result for the fourth quarter, representing growth of 3.7% over the previous quarter and 13.2% year-over-year, maintaining a very strong level of profitability. On a consolidated basis, ROE reached 24.4% and in Brazil, 26.0%. Adjusted for 11.5% capital, our current industry average and capital appetite as defined by the Board, consolidated profitability was 25.4% and in Brazil, 27.3%. This is perhaps the most comparable number for interpreting our performance in the Brazilian operation with growth and expansion across all dimensions. How did we build this? Our loan portfolio grew significantly with 6.3% compared to September 2025 and 6% compared to December 2024. I will talk about the year-end guidance shortly. We reached a loan portfolio of BRL 1,490.8 billion. Excluding the effects of foreign currency variation, quarterly growth would have been 4.5% and annual growth would have been 7.3%. This is because our portfolio is influenced both by the operations of our banking units outside Brazil, which affect balances through currency fluctuations and by portfolios originated in Brazil that also contain foreign currency components Net interest margin with clients also delivered very solid results with 1.5% growth over the previous quarter and 8.6% year-over-year, a strong performance for a bank of our size and profitability. For services and insurance, it was also an excellent quarter with 5.9% growth over the prior quarter and 9.1% year-over-year, totaling BRL 15.6 billion in high-quality solid results. We reached our best ever efficiency ratio levels at 38.9% on a consolidated basis and 36.9% in Brazil. We are seeing improvement across all dimensions with continuous progress in our efficiency ratio, which is also consistent with the initial slide I presented to you. Now focusing on the loan portfolio. There is a lot of information, so I will highlight what I consider most relevant. First, this is a seasonally strong quarter due to year-end purchases, which typically boost the card portfolio, up 8% this quarter. Importantly, and this also explains the margin on the next slide. The transactor portfolio typically tends to grow more this quarter due to a very simple reason, higher purchase volumes, whether paid in full or in installments, resulting in 4.3% growth. The finance portfolio grew 1.6% in the quarter. Both segments posted strong year-over-year growth. In payroll loans, the portfolio grew by 4%. The main highlight was private payroll loans with 27.5% growth in the quarter and 36% year-over-year. This growth has led to us achieving market leadership in private payroll loans in Brazil with high quality, profitability and a very well-executed model supported by an outstanding onboarding experience. The next highlight is mortgage lending, and we recognize the importance of this lever for long-term client relationships. We reached approximately BRL 142 billion in mortgage portfolio, the largest among private banks. We surpassed 50% market share in mortgage origination with over BRL 33 billion originated in 2025, continuing a strong growth trend. Origination grew 9% year-over-year, and the portfolio expanded 12.8% in the period. Moving to SMEs. We also saw strong growth this quarter. Breaking it down, middle market companies grew 12% and small companies grew 6.4%. Government facilities, which allow us to offer clients competitive rates and suitable terms grew 10%. Annual growth rates were also robust for both small companies and government facilities. Let me now move on to margins. As mentioned earlier, given the mix you've seen, we have a meaningful growth component coming from corporate lending. However, in retail, the mix is also an important driver of margins. There was significant growth in the transactor portfolio typical for this quarter as well as in mortgage and private payroll loans, which are secured products that, while very important for long-term profitability and portfolio quality, have only a minor impact on the annualized margin in the short term. In summary, we grew by BRL 13 billion in 2025 versus 2024. In the fourth quarter versus the third, the increase was BRL 500 million or 1.5%. The main driver was volume, supported by strong portfolio growth. The mix I just described has a slight negative impact on margins. Spreads and liabilities margins remained strong, particularly on the liability side. There were also smaller effects from calendar wholesale bank structured operations in Latin America. Overall, it was a solid growth quarter. Moving on to NIM. There was a slight decrease in the quarter from 9% to 8.9% and 6.2% to 6.1% risk adjusted. In Brazil, NIM declined from 9.8% to 9.7% and 6.7% to 6.6% risk adjusted. This is mainly explained by the mix between corporate and retail and within retail, the product mix with more significant growth in certain segments during the quarter. This is the breakdown view as we see it. And this is the annualized margin view I was just discussing with you fully within very appropriate levels. Now regarding NII with the market, I want to highlight that this decline was already anticipated. The guidance itself already implied a slightly lower market margin. We saw very strong performance in Brazil, but it's worth noting that prior quarters were also very strong. Still, performance remains solid. Latin America saw a slightly weaker result due to capital index hedge costs, consistent with what we observed in prior quarters. I believe our annual reporting is very clear. If you look at the difference in performance, it is not in the top line. Brazil performed slightly below 2024, while Latin America was somewhat better. However, in terms of composition, the margin was very similar. The main variance is the capital index hedge costs, which increased due to the interest rate differential in the hedge. The main takeaway is that we are very comfortable with our hedging strategy as it enables strong capital management with high predictability and consistent dividend payouts over time. This approach has reduced volatility in our capital ratio, and we review and discuss this policy every 6 months. Now let's move on to commissions, fees and results from insurance. I will emphasize what I consider most relevant. I talked earlier about payments and collections. We posted a 5% improvement in the quarter with a very strong transacted volume of BRL 301 billion, an impressive figure, reflecting growth of 16.8% in the quarter and 22.8% year-over-year. In Asset Management, we recorded 14.2% growth, making this a particularly strong quarter, also benefiting from performance fees. As previously mentioned, we reached BRL 4.1 trillion in assets under management and administration. I would like to highlight our record net inflows in 2025, totaling BRL 156 billion, an increase of 49%. Once again, this demonstrates our credibility, ability to deliver value, long-term vision and most importantly, the trust we build daily with our clients. In Advisory Services and Brokerage, we had a strong quarter with growth of 17.1%. We remain market share leaders and as previously mentioned, with BRL 124 billion in originated volume. Year-over-year, there was a decline as 2024 was a record year for advisory and brokerage results, especially in corporate debt. Nevertheless, we outperformed our initial expectations for market volumes this year. Insurance, pension plans and premium bonds results grew 1.9% in the quarter and 17% year-over-year. The most important message is that our earned premiums continue to grow 13% year-over-year. Recurring earnings rose by more than 20% this year, following several years of significant growth, resulting in a cumulative increase of 130% from 2021 to date. Now let's take a closer look at asset quality. Starting with short-term delinquencies. There are a few points to note. As anticipated in the previous quarter, we had a specific case within corporate, a well-known and widely reported case that had moved into short-term delinquency. Our expectation was that it would be removed from the balance sheet sold and restructured by year-end, which is exactly what happened. This explains the spike in September and the decline in December. Without this event, the indicator would have remained flat. When looking at total Brazil and Latin America, indicators remain well behaved. In Brazil, 2 effects are noteworthy. First, in individuals, where we reached the lowest delinquency rate in our history, demonstrating that our portfolio management over the years has yielded important results with portfolio growth, value creation and a highly sustainable portfolio. The corporate effect is also evident here. Short-term delinquency peaked at 1% in September and dropped to 0.03% in December as the specific corporate client I mentioned was removed from the balance sheet in the fourth quarter, reinforcing information previously shared. Regarding long-term delinquency, there are no major developments. The message is that delinquencies are very well controlled as well as in Latin America, resulting in solid outcomes. Across portfolios, individual delinquency stands at 3.6%, which is historically stable. For SMEs, there was a slight increase in line with what I had previously anticipated, particularly driven by the rollout of government-backed products with grace periods. We expect these delays to normalize over time as grace periods end. These are well-collateralized portfolios. So while delinquencies occur, they do not significantly impact losses or portfolio results. In terms of long-term delinquency for corporate, we make a caveat because we actually had a sale. Without considering this sale, it would have been an increase of 0.9 percentage points, which indicates a certain stability. It is worth noting that this is not an indicator we like to monitor, especially for large companies. Regarding Stage 2 and Stage 3 exposures, there are no major developments except for a decline in the Stage 3 portfolio, especially in corporates. This is exactly related to the exit of the specific corporate client I referred to earlier. Once the exposure is sold, it exits Stage 3, driving this effect. You can also observe a slight decline in coverage as this was a corporate client with a high level of provisions, consistent with its risk profile. This credit leaves the portfolio with a higher coverage level than the remaining balance, which explains the slight decline in coverage. I would say these are the only 2 highlights, and ultimately, they both refer to the same case. Turning now to credit costs. We have recorded BRL 9.4 billion in credit costs, representing 2.6% of the portfolio, an absolutely stable ratio if you look at the historical series. On a year-over-year basis, there was a nominal increase, which is expected given the significant portfolio growth during the period. This is why we always prefer to look at the credit cost to portfolio ratio, which is at a very healthy 2.6%. When looking at the restructured portfolio, the key highlight is that the specific case I mentioned earlier was classified as restructured, as you can see here. This nominal decline is primarily explained by that event, which is also why the percentage of the total portfolio has declined. This is the main takeaway for this section. Now turning to expenses. The first specific point is that while costs typically tend to be higher in this quarter, they remained very disciplined with just 0.5% growth in Brazil, which demonstrates the direction and trend. This will be evident in forward-looking guidance. For the year, expenses grew 7.6% in Brazil and 7.5% overall, which is perfectly in line with the midpoint of our guidance, demonstrating our discipline and predictability. Much of this year-over-year cost increase stems from our capacity to absorb relevant investments made as well as higher volumes combined with lower unit costs. However, this is an operation that is generating more business and higher volumes with our clients, which results in variable costs. Naturally, the bank's profitability also impacts costs due to compensation models. We always see an effect in this regard, which is healthy given the level of profitability and results the bank has been delivering. Now regarding the efficiency ratio, it is worthwhile to look back at the historical series starting from 2019, both consolidated and in Brazil. There has been a substantial reduction over the period, reaching 36.9% in Brazil, the lowest in the series. This demonstrates our commitment to client-centric care, strategic investments, results generation, increased productivity, organizational efficiency and a strong focus on operational scale. This remains a central topic for us. I would like to share some new information with you and as we classify it on a base 100, given the sensitivity of the data, we have broken down our business into different views. As I often state, Itau Unibanco is a diversified business portfolio. It is a very large wholesale bank and a very large retail bank. It is a major player in the region and the most international bank in Brazil. We have significant regional operations with 18% of our assets and 8% of our results coming from outside Brazil. This highlights the diversification of our portfolio, which is concentrated in investment-grade countries in South America. On this slide, we have outlined what we consider benchmark segments, whether in wholesale, retail or those areas where we believe we have already achieved a global standard of efficiency. Naturally, opportunities remain, and we are constantly monitoring them, especially in this new era of artificial intelligence and emerging technologies where there is always room to optimize further However, if you look at this 100 base chart from 2024 to the present, you will see the business and segments that have successfully maintained their efficiency ratios. For Latin America, the curve is heavily influenced by foreign exchange effects. So I will set this aside for a moment, although it naturally impacts the consolidated figures. On a consolidated basis, using a base 100 view, we can see our efficiency ratio moving from 100% to 98%. The key is that our most significant progress in efficiency is occurring within the scalable segments, specifically retail, both for individuals and SMEs, where technology, value proposition, scalability and productivity are fundamental. Long term, this is what will differentiate our ability to better serve our clients and expand to new client groups that given our current cost structure and efficiency ratio, we would otherwise have less capacity to absorb credit losses from. As you can see, I am already sharing an insight for 2026. We started from a base of 100 in 2024 and reached 94 in 2026. Our ambition is to continue improving this trend. Therefore, much of the investment and the transformation carried out in previous years is what allows us to accelerate scalability moving forward. It is a robust digital offering, a powerful platform and an optimization of the business and service models and a strong value proposition. We are very optimistic, not only with the evolution of these elements, but also with the prospects. Regarding capital, at the end of the day, all the results and discipline I've mentioned translate into strong capital performance. In the first block, we have the pro forma for December 2024, where we achieved a CET1 ratio of 12.3%. Net income generated 3.3% in the period. There was 0.8% capital consumption from risk-weighted assets. Regarding dividends and interest on equity, there was 2.5% capital consumption. We also had a positive 0.2% capital variance from new AT1 issuances, primarily in the domestic market. These factors led us to reach a CET1 ratio of 12.3% and AT1 of 1.5% as of December 2025. It is important to note that in the first quarter of 2026, we already have some regulatory events that are consuming part of this capital surplus. This was all factored into our planning when we decided to proceed with the early distribution of additional dividends, which we typically pay in March, but executed at the end of 2025. Regarding interest on own capital and dividends, we distributed BRL 9.7 billion in paid and provisioned IOC and BRL 24 billion in additional dividends and interest on own capital, resulting in a total payout of BRL 33.7 billion in 2025. Representing a payout ratio of 72%. This is a strong distribution, which is only possible due to high quality and robust capital generation. Our focus is to maximize the profitability of the business, but when we determine that there is excess capital beyond our expected opportunities for deployment and returns, our objective is to distribute it to shareholders. Now I will present the accountability regarding the guidance. I won't go into detail line by line, but visually, we came very close to the midpoint in almost all guidance lines throughout the year. The loan portfolio grew by 6%, while financial margin with clients increased by 12.1%. Our financial margin with the market reached BRL 3.3 billion. Credit cost was BRL 36.6 billion, and commissions and fees and results from insurance operations grew 6.3%. Noninterest expenses increased 7.5%, in line with our budget, and the effective tax rate was 29.7%. This demonstrates not only our predictability, but also our control over key levers. Looking ahead to 2026, and we will have more time to discuss this during our Q&A session, I would like to add a very important comment. As previously said, we expected to make some reclassifications across line items in our management reporting model as presented in the MD&A. We conducted a review to ensure that the way we disclose our results is an accurate reflection of how we manage the bank. As a result, there were some delayed adjustments that we wanted to implement, and we waited until the end to make those changes. There is no right or wrong here. This simply represents the most accurate depiction of what we do and how we manage the organization. You will see that at the end of the day, the bottom line remains unchanged with recurring managerial net income of BRL 46.8 billion in 2025. In other words, there are no changes to the total result. The variations are purely between line items. And of course, the Investor Relations team remains fully available to walk you through the details and provide further clarification. I will try to explain this in a simplified way. What we refer to here as the main reclassifications account for roughly 90% of the adjusted amounts. Let me give you a practical example. Historically, card network fees related to issuing and acquiring were split between noninterest expenses and a deduction from banking product revenues. We are now reclassifying all card-related expenses, both issuing and acquiring from noninterest expenses to commissions and fees. As a result, you can see a positive impact on expenses while this helps explain part of the negative effect observed on commissions and fees. That is one example. Another example is the discount of receivables financial margin. As we have mentioned in previous earnings calls, part of [ Rede's ] results was previously allocated in commissions and part in financial margin with clients. Within financial margin with clients, there were 2 components: discount of receivables financial margin and the cost of funding of automatic discount of receivables flex, both were previously classified under financial margin with clients. We are now reclassifying everything related to Rede to the commissions, fees and results from insurance line. This also helps explain part of what you are seeing here, namely an increased NII with clients as the flex cost of funding, which was previously recorded in that line is now reflected as a reduction within commissions, fees and results from insurance. A third example involves discounts on debts of up to 90 days overdue. These were previously recorded in NII with clients. We believe it is more appropriate to reclassify them into cost of credit as they are effectively credit discounts, and we explicitly disclose discounts granted within the cost of credit line. This helps explain part of the positive impact of BRL 2.8 billion in financial margin with clients, which is offset by a negative impact of BRL 1.5 billion in cost of credit. With this reclassification, total cost of credit would move from BRL 36.6 billion to BRL 38.1 billion. The key point is that going forward, we will refer exclusively to these reclassified results. Another adjustment relates to Avenue over which we now have control. Avenue is therefore, consolidated into our P&L lines as shown in this column. This has a positive impact on NII with clients, no impact on cost of credit and affects other P&L lines where it previously did not as Avenue was accounted for using the equity method through 2025 and will be fully consolidated from 2026 onward. The central message here is that our guidance looking forward already incorporates all these reclassifications, which we believe is the most appropriate way to present our numbers, our results and how we manage the bank. All future comparisons will be made against 2025 figures adjusted for these reclassifications. Turning to the macroeconomic scenario. This slide reflects the assumptions we've used. We recognize that the environment is highly dynamic, but these are the inputs applied in our projections and guidance analysis for 2026. We assume GDP growth of 1.9%, a year-end Selic rate of 12.75% with an expected rate cut starting in March, inflation measured by IPCA converging toward 4%, unemployment remaining low, but increasing slightly from 5.4% to 5.7% and the exchange rate moving from BRL 5.47 to BRL 5.50. Again, these are the assumptions underlying our planning and guidance for 2026. With that, I will conclude by walking you through the 2026 guidance. First, total credit portfolio growth is expected to range between 5.5% and 9.5%. We highlight that growth in Brazil is expected to be higher between 6.5% and 10.5% as Latin America weighs on consolidated growth. All other lines are presented on a consolidated basis. We expect net interest income with clients to grow between 5% and 9% and market NII between BRL 2.5 billion and BRL 5.5 billion. Cost of credit is expected to range between BRL 38.5 billion and BRL 43.5 billion. Commissions, fees and insurance are expected to grow between 5% and 9%. Regarding noninterest expenses, it is worth recalling that growth in the fourth quarter of 2025 was just 0.5% quarter-over-quarter. you can see that there is also a meaningful convergence in 2026 with expected growth between 1.5% and 5.5% with the midpoint below projected inflation, bearing in mind that banking inflation typically runs above IPCA. This clearly demonstrates our ability to capture the benefits of everything that has been implemented over the past few years. We expect the effective tax rate to range between 29.5% and 32.5%. This is our current view for 2026. Naturally, as the year progresses and more information becomes available, we will update and adjust if needed. But this reflects the best information available at this time. With that, I'll conclude. This was a slightly longer presentation than usual as we covered our historical journey, the full year performance, quarterly results and concluded with a clearer view of our 2026 guidance. For me, this closes a year of very solid high-quality results. Beyond the headline numbers, it is critical to look at the quality of the balance sheet. Across all lines, we have very adequate provisions, disciplined capital allocation, meaningful value creation over the period and ROE of 27.3% in Brazil. I believe this clearly reflects all the effort behind this journey, combined with an efficiency agenda that is advancing at a very strong pace. This is evident in everything I have just shared with you, including our guidance and also in the positive outlook we see looking ahead. Of course, this is a year where we expect some volatility. However, our risk management culture, a very healthy portfolio operating at historically low cost of credit levels and a highly provisioned balance sheet allow us to capture opportunities as they arise, whether to grow more aggressively or if needed, to manage the portfolio more defensively. In summary, I believe we delivered an outstanding year. Everyone here is very proud of the work accomplished yet fully aware of the challenges ahead. Past results do not guarantee future performance. Therefore, we remain humble, disciplined and focused, but above all, passionate and energetic about our work at the bank. That concludes my remarks. I will now join Gustavo in the studio for our traditional Q&A session. Once again, thank you not only for your time, but for the trust you have placed in the bank over the years, whether as clients, investors or employees. Thank you very much. Gustavo Rodrigues: [Interpreted] We're back to our studio with Milton and Gabriel for the Q&A. Now before we start, we would like to let you know that we are going to answer the questions in the language that they are asked. In English and Portuguese. [Operator Instructions] Let's go to the first question from Thiago Batista, UBS. Thiago Bovolenta Batista: [Interpreted] Congratulations on the result. Once again, a strong result that Ita� is delivering. I'm going to get 2 topics in one question. One is profitability of the bank and the other capital. A few years ago, we couldn't imagine that the ROI was 24%, 25%. Our doubt is, is this level recurrent? Can we imagine that this ROI is going to remain at this threshold all throughout the years and now the leverage of the bank? A few years ago, maybe 10%, the target was 13.5% Tier 1, which is not different from the 11.5%, 12% of core capital. But since then, we've seen a few issues. Overhead is over. You do the hedge of the capital abroad. So the capacity of capital is reduced. Can you keep this ROI of 24%, 25%? And can we imagine a reduction or an increase of leverage over time to keep this ROI at 24%, 25%? Milton Maluhy Filho: [Interpreted] Thiago, pleasure to see you once again. Thank you for the question. We are very happy with the deliverables and the optimistic with the future. Now about profitability. Maybe the best information, as you know, we don't give guidance of ROI in the long term. But the guidance of this year, we have profitability and thresholds very close to what we observed in '25. If you've seen the midpoint of the guidance, we should grow close to what was the growth of '25 against '24 and delivering a bottom line that is very solid with a profitability that is very strong. I don't foresee today any reason why we shouldn't have a vision of the ROI in this threshold that is implicit in the guidance. Of course, the year and the events are dynamic. For us, the most important thing is always the spread over the cost of capital. And we should get into a cycle of reduction of interest rates. Let's see how the premium of risk for the COE for Brazil is behaving all throughout the year. But as we have a reduction of interest rates all throughout time, the spread over is kept, not necessarily at the level of ROI, but we have a long ways ahead to see about the leverage of the bank. The point is interesting. You are right. The overhead brought some volatility to the capital index. But we still have some volatility in the portfolios with the foreign currency. That's how we implemented the policy of the hedge of the index that is working very well, and there is a cost of opportunity, of course. But also we have a predictability that is very important for the prospective management of the bank or for the distribution of dividends. What happens? When we define the appetite at 11.5%, it was 12% the appetite. We reduced it to 11.5%. That was approved by the Board. But we at the Board for the distribution of dividends, we work with a buffer of 50 basis points. That 0.5% is what gives us security, tranquility so we can grow with strength, seize the opportunities that appear. So we don't run the risk of invading the appetite and doing a contingency recomposition of the capital index and losing opportunities thereafter. So having a strong balance, well capitalized, we think it's a comparative advantage. And the scenarios change and can change quickly. We've seen that in the pandemic. So to have a solid capital base is important. Our biggest restriction now to do a review of leverage, we discussed with a lot of frequency are the rating agencies. What we do not want is to work with the more leverage and losing a rating, which is important. Even though today, we have capture -- foreign capture that is lower than the past, having an international rating that is relevant is what brings opportunities for the cost of capture so we can be very competitive. That's the restriction that is active. We're always debating this. Looking at the different scenarios of shocking the balance, and this is a year that can have more volatility due to the scenario of the elections. uncertainties that are up ahead. It shouldn't be this year that we're going to do this discussion of reviewing the leverage, but this is a theme that is present in our debates. We always have talks with the agencies to try and understand how can that impact our ratings. This is a constant theme in our agenda. I don't think that this debate will advance in 2026. But depending on the perspectives, we can eventually do a review of the level of leverage, certainly, this is a discussion that we're going to take to the Board at the opportune moment. Gustavo Rodrigues: [Interpreted] Now we'll give the floor to Bernardo Guttmann, XP. The floor is yours. Bernardo Guttmann: [Interpreted] Congratulations on the results. It's impressive, the level of profitability that the bank is delivering. ROI, 27% in Brazil. I'm going to explore those levers, levers in the future, trying to zoom on that level of efficiency. Looking at the guidance of expenses not correlated to interest rates. It seems that there are low expenses considering that 2026, there is negative items that are temporary with the adjustments in the infrastructure. So the correct reading is that '26 will capture a relevant change in the cost base, allowing the bank to get into '27 with a structure that is more clean, more efficient, creating, therefore, a driver for operational leverage up ahead, that's a question. Thank you. Milton Maluhy Filho: [Interpreted] Pleasure to see you again. Thank you for your initial words. The answer is yes and yes. Yes, we are capturing and gathering the fruits of our labor of the previous years, a lot of investment in technology, a lot of focus of increase in productivity, digitalization of the platforms of the bank. The experience of the clients, reviewing the business models, the model of service, a way of servicing the client in an ever more digital way. That slide that I just showed you separated what was the segments that were the reference in reference and those that we can scale. And that's where we get most of the efficiencies that we will capture over the next years. We finished with a projection of 94% at the end of '26. There is a certain assumption for the guidance for the year. But looking ahead, we are certain that this is a path. Efficiency all throughout the game, operational efficiency, but it's not brute force operational efficiency. An adjustment of infrastructure reduction without any strategy, no. It's a deep review of everything that we are investing all throughout the years. most important than that, all this reduction and adjustment running below the IPCA rate. It's banking inflation because there is an increase in payroll, real, there is other expenses is higher than the IPCA. But all that growth that you see projected 3.5% for the midpoint of the guidance for '26, there's also important volumes for investment. We are investing long term. We are still investing in our business. We are still investing in our platforms. Of course, prioritizing the most relevant. Looking at the long term, focusing in value creation. This capacity of generating top line, capacity of absorbing the investments, doing a deep transformation of the organization. And now a period of deliverables that is consistent allows us to open ourselves to more investments and expanding those investments. We did investments in several businesses, and we will continue with a long-term view without doing -- without selling out the future. We want to grow sustainably. We want to seek more productivity, more efficiency, more operational scalability. Gabriel is here. He is leading this front in the bank. This is not a front from the finance BU. He is the leader, but this is a multidisciplinary front. All businesses are involved. everyone with their own challenges, ones with the threshold that are more efficient than others, but I'm very optimistic that we got into a journey that is very deep of adjustments and scalability. Gustavo Rodrigues: [Interpreted] Our next question, Renato, Autonomous. Renato Meloni: [Interpreted] Congratulations on the results. I wanted to expand on the previous questions on the ROI. I think it's natural that now we get into a moment of reduction of capital -- cost of capital in Brazil, ROI drops. And as you said, the generation of value is important. So I wanted to understand more on the long term. What are the levers that you foresee for the expansion of this generation of value? Are we at a reasonable level? You've discussed the efficiency, but I remember a comment in the past that as you implement this efficiency, part of this is given to the clients. So maybe other ideas that can generate more value. And if you allow me, just a clarification of the guidance here that if we look at the growth of the financial margin and the growth of the portfolio, that implies into a reduction in the line. But I imagine that here, you also have the effect of the anticipation of the dividends. So if you can comment very quickly on the evolution of the line sensitivity to the interest rates and how that will go throughout the year. Milton Maluhy Filho: [Interpreted] Thank you, Renato. Great points. Thank you for being in our call. I think that the levers are throughout the business, they're spread out throughout. The capacity of growing the portfolio with quality, the management of this portfolio has been done for many years. The discipline of capital allocation. This is the name of the game. Growing, generating operations below the cost of capital will always be dilutive. We will destroy value in the long term. This is a discipline that generates profitability that is necessary through the cycle, always with this long-term view. All the part of the efficiency and cost is very important. But as you know, deep down is a binomial cost and expenses -- cost of revenue, sorry. So we've deepened the -- very consistently with our portfolios. We're doing the deep dive into being the main engager with the customers. This is the main threshold in our history. We are growing 2 digits in some portfolios. So there is a series of levers. Of course, cost is one, but always with this logic of efficiency, looking at our capacity of generating top line of growth and working with the cost of productivity. So we can have offerings that are more lean, more digital, better experiences for our clients. and simplifying the value proposition and simplifying the bank, of course, with all this transformation. A part of this technological modernization, we are talking about the decommissioning of legacy systems in a few years. This is going to be a big difference once we operate in a more variable cost basis in a more simplified internally way and speed of delivery in technology. I showed 2,000% of growth. Now today, we can develop a product and bringing a solution for the market 5x faster. So the capacity of throughput of delivering value changed with a very strong threshold. And we will continue to follow up on the opportunities, cost of equity every month, we're looking at the internal methodology, the market methodology, cost of capital, the buy side, sell side. And so we have our COPI meeting monthly. So we define what is the COPI of the bank, and this affects the capacity of pricing. And as you said, I don't believe in a static world that you do the world -- the work of efficiency reduces, but the revenue is always the same. In the end scale so you can generate more value, more portfolio and you can have the returns through the cross-sell and the reduction of the relationship. But a part of this efficiency has to go to the price. This is what's going to transform ourselves into a platform that is ever more competitive. We're very competitive from the cost of funding perspective, and we're going to be more competitive in the unit cost. Our unit cost has reduced 45% in this period, and we see space for reductions. Volumes grow, cost -- unit cost is dropping. This is the name of the game. Now on the margin, I wanted to do a reinforcement. Let me give you some numbers. If we consider the delta dividend that is paid, '25 against '24 and the anticipation that was done all throughout the next month in December of last year, this generates for ourselves about BRL 1.5 billion less margin through '26. So if the question is, well, Milton, I have the portfolio growing with the midpoint and 7.5% and the margin of clients is growing 7%. What is the reason of the margin growing a bit below? If we do this adjustment, the margin would be growing 8.1% in the year. So the margin comparable normalized which is what we are going to observe really throughout the year, but the comparable margin for understanding the dynamic of the generation of value of the bank is comparing 8.1% with the portfolio that is going to grow 7.5%. These are comparable basis. Certainly, this effect allows us to explain a potential adjustment. That is not so relevant, but we have adjustments in the NIN in the consolidated and also in the net cost of credit NIN. So this is important, and it's 110 basis points. When we look at the effect in the financial margin with the client in the year, which is not little, and it shows that the core, the organic growth is coming at an adequate rhythm with an adequate risk, adequate mix and generating value for the threshold for the shareholder. Gustavo Rodrigues: [Interpreted] Next question, Yuri Fernandes, JPMorgan. Yuri Fernandes: [Interpreted] Congratulations on your results. NPS quality of credit lines accelerating short-term deliverables that are good for the middle to long term. So I wanted to focus on the SME. The -- how are these deliverables in the small and medium-sized companies should change the profitability of the bank. When we look at the volume, I think it was a very strong quarter. Rede grow above 20%, which is 2x the industry. We also see the portfolio growing 9%. Looking at [ BACEN ], it's about 3%. So we have a share in the portfolio. Of course, it's not comparable. We don't have all the expanded portfolio, but we see that in payments and volume of credit, Itau didn't even start. It's being implemented. So it should bear fruit. The question is, given that the SMEs and investors, the previous ones, they had ROIs above 30%, 35%, very profitable segment. How does this impact -- going back to the question of my peers, how does it impact the ROE? We should have SME gaining more traction. We should see the ROE of retail growing more or maybe there is a -- no, no, maybe there is a question of price, competition because it seems that this could be a lever of profitability for you. Milton Maluhy Filho: [Interpreted] Thank you, Yuri. Great to see you. Thank you for your time, and thank you for the initial words. Now the SME segment for us, as we publish it, we have micro, small and medium. So we mix what we call the BU PJ, which is the companies and the middle market, which is managed by Itau BBA. It's a sum of both businesses that are here. When we add the business model and the profitability, then we break down the BU PJ within the retail and the middle market and the structure of the wholesale, but in the -- we block them together. We had an extraordinary result in the companies, whether if it's middle market or the retail companies, and these are very -- this is a work that has been done for many years, a reorganization review, deep one of the strategy. Moreover, the portfolio management. I think that we managed to seize the opportunities, and we knew how to grow with the clients always in the long-term view and more so the discipline of capital allocation. We see a market that is very erratic in the pricing in that segment. We always try to do an analysis of how much would have been our return if we had been operating in a few operations that are very relevant in some of these segments. And these are returns in operations with funding without funding below our cost of capital, considering our model, which is very efficient. So here is discipline, discipline of management of being the main one for the client, having that overview of flow, so that integration of Rede with the bank was fundamental. So we could, in fact, having an integrated vision of the flow. If we see the level of acquirers in the market, it's just a fraction of the flow of payments and receivables in the system as a whole. So the share of flow is more important than the market share of acquirers. And how do we deliver an integrated value proposition for the clients. Being the main one is the name of the game. So we've grown. We've grown with quality. Now we operate in a level of profitability that is very high in this segment. And what I want to say is that we have the expectation of incrementing the bottom line. And this is what we expect for '26 and not an expansion of profitability in the segment given the level of profitability that we already have today, which is above the threshold that you commented a little bit before. This is for the BU companies and also the middle market. We've done strategic reviews that are constant. We've done another one this year in the companies and the individuals. And we also have a solid plan and are very optimistic for the future for the delivery of value and execution of these plans. And this has a role that is ever more protagonist in the strategy of the BU companies. So we've tested the new technology very carefully learning with the clients, powered by AI, but the advances are incredible. The amount of products that we have in the platform, it's more a full bank focused on the needs of the companies, smaller ones, the digital needs, it doesn't -- it's no use taking all the products. You need to understand the pain of your client that you need to solve. And how do you interact in a more efficient way. So the platform has a more relevant role within the strategy so we can deliver better the base of clients that is within the bank that is -- well, and besides the clients that we've seized for the bank and in a more efficient way, in a more digital way with a better experience. So this is the path of the platform this is work and the platform has a relevant work in this sense. So I don't see an expansion in the return in the retail. I think that we've done a catch-up that is very important since the third quarter of 2022 that I told you. I was very uncomfortable with the level of profitability, and we've seen a cycle of expenses and PDD that is more strong. Looking up ahead, we've done an important catch-up of 10 percentage points in the profitability of the retail in a sustainable way. So there is no business performing well or a business performing below the cost of capital. All the businesses are creating value and operating above the cost of capital and with good perspectives looking ahead. It's a balance of the portfolio, therefore. I don't see necessarily an expansion of ROI because of this, but I see an increase that is consistent of the franchise of the results of these segments. Gustavo Rodrigues: We're going to switch to English as we have Tito Labarta from Goldman Sachs. Daer Labarta: Congratulations on the strong results, very consistent over the years. Milton, my question is on the competitive environment. I mean, if you look over the last 10 years, competitive environment has evolved quite a bit in Brazil, I think still evolving. We've seen a lot of your incumbent peers having to adapt their business models, a lot of fintechs that have become very strong today. And you've been able to adapt very well, right? I mean, just looking at your profitability, as you just said, right, every business is operating above the cost of capital. So in that context, so what worries you? Is it -- it could be from incumbent peers adapting a lot of them more coming after the high-income segments where you're very strong in. Is it the fintechs? Is there any segments that you sort of maybe worry about more than others? I mean you talked about you're already a leader in private payroll. It's a new segment. So what kind of worries you about this new competitive environment? And what are you maybe also most excited about? Where do you see the opportunities from here to continue to be able to deliver these results? And where could the risk be? Milton Maluhy Filho: Thank you, Tito. Good to see you. Thank you for your compliments. We are very proud, and thank you for coming to our call. I will tell you, first of all, that we have a huge enormous respect for all our competitors. But as you know, we are a huge portfolio of businesses. So we have in the wholesale many business where we compete with the incumbent banks, but also compete with the new I would say, competition. So depending on what segment you are looking at, the competition and change a lot. So our capability to understand client needs, to understand our competitors, to be humble, to look outside all the time and understand that we might have people doing better things that we are, and we can do better, and we have to leapfrog and go for it has been able to transform the organization in the past years. So I don't see in any segment today, any difficulty of competing even though we know the fierce competition is coming from all around the places. So again, huge respect. I think we have enormous competition in Brazil, good competition. Everybody is doing their homework, everybody trying to get -- to do better what they already do. And we have to do better and fast. So I think this is what we've been doing in the past years. So I see a few levers that take us to this place. First of all, human capital. We do believe that we have a very, very good people inside the organization, people that has passion for what they do. We have a very strong culture that put us in a competitive advantage in our view. We have this capability of capital allocation that is very, very important, this discipline of looking always for the long term, the capability of do investments all around. So as we're not looking for the next quarter, we are looking for the next 10 years. We do huge investments throughout all our businesses and all the modernization we've done in our platform, the data architecture, the way we approach clients today, all the AI power that we've been releasing in our businesses, not only internally, but also externally, has been putting us in a very, I would say, competitive spot. So this is how we look today. I think in the individuals, just to give you an example, we've gone through a huge strategy revision this year of 2025. We are in the execution mode. We did a relevant change in the structure in the retail operation as a whole. Also, the SMEs has been going through relevant change in looking forward. What brought us here not necessarily will take us for the next years. So it's this capability of looking ahead all the time and putting the bar very high to get to great achievement. So I think what takes my -- what worries me everything. So I am paranoid here with competition, with the macro, with the level of service we deliver to our clients. This is what drives us. And I think we have the capability. And again, human capital, good talent, great culture and great capability of execution, I think, are levers that can take us further. We have to keep an eye on the macro. Of course, due to the size of the bank, the macro makes price. Of course, we have to take a look at risk. And I think we have a very, very strong culture, risk culture. So everybody from first line to third line are 100% focused on managing risk. We have a unique, I would say, very great risk area with very good great and risk people helping all the businesses, looking productive and prospective and what are the levers, what are the risks and how we make decisions on a daily basis based on that. So I think this is a little bit of what we've been doing here, and this is where we have been putting all our effort in the organization. Gustavo Rodrigues: [Interpreted] Going back to Portuguese with Gustavo Schroden. The floor is yours. Gustavo Schroden: [Interpreted] Congratulations on the results, very solid, strong results. A follow-up on the question of Tito more specifically, I remember that 2 segments specifically are massified. And recently, INSS, which is social security in Brazil. And Milton commented that the cost of service that is lower would be ideal to be able to accept the level of delinquency that is higher in the massified and in the INSS social security compensating the lower interest rates after the changes in the cap. We see the efficiency level that is very low, 36% in Brazil. All the effort that the bank has done of adjustments in the infrastructure. So Milton, I wanted to be more specific in those 2 segments. How is the appetite? Is there appetite? Is there profitability? I wanted to hear from you specifically on those 2 segments. Milton Maluhy Filho: [Interpreted] Sure. First and foremost, we tend to simplify when we talk about the massified. And the name that I've used and it's in the presentation is segments that are more scalable of medium to high income where the operational scalability makes a difference. That is important. This is a focus, delivering a value proposition that is more competitive for our clients. With that, we can create a capacity to improve and advance in our efficiency levels. We work with a series of clients in all the segments, which is low or high income. And these are clients that are resilient through the cycle. So not necessarily is that the client has a lower income that they're not resilient. No. You just see the ones that are retired with the social security INSS, connecting with your question, it's a customer that has lower income, but it's very resilient on the long cycle. And this is for the entirety of the portfolio. So our capacity, true. Look at the data, look at the client, understanding their capacity, facing the obligations in the long cycle, it's regardless of the income sometimes. Inevitably, when you are more competitive from the efficiency level, your capacity of absorption of losses increases and the review of appetite is constant. So every time that we do an operation with the client, we look at the cost, whether it's marginal cost or absolute cost in the segment, the more efficient you are, the higher will be the capacity of absorption of losses. The more inefficient you are, the less space you have to absorb losses and generate a result and remunerate the capital that is allocated in that activity. So the direction that we've gone is operational scalability, maximum efficiency, digital, full so we can service those clients better. It's servicing better, the client better. And here, there is a theme of you having a full digital offer for the client, but you need to have a full bank to be able to service that client in the best way possible. And I think that we have today a portfolio that is incredible, the migration that we've done of the Ita�, 50 million clients. It's not that we took 50 million clients and we improved the experience of the app for the current clients. We migrated 50 million clients that didn't have any experience and not a relationship that was full bank by Ita�, and we migrated them to a new platform. And we improved a lot the platform of the clients that already used the Super App. So it's a best of both worlds. We improved a lot what we brought because we brought functionalities of the mono apps that were more advanced for the Super App. And we improved the experience of the existing clients, and we migrated 50 million clients. And these clients are distributed in several segments. We have clients that are migrated that are target clients of Personnalite, Uniclass, Ita� branches, and we've managed to convert them importantly, increasing engagement. And it's a full digital service. Remember that right when we published the results last year, we did a talk with investors. They ask me about Consignado CLT. Well, you have a branch structure going to be competitive well. We don't do subsidies or cross costs. If my channel of hiring is digital, my cost is digital. And I am as efficient as any player in the industry. So this is the way that we've grown in the payroll loan, Consignado and a cost of service that is very low. So it's 100% digital channel. So we don't do cross cost between segments and the entry path of the client. The INSS Social Security, 2 important issues. First, in this cycle, we had the highest volumes of hiring in the market. But the market decreased a lot, and it didn't decrease because of the cap. The main effect recently of the INSS has to do with the blocking of the benefits and all the work that the Ministry and the President of the INSS is doing because of the fraud, because of all the problems that they found, they created mechanisms so that the client reconfirms and will get the benefit once again. So that made the volume of payments of benefits decrease of the payroll loans as well. Given the volumes that were produced recently, we've released this volume of hiring much more focused in the internal channel. We've done an important exit in the external channel because the cap of interest rate makes price and the commissions for the corresponding banks doesn't make sense. So the return on those operations are below the cost of capital. So therefore, we privileged 75% of our subcontracting is done with the banking channels, which if it's digital or physical. So with 2 points, with the reduction of the interest rates that we should see up ahead, this will open for the space of new publics in the INSS, we can penetrate in pubs that were left outside, and it's a lot of money because of the cap that were left outside. And the second effect, which is the capacity of reconfirming the benefits and going back to a certain normality, this will make the volume of demand also increase. Gustavo Rodrigues: [Interpreted] Next question, Mario Pierry, Bank of America. Mario Pierry: [Interpreted] Congratulations on the result, not only on this quarter, but also throughout the next 5 years since you assumed the bank, took over the bank. So one of the big advantages of the bank is all that modernization that you've discussed of the platform, investments in technology. I think it's very interesting, your slide showing the cost of technology is growing 18% over the last 12 months. It represents 20% of your expenses. So how should we think, Milton, from now on? How much more investment is necessary? How do you think in investments in technology now and looking to the future, the percentage of revenue? And the investments that you need to do, they need to come for improving processes, more investments for improving the efficiency or also investments that help you growing. How do you see this mix of investments, the value? And a question that wasn't done in the call is if you can just do -- well, when you talk about the growth of the portfolio that you expect for the '26, if you can specify for us per segment, what you are expecting of growth? Milton Maluhy Filho: [Interpreted] Thank you, Mario. Always great to see you. Thank you for your initial words. We're very flattered with your words. Now let me tell you, the investment of the bank is something that we always discuss deeply to ensure, one, that we are investing in the right place with the adequate return. And three, also the capacity of absorption of the investments on the long term because if they're accretive and they generate value, they should be positive throughout the year and our capacity to project. So we always have our back testing, and we always look at the investments that were done in the previous cycles, and we see in the investment office investment. So we see the returns of premises are okay. We always check what changed, why the result is coming worse or better. We always look at the 2 sides of the same coin, and we always recalibrate in our sensitivity for the decision-making process. This is a central point. In technology, we continue to do investments in the same threshold. There isn't a reduction in investment in technology. On the contrary, it's a mechanical natural growth. We've done an adjustment today. A great deal of our cost is connected to our talents to our human capital. This has changed throughout the years. Today, the cost of headcount is higher than it was in the past. And if you look at our mix throughout the years, it changed a lot. A few years ago, we had 7% of our employees were in technology, now we have over 20% today. That shows how the mix is adjusting throughout the time, investing more in platform, more into communities, more in technology, more in the experience of the client and naturally, the mix is adjusting. So that's number one. Number two, and here, I have to focus on one point. The capacity of absorption of investment is important because of the discipline in activation. We are very careful when we activate an investment in the bank, which is an intangible that is amortized throughout time. So we are always careful with a funnel of activation, we would like to say that we will activate half of what I could at the limit activate through the accounting rules. And why that? Because we have the discipline of letting a lot pass through OpEx because we don't want to sell the future and sell out the future. And this is an account that once you hire, the math comes in the long term. And we only activate projects that have benefits effectively. If it's a regulatory change, operational risk or a change in the platform that doesn't bring clear benefits, we're not going to activate it because of the discipline of mismatching the benefits that, that platform of the investment is going to have with the results that we expect. So they walk in parallel. Secondly, the deadline of activation. We do not activate more than 5 years because we have difficulty in looking at the lifetime of a platform, a system longer than 5 years. Every time that you increase the activation deadline, you are hiring a problem for the future, knowing that the lifespan of the platform is less than 10 years. So you have a new cycle of reinvestment in the platform and didn't finish paying the investment of the previous platform. So you pile up. This is the higher cost that is given through time. So we really pay attention to that. And the investment is not just in technology. So we look at the investment in business expansion, the expansion of sales force expansion or creation of new business models or new products. So we are always at all times looking at that. And the rhythm of investment is always in the same threshold. We are looking at the investment in regards to the revenues to see what we are investing. We see how we can project that activation and amortization out throughout the years, how is that behaving with the company. So all of that management is done in an important way. Your second comment, and it all depends on the opportunities. It's very difficult to tell you now if we're going to invest more here or there, but I'm going to tell you that the investment in the maintenance of platform has been reduced and maintenance has been reduced because of the modernization that we've done in the platform. A great deal of the investments is to develop new products, new features for our clients because when you have a high volume of capacity of investment tax and then you use half for regulatory issues for maintenance of the platform, you end up having very little to invest in new businesses. So what we've done is improving the quality of the investment and increasing the investment for new businesses that will generate benefits in the long term that will improve the NPS and the relationships with our clients. So the mix is important. where we are investing. And about the portfolio, which is your question about the growth in 2026. I would like to say that this is very well distributed through the segments. The segment that we always are a bit uncertain is the big companies because it depends on the dynamics of the capital markets. So we need to see how the capital markets will evolve in 2026. There was an important volume in '25, BRL 700 million, but it's a platform that is important for us to deliver value for our clients given our participation in the market today. This is the cog in the wheel that is always in doubt because it might be more or less depending on the capital markets, how they will absorb the demands of the big companies. In the other portfolios, we've had a growth that is very consistent of SMEs. We've seen consistent growth in the middle market. We've seen consistent in the individuals, very well distributed in the business line. So I would like to say that there isn't a big concentration. All of them are growing in a very adequate rhythm for 2026, but always in that logic of target long term, portfolio vision, resilience and above all, the right price, generating value for the bank and the shareholders. Gustavo Rodrigues: Switching back to English as we have Jorge Kuri with us from Morgan Stanley. Jorge Kuri: Congrats on the great numbers, 27% return on equity, quite impressive. I wanted to ask about -- and just bear with me for a second because this may be a long question given they need to provide the backdrop. But I wanted to ask about your 2026 credit growth guidance, which is somewhat underwhelming. And I guess let me explain why. This time last year, when you provided the guidance for 2025, the macro backdrop was more challenging. You expected Selic rate to rise from 12.25% to 15.75%, which is obviously negative for credit demand and supply. Unemployment was expected to increase to 6%. I believe that was on your guidance. And nonetheless, you guided to credit growth of 4.5% to 8.5%, and you ultimately delivered right around the midpoint of that range. So fast forward to today and the macro outlook you're assuming for this year appears to be more constructive. You expect policy rates to fall from 15% to 12.7%, which should improve affordability and support credit demand. Unemployment is expected to remain below the level that you assumed last year. And the economy is still growing at a nice 2% clip. Despite this better macro backdrop, your credit growth guidance is only marginally higher than last year's guidance. You're at 5.5% to 9.5%, 1 percentage points higher than both the low and the high end of the range. Milton, you talked about significant improvements in how you run your consumer and SME platforms that were executed during 2025, which one would expect would allow you to grow faster, especially given that consumer and SME is a really big part of your loan book. Payroll loans, which is also a really important product, were notably bad in 2025, growing only 1% for all of the reasons you mentioned. Now with falling rates, this is a product that is highly sensitive to rates. You're now pushing aggressively on the seller debt. So it just feels that, that could be significantly higher. So Again, why the relatively conservative guidance? Is it competition intensifying? Is it making it harder for you to defend share? Are you losing share? Are you really cautious about the political cycle and you're going to be sort of a pause until October? What other things are being driving that? Any color would be really helpful. Milton Maluhy Filho: Thank you, Jorge. Good to see you. And I understand perfectly where you're coming from your question. So let me try to be clear to give you a better answer, not so long, but I will try to be very straight in my view. I think I hope you're right, and I hope we find our room an opportunity to have a better results and better growth in 2026. But when we do our planning, we have to look forward and see if -- what are the uncertainties. The macro area has this view, but we know this is an election year in Brazil. Election brings volatility. So when the macro tries to give us the figures, they understand that everything is the same. So you don't see there an input of volatility in that macro perspective. And this is what we will be facing in Brazil. So how will the investor react in the election process? What will be the economic plans of the candidates? What will happen with the indebtness of Brazil in the long term? What will happen with the FX if it brings more volatility. If the inflation goes up for any reason due to the FX and also due to the food price will the Central Bank be able to cut rates and to get you to 12.75% by the year-end. If we need to stay longer with rates, it's not what we believe what this will impact our portfolio for wholesale, what this will impact the portfolio for SMEs. How will the activity that we are seeing a downturn in activity, even though the GDP will grow 1.9% in our projection, how expansionist will be this GDP. What is the quality of this growth? Is this going to be more on the fiscal stimulus or will be more productivity? What are the level of investments that we are seeing in Brazil? I'm not saying about portfolio investment, infrastructure investment, long-term investments, many companies waiting to make decisions understanding what will happen in the election year. So I wouldn't say it's a defensive guidance, but it's a realistic guidance due to the level of uncertainty we see in 2026. I hope you are right. I hope everything goes smooth. But the good thing of that is our capability to react and to come back and say, look, we made a mistake or we have new information, and we believe we can do better, we will do it. If you look for last year guidance, which we had BRL 44.8 billion implied in our bottom line, if you could do that for the midpoint of all the metrics, we were able to deliver BRL 2 billion more throughout the year. And we changed the guidance in the coming quarters. We did that for financial margin with clients. We did that for financial margin with the market. We did that for the income tax. So we made the adjustments. So if there is an opportunity, don't be so focused on the guidance. We'll be able to come back and say we are doing better. So in the first quarter, we have the first quarter results and prospectively speaking, what we are seeing in Brazil. So our capability to react is very fast either way. And if things go south for any reason, we're going to react fast as well in a defensive mode. And I think our portfolio, we don't have any capital restriction. We don't have any liquidity restriction. We don't have any NPL restriction. We don't have any profitability restriction. So we're going to be agile. We're going to react if necessary. So look more in our capability to deliver in the long term and how we able -- how we've been able to react in cycles going in a different direction. So this is the most important thing, the capabilities that we have to react, the execution capabilities that we have inside the organization and the capability to look prospectively. Imagine if we decide to grow twice the portfolio as we are seeing today and if things go wrong and if the macro changes, if the election for some reason, the market doesn't react well and if the inflation goes up and they need to keep the rate at a higher level, the portfolio is there. So I cannot be providing a huge growth and then looking back and say, I think we should have done in a different path. So this is the discipline that we have, always looking for the long term. If there is an opportunity, if we can deliver more, we will do it. And don't forget that the rates, also the reduction of rates have impact in our balance sheet in one side, but have benefits in the other side. So you always make that point how sensitive we are for the CDI in Brazil, and we always come back and show a slide showing that we are less sensitive that market believes. I don't think you believe that anymore. You've been seeing us through the cycle, but we have hedges in our portfolio. And this is the way we're going to be facing 2026, realistic, kind of cautious looking ahead, what's going to come in terms of the election scenario. And if there is an opportunity to speed up, we're going to speed up. If there's an opportunity to deliver more, we will deliver more. Gustavo Rodrigues: [Interpreted] Going back to Portuguese. Marcelo Mizrahi with Bradesco. Marcelo Mizrahi: [Interpreted] Congratulations on the results. Excellent results. The guidance is very transparent. Now my question has to do wanted to understand with the scenario of uncertainty about the delinquency. So I wanted you to bring your vision on the delinquency of individuals and the companies, different dynamics, of course. As you said, capital markets have been -- has impacted the liquidity of the companies, and we have the programs of the government, how do you see the impact of the potential reduction of the programs in this year? And the bank has grown strongly recently in the SMEs. This is a point. And in the individuals, we also have the reform, the reduction of the tax, also the liquidity that the payroll has, brought to the -- that the bank has dropped the individuals, the payroll loan for individuals is strong. So I wanted to get a diagnostic on what do you think about the delinquency for '26. I understand that we can have different years between the first quarter, second quarter, but any sense that you can share with us will be very useful. Milton Maluhy Filho: [Interpreted] Marcelo, thank you for your initial words. About delinquency, I would like to say that we don't see any material changes in the indicators of delinquency for 2026. But the first quarter is more cyclically seasonally, there is an increase in delinquency because of all the commitments for the beginning of the year that ends up pulling up the delinquency at the beginning. That cycle, we do not expect a very relevant change from what we've observed in previous cycles. We have a month. We are practically in February already. So we see a behaved cycle. We see a few portfolios, specifically indicators of industry that we see the delays that are more pressured. And we see the delays that are more pressured, whether if it's in the individuals or the SMEs, the short delays or controls in all the portfolios, there is no deviation. What we have in the SMEs, and we've discussed that, is what I call the normalization of the effect of the governmental programs. So there is the period of payment now and that pressures the delays on the short term, but now the cost of credit as the portfolios are well insured and the cost of credit is well behaved. So I would say no concern with the scenario for '26. Evidently, the scenario is dynamic. If the interest rates, they don't do the adjustments that we expect the pressure on the companies and the individuals will be higher, so you can expect a higher delinquency we see a good quality for the generation of employment. There's a decrease of the employment. There's an increase of investment in labor-intensive sectors. So the liquidity that you commented on the assumption of the taxes, it brings more -- the inflation of services is very resilient because of this. The commitment of the compromise of income is very high even though the salaries are growing in Brazil, the compromise of salaries is a big issue and the delays that have been published in the market short term or there has been reasonable increases in several products and portfolio and our portfolios have performed differently from the data. So when you exclude our delinquency and all the products, we have a behavior that is very different. Now it's important to reinforce that a part of this increase in the long term has to do with the change in the 446 and a lot of institutions have increased the criteria for the write-offs, which pressures the delay because it takes longer to clean in the portfolio, but it alleviates the cost of credit in an important way. We decided in the bank to work with the best expectation for recovery, even though with the flexibility that the 496 gives to the bank to adjust the write-off for longer deadlines, we maintain the same deadline since the first day. So there isn't any change in any portfolio, any delays in the write-off because you have the number and then you are not doing the provision for expected loss. You start to do the provision for the incurred loss because you decrease the capacity of the model of anticipating the real capacity of reacquiring the credit. So the best proxy for this is to go back 3 quarters in the past and looking at the level of NPL creation that we have and comparing that with the write-offs that are here, and this is a direct correlation to one. When you look at the breakdown of correlation, 70% of what it was, 60% of what it was of the creation 3 quarters down the line, there is a change of policy of write-off and the increasing of the line, benefiting on the short term, but the math is there. It's higher. So these are controlled indicators, the portfolio of the companies, the provisioning is very adequate. We always look at the review name by name, but events happen, especially in big companies. Events that were captured by the model, sometimes in events that sometimes because of something that we don't control, frauds, for example, we've seen in the past. We always have to look at the attend with a lot of attention because the wholesale is less statistics and more event and we don't foresee anything. And if we see any case, we provision adequately and we have a balance with the level of provision that is very adequate. Looking at the strength of our provisions and the coverage of all the segments, it's something very important. Something important is that we're not going to stop doing the provision for delivering the result in a quarter. The provision is a decision is management of the portfolio of the balance, and we're always going to do the provision in the future. If the ROI drops, then we explain. But the provision is in front of the profitability always. So we're never going to leave the wholesale or retail sub provision to deliver a better result. Gustavo Rodrigues: We are switching back to English again, and we have Carlos Gomez-Lopez from HSBC with us. Good to see you, Carlos. Carlos Gomez-Lopez: Among the many good numbers you have sent to us. Perhaps one that impress me the most is the 50% market share in real estate financing among the private banks. Where do you see that market going? And why do you think you have such a presence there that the other banks are not replicating? And then the other question, you're a big consumer of software and IT services. We have seen a big reaction in the market to AIs going into this space and that has affected stocks. As a consumer of these services, have you seen a change in pricing when you're discussing with the providers in the last few months? Milton Maluhy Filho: Thank you, Carlos. Good to see you. Thank you for your compliments. First of all, on the real estate side, mortgage business, I would say we have the biggest saving account deposits in Brazil after Caixa Economica Federal. So, looking to the private sector, we have the biggest saving account figures will allow us to be more competitive on the mortgage side as well. So this is one. Second, everybody has put in the market 100% of our saving accounts with the obligation that we have to provide the 65% plus the demand deposits that we have to live in the Central Bank. And this year, there is this change. They are releasing 5% more of the demand deposits that we live in the Central Bank, which provide us more liquidity. I think our capability to serve our clients in a very competitive way due to this liquidity structure or funding structure that we have has been able to put us in a different spot in terms of providing credit. So if you took any company in Brazil, any bank and you compare the rate we offer to our clients, and if we have the same rate offering to a client, I can tell you that the level of return that we have is different from the market because we need less funding from the treasury than other competitors that have more portfolio that they have in terms of saving accounts. So that's structurally very relevant. Of course, the products that we have, the experience journey that we have with our clients is not only price oriented. I think we've been able to invest a lot in the real estate, the mortgage journey with our clients and also this long-term view, knowing that the real estate, the mortgage, it's a very important product when we look to stickiness. Looking to our clients in the long term. So I think this is the capabilities that we have, and we've been able to deploy relevant amount of mortgage in the market for that reason. We have the biggest portfolio as well, always taking Caixa Economica Federal on the side and Banco do Brasil, they don't have a saving account for mortgage. They do that for agriculture. So it's a different business. So I think this is, I would say, the main reason. Talking about our relationship with the tech providers, I think we're going to be seeing a lot of volatility in the market. Many people saying there is -- it's not a bubble. When you look to the technology itself, the capability of scaling that throughout the globe, a lot of investments going into that, and this has been very accretive for the GDP growth, especially in the U.S. But the question is, who will be the champions in the long term? Because as any other industry, you won't have many champions. You have a few, but everybody is doing massive investments. So the concern that the market has more on the equity side has to do, am I investing in the champion? Who will be here in 5 years more, who won't be here in 5 years more. And as the prices has gone up very, very strongly recently, we'll be seeing a lot of volatility in the industry. As a client, we've been able to do very good negotiations with all the providers. We have relationship with many of them before all this AI phenomenon that we are seeing. So that means that those providers, they look to us and try to do -- to be very competitive due to the level of scale that we have, the capabilities that we have to buy in relevant amount. But of course, if you go to the GPR and all the processors that we have to use, then we have to pay market price and it's expensive for everybody, not only for us. So what we try to do is to do big negotiations, long-term negotiations. This is the same for cloud. We have long-term contracts with our providers and more the contracts, good long-term relationship with them, trying to understand it out through the cycle, what needs we have, how should we measure and negotiate the contract in the long term. So we are not seeing a huge amount of increasing price. I think the prices has been, of course, due to the level of price that we see today, be competitive, and it's not putting us additional pressure in our costs. Gustavo Rodrigues: [Interpreted] Now the last question, Daniel Vaz, Safra. Daniel Vaz: [Interpreted] I just wanted to do a follow-up on the previous question. On the government lines, we've seen, it's very interesting, the delinquency and the increase in the delays. But it's very -- it's not clear in our perception if the FGI can support this production and rollout for 2026. So if you can comment, if you see that we need for the size of the production of the fund, would you need a recapitalization of the funds of the -- this year? And mine is about AI, and it's very clear the effect for the cost efficiency. But in business, there is a certain difficulty in making it tangible the potential of growth for the revenues. The bank has always done a lot of benchmarking globally. It's good. And I wanted to hear from you. Do you foresee a clear opportunity in businesses and the potential of revenues coming from Gen AI and all those technologies? Milton Maluhy Filho: [Interpreted] Thank you for taking part in our meeting. The FGI, if we look at the program as a whole, I think that there is a better allocation of the governmental programs with better results than ours. This is for the Pronampe lines for the FGI. The BNDES has an important role. It's the manager of the program. So the allocation of public money, the returns are really impressive because we can get to companies, smaller ones, companies that would have more difficulty in capturing resources under those conditions, especially in the deadlines that we can offer. So I'm enthusiast of the program because it's a great application of the public resources with great results. If we do a retrospect in the last years, the amount of credit that was released in the market, how many clients were benefited, how many people financed the increase in jobs and investments that were done, productivity, the program is a winner. What happened is at the end of '24, the last quarter of '24, we understood that the level of leverage of those sureties guarantees that were done in the FGI were low. So we could bring to the market additional resources, which were -- they call it pocket change, but we Itau took that proposition to BNDES. We had a conversation with them, and we had an opportunity of returning to the system an important level of resources without getting new resources in the FGI fund. And the BNDES did the analysis they agreed, and we could with that bringing -- we brought BRL 100 billion more for resources for the system. So in the last quarter of '24, if you see the production of the market, you will see that we applied an important volume of resources of FGI throughout '25, the market as a whole, also not all, but some banks applied some resources in the FGI. Now for '26, the budget is a certain maintenance of what was the organic of the last years, but without that change. change that return, which is BRL 100 billion. So the phenomenon, the sensation of having less resources because of that because the leverage that was done with the top-up generated additional resources. We've discussed with the Ministry and the government of economy to give visibility for the allocation of public resources. I don't think that we have a better program than this. There are discussions that are happening. I don't know if we are going to have an appetite for an additional, but I would like to say, maybe yes, maybe no. Pronampe, no, this is a more definitive organic program. So we're going to see a growth that is normal of Pronampe. And FTI will depend on this decision that the government has to take of resource allocation. And as you said, we would need an additional for the fund so we can produce a volume that is similar to what was produced over the last 15 months. So we are depending on this decision that is very important. Second point about AI. This is an agenda that is here to stay. We want to be on the vanguard of this movement. It's a great modernization and the review of data architecture, having done that has placed it in a differentiated threshold so we can advance in the new era. We believe that when we talk about AI without in the background, having all the knowledge that we have in several journeys, several products and several businesses, you cannot train your models beyond the commoditized models. It's a very junior experience from the standpoint of training. So our capacity of training and doing this at scale and getting great results, training our models with our way of doing things without the experience that we have embarked. So this organization of the database of the tokens in the big models, and we are using that in an architecture that is making the data democratic and enriching the basis makes us find incredible opportunities in all the dimensions of efficiency, modeling, experience, customer experience, process, internal processes and productivity. So we've seen advances that are relevant. And from the standpoint of the overview of the client, the APs platform that I just commented is powered by AI, 100%. So the benefit comes because I can engage clients with an efficiency level that is higher. So that will bring me opportunity to have more risk appetite because I can accept more losses. This is a value generation for the bank, and I can be more competitive due to the other offerings of the bank -- of the market. And that allows me to gain market -- gain efficiency and gain more clients. So this increases my principality with the client without needing to scale the sales force because the cost of service of these new B2C more specialist models, it stems from -- through people, through -- goes through a cost of service that you cannot offer for all clients. These models are very scalable. So I can service the client in an investment world in a very simple way, and I can increase the level of engagement with the bank, generating top line, reducing churn, improving the relationship with the client. on the long term. So we see the PIX through WhatsApp is transactional. A very efficient, cheap platform. This increases the principality of the client because the transaction with you and now they're using other products, other businesses and then you are the main bank. So every solution comes from a different angle, but we also believe in the capacity of generation of top line, not only in the generation of bottom line as you generate more. As you are more efficient to service your clients. Gustavo Rodrigues: [Interpreted] Thank you, Daniel. Thank you, Milton, and thank you, everyone, that took part of our conference call. We finish our Q&A session and our fourth quarter of '25. I will give the floor to Milton to close the session. Milton Maluhy Filho: Thank you, Gustavo. Thank you, Gabriel. Thank you, everyone. for being here for your questions. I finished the initial presentation of the slides talking about discipline, focus and humility. So I would like to always bring these issues. I think that there is an additional element, which is being serious. And we know the importance of building business models that are sustainable, and we can get the interest of the system and of the client in front of -- well, before the interest of the bank. Even though we see in the market a phenomenon that doesn't happen in that way. It's sometimes the interest of the company in front of the interest of the system. And we need to be leaders by example, therefore. We need to do the right thing, do the sustainable thing because there is no way -- no right way of doing the wrong thing. So this is what we believe. So there is no responsibility that is higher than of any institution of looking at their processes or their clients in the system and thinking about what are the impacts that we're going to generate. I think that this is the primary responsibility of any financial institution, and we cannot subcontract that. It's not default of the regulator. It's no one's fault. Our responsibility is that, and we have the capacity installed the technical teams that can understand and evaluate the data. And we don't need an auditor or a regulator to tell us if it's right or wrong. So, this is what we see. I am very excited. Even though this is a more challenging year because of the uncertainties and the election, I am very excited with the moment of the bank, and we close a cycle of deliverables that are robust with consistency and quality and the results. And looking to the future, I think that we have everything to deliver a solid year of quality. Of course, we have all the execution that is done throughout the year. But I am certain that if the conditions are there, we will deliver with a lot of quality and a lot of wisdom without selling out the future, but without anticipating the future as well. So this is the discipline of capital allocation and creation of value. that agenda of efficiency is very important. So we can go through another cycle, which are the next years that are up ahead. So I would like to thank you for your participation and your support, your trust that you deposit in the institution and tell you that everyone is here ready to work with a lot of focus, with a lot of strength and in a work environment that is incredible with the transformation that we've gone through the years that has produced incredible results, and we are very optimistic of what we can do for the future. Thank you very much, and we will see you shortly. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good afternoon, and welcome to Garanti BBVA's 2025 Financial Results and 2026 Operating Plan Guidance Webcast. Thank you for joining us today. Presenting on behalf of Garanti BBVA, we have our CEO, Mr. Mahmut Akten; our CFO, Mr. Atil Ozus; and our Head of Investor Relations, Ms. Ceyda Akinc?. [Operator Instructions] With that, I now would like to hand over to management for their presentation. Ceyda Akinc: Hello everyone, and thank you for joining us. We are excited to be with you on another earnings call. Before getting into our financial performance details, let's as usual, go over the broader macroeconomic environment. Turkish economy grew by 1% Q-on-Q in the third quarter and for the fourth quarter, we now cast a slightly positive quarterly growth. Therefore, parallel to our previous expectations, we maintain our GDP forecasts as 3.7% in '25 and 4% in '26, consistent with the still-resilient activity outlook. In terms of inflation and monetary policy, seasonally adjusted inflation improved into year-end, however, January CPI figure reinforces our view that the pace of monetary easing will become increasingly data-dependent and points to a slower pace of rate cuts compared to consensus. In this regard, we maintain our call of 25% inflation and 32% policy rate for 2026-year-end. In terms of current account deficit, it remains broadly manageable, although the trend has deteriorated, reflecting domestic demand dynamics and the gold channel. We expect the current account deficit to GDP to be around 1.5-2% range. The outlook remains sensitive to the Eurozone growth and Brent oil dynamics. In terms of budget deficit, we expect budget deficit to GDP to remain around 3.5%. led by tighter expenditures control and strong revenue generation. Now moving into our financials, I'll start with the headline figures. In '25 once again, we delivered a strong track record of achieving results in line with with our commitments. Our key P&L metrics came in fully consistent with our guidance, and cumulative net income reached TRY 111 billion, corresponding to 21% year-on-year growth and a 29% return on equity. In the fourth quarter, our bottom line was impacted by tax-regulation-related effects. Excluding this one-off impact, our ROE would have been around 30%, which was fully in line with our guidance. Despite operating with the lowest ratio, we continued to deliver an ROE above the sector average. As always, we maintained our focus on capital-generative growth, which is clearly reflected in our sector-leading CET1, Common Equity Tier 1 ratio. This earnings outperformance was once again driven by core banking revenues-and with that, let me move on to page 7. We have now delivered growth in core banking revenues for eight consecutive quarters. In the fourth quarter, core banking revenues grew by 11% Q-on-Q, driven mainly by higher net interest income, which was supported by a declining funding cost environment. Trading income declined Q-on-Q during the quarter, we repositioned our TL securities portfolio and we reduced our exposure to securities with relatively lower yields. Net fees also remained resilient, registered 5% quarterly growth with the increasing contribution from money transfer and lending-related fees. As a result, our core banking revenues reached TRY 300 billion, which suggests the highest level among peers. A big part of this success stems from our asset mix-now moving into Slide 8. Our asset growth continued to be fueled by higher-yielding customer driven sources namely loans. Performing loans share in assets further increased to 58% and lending growth was across the board. I will touch upon this on the next slide. In securities, I would like to highlight that we had a favorable securities mix with lower CPI and increase foreign currency share. During the year, we had strategic additions to foreign currency and TL fixed rate securities. Moving into Slide 9 our TL loan portfolio reached TRY 1.7 trillion, while we continued to maintain a well-balanced mix between consumer and business banking loans. In the fourth quarter, we sustained our quarterly growth pace of 10% in TL loans, bringing full-year growth to 45%, which is above our operating plan guidance. Throughout the year, we further strengthened our long-standing leadership in TL loans, with market share gains across all retail products and SME loans. As we grow, we remain highly disciplined and continue to keep a close focus on asset quality and with that, let's look at the evolution of our asset quality. In the third quarter, consumer and credit card related flow to Stage-2 restructured and SICR portfolio continued, yet the share of Stage-2 within gross loan remained flat at around 10%. Our Stage-2 coverage ratio declined due to improved repayment performance of some individual-assessed firms. While our stage-2 loans coverage is now 9%, if we look at the TL and foreign currency breakdown, our foreign currency Stage-2 loans coverage remains healthy at 16%. In terms of NPL movements, Now, let's walk through the evolution of our NPLs; our NPL ratio increased modestly to 3.1% in line with expectations, and we are witnessing the natural consequence of robust consumer and credit card growth that sector registered in the last couple years. Retail and credit card portfolio still accounted for 70% of net NPL flows. If we move on to the net cost of risk, on page 12. Net provisions increased in 4Q, reflecting the absence of the exceptional provision reversals recorded in previous quarters. On a cumulative basis, cost of risk closed the year better than the guidance with the impact of large-ticket provision reversals, which are not expected to repeat in this year, as I will explain in more detail on the guidance slide. Now moving to the other side of the balance sheet, how we are funding the balance sheet growth? Not only in assets but also in funding, we rely on customer-driven sources. Total customer deposits exceeded TRY 3 trillion and now make up 69% of total assets and remain TL heavy. This quarter, in TL deposits, we gained a notable market share and our TL deposit market share increased to 21% among private peers. On foreign currency side, deposits increased by 4%. Half of that growth was due to gold price increase related parity impact. The rest can be explained by the flow from maturing KKM deposits. Growing demand deposit base, which is one of the key pillar of our margin performance, continued to support deposit growth. Demand deposits currently make up 41% of total deposits. Our diversified and liquid funding mix is also backbone of our success. With two new transactions successfully completed in 2025, total volume of subordinated bond issuances over the past two years reached $2.45 billion, making us the bank with the largest subordinated bond issuance in the recent years. We achieved another major milestone by issuing Turkiye's first Biodiversity and Blue-Themed Bond. We also secured a syndicated loan from international markets with diversified maturities. This year, we introduced a 3-year tranche for the first time, and a 2-year tranche for the first time since 2017. Putting all of this together, our total external debt currently stands at $9.8 billion, of which $3.5 billion is short term. Against this, we maintain a comfortable and strong foreign-currency liquidity buffer of $7.1 billion. Our active funding management is also visible in net interest income, on page 15, in the fourth quarter, our net interest margin recovered by 60bps with the support of declining deposit costs. On an annual basis, net interest income including swap cost doubled which points to 1.2% annual margin expansion. Our net interest margin reached 5.4%, we continue to have by far the highest net interest margin and net interest income level among major peers and our aim is to preserve this leading position. If we look at the margin component, as shown on bottom-right side of the slide, TL core spread has started to recover as of 4Q, and we expect this recovery to continue throughout 2026. We utilized more swaps in 4Q due to its funding cost advantage relative to TL deposit costs. In terms of CPI linkers' income, CPI rate used in the valuation increased to 32.9%, based on actual inflation data. Therefore, on a quarterly basis, we had positive contribution from CPI linkers' income. However when looking at CPI interest, we should also take into account its funding cost and as of this quarter we have started to share with you the net contribution of CPI Linkers' to net interest margin. In the fourth quarter CPI Linkers' negative contribution is compared to 3Q due to increased income on an annual basis CPI increased net impact to margin was -0.4%. Let's move on the other P&L item fees. Our fee base remains robust, up 50% year-over-year. On an annual basis, payment systems fees were the main driver of the growth. In the fourth quarter, contribution from lending related fees and money transfer fees gained momentum. I would like to highlight that, we are number one in money transfer fees and in both life and non-life insurance fees. We increased our mutual fund market share by 1.3% to 11.6%, which also provided additional support to our fee base. Moving to our operating expenses, our OpExbase grew in line with our operating plan and was up by 67% in 2025. As we have been communicating, we have been investing in customer acquisition through salary promotions. And to enhance customer experience and increase customer penetration, we have been leveraging the power of artificial supports our revenue generation capability. As a result, significant portion of operating expense base is covered by fee income and we have the lowest cost/income ratio. As per our capital strength, In the fourth quarter, our solvency ratios improved with support from strong profitability and Tier-2 issuance we had in October. Our consolidated CET1 realized at 13.1%. Capital adequacy ratio reached 17.5% without BRSA forbearance. The foreign currency sensitivity on capital remains limited, 13bps negative for every 10% depreciation. With TRY 179 billion TL excess capital, we maintain a solid buffer to support our long-term growth strategy. With that, let me now summarize our performance before moving into operating plan. As I mentioned in '25, we sustained our unmatched leadership in earnings generation capability and once again demonstrated a strong track record of achieving results in line with our commitments. Net interest margin performance and cost growth were broadly in line with our operating plan, while fee growth clearly stood out, driven by strong momentum in payment systems and lending-related fees. In fact, in TL loans, our growth outpaced inflation, supported by consumer, credit cards, and SME loans. Net cost of risk performed well better than expectations, benefiting from provision reversals recorded during the year. Now, let me walk you through our operating plan guidance. I will begin with the macro assumptions on the left, as these form the foundation of our planning framework. Our baseline assumes a gradual easing cycle in the policy rate. The pace of monetary easing will become increasingly data-dependent and points to a slower pace of rate cuts in the second half of the year. Inflation will continue to decelerate, closing the year at around 25%. However, given the stickiness in services inflation, we believe CBRT will maintain a sufficiently tight stance, implying ex-post real policy rate of around 6-7 percentage points. Turning to balance sheet growth on the right-hand side, we expect TL loan growth to be in the range of 30-35% foreign currency loan growth at mid-single digit levels. Net cost of risk is expected to normalize, settling in the 2 to 2.5 percent range, reflecting the absence of large-ticket provision reversals and the natural impact of strong growth in consumer and credit cards. Regarding margins, we project net interest margin expansion of around 75 basis points, on top of its highest level. I would like to highlight that the extent of this improvement will largely depend on the pace of rate cuts and the evolution of macro-prudential measures. As I mentioned earlier, our assumption of 32% year-end policy rate represents the upper end of market expectations. We deliberately adopted a conservative approach during the budgeting process in order to prepare the balance sheet for funding costs remaining above the policy rate, particularly on the deposit side. On fees, we expect growth of 30-35%, as a result of strategic investments, we expect OpEx growth to exceed average inflation. And that said, on a bank-only basis, we expect approximately 80-85% of the OpEx base to be covered by fee income. Finally, bringing all these elements together, we are targeting mid-single digit positive real ROE. Since 2018, real ROE has remained negative; however, in '26, we expect this to turn positive, supported by declining policy rates. This concludes my presentation. Thank you for your listening. Now, we can take your questions. Operator: [Operator Instructions] Our first question comes from David Taranto, Bank of America. David Taranto: The first question is on costs. Your cost growth has been running above the sector for some time, yet your revenue margins have also been higher. So this hasn't weighed on your relative profitability. But for this year, guidance again suggests cost growth at the higher end of the sector. So could you elaborate on the key cost drivers for this year? Should we view this as front-loaded investment ahead of what will hopefully be a lower inflation environment? Or are these increases more structural? And looking ahead, should we expect Garanti's cost growth to move closer to or maybe potentially below the sector levels in the future years? The second question is on fees. Your fee growth guidance appears broadly in line with the volume growth expectations. Could you elaborate on your guidance here? I assume we'll see a meaningful deceleration in payment-related fees. And in which segments do you expect to see stronger growth this year? And is there a meaningful seasonality that we should be aware of in terms of fees? And the last question is on margins. Your year-end policy rate expectations of 32% seems slightly above the market review. How would your NIM expectations change if the policy rates were closer to 30% instead? And could you also share your expectations regarding the deposit rates under your base scenario? Do you assume deposit beta to improve at some point this year? Mahmut Akten: David, thank you for all the good questions. First of all, on the cost growth, as you noticed, yes, we have a higher than inflation cost growth for basically several reasons, but primarily one on non-HR, one on HR. In Turkey, for a while now, most banks and institutions makes 2 salary increases every year. And then therefore, second increase, which is July to December, is not fully reflected in the prior year. So when you make the increase in January, you also have further increase from the base. So there is a bit of higher than inflation increase in the cost base. But as inflation comes down, the impact of that increase in the second half of the year will be lower, as you can imagine. That's number one. But more important increase actually is related to non-HR. And within non-HR, we internally, we look at this differently, especially customer acquisition cost is a different animal. It's an investment for the future. And in Turkey, especially payroll or pension, we pay promotion as you are aware of, and that's every 3 years. So you get 3 years of inflation within those numbers as you replace 1/3 or slightly more than that of your acquisition cost suddenly with 3 years inflation. So those numbers are a bit investment for the future. We expect as we go forward as inflation comes down, and this will affect also this payroll acquisition cost as well that 3 years inflation will come down. The impact to the extent is reflected on cost-to-income ratio. But we expect that cost-to-income ratio slow down or reduce down to 40% going forward. That's our expectation. And we have been highly investing in the AI within the BBA framework, and we start to see impact in efficiency, as you will see in the coming year. That's number one. Number two, fee growth. Again, as you clearly and correctly point out, as interest rate and inflation comes down, some of the payment commissions will come down properly. But we are actually offsetting that with both loan commissions, a bit of regulation also positive effect on the FX loans. So that has happened last week. But more importantly, we have investment in especially insurance type of commission-generating products and wealth management. We are expecting that to be offsetting the decrease in payment commission. So we expect a similar pattern in terms of ratio going forward as well. That will be the positive side. And the third on deposit rates. Again, I think if you look at the third quarter and fourth quarter, even though the policy rate significantly reduced, we didn't -- we were not able to reflect all of it to the deposit cost up until very recently. That's part of it, a tight monetary policy and data-driven Central Bank policy, which came with certain regulatory measures on the banks and one of which that is very important and relevant was related to deposit rate. We had 4 weeks windows to have a certain Turkish lira total deposit ratio, and that has been recently extended to 8 weeks. That has been a big plus because every 4 weeks trying to hit the ratio, it creates this synthetic competition. And despite policy rate reduction, we are not able to reflect 100% of that reduction in deposit funding. But a few weeks ago, that time break has been extended from 4 weeks to 8 weeks. That has been clearly a positive news. And then also the -- we had some level of challenge with the gold prices, especially after, I think, starting October, right? As gold increases, the total Turkish lira deposit ratio came down. That also put certain pressure on deposit ratios or deposit rates. But we start to see with this 8 weeks interval and a bit of stability now this week on the gold prices, we see that more stability and better correction in the deposit ratios and deposit interest rate. It's getting very close to overnight repo rate, which is a good news for us. So we expect further improvement in deposit rates going forward in the next months. Operator: Our next question comes from Ashwath from Goldman Sachs. Ashwath PT: I have a few questions. The first one being on your NIM dynamics. You expect 75 basis points of expansion. Would you mind breaking that up between the impact from lower CPI and the impact on core spreads? And in relation to the topic on NIMs, when do you expect to see NIMs peak? Would that be in the second half of the year? My second question would be on the dollar exposures across your balance sheet. From what I can see, your loans are around 25% to 27% in terms of U.S. foreign currency exposure, your deposits a bit higher in terms of 37%. Would you mind also telling me how much of your equity is also held in dollars or in foreign currency terms? The third question I had was around the ROE. It's good that you're guiding for real ROEs to be in the mid-single digits. My question here would be more on your expectations on your long term. Where do you think this real ROE figure would settle in an environment where there's inflation settling below or at 20% or below. And in that scenario, where do you think currency's NIMs would be at and also its normalized level of ROE? Mahmut Akten: Okay. Let's try to answer all the questions. One of them was related to 75 bps improvement, if I took my notes right. We see a further improvement in loan-to-deposit margin, 150 bps actually, but reverse repo and swap is additional 0.7%. However, CPI income this year will be with the inflation coming down, minus 60 bps and the reserve remuneration will be another minus 70 bps as well. That's the reason we are conservatively forecasting 75 bps improvement. And regarding the improvement in NIM and spread, we expect towards the end of second quarter, we'll probably see the highest level this year as well as we start to see a slowdown in the policy rate reduction starting third quarter, and we'll see further emergence between the reduction in loans as well as spreads. There was a second question about equity. Can you? Ceyda Akinc: Yes, we will get back to you regarding the second question. Mahmut Akten: On the dollarization. Okay. And the third question was related to ROE, right? Atil, would you like to take that? Kemal Ozus: Yes. In terms of return on equity, our guidance for 2026 is a real return on equity improvement. Over the long term, when we assume that it was your question, normalized ROE over long term, when we assume that inflation will limit teens, like, I mean, 15% to 20% level. We expect a return on equity -- real return on equity above inflation around 8% to 10% could be our sustained long-term return on equity. Mahmut Akten: And I think there was a question also -- a follow-up question on the -- what's a stable NIM for long term. We expect that to be around 500 bps as well. We have been always relatively high. But conservatively, we think something around 500 bps will be a relatively good margin as we increase our customer base and loan book. Does that answer your question? Ashwath PT: But just wanted to clarify regarding the numbers in terms of expansions. You said 150 basis points in terms of core spreads, 60 negative from the CPI, 60 from the reserve requirements. What was the other 70 you mentioned? Ceyda Akinc: The rest was the -- between the repo and swap funding costs. So the other funding instruments. Mahmut Akten: That's also positive. Ceyda Akinc: Yes, because swap costs will also come down in line with the declining funding costs. So therefore, we are projecting to get a positive from swaps and repos. Mahmut Akten: And we are already seeing it actually in the swap markets... Operator: It seems like we don't have any more audio questions. So moving on to the written ones a bit. First of all, Valentina asks for some color on how loan and deposit spreads have been developing so far in first quarter and what we see as the main risk to our NIM guidance? Mahmut Akten: Valentina, we are seeing actually with this 4 weeks to 8 weeks conversion, we start to see a positive improvement in cost of deposits actually despite some volatility in the MTR market. So we might be even a bit conservative in first quarter, but we'll see an improvement to almost 50 bps in the first quarter, let alone. So it's a positive improvement, and we start to see it this week further. To be honest, there is a certain level of regulation that has been published last week related, for instance, growth in overdraft, which is highly profitable product as well as credit card. But not everything has been applied so far yet. This might be a bit more limitation on credit growth, especially on the most profitable one on the consumer side. And then there has been a bit of limitations on FX loans as well, further restriction given the higher inflation. As we point out all of this guidance, Ceyda, especially underlying is everything is data-driven a bit. That's the reason on our guidance, as usual, we are a bit conservative, at least whatever we say we want to deliver at minimum that level. But we see limited downside, but regulatory framework might be always a bit challenging. And then we forecasted even last year in our forecast, we have been a bit above the market in terms of our inflation expectation and policy rate expectation being year-end 25% and 32%. I think we have been the highest in terms of inflation and interest rate perspective. We are more emerging to those numbers. It sounds like based on the January and February data. At least for now, we don't see those are at risk because higher policy rate would definitely challenge us as well in terms of our expectation, but we are not at that point at the moment. Operator: Valentina's second question comes regarding insights on asset quality trends, particularly in the SME and corporate segments. Mahmut Akten: A perfect question. SME and? Operator: Corporate segment... Mahmut Akten: Now in reality, 60%, 70% of our NPL is related to consumer retail segment. There, we are -- we continue to see improvement. On consumer, we see substantial improvement versus a year ago, close to -- in terms of NPL roll rates, more than 40% improvement as well as we see further improvement in credit card, which is the highest NPL product normally. We also see an improvement of 20%, 25%. We see a good January start. And then when it comes to wholesale and SME, wholesale, we had an exceptional year last year. We had a lot of provision release because of the asset sales and collection efforts. This year, we have a bit of -- a bit more of those, but not at the same size. But regular NPL flow in January has been half of what we have seen in terms of NPL inflow of last year. On SME, SME, I think in one of these calls, we have discussed this in the past as well, has been only 13%, 14% of our NPL roles. It has been more like 16%, 17% lately. But when we look at the January as well, our NPL roll rate in SME has been 20% less than the last year. So there is an improvement. And then the recent development regarding to credit guaranteed fund support by the government will be helping on the SME segment specifically for those who are late in their payments will benefit from this credit guaranteed fund. So that will also further help our numbers. And in the third and fourth quarter numbers related to retail, I just want to underline that. Lately, we see a further regulation that helps us to extend the terms for the delayed consumer customers as well. In the third quarter, we restructured quite a bit of them. And then this reason our fourth quarter provision is higher than the third quarter because for those customers who were going to the NPL, we have deferred and restructured and some of them still went into the NPL. But lately, with the regulation last week and then similar to credit guaranteed fund in the retail side, -- the government also -- regulator also permitted us to restructure late credit and credit card and GPL loans for up to 48 months. So it's going to help further to reduce overall provision and NPL flow. And there might be, to an extent, a shift between first quarter and second quarter as well, but overall will help to relieve this. But overall asset quality is getting better, and we have regulator support and government support on both SME and retail customers. Operator: We have a couple of questions on the audio line. So our next question comes from David Taranto. David Taranto: Sorry I have one follow-up. Just wanted to confirm one technical point. Is your mid-single-digit positive real return on equity guidance based on your year-end CPI expectation of 25% or on your average CPI assumption, which I guess is a few percentage point higher. Mahmut Akten: Based on 25%... Operator: Our next audio question comes from Tomasz Noetzel. Can you hear us? Okay. I think he has some problem with the line. Tomasz Noetzel: Can you hear me now? Operator: Yes, we can hear you now. Tomasz Noetzel: Apologies for last time. I just have one clarification and follow-up questions that was asked before. Possibly, I may have missed that when you answered that. But what will be the potential NIM upside should interest rates go further down to, let's say, 28%, not 32% as you guided because that's some market expectation that rates could go down as slow in Turkey this year. How should we think about the NIM upside in that scenario? Thank you for confirming that... Mahmut Akten: Yes. Every 100 bps change in policy rate has -- for the full year, it affects the NIM by 15 bps. Operator: Our next audio question comes from Simon Nellis. Simon Nellis: I think I put these questions through the chat as well. But yes, my first one is on risk costs. So you're guiding for higher risk costs this year. Can you just run us through the key drivers of that? And where do you think risk cost normalizes kind of longer term? And my second question would just be on the effective tax rate. What should we pencil into our numbers this year and next year given the big jump in the fourth quarter and recent regulatory changes there? Mahmut Akten: Yes. Regarding first question, actually, we had a lot of one-off large ticket provision reversal this year. Excluding those, the bank only cost of risk could have been 2.4% this year. But we had all these one-off items that we successfully achieved this year for large ticket provision reversals, mostly related to sales and collection. And our consolidated figure was 2.1%. And regarding next year, we have different products with different rates, but we expect conservatively again between 2% to 2.5% cost of risk. Our credit card cost of risk has been historically as well around 4% for retail, 3% SME 2.5% and wholesale 0.5%. We don't expect that too much to change. But recent regulatory changes will provide further positive news for cost of risk. We have not incorporated those numbers yet. We are just starting on credit guaranteed funds potentially in 2 weeks or so on restructuring on retail, this extra relief on conditions will be starting next week. So there might be some positive news on that, which might get us to be closer to 2% rather than 2.5%. Our normalized cost of risk historically has been around 1.5% to 1.7%. But given the high interest rate environment, it's probably normal to be around 2%. That's our take. And there was a second question. Kemal Ozus: It was about the effective tax rate. Mahmut Akten: Yes. Kemal Ozus: It will be similar to 2025 because already there's a change in the tax law, and it has been reflected in the fourth quarter. So full year, you can consider is full year 2025 is reflecting the new normal, let me say. So you can use 2025 as a proxy for the next year as well. Mahmut Akten: Yes. And Simon, aside from this, I think when we show the numbers, there is always from one quarter to another, there is one-offs. So it's not very easy in banking to normalize all the numbers and make it an apple. But again, quarterly income, especially the fourth quarter doesn't reflect fully the improvement in NIM. One reason was tax rate that has been shown there are only 3 quarters of the tax around TRY 2 billion, but the full impact is TRY 2.7 billion if there wasn't any change in the tax regulation. So that will bring TRY 9 billion to TRY 9.7 billion actually, apple-to-apple, our profitability in the last quarter. And because of the restructuring in the third quarter, there has been a movement of NPL. We saved some of these customers, but the movement also understated the P&L on the fourth quarter and overstated the P&L in the third quarter because of the consumer credit and credit card provisioning. So quarter-by-quarter, if you correct those 2 items, our profitability last quarter would have been TRY 31.7 billion. And on top, we had certain security optimization, things like that. So actually, even though you don't see directly the improvement in NIM in those numbers, if you correct for one-offs, the trend has been positive, and we'll continue to see that in the coming quarters as well. From that perspective, we feel comfortable with the improvements. Simon Nellis: Okay. And -- just on the tax rate, if I calculate it right for the parent bank, you had an effective tax rate of around 22.5%, 23% for 2025. I mean that's still well below the statutory rate, right, which is 30%. Are you sure that effective tax rate will be around that level this year? Kemal Ozus: Yes, around 20%, 25%, you can use because although the tax rule change about the inflation accounting, but there's still some cause inflation accounting treatment of the revaluation of assets, which are bringing some deferred tax asset year-on-year. This is one reason why effective tax rate is below 30%. Mahmut Akten: And also because of subsidies, different tax rates and as well as subsidies income level is different. In some subsidiaries, we have lower tax rate and some subsidies, we have some tax cushion as well. So depending on the performance of all the subsidiaries and our consolidated figure will be still relatively good. Simon Nellis: And do you think that should be sustained further out? Or will the DTA effect fade and the tax rate go higher? Kemal Ozus: It could change depending on the revaluation rate or the inflation rate, let's say, which is interlinked. So when the inflation is lower in the coming years, let's say, mid-teen inflation or devaluation rate, we may see an uptick in the effective tax rate. Operator: Our next audio question comes from Mustafa Kemal Karakose. Mustafa Karakose: My first question is about loan pricing. What should we expect in terms of loan pricing for the next year? We have seen so much ups and downs in loan rates recently. And my second question about spread between policy rate and the deposit rate. How much -- how many spreads do you expect for the next year and beyond? And my third question is around about ROE guidance. Do you assume any mark-to-market gain in your ROE guidance? Because if there will be some mark-to-market gains, your equity base will be higher. Mahmut Akten: Thanks. First of all, loan pricing, as you point out, depending on the product, there has been some volatility on loan pricing. But overall, because of the positive side of the regulation in some sense, given the limits on loan growth, the expected decrease in loan pricing has not been realized, given that we don't have much room to grow in loan because of the caps. Depending on the product, as you said, there has been sometimes ups and downs that's related to 8 weeks window. Sometimes when we get close to the end of the 8 weeks, especially on very digital products, we might have sometimes need to change the pricing to be within the cap. But what is important is the trend in terms of trend the reduction or reduction in the loan prices is below our expectation, are not fully parallel with the policy rate reduction. So it's not a perfect 100% beta there. Regarding deposit pricing as well, because of, again, regulatory measures because of the Turkish lira ratio, typically, in the past, what we have seen, we are not seeing right now, which means normally our incremental deposit pricing is below the Central Bank policy rate around 50 to 100 bps below. And you see that right away in the 2 days after the Central Bank policy rate, we see a significant reduction. But given that there is ratios and there is a lot of dependency on the FX situation and interest, which has been recently realty has been around gold and silver, but regardless, because of those ratios, the incremental cost of deposit has been slightly higher than the policy rate nowadays 50 to 100 bps. So instead of actually 50 to 100 bps below the policy rate. So we are not seeing the similar reduction in deposit as well. But overall, despite all this, we are improving as we see on the fourth quarter, our margin regardless because of the duration differences. We have been always investing in the customer side on loans. As you see in this quarter as well, our security fixed book has not changed much. We actually had some optimization, which you don't see from the numbers to be more sustainable and more profitable security book, but we are still at 58% customer loan versus our peer group at 49%. So I believe this is going to be reflected relatively positively on our numbers going forward. But we see 50 bps to 100 bps above policy rate. This will diminish in the following weeks as well as volatility reduced in the market, given that we are switching from 4-week windows to right now 8 weeks, which is a big plus in terms of our major. And then there was the last question about return on equity guidance. Kemal Ozus: I can take that. I mean we did not incorporate a significant amount of mark-to-market gain in our ROE calculation. Our foreign currency -- our securities foreign currency TL, there's an increase in the foreign currency part toward 40%. And in TL, we have AFS book and the hold-to maturity book. So we don't have much exposure to interest rate changes in equity in total. So we did not incorporate a significant amount of mark-to-market. Mahmut Akten: We have significantly lower sensitivity to interest rates -- that has been our policy and strategy. Operator: Our next audio question comes from Ali Dhaloomal. Ali Dhaloomal: I had this question actually about the TL spread policy rate. My question is just actually about wholesale funding. I mean what should we expect from Garanti this year in terms of issuance? I mean, last year, you have been very active in the Tier 2 format. But also in terms of other instruments, I mean, are you looking to do more in the DPR format or others? That would be great to have some color. Mahmut Akten: Sure. Let me speak first and then Atil will add. On wholesale funding in the past as well, we have been opportunistic. We have relatively high liquidity always, but going to always grow -- further strengthen our capital as well. So we had, yes, Tier 2s. But at the time we did Tier 2s, there has been substantial spreads or cost between Tier 1 and Tier 2. Depending on the needs in the following months, we'll be, again, opportunistic on how we decide on funding, but we don't have a decision at the moment, but we see very much reduction in the overall spread between different instruments. But also from senior funding standpoint, we don't -- we are not in rush to do so. But DPR type of instruments or senior loans is always 2 depending on the cost, we might tap those markets as well. What do you think, Atil? Kemal Ozus: Yes. I mean, nothing to add. I mean, yes, DPR for many years, I mean, we were not in the market. I mean -- but with the new developments, DPR market could also increase. So we may be in the market depend on conditions and the pricing. Operator: Moving on with the written questions. The next question comes from, Valentina. She says, in first quarter, usually the banks take some one hit off it on capital due to operating risk adjustments. Can you share roughly what impact on capital we should expect? Mahmut Akten: 83 bps. Operator: Next written question comes from Orkun Godek. How do you evaluate the potential implications of the recent regulatory changes introduced over the weekend? In addition, there's an expectation for an easing of loan regulations in the final quarter of the year. What is your take on this view? Mahmut Akten: Yes. I think when do we see easing of the regulation, I don't really have an answer. Yes. I mean you would expect with the reduction in interest rates, there might be further reduction, but there are 2 main instruments on cooling down the economy. Number one, interest rates. And if you believe that interest rates are coming down, that will further strengthen growth and investment and loan book. So I'm not sure whether we will see a significant release on loan caps. However, having said that, as I said, it is not fully negative for us as one of the -- I mean, one of the largest bank in terms of balance sheet, given our customer base, we have a higher growth cap, and we are pretty much tapping that growth every quarter to meet our customer needs. And those caps also in parallel are requiring to interest rate or loan yields to settle at a higher rate, which also helps cooling down economy. So we'll see how it goes. Inflation is not an easy animal. So we'll see quarter-by-quarter, data by data. I would say that. And then that was the first part. The impact of regulation, the recent regulation, yes, there are several parts. One is significant growth in credit card limits and overdraft limits. Those have been 2 products used extensively. And there were other items, as we mentioned, one that was very helpful doing restructuring of the credit card blade loan book, which is significant. And then FX loan book growth has been reduced to 0.5%. Again, recently, we have seen on the FX loan book decreasing interest. So further limitation on the growth of FX will actually help in the NIM side, but it has a negative impact on the volume side. So it makes us more road focus in our customer day-to-day business. So I'm not concerned about that as well. On the credit card and overdraft, yes, I mean, Turkey is a consumption-driven market and credit card has been highly utilized versus the past 5 years, especially after COVID and after effective money being only TRY 200 and then rising of the e-commerce and online shopping, we have seen 40%, 45% credit card share in terms of day-to-day payment going up to almost 70%. I think still the tax -- still the regulation on credit card is being worked out. The details has not been fully published. Given that we have significant market share on credit card and overdraft, any optimization on limit or risk will adapt easily. Last year, we have captured a very high market share of the new credit card customers as well. Last year, our customer growth has been close to 3 million customers, and now we have more than 30 million customers who have account with us more than 50% of the total market. So I think any optimization that's guided by the regulator will apply it. And then we have -- we will have some effect, but will not be significant in my view. But we'll see how it turns out over the next few months. As you know, in the regulation itself, things are being worked out. What I mean is like, for instance, there has been regulation regarding the school payments, which is an important one ticket, large ticket item. There has been some exceptions on the overdraft. Potentially, there might be exceptions on credit card as well. That reason we'll see over the next few weeks and months how this play out. But as the largest player in the credit card market and overdraft, we believe that we can optimize and leverage our customer base and will not affect it negatively from this change as well. Operator: We have an audio question from Furkan Vefa Tirit. Furkan Tirit: Just to clarify, you said for every 100 basis points of rate cuts, 15 basis points of effect on ROE, right? Is that true? Mahmut Akten: On NIM, but full year -- so initially lower, yes. Operator: Moving on with the written questions. We have one from Bulent Sengonul. He asks, does your 75 bps margin expansion guidance include any easing in macro prudential measures? Mahmut Akten: No. Operator: Okay. Moving on to the next one from Bulent. Does your mid-cycle NIM and ROE targets assume that macro prudentials are fully normalized? Mahmut Akten: No, we don't expect macro prudential, which means around the ratios not fully normalized this year. So we still -- even in this environment, we expect to have a real ROE at the end of the year. So we are, again, I mean, I briefly said only no, but the prior question as well, we have been conservative in our approach. As I said, everything is data-driven. And so far, inflation and interest rate expectation of other banks has been wrong or it has been going up. So we have been conservative in our approach, and we expect no change on the regulation. Operator: We have an audio question from Tomasz Noetzel. Tomasz Noetzel: Yes. I can just ask for clarification on your fee guidance. Does this include any changes to regulation in terms of interchange fees or anything like this? Could you please clarify that as well? Mahmut Akten: Yes, we expect some changes and reduction interchange. But at the moment, the interchange is already set up a bit low. So we haven't seen a change recently, but it will, at some point, there's a breakeven policy rate. But we expect to compensate that with wealth management, insurance and other service and commissions. So we incorporate the reduction in payment. Normally, payment has not been that high as a percentage of total fee. We normally normalized rates around 55%. But nowadays REI is around 67%. So there will be a reduction to normalization, but the insurance and wealth management brokerage commissions and crypto type of commissions is increasing in our overall commissions. So that has been always within the plan, and that's the reason in our strategy, these type of commissions are important to offset the very strong payment commissions we have. I hope that answers. Operator: We have a written question from Cemal Demirtas. What's the sensitivity of your ROE assumption to 1 point lower or higher inflation? Mahmut Akten: We actually -- we have a perfect number of 1%, 15 bps. We didn't calculate, but back of the envelope, you would expect to around 0.5%, 0.6%. But Ceyda will get back to you on the exact number that Ceyda needs. These are the questions I need to answer. You need to calculate that as well. But definitely, that will be an improvement in ROE as well to get a better number. So I think we finish all the questions. There is one more. Okay. Let's go for it. Operator: It seems like we have one more question, a written one from Valentina. She asks a follow-up question on 83 bps negative impact. Do you think this can be easily offset? And expanding on this, why do you see your CET1 buffers throughout the year? Kemal Ozus: Yes. Of course, this 83 basis points is one-off impact since, I mean, in the new year, the operational risk is increased based on your prior year income calculation. With the current year profit, I think we will be compensating that. Of course, in the first quarter, there will be some reduction out of the dividend payment. And I think we will be compensating these... Mahmut Akten: There will be some baseline effect as well. Kemal Ozus: There could be baseline impact around 45 basis points in the second half, assuming that Basel IV will be enforced at that time. But with the internal revenue generation, we will be compensating those impacts. Mahmut Akten: Any further question? So I think we finished the questions. So it was really good list of questions. So thank you very much for everybody's participation. Really, we are pleased to conclude 2025 with very strong numbers. Again, reflecting our strategy, as I pointed out in the prior meetings as well. We are focused on customer-driven business. Our strategy is to expand our customer base and have sustainable profitability, not quarter-on-quarter, but on the long term. And so we continue to do some investment you see in the non-HR OpEx or trading, sometimes optimization, things like that. And -- but regardless, if you do one-off corrections, as I pointed out, our Q4 apple-to-apple is better than Q3. Q3 is better than Q2. So this continues like that. And then in the first month, January, we see also relatively good results for January above our budget, our internal targets. So we continue to make consistent progress. But our focus on digital transformation, AI transformation, efficiency, sustainability agenda, innovation continues to be our top of the agenda. And then going into new year, as you point out in your questions, our sensitivity of our security portfolio is relatively low. We are positioned ourselves in any situation. And then our focus is sustainable, delivering sustainable value for all of our stakeholders. So that's the strategy, hopefully, 3 months later, these days, we'll come together and we'll also show you even a better picture going forward. Again, thank you very much for everybody's participation and your patience late in the evening. So I hope to see you and to hear from you 3 months later in the next earnings presentation. Have a nice evening to all of you. Thank you.
Operator: Good morning. My name is Didi, and I will be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners, Inc. quarterly conference call. The slide presentation for this call is available in the Relations section of the Virtus website, www.virtus.com. This call is being recorded and will be available for replay on the Virtus website. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question and answer period and instructions will follow at that time. I will now turn the conference to your host, Sean Rourke. Sean Rourke: Thanks, Didi, and good morning, everyone. Welcome to Virtus Investment Partners, Inc.'s discussion of our fourth quarter 2025 financial and operating results. Joining me today are George Aylward, our President and CEO, and Michael Angerthal, our Chief Financial Officer. After their prepared remarks, we will open the call for questions. Before we begin, I'll refer you to the disclosures on slide two. Today's comments may include forward-looking statements, which involve risks and uncertainties described in our news release and SEC filings. Actual results may differ materially. We will also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are available in today's news release and financial supplement on our website. Now I'd like to turn the call over to George Aylward. George? George Aylward: Thank you, Sean, and good morning, everyone. I'll start with an overview of the results we reported this morning, and then Michael will provide more detail. The fourth quarter reflected a challenging environment for us given the quality-oriented equity strategies, which represent half of our AUM, remained out of favor, resulting in an increased level of net outflows. As we have previously noted, our quality-oriented equity strategies have delivered strong long-term performance across cycles and have previously been our largest drivers of growth when in favor. However, the market backdrop continued to favor more momentum-driven stocks resulting in near-term underperformance. Importantly, the impact from our quality equity strategies has overshadowed areas of strength across the business, which in the quarter include positive net flows and strategies from several managers, including in growth equity, emerging markets debt, listed real assets, and event-driven. Continued strong positive net flows in ETFs, product introductions of differentiated actively managed ETFs, expansion into private markets with two strategic investments, solid long-term investment performance, with fixed income and alternatives also having strong near-term performance continued return of capital, with $10 million of share buybacks in the quarter, and a solid balance sheet meaningful liquidity, and de minimis net leverage at year-end. We continue to execute our strategic priorities in the quarter, including broadening our product offerings, with several ETF introductions and expansion into the private markets. For ETFs, we launched three new actively managed funds in the quarter, including a growth opportunities ETF from Silvent, and U.S. and international dividend strategies from our systematic team. We expect several additional active ETF launches over the next two quarters across managers, including Stone Harbor, Duff and Phelps, and Silvent. We now have 25 ETFs spanning a range of strategies and continue to focus on broadening access to them in distribution channels. In addition, we have several other new offerings in process or filing including interval funds and additional retail separate account strategies. And as mentioned, we also have expanded into private markets with the previously announced pending acquisition of a majority interest in Keystone National Group, an asset-centric private credit manager, and a minority investment in Crescent Cove, a venture growth manager. I will discuss both in more detail shortly. Looking at our fourth quarter results, assets under management were $159 billion at December 31, down from $169 billion due to net outflows and the impact of market performance. Total sales of $5.3 billion compared with $6.3 billion in the third quarter, which included a $400 million CLO issuance. Total net outflows were $8.1 billion and across products, the outflows were almost entirely driven by equities. Looking at flows across asset classes, equity net outflows largely reflected the continued style headwind for quality-oriented strategies. We had several meaningful institutional partial redemptions in such strategies, as well as some seasonal tax loss harvesting in the funds. Fixed income net flows were modestly negative at $100 million for the quarter, and we saw positive net flows in certain fixed income strategies including multisector and emerging market debt. Alternative strategies were essentially breakeven for the quarter and positive for the trailing twelve months. In terms of what we're seeing early in the first quarter, our U.S. retail funds continue to face headwinds though there have been encouraging signs in the market of broadening investor sentiment and January sales were at the highest level since June, and net flows at the best level since September, and fixed income net flows were positive. For ETFs, sales and net flows continue to be strong. Within retail separate accounts, while for the month we have seen an increase in sales, there was a large redemption from a client that rebalanced a lower fee model only mandate to a passive strategy. On the institutional side, trends are similar to the fourth quarter with known redemptions exceeding known wins. Turning now to our financial results. Earnings in the operating margin declined modestly, reflecting lower average AUM, partially offset by lower operating expenses. The operating margin was 32.4%, compared with 33% last quarter. Earnings per share suggested of $6.50 compared with $6.69 in the third quarter. Turning to investment performance. Recent performance reflects our overweight to quality equity, while long-term performance demonstrates we've generated solid performance over our cycles. With the three-year period, while 39% of AUM outperformed benchmark, due to challenging equity performance, fixed income and alternative strategies performed very well. With 76% and 60% of AUM respectively outperforming benchmarks. Over the ten-year period, 62% of our equity assets, 77% of our fixed income assets, and 71% of alternative assets beat their benchmarks. For just mutual funds, 65% of equity funds, and 87% of fixed income funds outperformed their peer median for the ten-year period. I would also note that 84% of our rated retail fund assets were in three, four, and five-star funds, and 23 of our retail funds are rated four and five stars. As it relates to equities, despite the style headwind, our quality-focused managers continue to invest with high conviction businesses with durable fundamentals and long term potential. Their disciplined approach has delivered excellent returns over cycles, and we remain confident that as companies with quality characteristics come back in favor, these strategies are well positioned. With the environment year-to-date, we are pleased that although it's a short period several of these strategies have generated very compelling performance. In terms of our balance sheet and capital, we continue to have financial flexibility to balance our capital priorities of investing in the business, returning capital to shareholder and appropriate leverage. During the quarter, we repurchased approximately 60,000 shares for $10 million. The full year, we used $60 million to repurchase over 347,000 representing 5% of beginning shares. We ended the quarter with significant liquidity, including $386 million cash and equivalents and an undrawn $250 million revolver, positioning us for the upcoming first quarter obligations include including the closing payment for Keystone National. Before turning the call over to Michael to review our financial results in more detail, I would like to provide some highlights on the Keystone National and Crescent Cove transactions which will allow us to provide private market offerings and differentiated strategies with strong track records. We will acquire a 56% majority interest in Keystone, a boutique private credit manager specializing in asset-based lending with approximately $2.5 billion in assets across a tender offer fund, and two private REITs. Keystone's approach differs from traditional direct lending. Its financings are secured by specific collateral, are self-amortizing with regular payments of principal and interest, have shorter durations, and are structured with robust covenants and triggers. This collateral backed covenant rich design provides meaningful downside protection for investors who are underexposed to private markets and serves as a differentiated complement for those already invested in traditional private credit. We see significant growth opportunities for Keystone across both retail and institutional channels. Their strategies are already available in an at-scale tender offer fund used by an established base of wealth management firms, and we believe we can expand that meaningfully. In addition, over time, we also expect to introduce the capabilities to U.S. and non U.S. institutional clients. We're excited to welcome Keystone's Salt Lake City-based team to Virtus Investment Partners, Inc. and expect to close the transaction during the first quarter. With regard to Crescent Cove, a private investment firm that focuses on providing flexible capital solutions to high growth middle market technology companies, we completed a 35% minority Crescent Cove has built a strong track record growing to over $1 billion in AUM across multiple private funds with a diversified client base. Their venture debt strategy offers compelling risk managed way for investors to gain exposure to private technology companies. We see long term growth potential for Crescent Cove, including extensions into other products for broader client usage, and we're excited to be partnering with their team. With that, I'll turn the call over to Michael Angerthal to provide some more details on the financials. Michael Angerthal: Thank you, George. Good to be with you all this morning. Starting with our results on Slide 10, assets under management. Our total assets under management at December 31 were $159.5 billion and average assets declined 3% to $165.2 billion. Our AUM continues to be well diversified across products, and asset classes. By product, institutional accounts were 33% of AUM, Retail separate accounts, including wealth management, represented 27% and U.S. retail funds represented 26%. The remaining 14% consisted of closed end funds, global funds, and ETFs. Within open end funds, ETF AUM increased to $5.2 billion up $500 million sequentially on continued strong net flows. And up 72% year over year. We are also well diversified by asset class, with broad representation across domestic and international equities including mid, small and large cap strategies, and a fixed income platform diversified across duration, credit quality, and geography. Turning to slide 11, asset flows. Total sales were $5.3 billion compared with $6.3 billion in the third quarter. Reviewing by product, institutional sales were $1.4 billion versus $2 billion last quarter which included the issuance of a $400 million CLO. Retail separate account sales were $1.2 billion compared with $1.4 billion in the third quarter. Open-end fund sales were $2.8 billion consistent with the prior quarter and included $800 million of ETF sales. Total net outflows were $8.1 billion compared with $3.9 billion last quarter. Reviewing by product, institutional net outflows of $3 billion were primarily due to redemptions of quality domestic and global large cap growth strategies. Of the total gross outflows in the quarter, 75% were partial redemptions rather than full terminations. Retail separate accounts had net outflows of $2.5 billion driven by quality small and SMID cap equity strategies. Open-end fund net outflows of $2.5 billion compared with $1.1 billion last quarter also driven by quality-oriented equity strategies which more than offset positive ETF flows. ETFs continued to deliver strong momentum generating $600 million of positive net flows and sustaining a strong double-digit organic growth rate. Before turning to the financial results, I would note that outlook commentary that I provide beyond the first quarter contemplates a full quarter impact of Keystone National. Turning to slide 12, Investment management fees as adjusted were $168.9 million down 4% due to lower average AUM, and a modestly lower average fee rate. The average fee rate was 40.6 basis points, which compared with 41.1 basis points last quarter. For the first quarter, average fee rate of 41 to 42 basis points is reasonable for modeling purposes. And looking beyond the first quarter, we anticipate the average fee rate will be in the range of 43 to 45 basis points. As always, the fee rate will be impacted by markets, and the mix of assets. Slide 13 shows the five-quarter trend in employment expenses. Total employment expenses as adjusted of $95.8 million decreased 3% due to lower variable incentive compensation. As a percentage of revenues, employment expenses as adjusted were 50.7% and within our range of 49% to 51%. As a reminder, the first quarter will include seasonal employment expenses, which are incremental to this range. Looking beyond the first quarter, we anticipate that employment expenses as a percentage of revenues will be in a range of 50% to 52% as the benefit from the addition of Keystone is more than offset by the decline in equity AUM. As always, it will be variable based on market performance in particular as well as profits and sales. Turning to slide 14, other operating expenses as adjusted were $30.2 million down from $31.1 million due to discrete M&A related costs in the prior quarter. We have maintained other operating expenses within our $30 million to $32 million quarterly range for several years, and for modeling purposes, this remains appropriate for the first quarter. Looking beyond the first quarter, we believe a quarterly range of $31 to $33 million is reasonable. Slide 15 illustrates the trend in earnings. Operating income as adjusted of $61.1 million compared with $65 million in the third quarter, with the decline due to lower average assets, partially offset by lower operating expenses. The operating margin as adjusted of 32.4% decreased 60 basis points from the third quarter. With respect to non-operating items, non-controlling interests of $1.5 million decreased from $2.1 million due to the increase in ownership of our majority-owned manager. For modeling purposes, this level is appropriate for the first quarter. Beyond the first quarter, we believe that a reasonable range for non-controlling interests will be $5 million to $6 million, which factors in the Keystone minority ownership. Our effective tax rate of 25.3% was lower by 70 basis points sequentially due to an update to our blended state tax rate, and this rate is appropriate for modeling purposes in the first quarter. Beginning with the second quarter, we anticipate an effective tax rate of 23% to 24% due to the addition of Keystone. Net income as adjusted of $6.50 per diluted share declined 3% from $6.69 in the prior quarter. Slide 16 shows the trend of our capital liquidity and select balance sheet items. Cash and equivalents at December 31 were $386 million. In addition, we had $36 million of other investments including seed capital to support growth initiatives. The $1 million decline in outstanding debt reflected the quarterly required amortization payment on the new term loan. Gross debt to EBITDA was 1.3 times, and we ended the quarter with $13 million of net debt. During the fourth quarter, we repurchased 60,292 shares of common stock for $10 million. Other uses of capital during the quarter included the $40 million closing payment for Crescent Cove that is included in the $61 million of investments—equity method row which also includes our minority investment in Zevenbergen. As well as $9 million for an increase in equity of our majority-owned manager which was the last of the scheduled equity purchases. In the first quarter, cash usage will include our annual incentive payments, typically our highest operating cash outlay of the year, and the annual revenue participation payment which we expect to approximate $22 million, which represents most of the remaining obligation. And as previously mentioned, we will make the $200 million payment for Keystone National upon closing the transaction. Taking into account that payment, and other first-quarter activity, we would anticipate net leverage at March 31 of 1.2 times EBITDA. With that, let me turn the call back over to George Aylward. George? George Aylward: Thank you, Mike. We will now take your questions. Didi, will you open up the lines, please? Operator: Yes. As a reminder, to ask a question, please press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. And our first question comes from Ben Budish of Barclays. Your line is open. Ben Budish: Hi, good morning and thank you for taking the question. Maybe first just on the fee rate, Mike, you gave some color on the quarter and the year. Just curious if you could flesh that out a little bit more. What was the driver of the fee rate compression in the quarter? I assume Q1 guidance is kind of based on what you're seeing year to date, and the full year is going to be benefited from Keystone. But just any more color on the underlying dynamics would be helpful. Michael Angerthal: Yeah. As you know, we've operated our fee rate in a relatively narrow range for quite some time. I think if you normalize the 40.6 basis points in the first quarter, you get to about 40.9, just under 41 basis points as we had some discrete expenses, especially on the ETF side. So normalizing that, you have a kind of flat profile quarter over quarter. So we've been able to maintain that. And you know, looking off of that 40.9, we gave the range in the 41 to 42, so you have that level. And we're anticipating one month of impact from Keystone as we're on target for closing on March 1. As we've talked about. So when you factor in one month of Keystone in addition to where we ended the fourth quarter, we think that that range is appropriate for modeling and represents our ability to keep our fee rate in that narrow range over time. Ben Budish: Okay. Helpful. And then maybe just a strategic question. I know you just did a transaction, I apologize that we're already asking you about the next one. But George, in your prepared remarks, you talked about market-wide headwinds, especially to kind of value-oriented strategies where you over-index. I'm just curious—I understand over the last few years, the line of questioning has probably been more around private markets, private credit. But just as you're thinking about future transactions, do you see that as an avenue for additional diversification? You know, does it make sense to broaden your kind of growth equity footprint? And perhaps could you remind us today how much of the AUM is more kind of growth versus value-oriented? Thank you. George Aylward: Sure. And, so a couple things. So I think as we think about diversification in addition to diversifying our offerings, right, so our goal is to provide, you know, the building blocks for a well-diversified portfolio, so we continue to build those out. But the other area of diversification we also think about a lot is where our clients are and what channels we're in. So think when we previously talked about M&A, we've obviously talked about adding compelling differentiated strategies. We've also said areas of interest to us would include those things that would either broaden our distribution footprint, particularly outside the U.S., as well as in other channels, we think there's more opportunity for us to garner penetration. In terms of overall strategies, again, a lot of dialogues around private markets, and we do agree that private markets have an important place in a portfolio. But that's not 100% of the portfolio. So we do continue to think about the other elements of the traditional managers. Right now, as we're living through an overweight towards what I would define as quality-oriented strategies, which include both core value and growth, but of a quality nature. We do have other managers who are more growth equity. They've been our smaller managers. But I think as we said on a previous call last quarter, as well, we've actually seen growth there. They're just unfortunately smaller than our largest managers that have more of that quality orientation. So a lot of the ETFs and SMAs that we've been launching over the last quarter or two have been in those other kind of growth equity managers. Particularly where we see areas outside of the traditional U.S. basis, some non-U.S. strategies as well as that. So we've been focusing on, like, Silvent, which is not a quality-oriented manager. More style agnostic. That has been an area of growth for us. And we've created several ETFs that have already launched. Several are in filing. So we continue to work on those strategies. And even within some of our value managers who are classic value managers, some of them actually had very strong compelling performance in the recent quarters, and we look for opportunities to grow those. So we'll continue to evaluate other things that we can add through M&A, but, again, it wouldn't only be limited to those things which provide another investment strategy. It could be things that have other strategic elements to help just overall drive growth on the long term. Ben Budish: Alright. Great. Thank you both. George Aylward: Mhmm. Thank you. Operator: Thank you. And our next question comes from Crispin Love of Piper Sandler. Your line is open. Crispin Love: Thank you. Good morning. Appreciate taking my question. First, can you share what your software exposure is across your AUM and then relatedly just exposure at Crescent Cove Advisors given their focus on technology and just overall thoughts? Just given the news that's been permeating the headlines this week? George Aylward: So in terms of overall, just technology and software exposure? Crispin Love: Yes. George Aylward: Yeah. I mean and, you know, one of the things that has been a drag on the performance of some of our quality-oriented equities, is they are just generally, as a rule, underweight areas of technology. So that's why this recent period—in particular yesterday, was actually very good for many of our managers. You know? So, generally, I think as a complex, we are underweight exposure to technology. But, again, not all technologies created equal. Right? So there are some that will actually meet the definition of some of our managers and some will not. In terms of Crescent Cove, I mean, they're in a different part of the market as it relates to the venture part and the earlier growth opportunities. So again, that is an area of focus for them. And again, I think long-term, that continues to be a compelling area of investment. Mike, any other anecdotes you would add? Michael Angerthal: I would just say at Crescent, they don't have specific holdings that are at risk of being disintermediated by AI. So as George said, those are early stage entities, but you highlighted the key point in the existing portfolio for Virtus Investment Partners, where we're well underweight. Some of these software names. Crispin Love: Great. Thank you. That's what I thought I just wanted to make sure and all very helpful color there. And then, let me just dig into the flow picture from the fourth quarter. And then as you look forward, just fourth quarter was very challenging across open end, SMAs, institutional. Can you just discuss a little bit what drove the acceleration of negative flows quarter to quarter? The storyline seemed to be roughly similar from the third quarter commentary. And then just as you look at the fourth quarter moving to the first and kind of the longer-term outlook, just how do you feel about the flows? Thank you. George Aylward: Yeah. And as you said and as we said in our remarks, it was definitely a challenging quarter. Right? So our quality—you know, we're overweight. Half of our AUM is in quality-oriented equity strategies. They've had the longest period of underperformance versus more momentum-type strategies, in decades. That has been quite a challenge. You know? As that culminated in the fourth quarter, again, fourth quarter, a lot of time will there be, you know, either traditional just tax loss harvesting or other repositionings of portfolios for year-end, so it was a higher level of outflows than we had seen previously. But what that means going forward, you know, it's hard to know. Right? It all depends on what that market environment looks like. Right? If the market environment that we've seen in the last month and five days were to continue, as I alluded to, that's actually been an incredibly strong environment for some of those same strategies. And I think as I said on an earlier call, generally, when there's an inflection in the cycle, usually when you have some of the strongest performance from some of these strategies. It's still way too early. No one knows what that's gonna look like. Which goes to the earlier question as to why we continue to focus not only on, you know, the opportunity for when these strategies return to favor, but to continue to look for opportunities to grow our other strategies that don't have the same quality equity kind of orientation. So you know, our hope is that the long-term value of the quality-oriented equity strategies will demonstrate itself, and people will again avail themselves of those strategies. But in the meantime, we're looking to grow other areas of the business. Crispin Love: Great. Thank you, and appreciate you taking my question. George Aylward: Thank you. Operator: Thank you. And our next question comes from William Raymond Katz of TD Cowen. Your line is open. William Raymond Katz: Great. Excuse me. Thank you very much for taking the questions. First question is just in terms of the Keystone transaction. Now you've had a little more time to interact with the management team post the announcement from a few weeks ago, can you talk a little bit about maybe any kind of refined go-to-market opportunity? I think you spoke to leveraging through your distribution channel and/or institutional which makes a ton of sense. But just where do you see the greatest opportunity for that growth by channel, by geography? Love to hear your perspective on that. Thank you. George Aylward: Yeah. No. Great question. And we've had lots of conversations with management and prior to and post-transaction. And I think one of the joint goals is the excitement that we all have about the opportunity to leverage what they currently have and have been very successful with in the wealth management channel with our broader distribution resources. So our sales teams have spent multiple sessions being trained and prepped and they're all very excited and very eager to introduce those capabilities to our existing relationships as well as other relationships that we can more easily develop now that we have access to this. So we think there's a great opportunity set going forward. We do think the approach that they take on the private credit side, is asset-based in nature as opposed to the direct lending, is a very differentiated approach. Their main vehicle does not utilize the high level of leverage that some of the competitors do. So we think there's a great opportunity. The fund they have is already retail-ready. It's already being utilized by wealth management firms. As I said in the prepared remarks, we believe we can accelerate that meaningfully, so that does create what would logically be the earliest opportunity set, right? To leverage what they've already built. It is already attractive in the wealth management space, but just through the more extensive resources that we currently have. But as I also mentioned, we think there's some really interesting opportunities on the institutional side where the strategy, again, as a complement to other types of private credit, could be very compelling. So overall, we entered into this transaction because we thought there was a great combination that could create some long-term growth. The teams that are responsible for driving that growth are all very excited about this opportunity. So we're gonna continue to refine that. And as Mike alluded to, we're on target for our closing transaction date, and we're getting everything prepared in advance of that. So our sales team will—we're not waiting to close to get educated and do our planning, but all of the plans are in place and the material and everything, so we're very excited and look forward to closing on the transaction. William Raymond Katz: Okay. Thank you. And just a follow-up and a clarification. On the follow-up, I was wondering if you could speak a little bit to maybe the capital deployment priorities and how that might be shifting given you have Keystone and Crescent sort-of in the wings here. Versus how the stock has been behaving? I appreciate the buyback. But any sort of shift in your allocation thought process? And then on the deal pipeline, so not what have you done for me lately, but how does that pipeline look today, you know, net of the Keystone and Crescent transactions? Thank you. George Aylward: Sure. In terms of priorities, again, we always take a balanced approach. And in different periods, we'll either overemphasize repurchases or emphasize investments in organic growth, and we always look to maintain a reasonable level of leverage. So I wouldn't say, you know, right now, having just completed two transactions, Mike has spoken to our upcoming obligations, which we will need to satisfy, but we will continue to place an emphasis on other areas such as repurchases. Which generally we have a long history of continued stock repurchase program with periodic pauses when we have other capital needs, as well as the dividend. We do think the dividend is an important element of return to shareholders. I believe we've had eight annual dividend increases. So that will continue to be something that we prioritize. And as we've always said for M&A, that really is related to only when we have an opportunity that we truly believe is of strategic value to build long-term shareholder value and relative to our other alternatives. In terms of that pipeline, and having just completed two, which as I assume you understand, took a lot of our time, there are still opportunities that are out there We still continue to evaluate and consider. But as always, we'll only evaluate and move forward with something if we truly believe it's additive in terms of the capability. It's additive in terms of broadening our distribution footprint or in other areas such as increases in scale dramatically. This is a scale business. So that is something that we also consider as much. William Raymond Katz: Okay. And just one clarification, for Mike. Just in terms of the guidance, I think I picked them all up. I may have just not heard or it didn't come out. For the first quarter, how should we think about the comp ratio? I appreciate the seasonal dynamic, but any sense on the ratio just given some of the moving parts between the top line and the comp line? Michael Angerthal: Yeah. As you know, the seasonal items do come forward in the first quarter. But our 49% to 51% range is appropriate for the first quarter. And then moving forward, we talked about 50% to 52% once we feather in Keystone. William Raymond Katz: Okay. Sorry if I missed it. Thank you for taking the questions. George Aylward: Thank you. Operator: Thank you. That concludes our question and answer session. I would like to turn the conference back over to Mr. Aylward. George Aylward: Okay. Well, I want to thank everyone again as always for joining us, and I certainly encourage you to reach out if there's any other further questions. Thank you very much. Operator: That concludes today's call. Thank you for participating, and you may now disconnect.
Operator: Good evening, everyone. Welcome to TSKB's 2025 Year-end Financial Results and 2026 Expectations Webcast. Our presentation will start soon and will be followed by a Q&A session. Today's presenters will be Ms. Meral Murathan, Executive Vice President and Sustainability Leader, responsible for Financial Institutions and Investor Relations, Development Finance Institutions, Treasury, Climate Change, Sustainability Management and Treasury and Capital Market Operations; Mr. Can Ulku, Head of Financial Institutions and Investor Relations. Meral, madam, the floor is yours. Meral Murathan: Thank you, Jos, and good evening, dear participants. Welcome. Thank you for joining our financial results webcast by the end of 2025. On this call, we are also going to disclose our 2026 expectations and guidance by the end of our presentation. The first slide, where this demonstrates our year-end performance versus our guidance figures, we are glad to see that our realizations are well aligned with our projections. We did actually commit to our growth strategy and development mission throughout the year. On the top of $1.5 billion of loan disbursements during the first 9 months of last year, we disbursed nearly an extra $500 million of cash loans to Turkish economy during the last quarter. As a result, we closed the year with 11.2% of FX-adjusted loan growth as we guided. Our core net interest margin expanded during the year, whereas the security side had a constant contribution throughout the year, driven by our strategic asset management and our relatively resilient loan spreads, which stayed solid against even the market competition, we delivered 5.6% of net interest margin, which actually over beat our guidance figure. To remind, fees and commissions are generated from mainly 3 business lines of the bank, and we could name these like corporate finance, advisory and noncash loan operations. On advisory and noncash loan operations front, we have successfully realized our targets. In terms of corporate finance activities, last year was a bit muted as communicated with yourselves during previous webcasts. As a result, we ended up 17% below the 2024 year-end net fee income, which will actually translate into a low base for this year, where we project more favorable backdrop for capital markets. Our 29.3% cumulative ROE continued to be an example of the highest ROEs in the industry, as you will recognize. And 2025's strong earnings performance was mainly driven by consistently solid NII generation, strong collections both in the Stage 2 and Stage 3 and also participation income contribution. And on top of that, pre-provisions gradually being released amounting to TRY 950 million throughout the year. Still, we would like to note that we have TRY 1.1 billion free provisions in place to support our revenues throughout this year. Had we released the rest, the subject figure during last year in 2025, our ROE would have been at around 32%. On the efficiency side, OpEx growth was in line with the sector and above the average CPI as guided. To remind, main driver of OpEx is human resources expenses. Consequently, our cost-to-income ratio was flat on a quarterly basis, standing at 17.1%, which is still the lowest in the industry. Superior solvency ratios, which are well above the market was driven by our consistent and robust profitability. We are gladly closing the year with 20.3% capital adequacy ratio and 19.2% Tier 1 ratio, excluding the BRSA's temporary measures, while also achieving a more than 11% of FX adjusted loan growth in addition to more than 20% of Turkish lira depreciation. Our asset quality front, we booked a large ticket NPL, which was transferred to Stage 2 during the previous quarters. As a result, the NPL ratio rose to 2.4%, which is particularly in line with our guidance level. In addition, the problematic loans representing Stage 2 and 3 in the total loan book stood at around -- at actually 9.6%. Given this inflow, the cumulative net cost of risk, excluding the currency impact was read at 55 basis points by the year-end, again, aligned with the expected figure. To note, we do not foresee this shift to turn into a trend market position. Next slide shall deep dive into the last quarter's developments. Our new cash loan disbursements supporting Turkish economy reached almost $2 billion, given the accelerated FX loan growth during last quarter, bringing our FX-adjusted loan growth to 11.2%, as mentioned. And the main finance areas with the sustainable development focus were renewable energy projects, energy storage investments, renewable energy resource area projects, capacity investments in manufacturing sectors, along with the restructuring of the earthquake affected regions and inclusiveness focused projects. With the climate finance funding agreement signed under Ministry of Treasury and Finance Guarantee with KfW amounting to EUR 250 million. And the partial credit guarantee facility guaranteed by IBRD with the counter guarantee of the Ministry of Treasury and Finance secured through certain FIs in the amount of EUR 300 million. The total DFI funding represented to be $1.1 billion, which has been a record year. And when we include this syndication facility, Eurobond issuances, both in benchmark size and certain private placements, total funding reached to a level of $1.8 billion. Our distinguished profitability where NIM stood at 5.6% and ROE at 29.3% continued to decouple from the sector. Given our long-term nondeposit funding base, lease sensitivity to Turkish lira interest rates as well as strategically positioned investments in securities portfolio and also loans via our asset and liability management, our profitability figures continues to stay resilient enough. As we have just noted, we have been gradually reversing our free provisions with 4.5%. Still, we have one of the highest coverage ratios at an additional TRY 1 billion pre-provision stock in Turkish lira terms of core stock as a buffer and a contributor to our profitability going forward this year. Being committed to expand fees and commissions to income to support banking revenues, we have successfully closed 165 advisory projects in diverse sectors and have performed well on noncash loan business as well. And last but not the least, our comfortable solvency buffers enable us to stick to our growth strategy and meet our targets. Capital adequacy ratios supporting our internal capital -- supported by our internal capital generation capacity shall continue to stay well above the regulatory and sector levels going forward. This slide depicts quarterly and yearly earnings performance year-on-year and quarter-on-quarter earnings performance and the superiority in return on equity of the bank. Thanks to our business model focusing on investment loans, TSKB's profitability decoupled positively from the sector for the last 3 consecutive years, which translated into above market levels of ROEs. Posting TRY 2.1 billion of quarterly income, TSKB reached a cumulative year-end figure of TRY 11.4 billion with 12% year-on-year pickup in 2025. Quarterly net income dropped by 25% versus the previous quarter, given the high provision cost incurred as explained. Having said that, please note that we have not been affected by the tax adjustments as a sector due to our banking model. To remind, approximately TRY 1 billion of free provisions were reversed during the year with TRY 200 million extra resolved during the last quarter. The remaining free provision stock amounting to TRY 1.1 billion is going to support our revenues within this year, we do plan gradually reversing them with a cautiously optimistic approach. With the sustained earnings quality, the bank delivered a cumulative ROE of 29.3%, which was going up to 32% when the remaining provisions were totally released. The performance has been in alignment with our guidance levels. On this page, I would like to go into more detail about the P&L items and explain the main developments of the last quarter, particularly. Bank's NII, including the swap cost, continued to expand marking a surge of 22% year-on-year and 7% quarter-on-quarter. Behind the strong top line generation, loan spread was solid during the year, and we have started to reap the benefits of our leverage security investments in a timely and front-loaded manner. To note, our swap book expanded by 50% quarter-on-quarter as we allocated some excess liquidity opportunistically. However, our total swap cost stayed almost unchanged compared to the previous quarter. Moreover, TRY 844 million of CPI linker income was booked during the last quarter, surpassing in total TRY 3 billion, again, on a cumulative basis. The adjustment from 30.8% of our previous assumption to realized figure of 32.9% added an approximately TRY 200 million extra interest income. Trading line showed a surge of 74% year-on-year and 365% quarter-on-quarter basis. Substantially increased valuation gains from our private equity funds, including Turkey Green Fund, also contributed this performance. To remind, we have invested into one important project during last year in TGF, and we continue investing further, which will expand its contribution to our revenues going forward. On the fees front, the cumulative year-end performance was below our projections due to the market conditions, which has been communicated as such so far. Over this low base, our aim is to generate a substantial growth during this year with the increasing activity in the capital markets on which we will touch upon on the guidance page going forward. Other income includes TRY 200 million of pre-provision reversal where the cumulative amount reached almost TRY 1 billion on the top of strong collection performance within this year. As a result of resilient top line in tandem with the contribution of provision reversals and strong collections, banking income picked up by 37% compared to the previous year, whereas the quarterly figure was up by 23% on a quarter-on-quarter basis. Cumulative OpEx were up by 53% year-on-year, where the quarterly figure was also up by 20% compared to the last year -- the previous quarter, sorry. Quarter relief was mainly driven by HR side, human resources side in addition to expenses related with the 75th year anniversary of our bank. The trend is fully aligned with our projections and in line with the banking industry. It is certainly going to be gradually normalized by time with the improvements in the inflation front. Net banking income continues to expand by 34% year-on-year. To note, it is also up by 23% on a quarterly basis. Due to the last quarter's loaded provision costs, the cumulative and quarterly provisions are up by 400% levels. As a result, the total coverage surged from 3.6% to 4.5% quarter-on-quarterly change. Our income from participations continued to contribute to the bottom line with nearly 8% yearly and 20% quarterly increase. Unlike commercial banks, we do not have any promotional expenses or fixed assets and used to have a consistently stable effective tax rate. Therefore, we haven't seen any negative impact from the withdrawal of the regulation regarding the inflation adjustment. Consequently, the bank posted a net income of TRY 2.1 billion during last quarter, which is cumulatively up by 12% on a year-on-year basis. On this slide, we will touch upon our well diversified and long-term funding structure in a bit more detail. As discussed, loan agreements with the DFIs remain to be the main source of the bank's funding pool and continues to dominate our liability base. 2025 has been a record year for TSKB in terms of FX funding activities. We signed 6 new loan agreements throughout the year through the contributions of MDBs from various and different regions. In addition to the loan agreements signed in the first 9 months of the year, we've been marking the very first collaboration between TSKB and OPEC. And also the rest of the DFI agreements were to be during the first 9 months like OPEC funds, AIB, Development Bank and EBRD. In December, we have signed a new loan agreement in the amount of EUR 250 million with KfW as discussed, which support the climate finance team investments and also strengthen the economic cooperation between Turkey and Germany. This year also marked another first for us. We secured an RBR partial credit guarantee loan with the inclusion of financial institutions totaling to EUR 300 million. It's been a very debut transaction for us given the structure type. And as a kind reminder, we have implemented an assessment tool, actually created an assessment tool and implemented this for being the first of its kind. And the tool not only identifies and measures climate-related risks, but also provides a tailor-made recommendations and suggests actionable steps to our clients. So this will basically enable firms to make informed investment decisions that foster a sustainable and climate resilient transformation. Please also note that the 100% of the DFI funding obtained during the year has been under not guarantee, Ministry of Treasury and Finance Guarantee. On top of the DFI agreements, as discussed, TSKB was quite active in Eurobonds and private placement markets and syndicated loans and bilateral loans too. Thus, total funding from DFIs and FIs reached to $1.8 billion in a record size, which enhanced, of course, our liquidity buffers even further. To note, we have also currently by the end of the year, $982 million worth of nondrawn DFI funding, which are all guaranteed with the teams basically indicating the contribution to climate and environment and inclusiveness. Our strong liquidity position is very well reflected also by the FX LCR ratio, which is around 58% as of the year-end. This strong capacity shall certainly support our growth targets for the future. And going forward, we will be very proactive in new team development as discussed within the scope of climate mitigation adaptation, new incentive mechanisms and by the Ministry of Industry and Technology and also job creation, while also scaling our multilateral and bilateral FI funding activities. This slide is talking on the bank's healthy growing asset composition. Total assets as of the fourth quarter have reached TRY 326.7 billion with an increase of 7% compared to the third quarter and nearly 41% on a yearly basis. In line with our business model, assets mainly consist of loans with a share of 72%, followed by a strategically managed securities portfolio with a share of actual limited share of 16%. Consistent with our growth targets for 2025, total loans have expanded to nearly TRY 236 billion, reflecting an FX adjusted growth rate of 11.2%. With this realization, the 3-year average growth rate of the bank has been nearly at around 10%. The currency breakdown of our loan portfolio is, as you know, primarily in FX terms, accounting for 94% with Turkish lira loans comprising just 6% of the total loan portfolio. In terms of currency composition of the loans, the preference changed in favor of euro-denominated loans during the year. As a result, the share of euro loans reached 52.9% from nearly 42% compared to the previous year. We could say that these are well adjusted and secured on the funding base as well in terms of the currency breakdown, currency denomination breakdown. When we look at the types of loans in our portfolio as a development bank, investment loans corresponded to the largest portion, representing 81% of the total book. As such, we would like to kindly remind that the bank's loan growth targets were not adversely affected by the FX loan cap and some other relevant temporary regulations to this end. Our target is to continue our focus on sustainable development investments and expand our loan book by another low-teen figures going forward, which we will be explaining on the guidance page. And we do not foresee any change in the balance sheet composition either in terms of loans and securities and subsidiaries. We will continue with the details of our loan book on this slide. In the final quarter of the year, we continue to maintain our strategic focus and our development-oriented lending activities to support the economy. During the last quarter, cash loan allocation surpassed $1.9 billion, fulfilling our $200 billion -- sorry, $2 billion of year-end target, which corresponds to low teens FX adjusted loan growth for the year, meeting the year-end guidance. Within the total disbursements made last year, energy generation projects had the largest share by nearly 20%. In the outstanding loan portfolio, electricity generation loans contribute to the largest share with nearly 30%, of which 94% is allocated to renewable projects. To note teams such as inclusive reconstruction of the earthquake affected region, hybrid renewables and distributed solar power plants are tracked under their respective sectors such as metals and machinery, chemistry, plastics as such. And in both outstanding loan portfolio and disbursement graphs, as you could see on the slide. Again, in line with our long-term targets, SDG-linked loans continue to account over 90% of the total loan portfolio with the teams in the new loan disbursements standing up such as renewable projects, including storage investments, transformation, green transformation investments, circular economy projects. We are also enabling technologies efficiency -- energy efficiency projects and capacity increasing investments in manufacturing industry have been also important. Regarding project finance loans, renewable energy resource areas and certain infrastructure projects were also with us. Throughout the year, we monitored our net zero PET and performance temperature scores very closely. In that sense, last year has been a year of first. In the first quarter, we extended our first transition loan to a cement company. In the second quarter, our first project finance deal in agriculture benefiting from geothermal energy was also dispersed to enhance access to sustainable and safe food systems while also promoting women's empowerment. During the third quarter, consistent with our important role in financing Turkiye's renewable capacity, we signed 2 major renewable energy loan agreements as well as energy resource area project amounting with project amounting with a blue chip company actually. And in the fourth quarter, we financed the capacity enhancement investment of one of the largest renewable projects in Turkey. Going forward, TSKB will continue to support Turkey's sustainable development with investment focus on required areas as transition and mitigation, valuable job creation, inclusiveness and climate adaptation as well as the contribution to the earthquake affected areas. This slide shall focus on the bank's asset quality. With 9.6%, our bank's total problematic loans ratio continues to remain below 10%, which is the lowest in the sector. Despite the 2 files were transferred to Stage 3 during the last quarter of the year, NPL ratio still remained below the year-end guidance of 2.5%. Additionally, one single file was transferred to Stage 2 during third quarter. We always find it beneficial to highlight that the number of Stage 2 and Stage 3 loans are all -- are very low actually and will continue to be low in TSKB's portfolio. And all of them are already in operation, and these are also belonging to well-known groups or companies. We would like to also note about our collection ratio. Our collection ratio has been hovering around 90%. In addition, 100% of our Stage 2 loans and 33% of our NPLs are restructured. Thanks to our qualified human capital, we have the capacity to monitor these loans very closely and to conduct periodic and ad hoc analysis. And the provisions were increased in each loan group in the last quarter of the year. There have been also a considerable lift in the Stage 3 provisioning further to a single large filing as mentioned. Moreover, with the additional increases in Stage 1 and 2 coverages, the total coverage ratio of the loan portfolio went up to 4.5% from the last figure of 3.6%. This is still well above among the peers in line with the bank's prudent approach. In the fourth quarter, we reversed TRY 200 million free provisions following our reversals in the first and the third quarters. This all adds up to a total reversal of TRY 950 million in the last year. Bank's total free provision stock to remind, is at TRY 1.1 billion by the year-end. Consequently, the bank's currency adjusted net cost of risk was recorded at 55 basis points. For this year, for 2026, we would like to underline that we are not exposed to any trend in the base case scenario. We expect to maintain our NPL ratio and net cost of risk levels as reflected within this year, but we will explain it on the last slide. On this page, you can see our security portfolio in a bit detail. In the last quarter of the year, the share of securities book has slightly decreased to 16% of the total assets, while the composition of the portfolio has changed in favor of Turkish lira and fixed assets compared to the previous year. Share of Turkish securities in total portfolio remains to be above 50%, while the size of the total securities portfolio surpassing TRY 52.5 billion. As a result of our strategic management, we have been gradually decreasing the share of CPI linkers and investing in high yield fixed income notes as well as floating rate notes with higher spreads. October and October inflation was realized at 32.9%, which was a bit slightly above our assumption of 30.8%. As such, we booked TRY 844 million CPI linker income, and this was actually up by 32% quarter-on-quarter and making the whole year total amount reading at TRY 3 billion. To note, our October and October 2026 CPI assumption is 24.1%. In this year, we will continue to closely monitor the markets and continue to strategically manage the securities book to support our income base. Next slide focuses on our successful and structurally sustainable NIM performance throughout the year. We generated strong and resilient net interest income throughout 2025, thanks to our robust loan spread and front-loaded strategic asset management despite the increased market competition. The net interest income, excluding CPI and swap costs amounted to nearly TRY 4.5 billion during the last quarter, which corresponds to a cumulative increase of 35% year-on-year and 10% quarter-on-quarter. CPI linker income for the whole year, as mentioned, reaching to TRY 3.1 billion showing a year-on-year drop of 40%, driven by the disinflationary backdrop. This has been well justified by shifting the securities portfolio from CPI linkers to Turkish lira reference notes and floating rate notes. Swap utilization also picked up in the last quarter opportunistically and total swap costs have been almost flat still during the year and year-on-year basis. As a result, our strategic balance sheet as a result of our strategic balance sheet management, bank's annualized NIM realized at 5.6%, well above our year-end guidance of 5%. The slight quarter-on-quarter decrease reflects a lower CPI impact of 0.9%, while core NIM was sustained at 4.7%. We expect FX-adjusted loan growth to continue in this year, and this shall further contribute to NII within the year 2. And we could see some tightening in the loan spreads and the effect of the CPI linkers could come, but we will explore on this on the last slide. Slide, which you see on the screen, focuses on the bank's solvency metrics, which are beyond sector average, reflecting comfortable buffers against partly market volatilities and potential regulatory changes. In line with the year-end guidance, the bank remained on track to achieve its growth targets for the year, maintaining a clear focus on capital efficiency, delivering risk-adjusted returns and upholding a strong balance sheet. Our capital adequacy ratio moderated by 150 basis points compared to the previous year, mainly reflecting loan growth and higher risk-weighted assets, while the credit risk increased in line with growth and net profit remains resilient and still remaining above the sector average. In the last quarter of the year, without the temporary measures, bank's Tier 1 and capital adequacy ratios stood at 19.2% and 12.3%, respectively, well above the sector and regulatory requirements. Entering this year, the bank maintains a solvency buffer while contributing to the growth scenario and standing out favorably still against the peers. Strong capital adequacy continues to underpin again, our long-term growth strategy while resilient asset quality, above sector loan coverage and sustainable earnings generation further reinforces our sustainable solvency profile. As a reminder, the bank holds EUR 1.1 billion in free provisions. When adjusted for this amount, both Tier 1 and total CAR will increase by an additional 40 basis points. Last but not the least, we would like to conclude our presentations 2025 part with some highlights on sustainable banking. By the end of the year, SDG-linked loan disbursements have exited $7 billion and with a 2030 target of out of $10 billion. And meanwhile, our climate and environment focused SDG loan disbursements have reached to $1.7 billion, positioning us well to achieve our $4 billion target by 2030. During last year, we continued to prioritize both environmental and social development, operationalizing 2 focus areas, as discussed, adaptation finance and huge employment. And for each team, we develop internal toolkits to analyze our clients and clients' portfolio and increase our technical capacity and knowledge base as well. Since 2013, our bank has consistently reported to CDP, carbon disclosure projects, and reflecting a long-standing commitment to climate action and transparency. This sustained approach actually has resulted in our inclusion in the global A list for climate change and water security, while 2025 also marks our second reporting year for the forest team. In parallel, our sustainability performance continues to be recognized globally and along with external benchmarks. Our bank ranks at 39th overall the Corporate Knights Global 100 Index and List and is positioned first among 4 international banks while being the only Turkish FI represented on the list. Looking ahead, we remain committed to supporting Turkey's sustainable development by delivering innovative financial solutions and advisory services and while also advancing green and social investments and transformation. On the last slide, you can see our guidance figures and key differentiating areas that will continue to stand out relative to sector in 2026. Having achieved more than 11% real loan growth in the previous 3 consecutive years, the bank is committed with its sustainable development focused growth strategy. Our aim is to continue low teens real growth rate in 2026, too. The main focus areas will be as discussed, climate fund finance, such as circular economy adaptation transition and so on as well as renewable energy, including hybrid and consumer investment, storage systems, advanced enabling technology projects, efficiency, energy efficiency infrastructure and inclusiveness. With our earlier communications, we have pointed to a normalization in our profitability in accordance with the improving macroeconomic indicators. As very well known by the analysts and investors community, ourselves, TSKB is able to generate an average ROE above its cost of equity in the long run due to its distinctive business model. Our long-term funding base dominated by DFI sources also enables us to generate robust net interest margins. And in 2026, we expect our NIM to be normalized to 4.5% levels. The estimated contraction will also be driven by declining years of CPI linkers, which is not a unique case for our bank. To remind, we have been mitigating this situation, opportunistically shifting our strategy of the bank investing in Turkish lira on fixed bond securities. 2026 outlook is foreseen more favorable compared to the previous year in terms of capital market transaction, given 2025 low base for corporate finance fees and we basically estimate realizing at least 50% of yearly growth in this front. We believe this is achievable for net total fees and commissions income going forward. On a network basis, we will also continue to fill our targets in advisory and noncash business lines, too. Our distinguished and efficient business model enables us to deliver ROEs in the good level of ROEs in the sector. As such, we are expecting 2026 ROE to be around 25% levels. The operating expenses of the bank is mainly driven by human resources costs. To note, we expect actually our yearly growth to come down gradually with the improving backdrop in a couple of years. So our 2026 guidance will probably exceed the average inflation. Despite considerable loan growth guidance in alignment with our strong internal capital generation, both CAR and Tier 1 ratio are at record levels of the last decade. While expanding our loans, we will maintain our sustainable profitability and continue to generate solid internal capital. And as such, our estimated targets of CAR is around 19% and 14% Tier 1 ratio and -- sorry, our estimated target for CAR is around 19% and for Tier 1 ratio, it's going to be 18%, still above the sector levels. On the asset quality front, we do not foresee a deterioration as discussed in the risk profile or based on any specific sector. As 2026 guidance, we maintain our 2.5% NPL ratio and further to this 50 basis points of net cost of risk target. Operator: This ends our presentation. We will now start our Q&A. [Operator Instructions] We have 2 questions from Sadrettin Bagci and [indiscernible], which are similarly the same question basically. Do your 2026 ROI guidance include any free provision reversals? Yes. We will gradually keep the free provision reversals in 2026. Therefore, yes, our guidance includes these reversals. [Operator Instructions] Meral Murathan: So Sadrettin actually has question, meaning a very brief macro framework. Actually, we have not touched upon that but no problem. We could elaborate on this one. Actually, we could say that the general growth still continues to be under some limits, but still for this year, we estimate a 4% of GDP growth. Still we anticipate a growth, meaning in comparison to 3.3% of last year, 2025. And how we are going to operate in the inflation figure, we estimate that 24% will be the year-end. But on an average terms, we anticipate 27%. And also, we do continue the CBRE, as you mentioned, the rate cuts. The year-end figure is estimated to be under 30%, but currently, we anticipated around 27%. And we still continue -- we still expect the continuation of the real appreciation of Turkish lira and also in terms of the general macro levels, in terms of the current account deficit over GDP, we do not anticipate any substantial changes given where we've landed. And also this well with the noninterest income, public stock, noninterest over GDP. And also, we do not anticipate big changes in relation to the budget deficit or budget balance, let's say, compared to the last year's figures. So overall, we do not expect substantial shifts from the policy implementation, actually no shifts from the policy implementation. And in terms of the base case scenario, we do not actually price in certain elections, et cetera. [indiscernible] has a question. I do read it. Can you give more details about the funds you invested, revaluation gains are being recorded in trading gains? What are the areas of investments regarding these funds? And how is the revaluation dynamics working out? Actually, what we are talking about is mainly the Turkey Green Funds investments. And these investments -- investment actually was executed last year for a fishery. And we've been seeing -- as you know, the fund is in dollars and FX denomination basically. And this FX denomination creates also FX valuations on the revaluation front. And also, of course, the market valuation of the investment itself happens to be the case. So overall, in accounting terms, for some portion, it's been meant to be in the trading gains. If you have further questions, we could give details around this, if you could reach us. And we have another question by Sadrettin Bagci. Any restrictions for a fixed loan growth rate on your side due to recent amendments? Actually, TSKB is immune to these changes, not that we are excluded, but through the certain vehicles like we have been -- we are investing in investment loans, the green transformation. We have incentive mechanism implementations through the public and also the DFI funds that are secured under motor guarantee, we are immune to these changes. So as observed last year has been another growth year with us. And for this year, it's the base case. And last but not least, we have another question by [indiscernible]. Is there any restriction in terms of your funding agreement not to place any loans in defense sector? I could not see the defense sector in your loan mix. Actually, this is not within our mission and vision. So we are basically operating in, as you know, sustainable development focus. It's not a priority agenda with us. Operator: No other questions. Dear speakers, back to you for the conclusion. This concludes today's webcast. Thank you for your participation, and we wish you all a nice evening.
Operator: Hello, everyone. Thank you for joining us, and welcome to the CNO Financial Group Fourth Quarter Earnings Call. [Operator Instructions] We will now hand the call over to Adam Auvil, VP of Investor Relations. Please go ahead. Adam Auvil: Good morning, and thank you for joining us on CNO Financial Group's Fourth Quarter 2025 Earnings Conference Call. Today's presentation will include remarks from Gary Bhojwani, Chief Executive Officer; and Paul McDonough, Chief Financial Officer. Following the presentation, we will also have other business leaders available for the question-and-answer period. During this conference call, we will be referring to information contained in yesterday's press release. You can obtain the release by visiting the Media section of our website at cnoinc.com. This morning's presentation is also available in the Investors section of our website and was filed in a Form 8-K yesterday. Let me remind you that any forward-looking statements we make today are subject to a number of factors, which may cause actual results to be materially different than those contemplated by the forward-looking statements. Today's presentation contains a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures. You'll find a reconciliation of the non-GAAP measures to the corresponding GAAP measures in the appendix. Throughout the presentation, we'll be making performance comparisons, unless otherwise specified, any comparisons made will refer to changes between full year '25 and full year 2024. And with that, I'll turn the call over to Gary. Gary Bhojwani: Thanks, Adam. Good morning, everyone, and thank you for joining us. CNO once again delivered an excellent quarter and full year results. We are growing and investing in the franchise, growing operating earnings and improving profitability, all at the same time. Our performance remains consistent and repeatable, underpinned by strong execution and a focus on the underserved middle-income market. We achieved and in most cases, exceeded all of our 2025 guidance, including improving our operating return on equity to 11.4%, excluding significant items. Building on our sustained momentum, 2025 represented one of our best operating performances to date. We delivered our 14th consecutive quarter of sales growth, our 12th consecutive quarter of growth in producing agent count and our most productive year ever for both our Bankers Life and Optavise captive agencies. For the full year, we delivered record total new annualized premium, up 15%. We set production records across both divisions and in multiple product lines, a clear sign that our model is meeting the broad-based needs of our middle-income consumers. Our exclusive middle market focus and our last mile captive agent distribution model create our durable competitive moat. This difficult-to-replicate model is a clear competitive advantage and a catalyst for profitable growth. I'll cover these results in more detail in each division's comments. Our consistent sales momentum is driving earnings growth. Operating earnings per diluted share was $4.40, an increase of 11%. Earnings continue to benefit from strong insurance product margin and investment results, reflecting growth in the business and expansion of the portfolio book yield. New money rates have exceeded 6% for 12 consecutive quarters while maintaining portfolio quality. Paul will go into greater detail on our financial performance. We ended the year with a robust total capital position after returning $386 million to shareholders, an 11% increase over 2024. And for the 13th year in a row, we raised our quarterly common stock dividend. Book value per diluted share, excluding AOCI, was $38.81, representing a 7% compound annual growth rate over the past 3 years. Additional highlights from 2025 include a second reinsurance transaction with our Bermuda affiliate, continued strong capital position and free cash flow generation and an all-time high share price. Turning to Slide 5 and our growth scorecard. 2025 was a record-setting year and nearly all growth scorecard metrics were up for the quarter and for the full year. As a reminder, our growth scorecard focuses on the 3 key drivers of our performance: production, distribution and investments in capital. I'll discuss each division in the next 2 slides. Paul will cover investments and capital during his remarks. Beginning with the Consumer division on Slide 6. Our Consumer division delivered an exceptional year capped off by our 13th consecutive quarter of sales growth. 2025 also marked the third consecutive year of record production by the Bankers Life agent force. For the full year, we delivered record total NAP up 15%, double-digit growth in life, supplemental health and Medicare Supplement and record growth in annuities and client assets in brokerage and advisory. Life NAP was up 10% for the full year, led by record direct-to-consumer life sales, up 20%. Our targeted measured approach to the D2C channel benefited from technology-driven productivity enhancements and diversifying our direct marketing away from television to include more web, digital and third-party channels. These non-television lead sources generated over 70% of all D2C life sales for the year. Total Health NAP was up 22%, which marks 14 consecutive quarters of growth. Supplemental health was up 15% and long-term care was up 4%. Our field force delivered another exceptional performance during the Medicare annual enrollment period. Medicare Supplement NAP was up 49% for the full year and up 92% for the quarter, our best Med Supp quarter in 15 years. Medicare Advantage policies sold, which are not reflected in NAP, were down 3% for the year. Our results reflect a growing shift in consumer preferences from Medicare Advantage to Medicare Supplement as many of the leading MA carriers pare back plans and benefits reversing a decade-long trend. Medicare remains a flagship door opening product for us to meet and serve more customers. Total Medicare policies sold were up 5% for the year. With approximately 11,000 Americans turning 65 each day, we expect overall demand for Medicare products to grow and to help us expand the total number of households we serve. Record annuity collected premiums were up 9% for the full year and up 3% for the quarter, our 10th consecutive quarter of growth. Collected premiums in the quarter totaled $508 million and in-force account values were up 7%, exceeding $13 billion. Our captive distribution and the long-term relationships that our agents establish with their clients add stability to our annuity block. We delivered our 11th consecutive quarter of brokerage and advisory growth. Client assets in the channel were up 24% over the prior year, totaling more than $5 billion. For the full year, total accounts were up 12%. When combined with our annuity account values, our clients now entrust us with more than $18 billion of their assets, up 11% from 2024. Improving agent productivity fueled our sustained sales momentum in 2025. Producing agent count grew for the 12th consecutive quarter and registered agent count was up 8%. The Consumer division delivered another outstanding year. We expect that same focus and momentum to carry into 2026. Next, Slide 7 and our Worksite Division performance. Worksite insurance sales have never been stronger, with 2025 representing the best production year ever for our worksite business. We finished the year with record full year insurance sales, up 15% and record fourth quarter insurance sales up 13%. This represents our second consecutive year of record production and 15th consecutive quarter of NAP growth. Full year highlights included record life insurance sales, up 36%; hospital indemnity insurance, up 41% and accident insurance up 11%. Strategic growth initiatives contributed significantly to our Worksite NAP performance in 2025. Our geographic expansion initiative delivered 11% of the NAP growth for the year, and NAP from new group clients was up 23% Producing agent count was up 7%, driven by recruiting up 10%. This marks our 14th consecutive quarter of growth in the agent force. Our previously announced exit of the fee services business within Worksite is progressing on schedule and should be largely complete in the first half of 2026. We are already seeing the benefits of streamlining our focus on core insurance business. As we enter 2026, we remain confident in our ability to execute and continue to grow the business. And with that, I'll turn it over to Paul. Paul McDonough: Thank you, Gary, and good afternoon -- or good morning, rather. Good morning, everyone. Turning to the financial highlights on Slide 8. Our results for the quarter and the year demonstrate our ability to deliver sustained profitable growth. Operating return on equity, excluding significant items, was 11.4%, reflecting significant improvement from the 10% run rate return on equity in 2024 and good progress toward our 12% target ROE in 2027. Operating earnings per share ex significant items grew 10% in the quarter and 6% for the year, reflecting continued strength in both insurance product margin and net investment income. Notably, at $4.02, our full year operating earnings per share, excluding significant items, exceeded the high end of our original guidance. Similarly, our full year expense ratio of 18.9%, excluding significant items, was better than the low end of our original guidance, reflecting improved operating leverage as we grow the business. The effective tax rate on operating income was 20.6% for the year, coming in below our 22% to 22.5% guidance. This reflects the impact of tax strategies implemented in the fourth quarter related to certain tax credits, reduced impact of state taxes and an increase in tax-exempt interest. We deployed $320 million of excess capital on share repurchases in the year, up 14%, including $60 million in the fourth quarter. This contributed to an 8% reduction in weighted average diluted shares outstanding and reflects the strong free cash flow generation of the business. Overall, the quarter and full year reflect a continuation of the operational momentum we have carried throughout the year. Turning to Slide 9. Total insurance product margin, excluding significant items, increased again this quarter, supported by outstanding sales performance over the last few years across both divisions and for most products. This growth, coupled with stable underlying claims trends, continues to drive higher margins across the 3 product categories. 2025 again demonstrates the value of our diversified product portfolio where ordinarily puts and takes across product lines consistently net to stable and growing total margin over time. Turning to Slide 10. Net investment income remains solid, marking the ninth consecutive quarter of growth in total net investment income. Allocated net investment income increased with both growth in average net insurance liabilities, up 4.1% and continued improvement in the average yield on allocated investments. For the year, NII allocated to products was up 6%. Net investment income not allocated to products reflects puts and takes across its various components. The net result in the quarter was strong, supported by alternative investment income, which met yield expectations and a $12 million special dividend from a strategic investment. Total NII reflects disciplined portfolio management, steady asset growth and durable yield performance, all of which continue to support strong earnings fundamentals. We issued $400 million of FABN in the quarter and $750 million for the full year. This program continues to deliver quality risk-adjusted returns, and we remain very pleased with its performance and expect to continue issuing under the program going forward, subject to market conditions. Our new investments in the quarter comprised approximately $1.6 billion of assets with an average rating of A and an average duration of 6 years. Our new investments are summarized in more detail on Slide 22 of the presentation. The new money rate was 6.11%, the 12th consecutive quarter above 6%. Turning to Slide 11. Our investment portfolio remains high quality and liquid. As of year-end, we held a record $31 billion of invested assets with 97% rated investment grade and an average rating of single A. The portfolio's strong performance reflects our consistent up and quality positioning and remains diversified and well balanced. Commercial real estate and private credit portfolios continue to perform as expected, supported by conservative underwriting and proactive risk management. Turning to Slide 12. We ended the year with a robust total capital position. Our consolidated risk-based capital ratio was 380%. You may notice that we're referencing a target RBC range of 360% to 390% with the midpoint consistent with the previously stated 375%. Managing within this range allows for normal quarter-to-quarter variability in the RBC metric. The range is also consistent with how we describe to rating agencies and to regulators, our risk appetite and our approach to risk management. Holding company liquidity ended the year at $351 million, well above our minimum threshold of $150 million, supported by continued strong free cash flow generation and reflecting our second reinsurance transaction with our Bermuda affiliate announced back in November. Debt to total capital remains within our target range of 25% to 28% Overall, our capital position remains strong, providing flexibility to support growth, maintain financial resiliency and continue deploying capital in a disciplined and sustainable manner. Turning to Slide 13 and our initial 2026 guidance. We continue to target an improvement in run rate operating return on equity of 200 basis points through 2027 off a run rate 2024 ROE of approximately 10%. Importantly, our 2026 guidance is aligned with that trajectory as we remain focused on delivering improved profitability while maintaining our strong growth momentum and resilient capital position. We expect operating earnings per share between $4.25 and $4.45, which represents an 8% increase at the midpoint from our 2025 result and reflects continued earnings growth across the business. This outlook assumes a stable macro environment and investment returns consistent with our long-term expectations. Our expense ratio is expected to be in the range of 18.8% to 19.2%. At the midpoint, this reflects stable operating leverage as we continue to grow the business, partially offset by ongoing investments to support growth. As in prior years, we would expect some seasonality within the year with the expense ratio starting higher in the first quarter and trending lower as the year progresses. We expect fee income of approximately $30 million for the year, with roughly 1/3 in the first quarter, minimal contribution in the second and third quarters and the balance in the fourth quarter. The effective tax rate is expected to be approximately 22.5%. We expect free cash flow of $200 million to $250 million, which supports continued progress on capital deployment while maintaining a strong balance sheet and investing in the business to support growth and execution of our strategic initiatives. You'll recall that in 2025, we began a 3-year initiative to invest in tech modernization with an expected investment over that period of approximately $170 million. This initiative is on track and on budget. In 2025, we deployed roughly $20 million on the initiative. And in 2026, we expect to deploy an additional $75 million. It's worth noting that our free cash flow guidance is net of this investment. As mentioned, we expect to operate with a risk-based capital ratio in the range of 360% to 390%. Finally, we expect minimum holdco liquidity of $150 million and a debt to total capital ratio of 25% to 28%. And with that, I'll turn it back to Gary. Gary Bhojwani: Thanks, Paul. Turning to Slide 14. CNO once again had exceptional full year results. We achieved and in most cases, exceeded all 2025 guidance metrics. and delivered one of our best operating performances on record. Consistent, repeatable results continue to drive our momentum. We're growing and investing in the franchise while also growing earnings and improving profitability. We enter 2026 with a strong capital position and a path to achieving our 2027 ROE target. Thank you for your support of and interest in CNO Financial Group. We will now open it up for questions. Operator? Operator: [Operator Instructions] Your first question comes from Suneet Kamath from Jefferies. Suneet Kamath: I wanted to start with earnings emergence, and maybe this one is for Paul. As we think about the strong sales that you guys have generated over the past couple of years, I'm assuming there's some sort of lag between kind of when you write the business and when it sort of fully earns in. So I was just wondering if you can maybe give us a rule of thumb in terms of sort of how long does it take to kind of hit the target returns that you're pricing for? Paul McDonough: Sure. Suneet, I appreciate the question. So it depends by product and the duration of the product. I guess what I'd emphasize is that we are hitting our target returns across our product portfolio. And the guidance that we've provided is capturing how earnings are emerging based on the sales trends over the last few years. And given our continued sales momentum and how that translates to earnings, that gives us confidence in our ability to meet the ROE target in 2027. And as Gary has emphasized on a number of occasions, that's not the endpoint, right? The expectation is that beyond 2027, we would continue to see ROE improvement. Suneet Kamath: Got it. And then I guess maybe for Gary, just wanted to get a sense of how you're thinking about the environment. We're seeing layoffs. We're seeing bad job numbers. On the one hand, it creates an opportunity for you from a recruiting perspective. On the other hand, it could create challenges for your target market. So I was just hoping you could walk us through your thoughts on that. And then do you have an expectation for producer -- producing agent count growth in 2026? Gary Bhojwani: Yes. Good question. I'll start with the last question first. Do we expect to grow producing agent count? Yes, we will continue to grow it. That's our expectation. I would just emphasize, I think producing agent count growth is important, but I think it's a distant second to agent productivity. Ideally, we try and do both. We try and grow the number of agents we have, and we want them all to be more productive. But if you force me to pick, I will always emphasize productivity. That's a very long-winded way of saying we expect the agent count to grow in 2026. but it's not my primary focus. The primary focus is definitely productivity. In terms of the overall outlook, let me first issue a disclaimer. I have a terrible track record of predicting everything from interest rates to the weather. If you want to know exactly what's not going to happen, you should ask me for a prediction. All of that said, I feel like 2025 was a year of significant lack of visibility. And I have to tell you, I still feel that way. I feel like there are so many variables in terms of what could happen with interest rates and geopolitics and so on. I think that it's very difficult -- it's always difficult to predict, but I really feel like '25 and now '26 during my tenure as running different businesses, these are some of the most lack of visibility I've had as a CEO. Now all of that said, yes, we have seen the job numbers. We have seen the reports of more layoffs. That typically helps us on the recruiting side, but that, of course, makes consumers more afraid and more reticent to engage in discretionary purchases. So what does that mean? It means our agent counts may go up. It means that things like Medicare Supplement, which are typically a little bit more immune to economic cycles, those sales should still be reasonable, but other discretionary sales such as annuities, life and long-term care, I think, get more difficult when the macro environment gets tougher. All that said, we've continued to work through it. And I think it's really important to remember that no matter what's happening in the economy, there's still 11,000 folks turning 65 every day, and those folks still have an absence of alternatives in terms of long-term planning and so on. So that represents the opportunity for us, but the pressure is definitely growing. The headwinds are definitely growing. Was that the type of detail you were looking for? Or is there something I missed? Suneet Kamath: No, no, that's great. And if I could just sneak one more in. Paul, I think you mentioned on the last call, it was sort of reasonable to assume sort of a Bermuda transaction a year. I just want to make sure there's -- that's right and that there's no change in that kind of thinking, high level. Paul McDonough: Yes. So Suneet, I guess I'd say that we're very pleased to have completed our second treaty in 4Q of last year. We continue to work to further grow our Bermuda operation. But we won't share any specific plans as to not to get ahead of the regulatory review process. Our guidance does not contemplate any additional treaties beyond the two already in place for 2026. But I think, as I said last time, the cadence we've been on should be a decent indication of the cadence going forward. Gary Bhojwani: Suneet, I agree with Paul's comments. I would just like to emphasize one point. We enjoy really good relationships with the regulators there and frankly, in the U.S. as well. And I think part of the reason we have those good relationships is because we're very respectful of their process. We never want to make any predictions that would seem like we're getting ahead of them or their processes, and that's why we don't build those types of things into our projections. We will be working to do what makes sense and what's smart and so on, but we also want to be respectful of the regulatory process. Operator: Your next question comes from Wilma Burdis at Raymond James. Wilma Jackson Burdis: Growth in '25 was strong at kind of high single digits or maybe, I guess, low double digits. But I realize this has been a result of multiple years, Gary, that you've been focused on positioning the business for growth. But is this a sustainable level? Anything unusual in 2025? Or I suppose there could even be some upside, right, with Medicare Advantage issues, tech investments, that kind of thing. So maybe just give us some color. Gary Bhojwani: Yes. I'll -- I think the easiest way to answer your question, Wilma, is probably to give you a little bit of a feel product by product. I think that we would expect our Medicare Advantage sales to go down because of what's happening in the marketplace. That really has nothing to do with CNO. It's just what's going on in the marketplace. Similarly, I would expect our Medicare Supplement sales to continue to go up. That volume, those 11,000 seniors that are turning 65 every day, more of them are going to be buying Medicare Supplement than historically have. In terms of some of the other products, it starts to get harder to predict. If you think about some of the comments I made with Suneet, depending on what's happening with the macroeconomic conditions, that's really going to impact the discretionary purchases that the consumers make. Now we've been able to continue to work right through all of those. Again, we've really had the demographic tailwinds that have helped us. But if we see increased headwinds, if there are really a lot more layoffs like we've seen early signs of, that's going to slow down discretionary purchases, and we will inevitably be impacted by that. All in all, we remain pretty comfortable with the guidance that we've provided in terms of ROE and earnings and so on. It might be that we get more in one product and less in another, but we feel pretty good about the guidance we provided. We do acknowledge that there's some macroeconomic headwinds coming. Wilma Jackson Burdis: And then could you help us think through any impacts on Medicare Advantage distribution fees? I think that there's some actuarial component there that's based on the churn. And we've all heard about Medicare Advantage and some of the issues there. I realize that those underwriting issues don't apply to you guys, but could impact the churn. Is that reflected in the '26 outlook? And maybe if you can give us any additional color. Gary Bhojwani: Yes. We have reflected -- I'm sorry, this is Gary. We have reflected what we're expecting to see in terms of the volume on Medicare Advantage in our projections. I would expect there will continue to be pressure there. It's hard to know whether the carriers are going to focus on compensation or they're going to focus on paring back benefits or what other things they're going to do as they go through the process. All of that said, I think the bottom line is Medicare Advantage is going to have some very significant headwinds. And that's another reason we feel good about our model where those consumers that want it, they can get it from us, but we are definitely more focused on Medicare Supplement, and we like the Medicare Supplement better. Operator: Your next question comes from Jack Matten of BMO Capital Markets. Francis Matten: Maybe just one on capital deployment. I guess, given the end of the year with about $200 million above your holding company target. I guess, are you thinking you'll bring that down closer to your target level by the end of this year? And any perspective or thoughts on potential uses of cash would be helpful. Paul McDonough: Jack, it's Paul. I would just emphasize that there's really been no change in how we think about deploying excess capital. On the margin, we return it to shareholders through share repurchases, absent more compelling alternatives. We also think there's some wisdom to being somewhat measured in how quickly we take down the excess. So without providing specific guidance, I think the past practice here should be a good indication of our future behavior. Francis Matten: Got it. And maybe just on the unallocated NII. I know there's a lot of things that go into that bucket, but wondering if there's any kind of directional outlook you can provide for that line. I mean I know you called out a $12 million special dividend. If we back that out, is that something close to what a normal run rate that you expect? Paul McDonough: Yes. I would point you, Jack, to the detail in the supplement that breaks down what flows through NII not allocated. Certainly, the dividend in the fourth quarter of this year and the fourth quarter of last year is sort of off trend and not something that we expect to be repeated. We may see more of that, but it's not kind of run rate. The one thing that's fairly volatile has been at least the last few years is the income from alts. And certainly, the sequential trend has been good there over the last few quarters, particularly in the fourth quarter of this year, where the yield was actually slightly better than our long-term run rate of sort of 8% to 9%, something in that range. So I wouldn't necessarily predict how that's going to play out over the next 4 quarters. But our guidance does presume that it's generating that long-term return. Francis Matten: Got it. And I guess one more and kind of a follow-up on the Medicare dynamics. I guess I know for Medicare Supplement, you capture both distribution and the underwriting economics. I guess is that then more or less or the same on like an ROE basis versus Medicare Advantage where you really are only counting with the distribution economics of that. Just wondering how we should think about how that plays into your financials and ROE profile. Gary Bhojwani: Yes. Economically, frankly, we're indifferent. There are pros and cons to each as an example, with the Medicare Advantage, you get to recognize the income sooner as an example. But the high-level thing you should take away is, economically, we're really indifferent, and we've designed it that way intentionally. All that said, operationally, I have a strong preference for the Medicare Supplement, number one, because we manufacture it and distribute it, so we control the entire chain, if you will. So that isn't an economic commentary. That's just about the business. Second, typically, not always, but typically, Medicare Supplement consumers tend to be of higher net worth, and they tend to have a greater ability to buy other products. And I want to emphasize with that, there are some really strict rules about how you can market to consumers when you have a Medicare relationship and so on. And we, of course, follow all of those rules. So I don't want that to get misinterpreted. But the bottom line is, in the context of those rules, we do better with consumers that have a Medicare Supplement because they typically have a greater net worth and typically have a greater interest in talking to us about other products as well. So that's the reason for the preference. Operator: [Operator Instructions] Your next question comes from Wilma Burdis at Raymond James. Wilma Jackson Burdis: Just a couple for you. Are you seeing any dynamics in the investment universe that might influence a shift in allocations to higher-yielding assets in order to just continue to have a good yield given proper risk management with interest rate decreases and ongoing tight spreads. Paul McDonough: Thanks for the question. Eric, I'd invite you to offer your perspective on that. We may have lost Eric. Gary Bhojwani: I think Eric is having some technical difficulties. Eric Johnson: I think right now, we're largely running back what we did for the second half of last year, which was pretty successful, which was largely around sustaining good portfolio quality, supplemented with some small tactical add-ins around the edges that really produce some yield in the portfolio. I would not expect us to be changing necessarily our risk parameters currently. I don't think spreads continue to be very tight. I don't think there's a particular space right now where you're being rewarded for that. That would include the software space, that would include the BDC space as well. Very closely monitoring those areas for opportunities should it arise. But currently, I don't think the valuations have cheapened enough to attract our money. So running it back, I feel good about how things are trending right now. And it will take a little bit more juice in the orange for us to change that. Wilma Jackson Burdis: And then just one last one. Is there any elevated sales benefit that you're seeing from annuities products as a result of the increased health sales, specifically in Medicare Supplement? Or is it just kind of normal course growth? Gary Bhojwani: I think it's mainly normal course growth. Now that said, we had really strong Medicare Supplement sales, and that, of course, helped us consistent with my earlier comments, the Medicare Supplement consumers typically have a better cross-sell ratio for us, again, within the context of following all the rules that are out there. So we benefit from that. But in terms of that ratio growing where there was a greater level of cross-sell, I wouldn't say so, no. Operator: Your next question comes from John Barnidge from Piper Sandler. John Barnidge: My first question is sticking with the investment portfolio. What's the exposure to software in the investment portfolio as you broadly define it? Eric Johnson: John, this is Eric. Hopefully, you can hear me on my first go around. This for us, I think, will be an opportunity if it arises, certainly not a problem. I'm old enough to remember Polaroid and Kodak. And so software has always been a business that's been susceptible to disruption. That's not something I'm learning this year. I've known it for a really long time that's informed how we've allocated to the space. Currently, we have roughly $250 million of software exposure. That's about 60, 70 basis points, a pretty small number. Strong tilt towards software that serves enterprises rather than small businesses or consumers within that small -- within that rather, strong preference for mission-critical software, systems of record, proprietary data repositories and cybersecurity. So I think we are positioned from strength. And when and if the market rewards some risk taking in this area, I think we'll be prepared for it. Broadening out my answer for you, John, if you looked into our alternatives portfolio, somewhat similar answer in private credit, which is about $1.4 billion allocation. We probably have -- it's less than 10% of that would be exposed to software. And within that, it's very little of it is direct lending. The great bulk of it is in structured form, which means it has good credit support and it is margin and all that stuff. So we've got strong cushions there. In PE, it's about 15% of our PE holdings, which is $400-plus million. So 15% of that, you can do the math, it's about $70 million. And so I think that if you got a big drawdown or bigger than where we've currently experienced at least in PE or even in private credit, you could, I think, dampen alternatives returns, but I don't think you would destroy alternatives returns. So I think on balance, we're in a good spot. And I think we have the ability and the partners to take advantage of opportunities as they emerge. And I think I'll leave it there, but happy to amplify anything you would like. John Barnidge: It was very helpful. My next question for Gary. If we talk about -- I think it was 11,000 people turning 65 a day now, you've certainly positioned yourself to take advantage of this secular dynamic for quite some time with recruitment and productivity. But I'm trying to better understand how we see this 11,000 moving to 12,000 and when it goes back down to 10,000. How long does it take us to get here from 10,000 to 11,000? And can you talk about your product positioning in the life cycle of these individuals turning to 65? Gary Bhojwani: Yes. Thanks, John, Sorry, I'm getting a lot of echo. A couple of comments. I believe we hit the peak. It's either 2030 or 2035 when the number of folks turning 65 starts to go down again. So we're within 5 to 10 years of that peak number, if memory serves correctly, but we expect it to grow or hold stable until then. And even when it starts to come down, it's not like it's going to go from 11,000 down to 2,000, it's going to gradually reduce again. So it still represents a very significant opportunity for us. So we view this as something that will be there for quite some time regardless of what's happening with Medicare Advantage versus Medicare Supplement. The reality is that anyone who turn 65 is going to at least look at these products. So we expect this opportunity to continue for quite some time. Operator: At this time, there are no further questions. I will now turn the call back to Adam Auvil for closing remarks. Adam Auvil: Thank you, operator, and thank you all for participating in today's call. Please reach out to the Investor Relations team if you have any further questions. Have a great rest of your day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Jakub Cerný: So good afternoon, ladies and gentlemen. We will come from Komercni banka and thank you for sharing your time with us today. It is the 6th of February 2026, and we are going to discuss the results of Komercni banka Group for the fourth quarter and for the full year 2025. Please note that this call is being recorded. Today, we have the entire Board of Directors together in one room led by the Chairman and CEO of Komercni banka, Jan Juchelka; and we also have Margus Simson, Chief Digital Officer; Miroslav Hirsl, Head of Retail Banking; Katarina Kurucova, Head of Corporate and Investment Banking; Anne de Kouchkovsky, Chief Risk Officer; Jitka Haubova, Chief Operations Officer; and we them, of course, Etienne Loulergue, our Chief Financial Officer. As always, we will begin with the presentation of results, which will be followed by a questions-and-answer session. [Operator Instructions] Now let me ask the CEO, Jan Juchelka, to begin the presentation. Thank you. Jan Juchelka: Thank you, Jakub. Hello, everyone. Thank you for sharing your time with us. We very appreciate your attention you pay to Komercni. It's my pleasure together with the management team to lead you through the presentation of Q4 2025 results and the full year 2025 results. We can start with Page #4. Komercni in 2025 printed solid growth of financing of Czech economy across the board, all segments with the emphasis on housing loans. We grew by 6.8% in the fourth quarter attributed by -- contributed by 4.3%. On the side of deposits, we grew almost by 6%, which we didn't find optimal. This is why in fourth quarter, we opened the gate a little bit for gaining a bit more deposits from the market in order to build solid foundations for 2026 commercial and business growth. Assets under management outside the bank grew by 5.5%. For us it's a combination of mutual funds made by Amundi, the private banking product. Pension schemes and insurance products from Komercni pojistovna. Here, we saw a little drop on the new sales and new origination for the investment products by Amundi, I will come back to it in a bit of -- in a few minutes in detail. Balance sheet and capital remains very strong. We are sitting on 17.9% of capital, 17.1% is Core Tier 1. Loans to deposits in safe territory of 83.1% and both short-term and long-term indicators of liquidity remain far above the requested 100%, LCR for 159%, NSFR for 130%. Full year's results were translated into CZK 18.1 billion net profit. On a reported basis, it's 4.7% growth. If you take out the extraordinary income stemming from the sale of the headquarter building last year at Wenceslas Square in Prague. We are showing 22.3% on a year-over-year basis growth. It represents CZK 95.61 per share, and all this money will go back to shareholders as we are -- as a Board of Directors, advising the shareholders meeting, which will take place in April this year. Cost-to-income ratio of KB remained at 46.1%, return on equity at 14.2%. Looking forward, we will guide -- or we are guiding the market for 2026 dividend guidance at 80%. The payout ratio, and we feel we are fulfilling our promise that after the extraordinary period of time, which took three consecutive years, we were giving back 100%. We will go lower but we are still 15% above the traditional payout ratio, which used to be 65% before COVID. In the bank, there was one remarkable corporate governance-related event. We are welcoming Herve de Kerdrel as a new Supervisory Board member since 1st January 2026. Herve is lifelong banker, which is retired SG banker joining the team and enlarging the diversity of Supervisory Board. In 2025, Komercni made an important step towards the new realities. We are closing our KB 2025 transformation program, probably the largest transformation initiative in the Czech banking history for the last 20 years, where we delivered the full -- fully rebuilt digital platform from 21st century, replacing the core banking, the accounting and payment systems and other relevant systems and launching new client proposition and new application for the front office in branches, for Internet banking and for mobile banking. Thanks to that, we are also able to learn new disciplines. How to acquire hundreds of thousands of new clients. In 2025, there was 135,000 new clients using our platform, KB+. The total number of KB Group customers overshooted 2.2 million. So currently, we are recording 2,268,000 clients whom we are servicing in the entire group. In 2025, we gained a couple of recognitions on the MasterCard Bank of the Year, we were named as the Bank of the Year in Corporate Banking and Bank without Barriers. We can move to Page #5. Speaking about strategy, let me open this chapter with the statement that we have completely new fully digital platform, working 24/7 with multicurrency accounts in place in which we are currently finding almost entire portfolio of our retail clients. So 2025 was a year of huge -- of finalization of huge maneuver of transferring clients from the old to the new system. And we are gaining also the expertise how to onboard, how to activate and how to cross-sell the new clients. We will come back to it in detail through my colleague, Miroslav Hirsl in a second. We have created a competitive advantage with higher digital sales penetration. We are currently achieving 54%, 55% and heading to 60% of the total sales of our products in a digital way, improving customer satisfaction, thanks to the very modern design of our new app and new interface in the Internet banking and in the branches. The modern technology is done in the world where we have applicated the agile way of working for the software crafting and software coding, thanks to which we are able to come to the market much faster with new innovations, and we will show you the picture what might be those in 2026. We were very strict on working with -- working on costs. The cost base was redefined. In 2025, we are super strict even in the context of our NBI slightly lagging behind our original expectations. So we took the measures on the cost side immediately. And we see that the new platform combined with much simpler, much faster processes and much simpler organization is bringing a higher level of efficiency. We are keeping the bank strong on capital. We will obviously continue with that, not only from the, let's say, strict supervision point of view, which is represented by Czech National Bank, but also by our strong conviction that the large and stable capital base is enabling us for the future to grow organically. We are recognizing as leader, combining MSCI ESG rating, S&P Global CSA Score, as well as FTSE4Good is keeping us amongst top 5% of players of that kind. We continue financing also the energy transition in the country and other relevant programs. So we are exiting the program as a simpler, more agile, more efficient bank, well positioned to deliver the organic growth down the road starting 2026. Next page, please. Page #7, I'm handing over to Margus Simson, the Chief Digital Officer. Margus Simson: Good Afternoon from my side. Just looking into the things that we delivered during this last 5 to 6 years of transformation, then I would probably point out three the most important ones. The first one, the new digital bank is completely cleaned up, completely simplified compared to the setup that we had in the past. So taking a simple example on the retail platform side or retail customer side, we had 600 products before in the legacy system. We have only a bit more than 30 in the new one, effectively bringing down 20x the number of products. This is not only speeding up the kind of -- the way how fast we can develop things, but it also brings down the operational cost, operational complexity. It is helping to bring up our time to market from 18 months that we had rather before in the old system to rather to a couple of months in the new system. So the ability to innovate, the ability to deliver into the market is significantly change, thanks to that kind of complexity reduction that we have been going through. So simplification in every term, the things that the customer sees, the things that are happening inside the bank is the biggest benefit of the transformation from that end. When looking at the functionality, then obviously, the new technology brought different opportunities as well, multicurrency account, the very similar setup what, for example, Revolut has. This has been enabled only by the new solution being up and running. The account customization, I believe, one of the very unique opportunities that the customers tend to love and this one is that they can choose their own account numbers. This is something that is -- seems trivial or seems like a little bit unnecessary development. But at the same time, we see that the customers like that when the services are really tailored rather towards their own needs and their own initiatives. When we're looking from a security perspective, then previously, we had our authentication tool separately and our mobile application separately, now into one, which makes the usage for the customer significantly easier, but also make sure that we do not have the complexity also from that side burdening our customers and ourselves. And when we are looking at the security options that are setting in KB+, just imagine a modern solution that needs to be there in order to make sure that the customers' money is safe and we do guide. And with that one, I'm handing over to Miroslav Hirsl to focus on the questions of what has been really changing on the business side, and what has been delivering the results. Miroslav Hiršl: Thank you, Margus, and hello to everyone. Let me guide you by using a few highlights through how all of that was explained so far is reflected in business life and business activity of the bank. On the next slide, if I may. And I will start by commenting the number of users by the way. So the first thing to say is our new bank is up and running. It's stable. And today, there's more than 1.6 million active users. And when I say even more, it is by additional -- sorry, 30,000 clients. And the number is basically increasing every week, every day and even every time you click on a refresh button on the screen. So it's moving forward. It's not just a number of users. It is also the number of new clients that aren't there on the platform. And when you look at 2025 and 2024, we basically almost doubled our acquisition capacity compared to the usual years before. Even though in the brackets, you see another year that was pretty good. I would stick to my doubling the acquisition capacity, which is quite a success. Another point I'd like to highlight goes to customer migration. You heard it already. So we finalized the migration of private individuals to the new platform. There are still a few left on the old one, but it will be a lower and lower number and it's not critical anymore for the activity of the bank. If you would ask me, is it done? I would say, yes, it's done for private individuals, what is not yet done, but will be done soon is other client segments, starting by small entrepreneurs. Already more than 50% of clients has been migrated to the new platform, and we will finish the process by Christmas this year. Number three out of my fourth chapter is private banking clients. Even though there are not so many, they are quite specific in many cases. We will start the migration with the first cluster next month, in a few weeks. And again, the strong commitment and confidence on our side that we will be able to finalize the migration process until the year-end. There's one chapter more, and this is legal entities. This will take a year longer, but we will wait for 2027. We will start the beginning of summer this year already, and we would like and will finalize the process in 2027 by the year-end. Moving to the next slide. A few more things to say. The first one, it's true that we went through quite important and even sizable streamlining of the distribution network over the recent years. It was branches, number of branches, but not only that, it was number of front office people and probably even more number of managers, not just the number as such, but also the number of layers and the whole organization structure. And it is true that when you go through so significant changes, it creates a certain friction in the organization and takes part of your energy rate for the change itself. This was the first thing that was symptomatic for our distribution network. The second one was, by the way, to focus of distribution network or front office people to migration as such because it was taking approximately 20% of the capacity. Good news is that it's all done, even though there's still some migration to go through, it will just be part of business as usual, not taking much of our distribution capacity, which should allow us to spend even more time with our clients and to spend even more time on our business activity, which gives me a lot of optimism for the years to come. From the same basket, let me speak a bit about the increase of digital sales. A few years ago, we were starting from quite modest humble numbers in 2025. We were already around 55% of all sales happening in the digital way. And when I say digital, is not just paperless, but it means it goes end-to-end digitally without any human being in the bank touching the process at all. And it is true even for some quite significant products, such as consumer loans, where we are already about 50% of all the tickets being processed super-fast without any touch of a human being. So if I should close the story by the last element. It has to be client satisfaction because what we were doing, we are not doing because of transformation per se or migration per se. We are doing it to make the bank better for the clients. And you can see on the graph that we did and the customer satisfaction measured by NPS, is consistently increasing month by month, where we are starting at very humble levels. Today, we are already moving in the corridor between 25 -- sorry, 35 and 40 points. And we still believe in our ambition to get to 50, but we will need a few more quarters for doing so. But it is true that with every other migration rates finished, these clients getting used to the new environment, with the new environment being very stable, we are quite convinced that this is going to happen. I would stop here, and I will give the floor to Etienne, our CFO. Not yet? Jan Juchelka: So in fact, the word goes back to me, not because of my function, but because this is the order how we agreed at the beginning. So let me say, Page #10, just to summarize what was this chapter of our transformation about. We went out as a streamlined organization with much lower number of managerial layers. We were turned down from 7 to 8 to the existing 4 to 5. We have increased our span of control at the level of approximately 8.1, and we want to stay around 8 for the time to go. We have came out as a team of people who know how to run and deliver the complex transformation of that size of that kind, using agile@scale, way of crafting the [indiscernible] and running the project across all the disciplines of banking. That being combined with micro services architecture of our IT is giving us the advantage of much faster time to market when launching new innovations, when launching new functionalities, when launching new products. The system is much more stable than the previous one. We are seeing higher than 95% of operational stability and availability of the systems as we speak. The overall platform is obviously much better ready for working smarter in a smarter way with data and implement AI functionalities in a smoother way. We are not abandoning our very strong culture of compliance and risk management, which was, by the way, one of the contributors also into our net profits in 2025. And we have gained already in various parts of the bank very high productivity increase. Let me name the housing loans production, which is back at record high levels delivered by approximately 50% of the staff than it was before, and further cost rationalization across the bank. Let me move to the next page, please. Now we are inviting you back to the traditional pages of our presentation. We are very lucky together with our main competitors to make the banking business in the Czech Republic. This is a growing economy, we expect in 2025, the growth -- the total growth of GDP was 2.5%. 2026 after the revision of our macro echo team, we believe it might go even higher to 2.7%. The industrial production is back to the growth followed by already growing construction businesses. Wages are beating the inflation. So without any surprise, the households are the main engine of this growth and large contributor in the growth of GDP. Thanks to that. Also unemployment is down. So this is one of the assumptions we are making that consumer lending, consumer loans produced by Komercni banka in 2026, should be one of the fastest-growing parts of our loan book. The inflation, as I mentioned, is nowadays even in -- for January, even below 2%. Czech National Bank has not touched the 2 weeks repo rate and they are remaining at -- they are keeping it at existing 3.5%. And Czech crown is slightly stronger and stronger vis-a-vis both euro and dollar. So the overall frame seems fine, when you combine it with the fact that the current government seem to be pro-investment and pro-business. And we see that there is also more and more decisions of our clients to follow this enthusiasm by private investments. Let me move to next page, which is the business performance. The loans are up by almost 7%. The main engine being mortgages, Komercni is back to the market, taking from the market anything what oscillates around 20% of the new production. When you see the fourth quarter of '24 and fourth quarter of '25, you see the -- you see also the fascinating growth by 82.2%. Having said that, and having repeated that, we are delivering it with 1/2 of people than previously. When moving to consumer loans, we would love to have higher numbers in '25. It didn't happen, but we have our new format of consumer loan in KB+, which is fully digital from beginning to the end. We have 15% to 20% of the capacity of our branches back to sale and less to assist the clients with transfers and migration. And we are orchestrating the branches, the digital, KB Advisory services, third parties and KB Contact Center in the best way to approach the market with a real omnichannel approach and simply speaking, to sell more in 2026. When moving from retail to corporate, there was very dynamic very dynamic growth in the fourth quarter, very strong fourth quarter, promising fourth quarter. We believe that the rebound of Czech manufacturing industry, machinery industry, defense sector and a few more is bringing us back to faster growth of -- the faster growth and positive trajectory. On that front, KB will be assisting its clients at the maximum, and we believe that here the dynamism will continue. When speaking about corporate clients, we need to remind ourselves also the performance of SGEF, which became 100% subsidiary to KB, which is delivering 6.2% growth. Let's move to the next page. You see that Komercni was all over the place during 2025. During the fourth quarter of '25, assisting clients with financing or advisory in their transformative projects. Miroslav spoke about NPS for retail clients. Let me say that our strong activity on corporate and investment banking side is bringing us back very high levels of Net Promoter Score in corporate and investment banking business. Higher we go through the portfolio, we are drifting towards 80 positive points of the feedback, of the satisfaction feedback by corporate clients. We are very proud of it, but we are not complacent from that. So we will continue pushing the button on the side of corporate clients, midsized clients, municipalities as we do today and confirming our leading position in corporate financing. Let me go to next page. Page #16 is deposits. I need to confess it grew by a little bit suboptimal levels. We wanted to grow more and we opened the gates in the fourth quarter to get more like long-term deposits mainly from retail to build even stronger funding for our future commercial and business growth. Despite the fact we were growing by 5.8%, which is probably not a disappointing number, but our ambition was slightly higher. When speaking about deposits, what is probably the most important part of it is that, the savings accounts and term deposits are growing by almost 30% in that -- in the mix between the paid and non-paid deposits, the non-paid deposits, i.e., current accounts are slightly down. When going to -- from the balance sheet of the bank to assets under management outside the bank, you know that we have this partnership with Amundi, where the sales of mutual funds was down by 14% on a year-over-year basis between '25 and '24. We should keep in mind that, yes, on one hand, we are not super satisfied with that. On the other hand, '24 was super strong and we are sitting together with Amundi to get appropriate action plan in place and to get it back to growing trajectory. Inside that, KB has collected more fees even from that structure, thanks to the change or transformation of the composition of fees charged to the clients, mainly thanks to the fact that there was much less money market funds sold and much more equity, fixed income and other funds sold to our retail clients. Having said that, insurance was growing by double digits, 15.2% in total, life, 15.3%, non-life, 15%, both somehow being also or taking the benefit from the growing book of housing loans. But not only that, you can see in our KB+ application that there is an extra button for the insurance product, which is bringing first fruits to the P&L. Next page, please. Here, I'm handing over to Etienne Loulergue, our CFO. Thank you. Etienne Loulergue: Thank you, Jan. I will guide you through the financial performance of Komercni banka for 2025. So 2025, Komercni banka delivered again a very solid financial performance bottom line with net profit reaching more than CZK 18 billion on a full year basis. And if we compare it to the reported 2024 net profit, which was CZK 17.2 billion, it's a growth of more than CZK 800 million, representing 4.7%. But if we look at the full year 2024, excluding the exceptional positive one-off the capital gain coming from the sale of the historical building of Vaclavske namesti, we start from CZK 14.7 billion in 2024 on recurring. Therefore, the growth year-on-year is plus 22%, representing CZK 3.3 billion in 2025. The main drivers for this growth are the following. First, we have the influence of the net cost of risk evolution in 2025, which represents year-on-year positive evolution of CZK 2.5 billion. Second, and it is very important to highlight in our 2025 performance, we have a visible decrease of our operating expenses base by more than CZK 700 million on the full year basis with two main components. Of course, we enjoy the fact that we have a lower contribution to the Resolution Fund in 2025, and it helps for CZK 380 million. But more important than that, we are able to decrease our internal cost base by more than CZK 360 million with efforts, which will explain a little bit later. The third driver for growth is, of course, the growth of the net banking income overall driven by our commercial performance. The overall growth of the net banking income is plus CZK 70 million, representing plus 0.2%. And within this net banking income. We have, of course, the fourth driver, which is the net interest income growing by more than CZK 560 million and unfortunately slightly compensated by a decrease in the overall net fees and commission and net profit from financial operations. This more than CZK 18.1 billion of net profit in 2025, enabled to deliver a return on average tangible equity at 16.1% growing year-on-year by more than 70 basis points on a reported basis. And if we compare to the recurring basis, it's even bigger with more than 300 basis points. You can see also that the return on average assets stands at 1.2%, which is also growing year-on-year by approximately 10 basis points. And on the bottom right part of the chart, you can see the evolution quarter-over-quarter with a regular growth of the net banking income and solid control of the operating expenses. We can move to the next slide, please. Evolution of the balance sheet. We had a solid growth of the balance sheet and a sound growth of the balance sheet. It represents 4.1% additional year-on-year or CZK 60.4 billion, and we reached CZK 1.6 trillion off balance sheet at the end of 2025. On the asset side, the first driver for this growth is obviously the commercial loan performance with a growth of CZK 52 billion, representing 6% of this part of the balance sheet. And on top of that, we grew also our cash and liquid instrument by CZK 17 billion, representing 4%. On the liability side, the growth was driven by the client deposits for CZK 47 billion year-on-year, representing 4%. And additionally, we also grew our portfolio of securities issued with CZK 17 billion from an issuance of covered bonds that we achieved in the last quarter of 2025. The purpose of such initiative is to diversify our sources of funding and secure satisfactory level of liquidity ratios. And I recall at this stage, considering the balance sheet evolution that we have a comfortable high-quality liquid asset portfolio on the asset side, representing more than CZK 400 billion, or 1/4 of the balance sheet, which enables to sustain the liquidity coverage ratio at a flattish level, 159% and the net stable funding ratio at 130%, also stable year-on-year. Now if we move to the next slide to go in more details regarding the composition of the net banking income. First, we have the net interest income, which is growing year-on-year by 2.2%, more than CZK 560 million with definitely as a first driver, the growth of the balance sheet. We have the growth of the loan books by -- as we mentioned just in the previous slide, contributing by plus CZK 300 million in the net interest income of plus 3%. And the growth of the deposits contributed with plus CZK 185 million in the net interest income or 2% for this specific category. Important to highlight also on the top left of the page, you can see that we maintained our net interest margin overall, at a stable level, 1.72% coming from 1.74% in 2024. And this is a very positive achievement considering that in 2024, we had to suffer a decrease of this net interest margin by almost 20 basis points. So 2025 stabilizing is a satisfactory -- very satisfactory performance. And now the change is to continue the growth on volumes. If we move to the next page, on fees and commissions. The overall picture year-on-year is decreased by CZK 330 million, representing 4.6% However, we have to remind that in the base of 2024, we benefited from some exceptional additional fees and commissions coming mainly from the exceptional performance of asset management in 2024. We benefited from extra performance fees in this field. And we also benefited from very important transaction in the field of syndicated loans, generating also additional fees in 2024. The exceptional fees that we had in 2024 represented slightly more than CZK 300 million. So if we exclude them and we compare to a recurring base, we are year-on-year more or less flattish in terms of fees and commissions. Second point to highlight in the fees and commission, flattish with counting -- factoring the fact that in 2025, we have performed this significant migration of our private individual clients to the new digital solutions under a new framework in terms of fees as the client now benefit from subscription plans. So the structure of fees changing, and we are much more consistent with market practice. It influenced the transaction fees by minus CZK 200 million in 2025 compared to 2024. And now we are on a new base on which we come with growth, thanks to additional volumes. You can see also on the bottom of the page, the quarterly evolution of the fees and commission and their mix. And you can see a steady growth in the second half of 2025 with a nice rebound in the fourth quarter. If we move to the next page. The third component of the net banking income is net profit from the financial operations. And in this front, we are growing nicely by more than CZK 100 million year-on-year, representing 2.8%. And the first driver is very sound as it is our sales activity for -- mostly for hedging instruments for our client. The growth represents plus CZK 130 million of 8%. On the front of net gains on foreign exchange operations from payments, we are in terms of overall revenue, flattish. However, we see a continuous growth of number of transactions and volumes, but we have also a slight pressure on the spend. You can see also on the bottom right of the page, the evolution quarter-on-quarter of these two activities. And I would like to highlight that Q4 is kind of normal quarter compared to Q3, which was a historically high quarter obviously, the best of 2025 and probably one of the best historical speaking. Next slide, please. Now moving to the cost path here. This is a remarkable achievement in 2025 with the reduction of the cost base. It was made possible thanks to the transformation, which was explained at the beginning of the presentation by my colleagues, where we have invested massively in the digital transformation and now our digital solutions are up and running. We have also reorganized and refocused network in orderly manner. And now we benefit from these gains in productivity and efficiency, and it is visible in our operating expenses. And the first driver of the operating expenses decrease is the personnel cost with minus 5%, representing CZK 450 million year-on-year, and it is driven by a reduction in the number of average position by approximately 6.5% year-on-year. I would like also to highlight that we keep a very strong discipline on the other cost and especially on the general administrative expenses, which were also decreased by 4%, representing almost CZK 200 million year-on-year. I recall once more the reduction in the Resolution Fund contribution helping also to reduce the overall cost base. The last element in the operating expenses that is important to comment. And it is growing. It is a depreciation part growing by 7%. But we confirm that we have it completely under control as it is our road map following all the investments we have capitalized in the previous years to deliver this massive digital transformation at the bank level. Reducing the operating expenses in such big scale enabled to deliver a significant positive jaws effect on the cost-to-income ratio and we decreased by more than 2 points our cost-to-income ratio, which reached a level of 46.1% on a full year basis in 2025. And I will now hand over to Anne de Kouchkovsky, our Chief Risk Officer, for the asset quality and cost of risk. Anne Laure de Kouchkovsky: Thank you, Etienne. So I will start with the asset quality. So the fourth quarter is in prolongation to what was seen during the full year. As it was mentioned earlier, the portfolio of loan grew up to almost 7% and this was in the context of a very stable and excellent quality of our loan portfolio. So this is seen in the Stage 2 and Stage 3. So you see that Stage 2 is dropping down but this is mainly driven by the effects of the inflation reserve that was created some years back. And that -- and we commented in the previous quarter that the scenario of inflation not being realized that we just saw the prospective figures that we decided to release these reserves. So this is creating this effect in Stage 2. But despite from that, it was very low inflow of Stage 2. Same remark on Stage 3, you see that here, we are dropping to 1.6% share of the portfolio in nonperforming loans. And this is also influenced by some write-offs and successful resolution of the big corporate client sites that were nonperforming and some sales of receivable. As far as the provision coverage of the nonperforming loans is concerned, it's very stable, and the effect and I would say, the variation is linked to this sales of receivable and resolution of the corporate files. So maybe more interesting is to see the effect on the cost of risk. So if we can go to the next slide. So for the fourth quarter, we are in net release of CZK 130 million. And here, on the non-retail portfolio, once again, it's driven by the release of the inflation reserve and this successful resolution of the client situation that I mentioned earlier. And at the same time, we also decided to modify a bit some assumptions on our reserves and to keep reserve with more broader assumptions linked to these unstable situation, whether it's macroeconomic or geopolitical. On the retail exposure, this is the net creation here, but this is driven by also the adjustment in the reserve assumptions. And this is I would say, for the newly assumption created for the reserve for the coming years, we are here impacting more of the small business exposures. So all in all, for the full year, it's a net release of almost CZK 1.5 billion, so minus 16 bps, which is obviously very low point, but it was logical, given all quarters' evolutions. Here, maybe one comment is that cost of risk is always seen as more through the cycle. So some years might be obviously impacted by some exceptional resolution of long-dated situation with client. This was the case this year. We also had the impact -- positive impact of the very high-quality portfolio, which led to very low inflow of problematic loans, this is also linked to what was mentioned that we are growing with mortgage and big corporate loans, which are the, I would say, the bulk of our exposures, and we are less present in segments which naturally brings some cost of risk, and this is what we are going to develop for the coming years. So, again, on the non-retail side, it's mainly the effect of repayments and successful resolution and the adjustment of assumptions of the overlay. And on the retail, as I mentioned, it's intrinsically very low inflows of default and the adjustment of overlay. And I give you the floor back, Etienne. Etienne Loulergue: Thank you, Anne. And I will comment on the capital adequacy ratios. So we maintained a solid level of solvency ratio with 17.9% at the end of 2025, which is well above the overall capital requirement set by the regulation. We are more 130 basis points above this requirement. The main -- first maybe the composition of this capital adequacy ratio is very qualitative with Core Tier 1 ratio standing at 17.1%. and the Tier 2 instrument in our own funds represent 0.8%. The main components of the evolution of this ratio are stable Core Equity Tier 1 part of the capital, stable level of Tier 2 instrument in 2025, so stable in terms of regulatory on funds. While on the denominator side, the risk-weighted assets grew by 2.4% in 2025 to reach a level of CZK 580 billion. Of course, we have maintained our provisioning for the dividend at 100% on the cumulative net profit of 2025. This is a transition for the next slide. Being in this solid capital adequacy ratio situation, we confirm our intention to distribute 100% of the net profit to 2025 as guided across 2025. So we will distribute the CZK 18.1 billion of total net profit for last year, and it represents an impact per share at CZK 95.6. Now coming to the forecast for 2026, considering our conditions to grow further our loan book and contribute more to the funding of the Czech economy and grow our commercial footprint. We see an acceleration of our loan production in 2026 and therefore, an acceleration also of our risk-weighted assets. And as we, of course, want to stay always with a solid capital adequacy ratio. We consider that it is time to slightly reduce the payout policy. Remember that we have distributed 100% of the net profit for three consecutive years, but always mentioning that it is kind of extraordinary situation with an expectation to accelerate again on the credit side for 2026. We consider that it is prudent, but still very satisfactory to guide a distribution of 80% of the net profit in 2026. Next slide, please. To comment on our outlook for the year 2026, of course, in the central scenario. First, the assumptions on which we base our scenario are the following, we foresee, again, solid growth of the gross domestic product of the Czech Republic at 2.7%. We also forecast a good control of the inflation below 2%, and also stability of overall of the interest rate environment, starting with the short-term rates, the 2-week repo at 3.5%. And by the way, probably as you noticed, it was confirmed yesterday by the Czech National Bank in their public statement. Based on this assumption and our ambition to continue to grow our commercial books, we forecast for the loans to client growth in the range of mid- to high single digits in both segments, retail and corporate, probably slightly higher in retail, thanks to the dynamism of the household consumption. On the front of client deposits, we also target to grow mid- to high single digits as it is consistent with the loan book. On the net banking income, our ambition is to grow mid- to high single digits with the contribution of the main components, of course, the net interest income first, but also growing again on net fees and commission and net profit from the financial operations. On the front of operating expenditures, after having decreased in '25 compared to '24, we count with coming back in a slight growth of the OpEx in '26, but with low single-digit growth. The combination of this low single-digit growth in OpEx and higher growth in the net banking income, we should enable to deliver, again, a positive growth effect in 2026. For the cost-to-income ratio and decrease it in the range of 43% to 44%. Regarding the net cost of risk in 2026, coming from the exceptional 2025, which was in net release representing 16 basis points of net release overall. Now in '26, we are cautious, and we expect to return to creation of loan loss provisions. However, in the range that is lower compared to the average level that we have observed through the cycle. Bottom line, the return on equity should stay in a very satisfactory level between 13% and 14%, considering again that the net cost of risk should come back in creation of provisions. Of course, we commit to maintain a solid level of capital adequacy ratio, and we maintain our guidance to stay in the range of 17.5% to 18.5% for our ratio, which is 100 basis points above the overall capital requirement set by regulation. And I hand over to Jan Juchelka for the final conclusion. Jan Juchelka: Thank you very much, Etienne. Thank you for giving us your attention. It's -- there is a hard work behind us in 2025, especially on the side of cost management, on the side of crafting the finalization of the transformation program. We believe we are perfectly equipped for 2026 on both retail and corporate segments to attack the market with a growing loan book and growing deposit base. We believe that in the dialogue of Czech Banking Association where KB is an important member, we will continue the constructive dialogue with the government who presented pretty ambitious parts of public investments. We believe that private investments from our corporate clients will follow, and the consumption and investments of households will continue remaining strong. This is the main assumptions on which we are building our conviction that 2026 should be another strong year of Komercni banka. Thank you very much. I am shipping the word back to Jakub Cerny for conducting the Q&A part. Jakub Cerný: Thanks to all the speakers. In the next part of today's meeting, we will be happy to answer your questions. [Operator Instructions] Thank you. So our first question comes from the line of Cihan Saraoglu from HSBC. Cihan Saraoglu: I have two quick questions. One is with regards to how much inflation overlays you have left? Have you consume all of those, released all of those in 2025? And the second one is with regards to competitive landscape in the deposit market, particularly, I remember in the first -- towards the first half of 2025, deposit competition was somewhat escalating. And then you're also saying that you want to -- you commented that you were not really happy -- too happy with the acceleration in your deposit book in terms of growth. So how do you see the competitive landscape and how confident are you with regards to your deposit growth guidance? Anne Laure de Kouchkovsky: I will start with your question on the inflation reserves. So here, just maybe to remind a model are backward looking with some forward-looking coefficient. And what we put in the reserve is more like what we cannot capture with the models. Then this is based on many assumptions. And I explained inflation being no more one of our concern. And we see that it's going to a very, I would say, the lower level than it used to be in the past. We considered changing the assumption. So under the so-called pure inflation, we don't have any reserves, but we considered that the environment being still very unstable on other, I would say, geopolitical macroeconomic concerns, we kept the reserve both in the corporate and on the small business for the retail part. Jan Juchelka: If I may continue with the deposits and the competition on that front. Yes, you are right. The composition of our deposits was and remains, let's say, slightly different on the side of current accounts versus saving accounts or term deposits. So if you wish, unpaid versus paid parts of the deposit. It's visible here in the Czech Republic that we are opening advertising company with pretty attractive levels of rates for our retail clients. We see the tendency of our clients to either bring back fresh money, should they be already existing clients or bringing money as a new client. So slowly but steadily, we believe that we will be building even stronger pillar of our deposits for further funding of -- financing of Czech economy. As far as pricing is concerned, we are not the leader. We are not proposing the highest-ever rates. Nonetheless, we know that it will not go forward without leaving some money on the table in favor of attracting fresh money into the bank. So if you wish we slightly adjusted our approach to collection of new deposits. When speaking about deposits on the corporate side, we believe that smaller the companies longer the deposits stay in the bank. So we are, again, more or less, as we speak, we are back to the market with very attractive rates for small businesses where we were lagging behind our traditional market shares. And we continue pushing on a cross-sell of these clients using the deposits as an anchor product in the new platform. Jakub Cerný: [Operator Instructions] We still have a question from Marta Czajkowska from IPOPEMA. Marta Czajkowska-Baldyga: I have a few questions. First, you mentioned that there was a pressure on credit margins in the fourth quarter. Can you just elaborate on that, which credit lines are more exposed to that pressure and whether you expect this to continue? The other question is on the 2026 outlook, where do you see the potential for growth for NII is this coming only from loan growth, the mix of the loan growth or the margin expansion? And also on the fee income, where do you see the prospects for higher growth to support the revenue streams? And on the cost side, if I may, you mentioned you expect slower growth. If you could elaborate on the potential for cost savings in 2026. Etienne Loulergue: I will start with the outlook. So you are right that we expect growth of the net interest income. It is -- our assumption is based on growth of the volumes, not only loans, deposit as well. Even though indeed, we have higher growth on the paid deposits, more than the nonpaid deposit, even paid deposits we are able to generate margins additional on them. So we expect growth from deposit and loan volumes. And if we focus more on the loan portfolio, it's also a question of mix indeed. We forecast to accelerate on the consumer loans, for example, where we didn't grow so much in 2025, and we have a much higher expectation in 2026. And definitely, on this type of loan, we have better margin. In the field of fees, we expect to grow in different categories of them. I will mention, of course, the cross-selling fees, where we expect a rebound in asset management fees, definitely, but also transactional fees as after having achieved the migration to the new subscription plan, now we expect to grow, thanks to volume growth. Regarding costs, we have mentioned that in 2026, we expect rather an increase compared to 2025, but in the low single digits. So we don't expect to decrease further the OpEx in 2026 compared to 2025, but to be back slightly in growth under a very good control, of course. This growth is driven by an increase in the depreciation that is expected and again, fully under control because we have a road map of the put in use of all the investments we have achieved in the recent years. And on top of that, a slight increase of the other component of the operating expenses, both staff and general administrative, sorry, expenses, but in a very low single digits in both cases. Coming back to the pressure on margins on credit. It is true that the market is very competitive, and we saw it in Q4. We can say that, for example, on mortgages, which is market growing very fast. We are also facing intense competition, and we saw a cushion of a few basis points on the margin -- on the mortgages. However, as this product remains a core project to anchor the long-term relationship with the client. And with this product, we are able to generate cross-sell, especially on fees, but also by securing some stable deposits on the balance sheet, we truly believe that it is worth accepting a slight decrease on the spread and mortgages, but securing additional revenues side. Jan Juchelka: If I may, just a few additional words, Etienne. You probably know that in the field of consumer loans in the field of small businesses, we are somehow lagging behind our natural market share. We believe that we have the means to fill the gap here and to be much more active on providing consumer loans to Czech households and providing the appropriate financing to small businesses. And we have acquisitive ambitions on that front. So we want to grow. And this is one of the main sources of NII down the road, especially when you take into account that households will be -- will continue their strong economic activity also in 2026 and on. We believe that those are also two subsegments where the margins are still achieving pretty nice, pretty nice, pretty nice numbers. Let me also remind that on the side of mortgages, we are currently collecting anything around 20% of new production from the market. Again, I will never miss the opportunity to say that we do it with 1/2 of people than we used to be -- than there are used to be. There is still obviously a margin lower than on consumer loans. We see that oscillating between 60 and 80 bps for 2025. Hence, here, the volumes will be, let's say, prevailing and creating also the perfect base for cross-sell to clients, which are taking long-term mortgage from KB. Marta Czajkowska-Baldyga: Okay. Just one follow-up on your dividend policy. Going forward, post 2026, could the market expect a continuation of 80% payout ratio in the following years as well? Jan Juchelka: We feel super responsible in front of the shareholders. And when speaking about shareholders, obviously, there is one which collects 60% of the ownership, but there is anything between 70,000 to 80,000 institutional and private individuals, which are representing the 40%. And we are simply guiding our dividend payout through the filter of do we have better use for the excess of capital or not? If not, we are giving it back to the shareholders. When we see our forward-looking predictions, we will always keep as much capital as needed for securing our organic growth. And the rest will be for investors. Should that be 80% on the long term, it's pretty too early to say. We'd rather stay on the safe side and guide the market only for the ongoing year. But we will do our best to keep it at satisfactory levels. Jakub Cerný: [Operator Instructions] So we don't seem to have any further questions at this point. So I'm handing back to the CEO for a concluding remark, please. Jan Juchelka: All right. Again, thank you very much for this numerous presence in our con call. We very appreciate your attention paid to Komercni. We are looking forward to come back to you at latest with the next first quarter presentation. In the meantime, we entirely stay at your disposal for potential questions should you have any. And thank you very much and the team of Investors Relations and all my colleagues here to help with the presentation and answering your questions. Thank you, and have a good rest of the day. Jakub Cerný: Thank you all. This has concluded our call today. You can now disconnect. Good bye.
Operator: Greetings, and welcome to the Graham Corporation Third Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Cook, Investor Relations. Thank you, sir. You may begin. Tom Cook: Thank you, and good morning, everyone. Welcome to Graham's Fiscal Third Quarter 2026 Earnings Call. With me on the call today are Matt Malone, President and CEO; and Chris Thome, Chief Financial Officer. This morning, we released our financial results. Our earnings release and accompanying presentation to today's call are available on our website at ir.grahamcorp.com. You should be aware that we may make forward-looking statements during the formal discussion as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents that are filed by the company with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov. During today's call, we will also discuss non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. We also use key performance indicators to help gauge the progress and performance of the company. These key performance metrics are ROIC, orders, backlog and book-to-bill ratio. These are operational measures and a quantitative reconciliation of each is not required or provided. You can find a disclaimer regarding our use of KPIs at the back of today's presentation. So with that, if you'll please advance to Slide 3, I'll turn the call over to Matt to begin. Matt? Matthew Malone: Thank you, Tom, and good morning, everyone. We appreciate you joining us to review our third quarter fiscal 2026 results. We delivered another strong quarter, continuing to execute our strategy and demonstrate the resiliency and diversification of our business. Revenue increased 21% to $56.7 million, driven by solid performance across our end markets. Results were supported by the timing of key project milestones, particularly within our defense business, along with contributions from our new programs and continued growth across existing platforms. Adjusted EBITDA increased 50% to $6 million with adjusted EBITDA margin of 10.7%. The year-over-year improvement in profitability reflects disciplined execution, ongoing productivity initiatives and the scalability of our operating model as volumes continue to grow. Bookings remained strong during the quarter, resulting in a book-to-bill ratio of 1.3x and driving backlog to a record $515.6 million, up 34% year-over-year. Our backlog continues to provide excellent visibility with approximately 35% to 40% expected to convert to revenue over the next 12 months. Finally, during the quarter, we completed the technology purchase of Xdot Bearing Technologies, an engineering-led firm with patented foil bearing technology and deep expertise in high-speed rotating machinery. This acquisition strengthens our competitive position in an area where performance, reliability and efficiency are becoming increasingly critical across aerospace, defense, energy transition and industrial applications. Xdot's proprietary foil-bearing designs deliver superior performance while reducing development and production costs. And when combined with Barber-Nichols turbomachinery capabilities, significantly expand our ability to engineer and deliver advanced high-speed pumps, compressors and rotating machines. The integration of Xdot into Barber-Nichols is going very well, and we are already leveraging their technology to win future opportunities. Turning now to our recent acquisition of FlackTek on Slide 4. In late January, we completed the acquisition of FlackTek, a pioneer in advanced mixing and materials processing solutions for a purchase price of $35 million, comprised of 85% cash and 15% equity. Additionally, there is an opportunity for additional performance-based earn-out of up to $25 million over the next 4 years. The transaction was structured to align incentives, generate attractive returns and preserve balance sheet flexibility while bringing -- bringing into Graham a highly differentiated and scalable engineered products business. FlackTek leverage adds advanced materials and processing as a third core technology platform for Graham, alongside our existing strengths in vacuum, heat transfer and high-speed turbomachinery. The company is a recognized leader in high-performance bladeless centrifugal mixing, serving mission-critical applications across defense, space, energy and process in a broad range of advanced industrial markets. With approximately $30 million of annual revenue and more than 2,500 units installed globally and a deep portfolio of proprietary intellectual property, FlackTek brings both scale and durability to our portfolio. Additionally, FlackTek will bring our overall revenue mix closer to our long-term goal of 50% defense and 50% commercial as approximately 60% of their sales are into the energy and process market, 15% to defense and 10% to the space market. A key element of FlackTek's value proposition is its large and growing installed base, which drives predictable reoccurring demand for consumables, accessories and services. This creates enhanced revenue visibility, strong customer retention and attractive lifetime value economics while complementing Graham's existing engineered-to-order and project-based businesses. Within the FlatTek portfolio, the MEGA product line stands out as a category-defining platform with the potential to meaningfully expand Graham's addressable market. MEGA is the world's only production scale bladeless dual asymmetric centrifugal mixer capable of processing multi-hundred kilogram batches and in a 55-gallon drum format. It delivers a step change in manufacturing throughput, enabling customers to reduce mixing cycles from hours to minutes while maintaining exceptional precision, repeatability and quality consistency at scale. The MEGA platform has been production-validated mission-critical, safety-sensitive applications and offers compelling customer economics through faster cycle times, smaller footprints, improved capacity utilization and lower unit costs. Demand for this large-scale mixing platform is strong with multiple use cases across the value chain and significant expansion opportunities within FlackTek's existing customer base. Strategically, this acquisition significantly enhances Graham's ability to solve increasingly complex customer challenges that require integrated solutions across multiple disciplines. FlackTek's technology fits naturally alongside Barber-Nichols turbomachinery and Graham Manufacturing's vacuum and heat transfer systems, allowing us a more comprehensive, differentiated engineering solutions platform. Together, these capabilities span the full value chain from formulation and upstream processing through downstream production and quality control, where precision, repeatability and performance are critical. Most importantly, FlackTek aligns with our defined M&A criteria that we have outlined for a few years now. That is a mooted engineered product portfolio, process-critical applications, a predominantly domestic customer base, strong leadership continuity and clear opportunities for long-term organic growth and margin expansion. We believe this acquisition meaningfully strength Graham's competitive positioning enhances the durability and visibility of our revenue base and supports sustained value creation for shareholders long term. We are really excited to have the entire FlackTek team as part of Graham. Turning to organic investments on Slide 8. We continue to make disciplined high-return investments across the business that are now translating into tangible operating capabilities for future growth. Importantly, many of the strategic expansion projects we have discussed over the past several quarters are now completed or entering the final stages of commissioning, positioning us well as demand across our end markets remains strong. Starting with defense. We completed our new Navy manufacturing facility in Batavia, New York during the second quarter of fiscal 2026. This $17.6 million expansion supported by a $13.5 million customer grant significantly expands our capacity and capabilities to support critical U.S. Navy programs. The facility is purpose-built for efficiency, precision and scale and incorporates automated welding, optimized product flow and advanced manufacturing processes. In addition, our automated welding machines are now fully installed and commissioned and our new X-ray inspection facility in Batavia remains on track for completion later this fiscal year. Together, these investments materially enhance throughput, improve quality and strengthen our ability to execute against long-cycle Navy programs with increasing production requirements. In Energy and Process, we completed the renovation of our assembly and test facility in Arvada, Colorado earlier this fiscal year. That site is now fully operational with both product and personnel in place, providing increased flexibility and improved execution for capital projects and aftermarket work. During the quarter, we also kicked off an aftermarket acceleration initiative, leveraging AI tools to improve responsiveness, pricing and service penetration. In parallel, we expanded and consolidated our engineering and service footprint in India, strengthening our global operating model and improving cost efficiency and scalability over time. From a market perspective, we are seeing some slowing as it relates to large CapEx purchases driven by lower oil prices, tariffs and uncertain macro environment. Lastly, in space, we reached several important milestones. Our liquid nitrogen testing capability in Arvada was completed in the second quarter with the first unit successfully tested and delivered to our end customer. More recently, during the fourth quarter, we completed construction of our new cryogenic test facility in Jupiter, Florida. That facility is now entering commissioning, which will continue through the end of this fiscal year. These investments meaningfully expand our in-house testing capability and capacity, enabling us to support customers as programs transition from development into higher rate production. As we step back, the common thread across everything we've discussed this morning is disciplined execution. We are delivering strong operating results today, while at the same time, making deliberate organic and inorganic investments that expand our capabilities. Deepen customer relationships and position Graham for long-term growth. Our record backlog provides meaningful visibility. Our balance sheet remains strong and flexible, and our investments are aligned where our customers' needs are headed. The acquisition of FlackTek meaningfully strengthens our technology platform and expands our ability to serve mission-critical applications across multiple end markets, while our organic investments are now coming online and enhance our throughput, quality and scalability across the entire business. Together, these initiatives reinforce our confidence in Graham's ability to grow organically, expand margins over time and continue to increase shareholder value. In short, we continue to do what we said we were going to do, steady progress while getting better every day through continuous improvement. With that, I'll turn the call over to Chris for a detailed review of our financial results. Chris? Christopher Thome: Thanks, Matt, and good morning, everyone. I will begin my review of our third quarter results on Slide 10. For the third quarter of fiscal 2026, revenue was $56.7 million, an increase of 21% compared to the prior year, reflecting continued strong execution across our diversified end markets. Sales to the defense market increased by $8.3 million, driven by the timing of project milestones, contributions from new programs, better pricing and growth across existing programs. Sales to the energy and process market increased $2.1 million or 13%, reflecting continued strength in aftermarket sales as well as momentum in our new energy markets and in particular, SMRs. Aftermarket sales to the energy and process and defense market were $10.8 million, up 11% over the prior year period, continuing to demonstrate demand across our global installed base. Turning to Slide 11. Gross profit increased 15% to $13.5 million, and gross margin was 23.8% for the quarter. The year-over-year margin decline of 100 basis points reflects sales mix, which included a higher level of material receipts, which carry lower margins. In addition, the prior year period benefited $255,000 from the BlueForge Alliance grant that did not repeat in this year's quarter. Finally, for the first 9 months of fiscal 2026, we estimate that tariffs have impacted results by approximately $1 million with minimal impact in the third quarter. For the full year, we have narrowed our expected tariff impact to be between $1 million to $1.5 million, reflecting continued sourcing discipline, our established in-country partnerships and contractual protections. Our teams have really done an excellent job navigating this uncertain environment. On Slide 12, as you can see, this operating performance continues to translate into strong bottom line results. Net income for the quarter was $0.25 per diluted share and adjusted net income was $0.31 per diluted share. Adjusted EBITDA increased 50% to $6 million, and our adjusted EBITDA margin was 10.7%, reflecting improved operating leverage and disciplined cost control. On a year-to-date basis, adjusted EBITDA margin for fiscal year 2026 was 10.8%, up 100 basis points over the prior year period and in line with our updated full year guidance, which I will speak to in a few minutes. As expected, SG&A increased year-over-year due to continued investments in our operations, our technology and our people as well as higher acquisition and integration costs related to the Xdot and FlackTek acquisitions. However, as a percentage of sales, SG&A declined 200 basis points to 18.6%, which demonstrates our financial discipline and higher net sales throughout the fiscal year. Moving to Slide 13. Orders remained strong in the quarter, totaling $71.7 million. This strength was driven by strong demand in the defense and space markets. Energy and Process orders were down slightly during the quarter as lower aftermarket orders and delay in large capital projects due to the macro environment were almost entirely offset by growth in new energy orders, again, in particular, SMRs. The resulting book-to-bill ratio was 1.3x and backlog increased to a record $515.6 million, up 34% year-over-year. Roughly 85% of backlog is attributable to the defense market, which adds stability and predictability to our business. Approximately 35% to 40% of our backlog is expected to convert to revenue over the next 12 months, with another 25% to 30% converting within 1 to 2 years, providing meaningful visibility into future revenue. As a reminder, our orders remain inherently lumpy due to the multiyear nature of many defense programs and large commercial projects. Over the long term, we target a book-to-bill ratio of approximately 1.1x to support our growth objective of 8% to 10% organic growth per year. For fiscal 2026, our year-to-date book-to-bill ratio is 1.6x, well above this long-term goal. And I'm happy to report that our pipeline of opportunities remains full due to the tailwinds we are seeing in our markets. Turning to Slide 14. We ended the quarter with $22.3 million in cash, and we had another strong operating cash flow quarter of $4.8 million. Additionally, during the quarter, we continued to invest in our capacity expansion initiatives that Matt outlined, including productivity improvements and enhancing our overall capabilities as our capital expenditures totaled $2.8 million. Despite this continued investment as well as our M&A activity, we still have ample liquidity to support our future growth initiatives as a result of our strong cash flow from operations and increased availability under our recently amended revolving credit facility, which was expanded to $80 million in January. As of today, only $20 million of debt is outstanding under this facility after the FlackTek acquisition. Under the terms of the FlackTek transaction, we acquired 100% of the equity of FlackTek for a base purchase price of $35 million, comprised of 85% cash and 15% equity or 75,818 shares of Graham's common stock. The transaction also included the potential to earn up to an additional $25 million in future performance-based cash earn-outs over 4 years beginning in fiscal 2027, contingent upon achieving progressively higher adjusted EBITDA performance targets. The base purchase price represents approximately 12x FlackTek's projected adjusted EBITDA for 2026. The acquisition was funded through a combination of cash on hand and borrowings under our revolving credit facility. Turning to guidance on Slide 15. Based on our performance through the first 9 months of fiscal 2026, our outlook for the remainder of the year and inclusive of the FlackTek and Xdot acquisitions, we are increasing our full year fiscal 2026 guidance for net sales and adjusted EBITDA. We now expect revenue to be in the range of $233 million to $239 million and adjusted EBITDA to be between $24 million and $28 million. At the midpoint of the ranges, this represents increases of 12% and 16%, respectively. Overall, with strong execution, robust demand across our core end markets and a record backlog, we remain confident in our ability to deliver continued performance and to achieve our long-term objectives of 8% to 10% organic revenue growth and low to mid-teen adjusted EBITDA margins by fiscal 2027. With that, we can now open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Russell Stanley with Beacon Securities. Russell Stanley: Congrats on the quarter. My first question, just around demand, specifically in defense. We saw both the major shipbuilders announced plans for significant CapEx increases for the coming year, which obviously not terribly surprising. Just wondering if you're at all surprised by the magnitude of the increases you're contemplating and how you're thinking about allocating your CapEx spend going forward given those -- given their plans for CapEx expansion? Any color there would be helpful. Matthew Malone: Yes, Russ, thanks for the question. As you mentioned, the defense platform, specifically on the strategic undersea programs remain healthy with a lot of demand. The fortunate thing for Graham is we've been making these investments for several years at this point. And we believe that we have opened up capacity through sort of efficiency improvements by the equipment we've already implemented. With that, based on the increasing backlog that we've continued to be able to secure, we are also looking at future investments as we move forward. Like we've done in the past, we look to balance that between our own internal investments as well as offsetting that with what's potentially through the marine industrial base. So Russ, I think the simple answer to that is we'll look to continue to invest at that sort of 7% to 10% of revenue number that we've been over the years and specifically continuing down the path we've been. We don't see sort of a demand that's unproportional to our past investment portfolio. Russell Stanley: That's great. And then maybe moving on to the M&A strategy. FlackTek was your largest buy in some time, and that tends to wake up, I think, other potential sellers. I'm wondering you've described FlackTek as adding a third platform. Wondering if there are other platforms, so to speak, out there for you to add? Or should we think about additional M&A focusing on the existing 3 that you now have? Matthew Malone: Yes. Great question. So to the point I've been making for quite some time, we've been nurturing these relationships for years at this point. We're looking for folks that want to have skin in the game and really grow with us. FlackTek does offer that third. We have a really strong first at Graham manufacturing, which has been around for 90 years with vacuum and heat transfer. We continue to have a tremendous amount of opportunity within that business to further grow organically. Within Barber-Nichols, we've done some small tuck-in acquisitions, both technology as well as capability. FlackTek offers that third leg of the stool that's across all of the same end markets as well as some additional opportunity for scale. I think as we move forward, we'll focus more heavily on continuing to invest in these 3 platform focus areas. And then longer term, as we sort of move out of expansion within those 3 product platforms, maybe there will be additional. And those additional platforms in the future could come, one, as a spinout from existing business units or through an acquisition of a stand-alone platform. Russell Stanley: That's great. Maybe I'll sneak in one last question, and I'll come back again to the Navy. Obviously, you're sole sourcing a lot of the work you do. I'm wondering how you're thinking about pursuing other work from the Navy, other programs. Obviously, it's easier to get on the ground floor, but I'd love to hear whatever progress you can share on pursuing new work, not just the existing programs you have, but maybe perhaps other opportunities. Matthew Malone: Yes. Great question. We're continuing to find that the capability that we have put in the back pocket of the corporation is absolutely needed by end users. Precision fabrication, which tends to be welding and advanced precision is a need that's been spoke about in the United States for quite some time. So we're seeing that applicability of those core competencies really move in a nice direction in pursuing new opportunities. So I'll just say adjacencies of using existing capability. If you look at the Barber-Nichols footprint, high-speed rotating machines that allow for enhanced efficiency or smaller footprint. The world is moving to more power, higher compute speeds and that requires smaller assets that can do more. So Russ, I think the sort of simple story is our core competencies are absolutely able to leverage on new opportunities. What we're doing is we're really bolstering our commercialization strategy of technology so that we can go to our customers and offer the value to them in addition to our typical inbound strategy. So we're taking more of an outbound, let's go tell them how we can -- how our technology and capability can differentiate and provide them value. Operator: Our next question comes from the line of Bobby Brooks with Northland Capital Markets. Robert Brooks: First one was just on -- you guys had called out growth in existing programs within defense. And I was just curious how that actually looks in reality. Like are you actively winning more wallet share on current projects? And if so, how? I guess I was just under the -- I have the understanding that these projects are pretty set in stone when the contracts are awarded. Matthew Malone: Yes, great question. So the first part is it's both, as always with us. We are continuing to see additional scope that's coming from our core capability and programs that we've been on. Examples of that, we're seeing additional solicitations for spare assets and others that we originally did not have in the lens. On the other side of that, we're successfully meeting our customers' end requirements, and that's both in time, speed, quality, everything. And so what's happening as a result of that, Bobby, is, yes, we are seeing additional opportunities that are additive to our current scope of supply. And that could be everything from undersea submarine platforms to laser and cooling -- or laser and radar cooling platforms for directed energy. So it's a combination of both. Robert Brooks: Got it. That's helpful. And then, Chris, I know you had mentioned like historically, you guys have talked about it targeting 1.1 book-to-bill, and that was kind of reaffirmed earlier in the call. But after another outstanding quarter of orders, I'd assume that at the minimum, that outlook has changed for this year since you've already done $280 million in orders, which would be a 1.17 book-to-bill for the full year, assuming the high end of your revenue guidance and 0 orders in the fourth quarter. So I was just curious to get your sense on -- and you also mentioned the pipeline remains full. So I was just curious on the thinking of how landing at 1.1 book-to-bill long term is still the right way to look at it? And any color you could give maybe on how 4Q orders have progressed? Christopher Thome: Yes, Bobby, that's a great question. The main reason for putting out the 1.1 book-to-bill long-term guidance is because when we took a look back at the last 5 to 10 years, that was our book-to-bill ratio. As you know, our book-to-bill ratio can be very lumpy ranging anywhere from 0.5x to 2.4x in any given quarter. But over the long term, we expect it and we want it to be 1.1. So that 1.1 wasn't meant to be guidance for fiscal 2026. As you pointed out, obviously, with the year-to-date book-to-bill ratio of 1.6, we expect to be over that 1.1 long-term target for the year. But again, over the long term, we want it to be 1.1 to support our 8% to 10% organic growth. Operator: Our next question comes from the line of Tony Bancroft with Gabelli Funds. Tony Bancroft: Congratulations on the great numbers, very well done. You were talking earlier about what would be potential -- I know you're working on these 3 strategies right now, the core pillars, and you're going to be building up those. But I guess I wasn't thinking about a company like FlackTek for you guys. Could maybe -- Matt, could you give me like a 30-second pocket lecture on what -- where are these addressable markets that you or these adjacencies? And sort of what's the scope of these adjacencies that you would -- Graham 5 or 10 years from now, 5 years from now would want to be in. Maybe you could just sort of [ recap ] talk about that. Matthew Malone: Yes. So the first thing that folks don't necessarily hone in on is advanced mixing, specifically dual asymmetric mixing is the exact marry of turbomachinery and vacuum heat transfer. It literally is the blend of those 2 core physics-based technologies. So mixing in itself is a really nice platform that couples with our engineering know-how. The next item, Tony, that I offer, and this is more broadly is we love the market-agnostic, really differentiated med technology. So in FlackTek, I'll use as an example, you've got 5 product SKUs that range everywhere from lab scale to large production scale, and these really can offer a disruptive moat as we move forward. And so what we're seeing there is they play in our 3 end markets extremely favorably, but they also have a portfolio that expands beyond that for continued growth in medical, in personal care, in battery technology, et cetera, the list goes on. The last one that I'd offer you is this -- you got to look forward in terms of where technology is moving. We're really -- we're talking about electrification of our turbomachinery. We're talking about advanced and intelligent control of our turbomachinery. We're talking about using technology like computational fluid dynamics and our new designs in the industrial business. Really, it's bringing a technology footprint to see where the markets are going. And in this case, the biggest competitor for FlackTek is a bucket in a stick, which is you're mixing this stuff by hand. And so as we move to a place of automation, efficiency, et cetera, where throughputs are increasing, it's a natural replacement for more advanced technology. So it's not one simple answer, but the core of it is engineered, differentiated technology-driven solutions that have an agnostic market footprint. Operator: Our next question comes from the line of Gary Schwab with Valley Forge Capital Management. Gary Schwab: You're juggling a lot of balls at the same time and you're handling everything really well. Great job. My question is about FlackTek. You mentioned that they're involved in solid rocket motor mixing. Are there any restrictions from the FlackTek partnership by Anduril against selling MEGA to the 2 major solid rocket motor competitors? Matthew Malone: So Gary, yes, obviously, there was a large publication working between Anduril and FlackTek. And what I'll say is it was developed by FlackTek for an end use at Anduril. We do absolutely view Anduril as a key end user of the technology and will be continued to ensure that they're successful in their endeavors. This is revolutionizing the mixing process for solid rocket motors, which will push the entire industry forward. What we're seeing more broadly is once you have one big win in a given area like energetics, you see a lot of folks start to come to the surface. And the short of it is we have no restriction in the relationship on providing dual asymmetric mixing machines to others with the exception of specifically the MEGA product line pending some level of purchase of equipment. So we'll respect that relationship. And what we're seeing is the large machine, the medium machines, the other footprint machines are more than adequate to supply the majority of other providers in this space, which is not prevented. So as a result of the Anduril partnership, we're seeing a lot of other opportunities that have brought the technology to the forefront, but yes, we'll continue to leverage this across energetics outside of the MEGA. Gary Schwab: Do you expect the Mega to be your leading product for FlackTek? And have you come up with an available market size for Mega? Matthew Malone: So we're quantifying that today. The answer is, as we move forward, our focus is going to be on production footprint machines, I'll say. But FlackTek has been in business for over 20 years, providing this critical equipment to everything from laboratories to production environments. So I will say there will be a shift in focus to production level machines, of course, MEGA being a portion of that. And -- the short of it is, I can't speak to the exact TAM on the call today. What I can say is we see applicability from mixing food to energetics to upstream the original constituents that go into epoxies, et cetera. So it's really market agnostic. We see sort of an unlimited footprint where this could impact. Gary Schwab: Okay. Great. And if I could just ask one last quick one. The $30 million 2026 estimate for FlackTek, that's based on your year-end ending next month. Is that correct? Christopher Thome: That's the calendar year-end for '26. So that's the current run rate for calendar year '26. Operator: Our next question is a follow-up from Bobby Brooks with Northland Capital. Robert Brooks: So on the material receipts, so that was a drag on gross margin this quarter as well as last. And what I was hoping to get a better sense on was sort of the visibility of that going forward. Obviously, you're always going to have material receipts, right? But do you have a good sense of when those will be highest a few months out? Or maybe asked differently, how far in advance do you know when that type of work is going to flow through revenue? Christopher Thome: Yes. So the material receipts are very lumpy in nature. They heavily impacted our Q2 results. They were still higher than normal in Q3. So for Q4 and then going forward, we would expect them to be at a more normalized level. However, again, those material receipts can be lumpy in nature in any given quarter. So we have visibility out for about the next year on that. Robert Brooks: Got it. And maybe just -- so is it essentially just ordering raw materials in anticipation of future work? And am I understanding -- is that kind of the reason for it? Am I understanding that right? Christopher Thome: It's not in anticipation of future work. We only place the material orders when we receive the order from our customer. So therefore -- it's basically material receipts to support orders that are already in our backlog. Robert Brooks: Got it. And then, Matt, you did -- I really appreciate the slide kind of going through some of the significant investments and facility enhancements done this year. But I know that you guys did some -- those are kind of focused on improvements made earlier in the quarter. And so I was just curious on anything to call out specifically that happened within the third quarter? Matthew Malone: Yes. A lot. You could see from that list, yes, we delivered the first assets from the liquid nitrogen test facility in Arvada in the third quarter. We have brought online, as mentioned, the assembly and test facility, which is now shipping product as well as the testing area in that facility. So across that entire platform, Bobby, we're seeing real-time impact in the third quarter from those assets coming online. Robert Brooks: Got it. And then just... Matthew Malone: The only exception of that just for clarity is the propellant test facility down in Florida. We just did the ribbon cutting. But in the third quarter, that has not started to impact the business. Christopher Thome: Bobby, with regards to those capital investments, though, right, as we said, they're not going to have a material impact on our fiscal 2026 results. These investments are what's going to help us get to our fiscal 2027 guidance and goals that we put out there. But it's going to be a gradual increase in performance, right? You're not going to see a step change overnight. So it's just -- these are the investments that we're making to achieve the slow and steady growth that we're looking for and to achieve our fiscal 2027 targets. But it's not going to be a step change. Robert Brooks: That's very helpful. A lot of color there. Then last question for me is just on the testing facilities in Jupiter as well as -- Jupiter, Florida as well as Colorado, I was curious to just maybe hear how the activity has gone thus far with booking up future slots for testing? And just also curious on have you seen -- are those folks who are taking the booking testing slots, are those more so customers you're already working with? Or have you started to see a steady stream of folks that you don't have commercial relationships with yet? Matthew Malone: Yes. I'll break it down into 2. Good question. In the Arvada facility, which is where the liquid nitrogen is, it is dedicated to a given production program today. And what I'll say is it's essentially booked for that program. As a result of execution, we continue to see further pipeline opportunities to continue that forward. Can we use it for other programs? The answer is absolutely yes, and we will. But today, it's focused on one. So I would just call that pipeline healthy. On the cryogenic facility side, look, most important for us is safety on that facility and sort of the commissioning process. So today, we're having a number of conversations with potential end users, most of which are customers today. We are focusing on the commissioning around the product that is already in our backlog. And so we're prioritizing that not for a testing as a service today, but rather testing the product that we're shipping to our end customer contractually. So we'll ramp through testing our own products in the near term. But in short, Bobby, yes, the pipeline remains very active. Operator: Mr. Malone, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments. Matthew Malone: Thank you. As you can see, we are pleased with our results and look forward to keeping you updated on our progress. As always, please reach out with any questions. Thank you, everyone, for joining us today and your interest in Graham. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Ladies and gentlemen, thank you for standing by. My name is Jaco, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Mettler-Toledo's fourth quarter 2025 earnings conference call. [Operator Instructions] I would now like to turn the conference over to Adam Uhlman, Head of Investor Relations. You may begin. Adam Uhlman: Thanks Jaco, and good morning, everyone. Thanks for joining us. On the call with me today is Patrick Kaltenbach, our Chief Executive Officer; and Shawn Vadala, our Chief Financial Officer. Let me cover some administrative matters. This call is being webcast and is available for replay on our website at mt.com. A copy of the press release and the presentation that we will refer to on today's call is also available on our website. This call will include forward-looking statements within the meaning of the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934. These statements involve risks, uncertainties and other factors that may cause our actual results, financial condition, performance and achievements to be materially different from those expressed or implied by any forward-looking statements. For a discussion of these risks and uncertainties, see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to provide any updates, or revisions to any forward-looking statements, except as required by law. On today's call, we will use non-GAAP financial measures and a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K, and is available on our website. Let me now turn the call over to Patrick. Patrick Kaltenbach: Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our fourth quarter financial results, the details of which are outlined for you on Page 3 of our presentation. We had a great finish to the year with broad-based growth by geography and product category. Our team continues to execute very well in a challenging environment and delivered strong adjusted EPS growth for the quarter with excellent free cash flow conversion for the year. I'm very proud of our organization's resilience and agility over the past year as we successfully navigated the challenges posed by global trade disputes and soft market conditions, and we remain agile in this dynamic environment. Looking ahead, we are very well positioned to drive growth with our Spinnaker sales and marketing program and innovative product portfolio while capitalizing on opportunities related to automation, digitalization and onshoring investments around the world. Our strategic initiatives and strong culture of innovation and operational excellence are deeply embedded in the organization and will help us continue to gain share and deliver strong financial performance. Let me now turn the call over to Shawn to cover the financial results and our guidance, and then I will come back with some additional commentary on the business and our outlook. Shawn? Shawn Vadala: Thanks, Patrick, and good morning, everyone. Sales in the quarter were $1.1 billion, which represented an increase in local currency of 5% or 4% excluding previously communicated acquisitions. On a U.S. dollar reported basis, sales increased 8%. On Slide #4, we show sales growth by region. Local currency sales increased 7% in the Americas, which included a 3% benefit from acquisitions and increased 4% in Europe and 4% in Asia/Rest of the World. Local currency sales in China increased 3% during the quarter. Slide #5 shows local currency sales growth by region for the full year 2025. On Slide #6, we summarize local currency sales growth by product area. For the quarter, Laboratory sales increased 3%, while Industrial increased 7% and included a 3% benefit from recent acquisitions. Excluding acquisitions, core Industrial grew 2% and Product Inspection grew 7%. Food Retail grew 19% in the quarter. Lastly, Service revenue grew 8% in the quarter, including a 2% benefit from acquisitions. Slide #7 summarizes our local currency sales growth by product area for the full year 2025. Let me now move to the rest of the P&L, which is summarized on Slide #8. Gross margin was 59.8% in the quarter, a decrease of 140 basis points and included unfavorable foreign currency of 70 basis points and acquisition mix. Our organic gross margin declined 20 basis points, excluding foreign currency and was impacted by incremental gross tariff costs of 190 basis points. R&D amounted to $52.6 million in the quarter and was flat on a local currency basis over the prior period. SG&A amounted to $259.8 million, a 6% increase in local currency over the prior year and includes sales and marketing investments. Adjusted operating profit amounted to $363 million in the quarter, up 3% versus the prior year. Adjusted operating margin was 32.1%, a decrease of 160 basis points versus the prior year. Unfavorable currency was a 100 basis point headwind to operating margin in the quarter. We estimate the gross impact of tariffs reduced our operating profit by 7% and was a 190 basis point headwind to our operating margin. A couple of final comments on the P&L. Amortization amounted to $19.7 million in the quarter. Interest expense was $17.4 million and adjusted operating income amounted to $4.1 million. Our effective tax rate was 19% in the quarter. This rate is before discrete items and is adjusted for the timing of stock option exercises. This also excludes a $19.5 million discrete tax benefit related to the settlement of a tax audit. Fully diluted shares amounted to $20.4 million, which is approximately a 3% decline from the prior year. Adjusted EPS for the quarter was $13.36, an 8% increase over the prior year. Incremental tariff costs were a gross headwind to EPS of 7%. On a reported basis in the quarter, EPS was $13.98 as compared to $11.96 in the prior year. Reported EPS in the quarter included $0.28 of purchased intangible amortization, $0.18 of restructuring costs, a $0.14 net benefit from acquisition-related items, a $0.01 tax headwind related to the timing of stock option exercises and a $0.95 discrete tax benefit. Slide #9 summarizes our full year 2025 results. Local currency sales increased 3% for the year. Adjusted operating profit declined 1%, and our operating margin contracted 140 basis points. Adjusted EPS increased 4%. Excluding the impact of 2023 shipping delays that benefited 2024 results, we estimate local currency sales grew 4% in 2025, operating margin declined 80 basis points and adjusted EPS grew 8%. Unfavorable foreign currency negatively impacted our operating margin by 50 basis points in 2025. Gross incremental tariff costs was a headwind to operating profit by $50 million, operating margin by 130 basis points and EPS growth by 5% in 2025. That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $878 million in 2025, a conversion ratio of 99% of our adjusted net income. DSO was 35 days, while ITO was 4.2x. Let me now turn to our guidance for the first quarter and the full year 2026. As you review our guidance, please keep in mind the following factors: first, our guidance assumes U.S. import tariffs as well as the impact of retaliatory tariffs from other countries will remain in effect at current levels. Second, while we acknowledge that headlines from some end markets like life sciences have been more favorable recently, geopolitical tensions remain elevated, and we assume customers are more cautious with their investments to start the year with gradual improvements throughout the year. However, on a full year basis, our forecast does not assume a significant improvement in market conditions in 2026 versus last year. Third, we feel very confident in our ability to exclude -- to execute on our growth and productivity initiatives and believe we are well positioned to gain market share regardless of the macro environment. Now turning to our guidance. For the full year 2026, our local currency sales growth forecast is unchanged at approximately 4% or approximately 3.5%, excluding our previously announced acquisitions. Our operating margin is expected to be up 60 to 70 basis points, excluding the impact of currency, which is flattish to up slightly on a reported basis. Adjusted EPS is forecast to be in the range of $46.05 to $46.70, which represents a growth rate of 8% to 9%. At recent spot rates, foreign exchange is estimated to be a 1% benefit to sales growth and a slight headwind to EPS. For the first quarter of 2026, we expect local currency sales to grow approximately 3%. Operating margin is expected to decrease approximately 100 basis points at the midpoint of our range or flat, excluding unfavorable currency. We expect adjusted EPS to be in the range of $8.60 to $8.75, a growth rate of 5% to 7%. Currency for the quarter at recent spot rates would benefit first quarter sales by approximately 4% and would be neutral to adjusted EPS. Some further comments on our 2026 guidance. We expect total amortization, including purchased intangible amortization to be approximately $78 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $27 million on a pretax basis or approximately $1.04. Interest expense is forecast at $70 million for the year. Other income is estimated at approximately $19 million, which is up from our previous guidance and is due to updated pension accounting that is partly offset by higher pension costs that are now -- that are included in operating profit. We expect our tax rate before discrete items will remain at 19% in 2026. Free cash flow is expected to be approximately $900 million in 2026, which is an increase of 5% on a per share basis, with the first quarter approximately $100 million, which is impacted by the timing of tax payments. Share repurchases are expected to be in the range of $825 million to $875 million. That's it from my side, and I'll now turn it back to Patrick. Patrick Kaltenbach: Thanks, Shawn. Let me start with some comments on our operating businesses, starting with Lab, which had modest growth in the quarter against strong growth in the prior year and good underlying organic sales growth for the full year. Our results reflect robust bioprocessing growth, especially with single-use consumables, which was offset in part by softer demand from biotech, academia and the chemical sector. While headlines for pharma and life sciences markets have been more favorable recently, we expect customers to still be cautious with their investments to start the year. Our unique go-to-market strategies will ensure that we are very well positioned to capitalize on our customers' growing needs for equipment replacement going forward. Our innovative portfolio remains an important competitive advantage, and we continue to invest to further differentiate ourselves from the competition. For example, we recently launched an entirely new electronic pipette called Vero that is lightweight and has a very compact design. It has an exceptionally long battery life and can complete 2,800 pipetting cycles on a single charge. It is also unique in that it allows scientists to adjust flow rates, which is very helpful when working with delicate cells or nucleic acids, for example. Our Vero introduction complements the many exciting lab innovations we have brought to market in recent years, and we have a deep pipeline for the future. Turning to Industrial. We had modest growth in our core industrial business this quarter, including strong growth in China against easy comparisons. Given the soft market conditions over the past year, we are pleased with the good sales growth core industrial delivered in 2025. However, market demand in most geographies remain subdued, and we have maintained our full year forecast for modest growth. Our teams remain active in identifying new growth opportunities, and we believe we are well positioned to capitalize on investments in automation, digitalization, replacement demand and onshoring in the future. Our Industrial portfolio is in excellent shape. And to support growing demand for automation applications, we recently introduced new high-speed data communication features and protocols across our smart automation weighing indicators that ensure the compatibility of our devices with our customers' IT and OT ecosystems. We have partnered with leading MES providers to enable seamless integration of our intelligent weighing devices through standardized interfaces into factory automation systems. Our solutions assure GMP-compliant batch records and enable intuitive operator applications, helping customers increase efficiency and reduce errors as IT and OT environments continue to converge. Turning to Product Inspection. Sales growth in the fourth quarter was very strong as we have capitalized on our excellent portfolio, and we believe our organic sales growth in 2025 was well ahead of market growth. We continue to enhance our portfolio and recently introduced our new X3 Series of X-ray solutions for end-of-line inspections of loose products like prescription tablets and pills or food items like nuts, fruits and grains. The X3 Series offers both single and dual energy capabilities and is very differentiated in the market. Lastly, Food Retail sales grew strongly against easy year ago comparisons. While our Food Retail business tends to be lumpy, we were very happy with its growth in 2025. Now let me make some additional comments by geography, starting in the Americas, which had good growth across most of the portfolio, especially with our industrial and retail solutions. Growth in our Laboratory business was good and included very strong bioprocessing growth. Turning to Europe. Our fourth quarter results were better than expected due to very strong performance from our product inspection business. For the year, our European market organizations delivered good results despite soft economic conditions in some Western European countries as we continue to benefit from our Spinnaker sales and marketing initiatives and innovative portfolio. However, economic conditions in Europe are mixed, and we do not expect significant improvement in market demand in 2026. Finally, Asia/Rest of the World had good growth in the fourth quarter and was largely in line with our expectations. Our business in China grew 3%, led by good demand for industrial products from biopharma customers. Lab products were flattish, and our team remains very engaged with helping customers to help them address new China pharmacopeia regulations, including stricter minimum weighing standards and quality monitoring of ultrapure water, among others. Market conditions in China have recently been more steady, but as we know from the past, things can change quickly. In markets outside of China, we had very good growth against difficult comparisons in the fourth quarter. Emerging markets outside of China were 18% of our sales in 2025 and grew above our company average due to our dedicated resources and growth initiatives in these countries. Emerging markets are an important component of our growth strategy, and we expect above-average sales growth over the coming years. In summary, we delivered another year of solid growth despite ongoing market headwinds as our team leveraged our sophisticated go-to-market strategies and strong product and service offering. Our team's resilience and agility in our pricing, supply chain productivity and cost-saving initiatives were pivotal in navigating tariff challenges and government policy uncertainties throughout 2025. We are squarely focused on driving growth in 2026. We will continue to benefit from our strong global leadership positions, diversified customer base, innovative product offering and significant installed base. Service and faster-growing emerging markets will remain tailwinds, and we have accelerated our digital capabilities to identify and pursue growth opportunities, increasing the effectiveness of our global sales organization. Our market-leading solutions and innovative portfolio uniquely positions us to meet increasing customer demand for automation and digitalization solutions as well as faster-growing segments. We also look forward to capitalizing on future growth opportunities with customer replacement cycles and investments on the nearshoring activities over the coming years. Now this concludes our prepared remarks. Operator, I'd like to open the line now for questions. Operator: [Operator Instructions] Our first question comes from Patrick Donnelly from Citi. Patrick Donnelly: Maybe on the 1Q commentary, Patrick, you talked about baking in that customers in spite of some positive headlines to your point on pharma and life sci customers, you're baking in a little more cautious to start the year. Is that something you're hearing through the first month and change here? Or is it just -- obviously, there's a typical Mettler conservatism. Just wondering if that's something you're picking up in the market or more just, hey, we don't want to bake in any improvement just yet. Let's see how it plays out. So it would be helpful to just talk through that 1Q guide. Patrick Kaltenbach: Yes. Thanks, Patrick. And I'll let Shawn comment on this as well. But maybe to my comment on the headlines, again, headlines have been still pretty volatile. And while they have been better on the pharma and life sciences side, we all appreciate there's still more uncertainty in the market out there. And this also, across the broader portfolio and the broader markets we serve, still leads to longer deal cycles, et cetera. So as we said also in our Q3 call and also at the JPMorgan conference, we think our customers, and we feel that we'll start the year a bit more cautious, and we have really built that into our guidance for Q1 and for the full year. Shawn Vadala: Yes. And just to echo what Patrick said, hey, we're of course stepping back, we're of course very pleased with the fourth quarter, came in better than what we expected, some good broad-based growth throughout the portfolio. We can kind of dig into that maybe in a minute. And we're also very pleased with our full year guide carrying forward that into 2026 full year, maintaining the 4% organic -- not organic, local currency guide for the full year on sales. But like Patrick said, as we previously mentioned, we do kind of tend to think that customers will likely start the year a little bit more cautious in Q1. It's always difficult to have visibility into Q1. Every time you're starting a year, it's a new year. You almost have to get through the whole quarter and get through March to really get a feeling for how things are progressing. But just sitting here today, it feels like a prudent approach for us to take in terms of how we're looking at the first quarter. And as he says, we do expect things to kind of gradually get better throughout the year. Patrick Donnelly: Okay. That's helpful. And then, Shawn, maybe one for you, just in terms of the components of the guide. I would love if you could break out how you're thinking about pricing versus volume, both on the revenue side. And then if you could give a bit of a margin build with pricing, FX, et cetera, would be very helpful. Shawn Vadala: Yes. So we continue to feel really good about our pricing program. Of course, one of the things that I like about pricing the most is that it really highlights the value proposition in the company. We've been really investing a lot in innovation over the last few years. And when you create value, you can realize pricing. So if you kind of like look at our pricing, we're going to start the year off a little bit stronger because of the benefit of midyear pricing actions from last year. So I'm kind of -- would expect Q1 to be in the 3.5% or so kind of a range. And then for the full year, we're kind of maintaining that 2.5% for the full year. From an acquisition perspective, we would expect to benefit about 1% during the first half of the year from acquisitions, which would be about 0.5 point for the full year. And then that would kind of translate into organic volume for the full year of 1%, but it would be down by about 1.5% for Q1. And this kind of just gets back to that same comment about just being a little bit more cautious. And frankly, just not surprised if customers start the year a little bit more cautious with how they spend just given the volatility that we experienced or they experienced last year into some of the uncertainty in the market. But hey, we also recognize headlines have been getting better, and hopefully, we'll start to see things that translate into business as we go through the year. In terms of margins, we -- there's a few things in terms of affecting our margins. So maybe we'll start with operating margins. So on a reported basis -- well, maybe one comment first. Like currency has a pretty significant effect on our margins. It did in the second half of the year. If you remember, we were talking about this last quarter. And it's not a significant effect on like profit, but it is on sales. And so just the math -- when you start calculating operating and profit as a percentage of sales, of course, it's going to have and optically look like a headwind. So that headwind is about 100 basis points for the first quarter, and it's about 50 basis points for the full year of 2026. So excluding that, we would expect our operating margin to be up slightly in Q1 and we would expect it to be up by about 60 to 70 basis points for the full year. But then, of course, on a reported basis, it's going to be different. On a reported basis, Q1 will be down probably in the 100 basis point kind of range, maybe 90 basis points. And then for the full year, it would be up slightly. Operator: Our next question comes from Vijay Kumar from Evercore ISI. Vijay Kumar: Congrats on the nice [ spin ]. Just back on the Q1 guidance, Shawn and Patrick. You guys did 4% organic in Q4. I think your Q1 is implying 2% organic, correct me if I'm wrong. What causes that 4% to 2% step down? And what are you assuming for end markets? When you say cautiousness, can you walk us through the different assumptions you're having industrial versus labs and pharma? Shawn Vadala: Yes, sure. So maybe I'll -- I can walk through maybe, Vijay, kind of like the assumptions for Q1 full year but also Q4. But as I kind of do it, you'll see that when we look at the beat, there was a very good beat on the Industrial side, especially Process Analytics. I mean, I'm sorry, not Process Analytics, Product Inspection. And then when you look at the geographies, you'll see Europe came in better than expected, also to a certain degree in the Americas. And as we were kind of entering the quarter, we were a little bit more concerned about Europe, but our Product Inspection business in Europe did particularly well. And then when we go through it, you'll also see that kind of what steps down a little bit from Q4 to Q1 just in terms of growth rates. You'll see that -- you'll see a little bit on the industrial side. You'll also see a little bit on the retail side. And then -- and also maybe this cautiousness in the Americas as well as to a certain degree in Europe. So in terms of the fourth quarter, I think this might be out there, but I'll just kind of go through it quickly. So Q4 Lab grew 3%. Our guide for Q1 is up low single digit. And our guide for the full year is growing low to mid-single digit. Core Industrial grew 4% and our guide for Q1 is flattish. And our guide for the full year is up low to mid-single digit. Product Inspection grew 11% in Q4. Of course, that was 7% organic. And then the Industrial, by the way, was 2% organic, core industrial. And then our Q1 guidance for Product Inspection is up mid- to high single digit, and our full year guidance is up low to mid-single digit. And then retail grew 19% in Q4, and our guidance for Q1 is up high single digit, and then our guidance for the full year is flattish. And then if we kind of like look at the regions. Americas was up 7%, which was 4% organic. And if you look at Q1, we're guiding up low single digit, and we're guiding for the full year up mid-single digit. And then Europe was up 4% in Q4. And then for Q1, we're guiding up low single digit and then for the full year, also low single digit. And then China was up 3% in Q4. And then for Q1, we're guiding also up low single digit and for the full year up low single digit. Vijay Kumar: That's very helpful, Shawn. One just on your EPS composition. I think by my math, looks like maybe half to be -- came from below the line, right, between interest expense and higher pension income. What's the other, I guess, $0.30 or so raise coming from? Because it looks like top line didn't change. Shawn Vadala: So you're talking the full year 2026, Vijay? Vijay Kumar: Yes, yes. Shawn Vadala: Yes. Yes. No, no, no. I think, just to clarify, we -- so our beat -- the beat in Q4 was related to sales. I think some of the below OP stuff might be a little confusing, but we excluded that -- some of those benefits from our adjusted EPS, like so for example, the onetime tax benefit. When you look at our 2026 EPS guidance, we've kind of carried forward the beat, the EPS beat from 2025. We also increased our EPS for the benefit from Swiss tax rate. So I mean, tariff rates. So you might remember, the Swiss tariff rate decreased from 39% to 15%. That had a benefit of just under 1% of EPS. And then aside from that, there was a little bit of noise. We had foreign currency, which was a slight headwind, and we updated for that. And then we had a little bit of noise with better pension income that's going to help out a little bit below OP, but that's also -- that's based on like how you do your actuarial accounting at the end of the year, but there's also, maybe, an offset in some of the pension stuff above OP and just some basic fine-tuning at the end of the year. But stepping back, we're very pleased with raising EPS by $0.70 for the full year, which is about 2%, and maintaining our 8% to 9% EPS growth. Operator: Our next question comes from Dan Arias from Stifel. Daniel Arias: Shawn, food retail was pretty strong here. Is something picking up? Or is that just sort of the inherent lumpiness of that business. The outlook, I think, for the year is flat. So I'm not sure if spending improvement makes that easier, or if the big 4Q just kind of creates a tougher comp, which makes that harder to reach. Patrick Kaltenbach: Dan, this is Patrick. Look, I mean, with retail, of course, we are very happy with the performance we have seen from retail in Q4, and also in 2025 as it was growing. But I also want to remind you that the retail business is a pretty lumpy business, a lot of project business. And as we still guide retail for Q1 for high single digit, I think fiscal year '26, we'll see a tough compare, and that we also guided to the flattish growth in 2026. Again, it's a lot of ups and downs, big project business there. We compete really well. We actually spent quite some amount of innovation and brought a lot of good products, new products over the last 2 years and that we compete extremely well. But again, it's more lumpy. And it was as proud as we are of the 2025 growth, we see the full fiscal year '26 given the tougher compares rather flat. Daniel Arias: Okay. And then maybe on China, I mean, I know no one thing changes the growth picture for you guys. But how would you characterize the pharmacopeia opportunity over there that you talked about a little bit last quarter just in terms of what might be tangible when it comes to demand? And then when you think that purchasing might ramp up if, in fact, it does? Patrick Kaltenbach: Yes, that's a good question, Dan. Look, I mean, in China, again, we are really well positioned with our team there. We have an outstanding portfolio and pharmacopeia is one of the opportunities. We have seen some really good customer engagement also in Q3 and Q4 of last year. We expect this to continue, but it's not like a step change, right? This is a continued upgrade of existing balances and customers' labs as they want to comply with things like minimum weight requirements, et cetera. So I think it's supporting our ongoing growth in China in the Lab business in 2026, but it's not a huge step change that comes all at once. Operator: Our next question comes from Michael Ryskin from Bank of America. Michael Ryskin: Congrats on the quarter and the guide. First, I want to touch on -- you talked about the reshoring or onshoring opportunity a number of times in the past and you flagged it again today. Just curious if you could give us an update on that, any change in conversations or in tone? I know it's still really early, but just sort of what's your sense around timing on when you might start seeing at least the beginning [indiscernible] late '26 or still more of a '27, '28 dynamic. Patrick Kaltenbach: Yes. Thanks, Mike. Look, I mean, yes, there's a lot of good news, I would say, out there. But think about our product portfolio, I mean, a lot of -- a significant part of our portfolio, almost 50% of our portfolio is actually for manufacturing, then you have another 25% -- 20% to 25% is for QA/QC. So if you think about this reshoring, onshoring, specifically for pharma, I mean, these factories still have to be built, right? And then we come into play that whole portfolio is to build it out. So we see this more as a 2027 and beyond opportunity. For us, of course, it's important that we are out there in discussions with our existing customers. We help our existing customers a lot of our portfolio and make sure that they are well aware as they plan then of building out potential additional facilities in the U.S. to make sure that we are their preferred supplier for these opportunities. And it's pharma, but it's also other areas if you think about the -- for example, the battery segment and others. So they are around the world, I would say, in the coming years, a lot of good opportunities when it comes to reshoring, where customers build redundant setups to make sure that they also derisk the setup that they had in the past. And I see this for the coming years as a good opportunity, but we have not factored it in as a big growth opportunity for 2026. I think it's still very early innings. Michael Ryskin: Okay. That's helpful. And then I want to touch a little bit on Europe. It feels that that's been doing a little bit better than expected. I think it stands out a little bit more for us the last couple of quarters despite tough comps. Can you just talk about what you see driving that on the ground there? And how sustainable that is going forward? Shawn Vadala: Yes. Mike, maybe I'll take that one. So as I kind of was alluding to before, kind of coming into the quarter, we were a little bit more cautious on Europe. We've been extremely proud of our European organization over the years. If you just look at the economy in Europe, it's the softer economy in the world in more recent times. PMI is kind of in the low 40s at times, and we continue to, I think, do extremely well with that kind of a backdrop. I think a lot of it would benefit from, of course, a strong organization, but also our Spinnaker program really -- with the combination of us going most direct in Europe, I think, allows us to also be a little bit more precise in terms of that ability to gain a little bit of market share each year. If we just kind of like look at the fourth quarter, though, one thing that I mentioned before that really stood out was our Product Inspection business. We just had really strong growth in that business. And I think it's a theme we've seen in other regions throughout the year, which is some of the innovation that we've introduced to the market recently and has been just very well received. And a lot of that innovation is really trying to go more specifically at the mid-market segment, and we're doing quite well there. Otherwise, I'd say we're competing well in the other product categories in general, but with, I'd say, a more challenging backdrop in some of the other regions. Operator: Our next question comes from Catherine Schulte from Baird. Catherine Ramsey: Maybe just on service. I think you said up 8% in the quarter, 6% organic. What's the outlook for that side of the business in '26, both including and excluding acquisitions? Patrick Kaltenbach: Yes. Do you want to take it? Shawn Vadala: Yes. So yes, you're correct, Catherine. So we grew 8%, like looking at my notes to make sure I got it right. We grew 8% in the quarter, 6% organic. As we kind of think about next year, we're thinking about mid- to high single-digit growth overall for the business for the first quarter in the full year. And when you look at the first quarter, there's some acquisition growth in that. So Q1 would be more mid-single digit. I think the full year probably still rounds to mid- to high single digit. And as we've talked about in the past, we just continue to see Service as a great opportunity. The team kind of recently celebrated the fact that they achieved $1 billion in sales for the first time. And that was a nice milestone. It's a business that we've been really focusing on in terms of trying to penetrate. I think you're familiar, like if you look at the serviceable iBase that we have available to us as an opportunity, it's about $3 billion. So we penetrated about 1/3, and we continue to see opportunities to go after that. And as we do that, we have been putting additional resources into that business, and we continue to be optimistic kind of going forward for the medium to long term here. Catherine Ramsey: Okay. Great. And then for China, another quarter of modest growth there in the fourth quarter. Sounds like maybe some easy comps in Core Industrial and Lab about flat. Can you just unpack a bit more what you're seeing in that market and the outlook for Lab versus Industrial in the low single guide for the year? Shawn Vadala: Yes. Yes. So China overall came in as expected. We're pleased with that. Yes, we recognize that Industrial had an easier comparison, but we'll still take it. They actually had quite strong growth in the quarter. When we kind of came out of the budget toward last year, kind of we were in China in September, one of the takeaways for me was you could just feel that there was a lot more positive energy coming out of our Industrial team. So it's really kind of cool to actually see it translating into results here. So I think they're doing very well there at the moment, and that's good in the context of an economy that still has some challenges. And when you kind of cut through and look at the markets, one of the markets that really is doing better there is the pharmaceutical end market. We see that in both sides of the business. Maybe the one area that is more challenging is on the chemical side. And for us, chemical means mostly specialty chem, but that's a more challenging end market at the moment. But when we look forward to China for this year, we're still looking to guide in that low single-digit range for Q1 and for the full year. Right now, I'd probably think Lab and Industrial will probably both be in that kind of a range. Maybe some quarters better than others, depending on how things play out here a little bit. But big picture, I think we've had at least a year of things have moderated there. We've had some modest growth. I think it's a good base, hopefully, to now grow on. We're not building anything too significant to get over our skis. As we know, things in China can change quickly in either direction, but hopefully, we'll start to see things pick up at some point. And I think longer term, we still feel very optimistic. I think when you look at like the 5-year plan, and you look at all the investments going into the pharmaceutical industry and life science industry in China, it's very encouraging. And then you look at some of these trends about GLP-1s and the number of companies in China that are investing in that, it's also a good opportunity, just as an example. So I think our team is well positioned for that. As you know, we have a really great China for China story with us making most of our products in China for China, and selling mostly to Chinese private companies. I think that's just a good setup for us. And we've always performed well there relative to the market. Operator: Our next question comes from Luke Sergott from Barclays. Luke Sergott: I just wanted to kind of touch on somewhat more of the pharma side and also the ANG weakness that you talked about. And also, I guess, part of that in 4Q was the biotech weakness as well. So we're starting to see some green shoots in biotech. Pharma is doing a lot more M&A. And I know that it's probably going to track a different cycle than obviously the clinical research. But how are you guys thinking about when that funding starts coming back? And where in that cycle would you guys start to see some of the pickup? Or if this biotech or like the early-stage pharma where you're seeing weakness now is more just associated with kind of the academic funding environment? Patrick Kaltenbach: Yes. Maybe I'll take that, Luke. Look, we are, I think, quite excited about the overall biopharma and specifically biopharma processing activities that are going on and Shawn made a comment here on GLP-1 and others. I think that, that's actually where we see good momentum in the market, almost around the world. So we -- that's what I would say is a growth driver for us as well. When you mentioned academia, government and biotech, we have actually pretty small exposure in that area, mainly in the area of liquid handling and pipette business, et cetera. Otherwise, we are not really prominent in that segment. And it's hard to say when we really would see a pickup there. It, of course, depends on some real good funding that should come back into the biotech and academia area. Again, we would first see that on the pipette business if that is picking up again. And right now, we saw that business in Q4 is still a little bit under pressure. I think it was slightly declining in Q4. And we have to wait and see again when the funding is really coming back and then when we see more momentum. But that's -- I think I would say that the indicator there for us would be more on the pipette business. But as a reminder, it's a smaller part of our overall business. Luke Sergott: Got you. And then one for Shawn. On the GMs, and I understand it's a completely fluid tariff environment for you guys. But more generally, we've kind of seen this kind of tick down in gross margins across the space. And is there a dynamic going on with you guys where your tariff mitigation efforts outside of pricing, those are ongoing, and then you're starting to get some pressure here from your suppliers. And there's just going to be a mismatch between timing of when you can pass that on to your customers? Is that -- just trying to figure out where this kind of ultimately shakes out or for you guys, it's just being forced right now to kind of eat it until things normalize? Shawn Vadala: No. Actually, we're doing quite well in terms of managing the input costs. I think the SternDrive program has really been helping us out. That program has a lot of sophistication, like a lot of our programs when it comes to like digital capabilities and our ability to like really look at what should something cost. So it's called should costing and we can like really diagnose opportunities that we can leverage as we look at our cost structure. I think what's making -- what was already a confusing year with tariffs more confusing is that currencies have changed quite a lot more here in the second half of the year. And I was trying to explain that earlier in the call, but I wouldn't dismiss that, right? Like it's like a 70 basis point headwind to gross margin in Q4. And as I mentioned before, we're going to see that kind of carry forward to the first half of next year. And then some of these recent acquisitions, while on an OP basis, they're fine. Just when you start to look at some mix effects, we start to get a little bit of unfavorable mix in terms of gross margins, kind of like the way you think about the Service business, right? It's like good when it comes to OP. But in terms of gross margin, it might be a little bit dilutive, and that's because a lot of these recent acquisitions were distributors, which were largely service businesses, and then any incremental product sales is going to be smaller just by the virtue of the fact that they were a distribution partner. But when you kind of cut through all that, like I was trying to say -- I don't know if we got into this before or not, but like if you cut through FX and you cut through the organic -- the acquisition side, the organic gross margin was down 20 basis points for the quarter and for the full year. And that's despite a very significant headwind -- gross headwind on tariffs, right? It was like 190 bps in the quarter. And if you think about it, while we were mitigating things throughout the year, we did have this topic of the Swiss tariffs that kicked in at 39%. And then we were going to -- we were having to absorb that during the fourth quarter. So the step down to 15% tariff rate in Swiss tariffs, that's something that will -- that benefit will happen more in 2026, not in Q4. And I think there's even maybe a little bit bleeding into the first part of Q1, just given stuff that was maybe in inventory already. So I hope that helps a little bit. Luke Sergott: It does. Operator: Our next question comes from Tycho Peterson from Jefferies. Tycho Peterson: I wanted to dive in a little more on the industrial strength, Product Inspection. Shawn, I appreciate your comments that some of this is new product intros and opening up the mid-tier market. Is there any way to kind of delineate how much of this is kind of broader market recovery versus actually opening up new markets? And then I know in the past, you've talked about replacement cycle here, in particular, the industrial portfolio well positioned. Is that business benefiting at all from replacement cycle at this point? Patrick Kaltenbach: I'll take it, Tycho. I think the growth you're seeing in our Product Inspection business, we cannot point here to any underlying market recovery, or market strength. Actually, we think the market is still under considerable pressure, the food market, but we are really, I would say, very well positioned with our portfolio and all the innovations we have pushed across the portfolio. Whether it was in x-ray detection or an injection weighing and there's more to come. Again, we have a clear dedicated plan to not only dominate the high end but also attack the mid-range market. That strategy is playing out really well. So yes, I would say it's mostly innovation, our trusted growth that you see there. And when it comes to the installed base and replacement market, what we are seeing across the board, across the portfolio, and that is not only true for Product Inspection businesses, we see a little bit of aging of the installed base. I think we have now seen probably 2 years of subdued replacement and what it needs really to -- for that to pick up is what I mentioned at the beginning is more certainty in the market, more confidence of customers that they can invest. I mean, they, of course, cannot hold off forever, but I think once the market gets a bit more stable and there's more certainty in the market and less noise, we will see a gradual pickup again in the replacement business to more normal levels and probably also a bit more. But it will not be again a step change. This will be a gradual phasing in often the replacement business again. Tycho Peterson: Okay. That's helpful. And then following up on the pharma onshoring, reshoring comments earlier, I appreciate that's more of a '27 and beyond story. Fair to assume, Lab will see that later, but maybe you'll see it on the Industrial side earlier, weighing in dimensioning for transport, logistics, things like that? Patrick Kaltenbach: Yes. That's a good way to think about it. As you know, for these onshoring, reshoring, of course, also we work with industrial partners with automation solution providers, et cetera, that use our equipment. And I think they will pick up [ for ] as they prepare for the manufacturing solutions there, the automation lines and everything that is needed, and also our own products for production. And then Lab, including the QA/QC products that we deliver for these markets will be probably a bit later. Tycho Peterson: Okay. And then maybe just one last one on bioprocessing. I know it's a smaller part of the business. Maybe just touch on what you're seeing there? How do volumes look? And what are you baking in this year? Shawn Vadala: I'm sorry, Tycho, can you repeat the question? Tycho Peterson: Just bioprocessing, and consumables, single-use. Can you just talk a little bit about volumes and what you're baking in on the bioprocessing side this year? Shawn Vadala: Yes. So we didn't bake in specific guidance for it. But certainly, on the bioprocessing side, we had a very strong fourth quarter, especially when we -- geographically, we look at the Americas, the U.S. bioprocessing did especially well. Single-use also did particularly well in that market as well, too. We kind of look at that as an above-average growth driver in the Lab business and certainly feel good about the momentum they're kind of carrying into -- in and through 2026. Operator: Our next question comes from Doug Schenkel from Wolfe Research. Douglas Schenkel: So I guess another question on Lab. I think in Tycho's last question, he got at the bioprocessing component there. But again, Q4 results came in pretty well ahead of estimates. You grew solid mid-single digits on a really tough comp, and you accelerated on a 2-year stack basis. What would you call out as driving the underlying improvement? So not just in process analytics and bioprocessing, but more broadly, what's driving underlying improvement? Did you see any signs of budget flush? And then I'm just kind of underlying in there, was there anything that you would call out in terms of just the change in trend in key end markets? Patrick Kaltenbach: Yes. I think, Doug, in terms of the pharma, biopharma market overall, it's -- a lot of it is biopharma processing, which is more on the process analytics piece. And then we -- to your question regarding the budget flush, have seen, I would say, some budget flush, it's always hard for us to clearly assess how much is budget flush, but we have seen better momentum towards the very end of the quarter, which points to a budget flush. And that was also affecting the Lab portfolio, as we saw some flush coming there as well. I mean if you think about Lab and where we play and how we play, a lot of it is also linked to our strong software solution that we have there with LabX, which really helps us to connect a broader portfolio of our products in either R&D labs or QA/QC labs, it helps our customers to also automate more workflows. And I think that's kind of the trend that we see overall that helps us to compete very effectively and drives momentum also forward. That's something where we have really a stronghold where we invest a lot to not only drive automation in the Industrial piece, but also on the Lab side. And I think that's probably one of the things that also helps us to pick up more momentum in the market. Operator: Our next question comes from Dan Leonard from UBS. Daniel Leonard: I want to revisit, Patrick, the comments you made on your emerging market view. You commented that you have an expectation for above-market sales growth from emerging markets. And I want to clarify, does that comment include China? Or were you speaking to emerging markets outside of China? Patrick Kaltenbach: Yes. A very good question, Dan. Yes, and thanks for that question. I think it's an important one. We really speak about outside of China. So we expect for the emerging markets, which we also said, in the meantime, make about 18% of our total revenues versus China is like 15% or 16% of total revenues, but above average growth and above corporate growth rate is specifically pointing towards the emerging markets ex China. Daniel Leonard: Appreciate that clarification then. And then what is your updated view on growth in China over the medium term? Is that fleet accretive or fleet neutral? Shawn Vadala: Yes. So we're not necessarily formally updating guidance on China. I think we are very optimistic still about the medium to long term. We clearly acknowledge that it doesn't need to grow at the rates that it grew in the pre-COVID era. The last time we updated our algorithm for growth, we were kind of looking at high single digits for China. But sitting here today would be very comfortable if it was mid-single digit with our ability to still hit our 6%-plus long-term sales growth algorithm. And just as one example, the emerging markets outside of China are now bigger than China, and we kind of see a lot of growth opportunity there, but there's also a lot of other things going on inside the company that we feel good about. Operator: Our next question comes from Jack Meehan from Nephron Research. Jack Meehan: I had a couple of questions on core industrial. The first is called out seeing some signs of life on the PMI side. I was just curious in that context, can you unpack the first quarter guide? I think you're assuming flat growth. Is there some timing dynamics going on? Or just piece those together for me. Shawn Vadala: Yes. So yes, you're right. I mean it's definitely a little bit of a step down here from what we did in the second half of 2025. I think as we kind of look at it, it is a little out of all of our businesses. It has a little bit more sensitivity to the economy. Some of the recent PMIs, nice to see the direction. Certainly, there's a lag in terms of when we would see that in our business. Kind of as a reminder, about 60% of core industrial is sold into a combination of pharma, biopharma, food manufacturing and chemical. And out of those 3 sectors, the chemical sector has been under more pressure this year, probably expect it to continue to be under pressure in Q1. And we're just assuming as the typical company starts the year, they're just going to be a little bit more cautious with how they release funds. And we'll see how it plays out. As you know, we only sit on 1.5 months of backlog typically at any point in time. So -- but that's just kind of how we were thinking about it when we guided last quarter for this year. We've tried to communicate on that, that we wouldn't be surprised if things start off a little bit slower this year. And certainly, that's how we feel sitting here today. Jack Meehan: Got it. Okay. And let's say there's a scenario where we continue to see positive trends on the PMI front. Can you talk about -- just remind us like what the drop-through is? Like if we did see incremental organic growth, what the flow-through would be on the margin line? Shawn Vadala: I think on the core industrial side, it's going to be right around corporate average. It depends, of course, what part of the portfolio you're in. But like if you're into the part of the portfolio that's really serving the opportunities regarding automation and digitalization, which is the faster-growing sector, that's above corporate average. But some of the stuff that's a little bit more cyclical tends to be below corporate average. Operator: Our next question comes from Josh Waldman from Cleveland Research. Joshua Waldman: One for Shawn and then one for Patrick, I think. Shawn, can you talk through how you're thinking about the organic growth progression through the latter 3 quarters of the year? I guess, are you factoring in a larger than normal ramp off of the Q1 to get to the full year? And then on the embedded caution to start the year, I guess, are you seeing this in the order book when you consider normal kind of order seasonality for January? Shawn Vadala: Yes. So maybe I'll take the first part of the question first. So I think if you look at our ramp up, it's not like a significant ramp. Yes, we're going to be down a little bit organic volume in Q1 per our guidance. But if you, like, look at the second half of the year, it probably implies something in the 2% kind of a range in terms of organic growth. Now in the second half of the year, we'll have a little bit less pricing and a little bit less acquisition benefit. So that number might not be as high as just simply adding the increment of organic volume. But that's kind of like how I would probably see it sitting here today. But certainly, I wouldn't want to get into specific quarters. I think every year is the same, and this year is no different, and probably even has a little bit less visibility as you started, just given all the volatility from last year. But we're going to learn a lot more here over the next couple of months. And I think once we get through the full quarter, we'll have a much better perspective on what Q2 looks like, and what the rest of the year looks like. And then in terms of orders, we never comment on months and particularly just in Q1, I mean, January is always a goofy month, right? February is a goofy month. You have Chinese New Year timings. Seasonality-wise, these are lower months in the year, so we'll see. And like I said before, we only sit on about 1.5 months' worth of of backlog. So we'll see how it plays out. And we're executing well. We feel really good about how we're positioned. We have, I think, a really good balance of looking at growth opportunities and also keeping an eye on productivity topics, and we'll continue to have that balance going forward. Joshua Waldman: Got it. Okay. And then, Patrick, on service, I think you said the group reached $1 billion in sales. Can you remind us how that's dispersed across the Lab and Industrial segments? And then in the past, I think you've talked about service as an area of strategic investment. I wondered if you could talk through what you see as the near-term opportunities in service to drive incremental share growth on the hardware side? Patrick Kaltenbach: Yes. Very good. Thanks, Josh. Yes, look, I'm very excited about services and also the growth rates we have seen over the last years. We made a really conscious decision to overinvest in services as well and drive that opportunity. As Shawn said, we currently cover about 1/3 of the installed base. There's ample of opportunity for us to continue to cover more of that with strategic programs. We are making good progress. When you think about the breakdown between Industrial and Lab, for example, it's almost a longer revenue line because in Industrial, you would have to differentiate between, for example, PI where you have a stronger service business versus core industrial as a bit less. But I think it almost balances it out across the portfolio in terms of the contribution and comparison to the product business. But we are very excited about where we stand. It's a great strategic program for us as a company, and we are, of course, super proud that the team achieved this major milestone of $1 billion revenues in services. Operator: That concludes the question-and-answer session. I would now like to turn the call back over to Adam Uhlman for closing remarks. Adam Uhlman: Thanks, everybody, for joining us today and for your excellent questions. Please feel free to reach out if you have any follow-ups. And have a great weekend. Take care. Bye. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the ARC Resources Limited Q4 2025 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, February 6, 2026. At this time, I would like to turn the conference over to Dale Lewko. Please go ahead, sir. Dale Lewko: Thank you, operator. Good morning, everyone, and thank you for joining us for our fourth quarter earnings conference call. Joining me today are Terry Anderson, President and Chief Executive Officer; Kris Bibby, Chief Financial Officer; and Ryan Berrett, Senior Vice President, Marketing. Before I turn it over to Terry and Kris to take you through our fourth quarter results and 2025 reserves, I'll remind everyone that this conference call includes forward-looking statements and non-GAAP measures with the associated risks outlined in the earnings release and our MD&A. All dollar amounts discussed today are in Canadian dollars unless otherwise stated. Finally, the press release, financial statements and MD&A are available on our website as well as SEDAR. Following our prepared remarks, we'll open the line to questions. With that, I'll turn it over to our President and CEO, Terry Anderson. Terry, please go ahead. Terry Anderson: Good morning, everyone, and thank you for joining us today. This morning, I'll speak to our fourth quarter results, 2025 reserves and provide an update on our plans for 2026. After that, I'll hand it over to Kris to discuss our financial results. Before I dive into the quarter, I want to take a moment to recognize our team's exceptional safety performance with 2025 coming in as one of the strongest in our history. As you've heard me say before, safety is our #1 priority. Our people did an incredible job outperforming all of our key safety metrics, which is notable given the high levels of activity and degree of complexity we worked through this year. On behalf of our leadership team, thank you to our employees and contractors for your ongoing commitment to safety. Fourth quarter results were exceptional. We delivered operational and financial results above expectations. Production in the fourth quarter was a record 408,000 BOE per day, representing 7% growth year-over-year and 10% on a per share basis. Condensate and oil production was very strong in the quarter at 119,000 barrels per day. Kakwa was supported by strong well performance and the acquisition in July. In Q4, Kakwa production of 215,000 BOE per day was up 10,000 BOE per day quarter-over-quarter and included record high condensate production. With natural gas prices strengthening towards the end of the year, we restored production at Sunrise that was previously curtailed. In combination with our low-cost transport to U.S. markets, ARC realized a natural gas price of $3.77 per Mcf, which was nearly $1.50 per Mcf above AECO. In 2025, we curtailed nearly 400 million cubic feet a day of natural gas at Sunrise during periods when natural gas prices were low. This highlights our disciplined approach of focusing on profitability over BOEs, allowing us to defer roughly $50 million of capital while preserving resource. As we look ahead, AECO prices are constructive. We have commenced deliveries to the LNG Canada project through our agreement with Shell. This is an important project and one of several future LNG developments in Canada that will represent a meaningful increase in natural gas demand and bolster long-term profitability. In addition, we are approximately 1 year away from shipping a portion of our natural gas to international markets through our LNG supply agreements, which will add exposure to global LNG prices. Moving on to Attachie. We completed our first year of operations since commissioning the asset in late 2024. Production in the fourth quarter averaged 28,000 BOE per day and included approximately 13,000 barrels per day of condensate. At over 360 net sections, Attachie is a large condensate-rich asset in its early stages of development. Our main goal was to prove up and deliver predictable results in the Upper Montney and second, to assess the Lower Montney potential. Attachie well performance varied over the past year. We've had some really strong wells and some weaker ones. While current production is 30,000 BOE per day with 14,000 barrels per day of condensate, early results from our most recent Upper Montney pads in late 2025 and early 2026 are not meeting our expectations. Therefore, we've chosen to adjust our development schedule to allow our technical teams more time to analyze the results. This will allow us to determine the optimal development plan moving forward. In terms of the Lower Montney, with our first trial pad just about to come on stream, it is still too early to assess the opportunity here. ARC will continue to take a disciplined approach towards allocating capital at Attachie to maximize asset learnings. This will lay the foundation for future development activity focusing on long-term profitability over BOEs. Attachie remains a high-quality development opportunity, and we remain confident in its long-term resource potential. Today, we are working on just 10% of the 360 net sections we've accumulated in the area. It's an important asset for us, and we will take the time to ensure we get it right. And while we do, we'll lean on the strength of our base business, which provides decades of high-quality development opportunities. In terms of guidance, 2026 corporate production guidance remains unchanged at 405,000 to 420,000 BOE per day and capital stays at $1.8 billion to $1.9 billion. With the adjustments we are making at Attachie, capital activities and timing may shift across our asset base throughout the year. Our primary focus is to maximize our learnings from this asset and improve capital efficiency. We will remain nimble as our learnings evolve, so too will our plan. Finally, before I turn it over to Kris, I'd like to speak briefly to our reserves. There are a couple of things I'd like to highlight this year. First, reserves were a record across all 3 categories, increasing by 15% on a PDP basis and about 10% on a proved plus probable basis. And second, we reported a before-tax NPV of 2P reserves of $39 per share, which is based on roughly 1/4 of our internally identified inventory. This highlights both the value embedded in our business and the inventory runway to continue to grow reserves in the future. So to sum up 2025, we advanced our strategic priorities by profitably growing our business on a per share basis. Notable achievements include: first, we delivered record average annual production of 374,000 BOE per day, which increased our profitability and improved our per share metrics. Production and reserves per share increased by approximately 10%, while free cash flow per share doubled to $2.20 per share. This allowed us to sustainably grow our dividend for the fifth consecutive year, increasing it by 11%. And second, we executed 2 strategic opportunities that will improve long-term profitability. First, we consolidated Montney Resource countercyclically, directly adjacent to our existing assets at Kakwa. And second, we added 36 sections of land at Attachie through a unique agreement with TDZE, further extending the asset duration. With that, I'll turn it over to Kris. Kristen Bibby: Thanks, Terry, and good morning, everyone. Fourth quarter itself was ahead of expectations. Production of 408,000 BOEs a day was 4% of forecast, while funds from operations of $874 million was 11% above. Fourth quarter production was a record despite the curtailment of natural gas production at Sunrise due to low Western Canadian gas prices. Volume gains were mainly driven by Kakwa through organic production growth and the acquisition that closed in July. Full year production was at the top end of guidance and was a record in terms of both natural gas and condensate production. Free cash flow was $415 million for the quarter, which represents a 47% increase compared to the third quarter and is 40% above analyst expectations. Full year 2025 free funds flow totaled $1.3 billion and was roughly double the free funds flow we generated in 2024. In terms of capital returns, ARC returned 75% of free funds flow to shareholders during the year. We repurchased just under 20 million common shares for $514 million and declared dividends of $452 million. The remainder was used to reduce debt and maintain our financial strength. ARC exited the year with roughly $2.9 billion of net debt, approximately 0.9x 2025 cash flow, which was a decrease of approximately $200 million compared to the prior quarter. Balance sheet is strong. We plan to continue to return essentially all free funds flow to shareholders in 2026. ARC invested roughly $460 million in the fourth quarter for a total of $1.9 billion of capital expenditures for the year, which is within company guidance. Full year operating expenses per BOE was within company guidance, while transportation expense per BOE was at the low end of our guidance range. Looking ahead, our 2026 guidance remains unchanged despite the changes we are making at Attachie. Our priorities are to sustain corporate production between 405,000 and 420,000 BOEs per day, investing between $1.8 billion and $1.9 billion. As Terry mentioned, asset level allocations for production and capital may shift over the course of the year as we work through what our next steps at Attachie look like. In our current price environment, we expect to generate approximately $1.2 billion of free funds flow this year, highlighting the profitability of our business under a low commodity price environment. Once again, we plan to return essentially all free cash flow to shareholders through a combination of a growing base dividend and share buybacks. With that, I'll pass it back to Terry for closing remarks, and then we'll open up for questions. Terry Anderson: Thanks, Kris. As we enter into our 30th year of business, I am confident in what lies ahead. This year, annual average production is set to surpass the 400,000 BOE per day mark. And at current strip prices, we expect to generate approximately $1.2 billion in free cash flow. We're also about a year away from shipping first volumes of natural gas to international markets via the Gulf Coast, marking a significant milestone in ARC's natural gas diversification strategy. The competitive strengths we've developed over the past few decades will serve us well as we work through Attachie and continue to execute our strategy moving forward. We have amassed a large inventory in a world-class asset in the Montney resource play and have a strong technical team to develop it. Owning our infrastructure and securing long-term takeaway capacity should allow us to consistently achieve above-average returns and maintain high margins as we grow our business. We will remain committed to our core principles of risk management and capital discipline, which are central to delivering on our strategy and providing sustainable value to our shareholders. We appreciate the support from our shareholders in making prudent decisions today that support our long-term focus on profitability. Thank you. With that, I'll open the line up for questions. Operator: [Operator Instructions] first will be Michael Harvey at RBC Capital Markets. Michael Harvey: Yes, sure. So a couple of questions for me. First, if you were to reallocate some of the capital from Attachie this year to other properties, which I think was around $250 million or so. Maybe just give us a sense for where you would allocate that to? And just kind of remind us how you're thinking about the other growth properties just because Attachie has been a focus for a while. And then second, you're at the low end of your debt target range. Would you consider taking on some incremental debt or just cutting CapEx to buy back more stock? Just kind of trying to get a sense for how aggressive you could be with the buyback at these levels. Terry Anderson: Thanks, Michael. It's Terry here. So yes, as for where we reallocate that capital, the teams are working on that right now. We think there's opportunities probably in Kakwa and we see other good potential there, especially in relation to with what we acquired last year, and the teams have been looking at that already. There's still going to be -- we're still looking at if there's opportunity within Attachie, that time, depending on the results that we see going forward here on some of the wells that are coming on here, there still will be opportunities to spend dollars in Attachie, too. But the Kakwa is probably one of the spots. The teams are still working on some of those details. Kristen Bibby: And Mike, I'll jump in on the balance sheet. So balance sheet is where we want it. So what that means is it's unlikely we would put permanent capital towards the buyback. But what you have seen us do in the past is we certainly have the flexibility to steal from the latter part of the year and use that free cash flow earlier on to do the buyback. We've taken a pretty conservative approach here over the last while. So we'll see how things go, but certainly, you can expect us to be in the market. Operator: Next question is from Sam Burwell at Jefferies. George Burwell: Just curious if you could add any color on just the nature of the underperformance and inconsistency from the latest Attachie wells. I mean, did these incorporate any new techniques that ultimately didn't pan out? And are there any learnings to date that you can share from this batch of wells? Or is it really still too early to call? Terry Anderson: Yes, there's nothing -- it's Terry here. There's nothing significant that we changed on the completion design here. And it is really too early. Like we're talking in the Upper Montney, most recent Upper Montney pad has only been on production here for 5, 6 weeks. So we need time for this to truly clean up. And so that's what we're looking for is just time to truly evaluate it. And the whole point of that is to make sure that before we spend more capital, we've got the information from this pad. That's why we're making the change to slow down. Typically, we'd be drilling and completing next pads already while we're waiting for results. We're not doing that. We're making sure that we're making the best decisions based on the information, and now we need to wait for that information first to make the best decisions going forward here on capital activity. George Burwell: Okay. Understood. And then shifting over to Kakwa, looks very solid in 4Q. And I think the tuck-in acquisition makes a lot of sense. But I mean, any way to quantify what the bolt-on does for inventory depth? And are there any levers you can pull to either run Kakwa at a higher production rate or extends the inventory life further? Ryan Berrett: Yes. This is Ryan. I think when you think about that, obviously, this is just consistent with our strategy of bolting on contiguous acreage where we can. So teams are looking at that right now and evaluating and that will be incorporated into our development plan going forward. Operator: Next question from Patrick O'Rourke at ATB Capital Markets. Patrick O'Rourke: Just going back to Attachie and sort of the learnings you're doing here, 3-12 pad. It sounds like you don't -- you sort of want a little bit more time there. But just wondering going forward in terms of the development, it's been a pretty tight development sort of scheme that you've used to date. Any thought to a program here that spreads the wells out a little bit more going forward? Terry Anderson: Patrick, it's Terry. The short answer is yes. I think that's the things that we are looking at here. We want to get the learnings where we're at. Like I said earlier, like we're on just the first 10% of 360 sections. So the whole point here is slow things down and start looking at the opportunities on the whole asset base. So that might be an option that we would be looking at here and extending out further from where we're at, at the moment. So yes, that is one of the things that we're looking at. Patrick O'Rourke: Okay. Great. And then just thinking about the reserve report and reserve performance here, positive technical revisions. Can you sort of give us any color? I know you're lightly booked at Attachie, how reserve evaluators approach that? And then at Kakwa, where you've had some outstanding performance, sort of what level of inventory is formally booked in the reserve report today? Kristen Bibby: Patrick, it's Kris here. We don't disclose asset level reserve stuff. What I can say is there was minor adjustments made at the Attachie level. And then obviously, at Kakwa, the main change was the booking of the acquisition that we closed in July was the main change, but good strong corporate reserve performance across all categories, obviously. Operator: Next question will be from Aaron Bilkoski at TD Cowen. Aaron Bilkoski: Terry, as you alluded to, the latest pad had only been on for 5 or 6 weeks. Can you talk a little bit about what you saw or didn't see at that most recent pad or maybe the most recent pads that prompted you to pull the asset-specific guide? Terry Anderson: Well, it's extremely early, I guess, from the perspective that we haven't cleaned up the wells yet. And I guess from that perspective, we were expecting a little more hydrocarbon. And right now, we're seeing it, but we're not seeing to the degree that we want. But we realize also we are so early on this. So it's too soon to actually make that call, but it's not too soon to say, well, we want to wait to see the results so that we can efficiently spend capital on the next pads. So really, there's not a lot there. It's more of kind of just gut feel looking at it right now than anything. Kristen Bibby: And as far as the asset level guide goes, the reason that we're removing it is because we're -- we've made a change on the operational side where we're now slowing down and interpreting the data, as Terry mentioned, before we move on. So any time you do that, it impacts obviously your TILs or your wells coming on. And therefore, we're going to read and react and just wanted to get away from, frankly, month-to-month explanations. Aaron Bilkoski: Okay. That's fair. Just another quick question. Have you guys made any midstream commitments for Phase 2 that you may not realize? Kristen Bibby: Everything is already on our commitment schedule, and we're in -- we have what we need to go forward eventually. Operator: Next question will be from Kalei Akamine at Bank of America. Kaleinoheaokealaula Akamine: This one is also on Attachie. Just kind of wondering if you can provide some color on where exactly the underperforming Upper Montney wells are located to the extent that this reflects a geologic trend, is it water content? And if it is, how should we think about the aerial extent and the implications for the broader development footprint? Terry Anderson: Well, it's not water content. We're looking for the production here out of 3-12, and that's what we're focused on and what's driving the decision today. So we just -- and I keep coming back to say we just need more time to see this production and to allow it to clean up. But the 3-12 pad is the one that we're actually focused on. We have good wells right on both sides -- good pads and wells on both sides of 3-12 too. So it's not like it's an aerial thing. There's just some inconsistencies and variability that we're trying to figure out here. Kaleinoheaokealaula Akamine: Understood. Second question is on Kakwa. So as Kakwa is positioned to carry more of the load this year, what can you share about the 2026 drilling program? Specifically, should we expect activity to remain focused on the most productive condensate yields in your acreage? And can you remind us what the ultimate productive capacity is at that asset? Kristen Bibby: [indiscernible] I mean, yes, so Kakwa, there's no physical change that we are booking into Kakwa right now. So we're just highlighting that if we need, we might reallocate capital. You saw Q4 performance well ahead of expectations. And that's obviously just carried over a slight bit into the Q1 area, and that's what gave us the confidence to -- there's no adjustment to the corporate guide despite removing Attachie guidance. So pretty comfortable there. In terms of areas of development, no material change from what we've done over the past couple of years. So a really good part of the field that's got good yields, but very consistent overall is what we would say. Terry Anderson: And I would just add, just to be clear, we said we're evaluating where to reallocate this capital. So we just need some time on that, too, and Kakwa is an option for sure. Operator: Next question will be from Luke Davis at Raymond James. Luke Davis: Just a couple for me. So first, just wondering if you can kind of frame out how much technical work went into the initial sanctioning decision at Attachie? And just further to that, I guess, what gives you such a high degree of confidence that you'll crack the nut here, particularly across the broader base? Is this just like the large land overlay? Or is there something technically that you can point us to today? Terry Anderson: Well, from a technical basis, we drilled a number of pads and a number of wells on that east side, and we had great results coming out of that. So that, from a technical perspective, gave us the confidence to move forward. We have 9 horizontal wells across the east side of the river. So we've got -- and we've got results from that, that show condensate production, gas production from all of that. You have ConocoPhillips to the north. But we do have a lot of data across that land base to give us the confidence that it's -- the resource is there. We're not questioning that. We're just questioning trying to figure out the completion design or how to effectively stimulate it because we have some great wells, and we have some wells that are not so great. So it's like, okay, what's going on there, and that's what we're trying to figure out. Luke Davis: Yes, that's helpful. Appreciate it. Last one for me. You also tweaked around messaging just around kind of growth potential across the portfolio. Can you just give us a sense for how much depth is left, specifically on the condensate-rich side and ex Attachie, what the longer-term growth profile could look for? Terry Anderson: Well, we have lots of opportunity, obviously, in Kakwa with 15-plus years of development there. And then we just did this new little acquisition. There's Parkland that has lots of liquids opportunity. Even the north part of Septimus, in Dawson, the Lower Montney and Dawson has some good liquids in it, too. So there's definitely some more liquids growth. And then obviously, we have a lot of gas growth also. Operator: Next question from Josh Silverstein at UBS. Joshua Silverstein: So you still are spending around $250 million at Attachie this year. I don't know if you could break this down at all, but I was looking to see is this is all for Phase 1 drilling, how many pads you may be bringing on relative to what you did last year? And you have been doing a little bit of CapEx work for Phase 2. So I was wondering if there's still a little bit of that going on as well. Kristen Bibby: Josh, it's Kris here. Yes, we've still held the placeholder for $250 million at Attachie. As we've mentioned, we'll consider reallocating it if we choose to. It's just a little bit undetermined at this time. The point of removing asset level guidance was we're going to read and react. So I can't really comment on the pads going forward. As we said, overall corporate guide still $1.8 billion to $1.9 billion, and we'll reallocate as we see fit throughout the year. Joshua Silverstein: Got you. And then you guys had been active in M&A over the past year, adding into Kakwa. I was curious just to get your updates on that front this year. Are there still some opportunities that may be out there? And especially given that you guys are still in a very strong balance sheet position, is there an opportunity to grow inorganically? Ryan Berrett: Yes, Josh, it's Ryan. Yes, I think it's something, obviously, we're always looking at and has to be very consistent with our M&A strategy of high-quality assets, large inventory, contiguous asset base. I can't comment on any specific processes at this time. But yes, of course, we're open to it. Operator: [Operator Instructions] Next will be Travis Wood at National Bank Capital Markets. Travis Wood: Terry, you kind of touched on this. I think Attachie was unveiled nearly 15 years ago or so at an Investor Day, and you ran the pilots, you've drilled many wells kind of across the broader land base. So what exactly is showing up in the recent data versus the pilots and the pads kind of leading into Phase 1 that now kind of causes you guys pause? And so what exactly changed over the last couple of years? And then what is it that you're looking for on the data side to get comfort again in terms of reiterating guidance at Attachie and push towards Phase 2? Terry Anderson: Well, I think the big thing that we've realized is actually the casing deformation that we didn't see on the other pads. So that was one of the things that was different from the original number of wells and everything we've seen. And so that means we're just trying to make sure that we can effectively stimulate the reservoir like we've seen on the first number of wells and pads. Really, the -- I keep coming back to the resources there. We just need to tweak designs and to be able to effectively stimulate the reservoir to access that resource that's there. So that's -- and sometimes these things take a little time to figure out. And this isn't the first time we've actually seen this. In Dawson and in Parkland, we've seen similar events where we couldn't effectively stimulate the full lateral length. We figured those out. This one, we've gone so fast at it in such a confined area that we just need a little more time with it. Travis Wood: Okay. And I mean, I think going back to even the wells. In front of the pilot or some of the older legacy wells even around 2015, will you test what you're doing in this more concentrated area on the west side and try to identify the resource is open to these completion techniques to the Northwest? Or how are you thinking about kind of derisking the completion side? Terry Anderson: So that's what the teams are looking at right now is to look at expanding, like I mentioned, we're only on the first 10%. So there's a lot of acreage. Some of the plans will evolve into going further out from our existing area that we've been drilling and assessing that a little bit more. So that's -- but our teams are looking at all of those details right now. But that is something that we are going to definitely pursue is moving over and testing more of the acreage beyond the 10% that we're on right now. Operator: And at this time, we have no other questions registered. I would like to turn the call back to Terry Anderson. Terry Anderson: Okay. Thank you. Like, I guess my final comment would be, I realize that sometimes the right business decisions are not necessarily the most popular decisions from a market perspective, but we are here to manage risk while we create long-term value for our shareholders. So we will make the right decision. And that's what we're doing here today, slowing things down, making sure that we are focused on delivering long-term value to our shareholders. We appreciate your patience. So thank you, everyone. Have a good day. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.
Operator: Good day, and thank you for standing by. Welcome to the Roivant Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephanie Lee. Please go ahead. Stephanie Lee Griffin: Good morning, and thanks for joining today's call to review positive Phase II results for brepocitinib in cutaneous sarcoidosis and Roivant's financial results for the third quarter ended December 31, 2025. I'm Stephanie Lee with Roivant. Presenting today we have Matt Gline, CEO of Roivant; and Ben Zimmer, CEO of Roivant. For those dialing in via conference call, you can find the slides being presented today as well as the press release announcing these updates on our IR website at www.investor.roivant.com. We'll also be providing the current slide numbers as we present to help you follow along. I would like to remind you that we will be making certain forward-looking statements during today's presentation. We strongly encourage you to review the information that we filed with the SEC for more information regarding these forward-looking statements and related risks and uncertainties. And with that, I'll turn it over to Matt. Matthew Gline: Thanks, Steph, and thanks, everyone, for dialing in and listening this morning. I'm going to start our presentation on Slide 5. I was sitting and talking to the team it was about a week ago today, looking at a draft of this morning's presentation and thinking that it was going to be a pretty boring 10-Q. We've gotten together in December for the Investor Day. We had -- we've spoken at the JPMorgan conference, and it turned out to have been a really busy week. So we have some great updates, obviously, most notably the Phase II data in brepo in CS, which Ben is going to present on momentarily. But truth is terrific execution and progress across the board for us this quarter. Obviously, that data is a highlight, but we also can announce today that the NDA for brepo in dermatomyositis that the Phase IIb study for 1402 in D2T RA has fully enrolled, that the Phase II study for mosliciguat in PH-ILD has fully enrolled. And obviously, all of the updates that we're known for, including Immunovant offering earlier that gets us now financed to greatest launch, all behind us. So just a terrific quarter and a terrific set of updates even since early January when we last got together. On Slide 6, 2026 is, again, a very busy year for us ahead. Obviously, some major events later in the year, the brepo NIU Phase III, the pivotal readout in the second half. We're now going to be starting this year a Phase III study in brepo in cutaneous sarcoidosis. Ben will talk a little bit more about that. It's early days and getting that going, but that will be this year. The Phase IIb data for mosli is expected firmly in the second half of this year. We now know that because the study is fully enrolled, obviously. Same thing with the D2T RA data where all of that -- both the open-label period and the randomized withdrawal period will be done by the second half of this year. We are also getting proof-of-concept data in 1402 in CLE. And finally, we are still on track for the jury trial against Moderna starting on March 9, so just a few weeks away now. So a really, really busy year ahead for Roivant. And really, if you look at Slide 7, before we get again to the data for CS, just a pipeline we're really proud of that continues to deliver across multiple dimensions with obviously brepo with now 3 indications in pivotal registrational programs, multiple registrational programs for FcRn franchise, many of which we've talked about and mosli with top line data coming in the second half. So really excited about where we are as a business, really excited about the pipeline. I couldn't be more excited for the beginning of 2026 here. Certainly, off to a good start. And with that, what I'm going to do is turn to the Phase II data for brepo in sarcoidosis. So I'm just really briefly on Slide 9 of the presentation, I'm just going to walk through a couple of highlights, but mostly, I'm going to hand it over to Ben to take you through the data in detail. And the short answer, and we keep saying this, it's a tremendous fortunate, I think, to be able to say, that this drug has done everything we could have asked for us -- for it in this -- in this study. We had a significant -- statistically significant. Remember, we had said before the bar for clinical success here, we thought was sort of 5 points of CSAMI was clinically meaningful. We got a placebo-adjusted almost 22 points, 21.6 point delta with a P-value. And again, the study was not powered for efficacy in this endpoint. 100% of patients on berepo 45 on placebo had a 10-point improvement. Again, clinically meaningful was 5 points. 100% of patients on our high dose had at least a 10-point improvement. So just a tremendous outcome across the board. There's some great supportive data on some of the other endpoints as well. And with safety and tolerability completely consistent with what we've seen for the compound in the past. So a really terrific outcome. And in a disease that needs -- where there's never been a positive placebo-controlled study in an industry-sponsored study to our knowledge. So really a terrific day for those patients. So with that, I'm going to hand it over to Ben to walk you through a little bit about cutaneous sarcoidosis as a reminder and then on to the study data as well. Ben, take away. Benjamin Zimmer: Great. Thanks so much. Great to be here with everyone. Starting on Slide 10, I just wanted to bring back to what this disease is, walk through this at the Investor Day in December, but cutaneous sarcoidosis is a really debilitating skin disease and among skin diseases stands out for its rapid progression towards permanent scarring and destruction of tissue as well as its disfiguring nature given the particular prevalence on the face and scalp of the disease. Turning to Slide 11. I would note that there is no approved therapies, not only for cutaneous sarcoidosis, but for any form of sarcoidosis. And so as we think about our development program in CS, really a great opportunity for brepo to meet this overall unmet need and become the therapy of choice if we're going to be successful in Phase III as we hope and expect we would be on the basis of this data to really be a promising option for all patients with skin involvement in their sarcoidosis that would include patients both with only skin involvement as well as those with other organ involvement as well. Turning to Slide 12, really just briefly here on the alignment between the pathobiology of the disease and the mechanism. And I think this is important because, as Matt alluded to, and I'll walk through in a bit more detail, we really have great data here that we're very excited about. And I think in a small study, the data is very, very compelling. It's hard to argue on its own, but it also really aligns with what you would expect to see given the mechanism of this drug. Sarcoidosis -- all of the forms of sarcoidosis, including cutaneous disease are driven by the polarization and recruitment of effector T cells and particularly Th1 polarized cells. And brepo really distinctively inhibits Th1-related pathways by hitting both IL-12 through TYK2 and interferon gamma through JAK1. So really an opportunity here mechanistically to see the benefits of JAK1, TYK2 inhibition specifically. And I think that's really part of what's flowing through to our clinical data that I'll walk through now. Slide 13, study design, very straightforward, 31 patients in the United States, randomized 3 to 2 to 2 to brepo 45 milligrams, 15 milligrams and placebo, 16-week study evaluated several different efficacy endpoints that I will walk through. On the baseline demographics and disease activity, Slide 14, I do want to highlight a few things. First, if you look at the duration of disease and background damage of patients, brepo 45 milligrams and placebo, very well balanced between those 2 arms, but 15 milligrams actually quite a bit lighter on duration of disease and damage, which would mean really a higher bar for both brepo 45 and placebo. And then I would also call attention to the plaque predominant morphology, cutaneous sarcoidosis can present through both plaques and papules. In general, the plaques are viewed as more treatment resistant. And you see this plaque predominant morphology, most pronounced and most common in the brepo 45 milligrams arm, followed by 15 milligrams followed by placebo. So sort of punchline of this is there were some imbalances. Those imbalances actually made it harder for brepo 45 milligrams to demonstrate efficacy, both as compared to placebo and as compared to brepo15 milligrams. And in spite of that, as I walk through, we really see exceptional data from the brepo 45-milligram dose arm. So turning to Slide 15 to get into the efficacy results. On the left hand of the slide, you see the mean to CSAMI activity score change from baseline, both doses, statistically significant separation from placebo as early as week 4, the first time point evaluated and then sustained at every visit out to week 16 at the end of the trial. And then on the right here, we see the achievement of investigator global assessment 01 and a 2-point reduction. So as a reminder, this is -- the IGAs are a standard FDA supported endpoint for cutaneous disease. This is similar to the IGAs used in other skin indications with scores from 0 to 4, clear, almost clear, mild, moderate and severe. So to achieve both a 2-point reduction and at 0 or 1 is a very high bar. And notably, it's a high enough bar that 0 placebo patients cleared it. So you may be confused where the placebo line, the placebo line and the x-axis line are the same thing on this chart. And you see here, again, some early progress for both dose arms at week 4, really significant or substantial improvement at week 8 and then static improvement at week 12 and 16. And then here on this higher bar endpoint, you do start to see brepo 15 milligrams begin to -- sorry, brepo 45 milligrams begin to separate some from the 15-milligram dose arm. Slide 16 has the CSAMI responder data. Again, really compelling data. I think this chart on the left, quite remarkable. As Matt alluded to, we were hoping to see a mean improvement of 5 points. And what we saw was not only a mean far in excess of that, but we saw 100% of patients in the brepo 45-milligram arm achieved twice that, twice the minimum clinically important difference. So really every brepo 45-milligram patient a responder in this trial. And as I'll walk through momentarily, that's really corroborated by an independent patient-reported outcome as well. And then you see on the right-hand side of this chart, achievement of a CSAMI less than 5. Notably, this is not an improvement by less than 5. This means that the absolute score by the end of the trial is 5 or less, which is a standard for functional remission. And you see 62% of brepo 45-milligram patients achieving that compared to no placebo patients. So again, this data quite in line with the IGA 2-point improvement to 0, 1 that I walked through before. So again, seeing pretty consistent data here across multiple endpoints. Turning now to the patient-reported outcomes. Slide 17 has the Skindex-16. This is, again, a pretty established standard metric in inflammatory skin disease trials. We see excellent data here with the placebo group worsening, brepo 45 milligrams and 15 milligrams, both improving substantially, well above the minimum clinically important difference. Again, here with brepo 45 milligrams outperforming 15 modestly and both doses really far better than placebo. Slide 18, we have the KSQ skin domain. So this is the King's sarcoidosis questionnaire. It's a PRO for sarcoidosis overall, not just limited to skin disease. What we focused on in our initial TLR was the skin-specific domains. And you see here very in line with the Skindex in terms of the data. So just yet another data point of very compelling evidence of benefit. And finally, on the efficacy side, I alluded to this before, but on Slide 19, we would call it the patient's global impression of change. So this is a single question where patients are asked since they started taking the study medication, how would they describe the overall change in their sarcoidosis symptoms, and they can answer no change or some degree of improvement or some degree of worsening. I think this is a powerful endpoint for simplicity. And notably, 100% of brepo 45-milligram patients reported that they have improved, again, consistent with the CSAMI data where we saw a 100% response rate. So very compelling here. Brepo 15 milligrams also very considerable improvement for most patients, although 2 patients in the brepo 15-milligram group did not -- not only did not report improvement, but actually reported worsening. And then in the placebo group, very little improvement and most patients reported either worsening or no change. Turning to Slide 20, safety data. I think very well, brepo was very well tolerated during the study. We had no SAEs in the study and all adverse events were graded mild or moderate in severity. So against the backdrop of this efficacy data, in particular, certainly, the safety data we see would tee up a potentially very favorable benefit risk profile for brepocitinib for these patients. Obviously, we have over 1,500 patients of data in brepocitinib. And so the overall safety database is characterized by much more than just these results. But certainly here, nothing that would really add anything to what's already known about the drug from that perspective. And I think, again, starting to dose it now in this particular patient population, I think we see the early signs of a very indication-specific compelling benefit risk profile. So just to wrap up very quickly before handing it back to Matt, really compelling evidence of benefit. The effect sizes we see here are extremely large. We see them very consistently across multiple different endpoints, including independent patient-reported and physician-reported assessments, very high response rates, including the 100% response rate for the brepo 45 milligrams arm and a rapid onset of action sustained over time. So really exciting results. We're really excited to move this ahead to Phase III and potentially have the first approved therapy for sarcoidosis. So I look forward to discussing any questions later, and I'll hand it back to Matt. Matthew Gline: Thanks, Ben. Yes, look, we're just terrifically excited about this data and about what it means for us and what it means for these patients. On Slide 22, just sort of as a reminder of what the picture for brepocitinib now looks like, people toss around the phrase pipeline and a product for a lot of different products. I feel at this point, looking across the indication set for brepo, even with what we've talked about already with CS, DM and NIU, where we get to a very large addressable patient population, these are patients who in every one of these indications lacks efficacious therapies and is in need of options, and we continue to add legs of the stool or opportunities that grow into these sort of first-in-class orphan inflammatory diseases that are high unmet need in important areas. And I think we've got more to come there. So stay tuned. But just starting to feel like brevcitinib is a really important medicine for us and hopefully for patients. So looking forward to continuing that journey. I'm going to brief through a couple of other highlights or updates across the portfolio, little quick financial updates, and then we'll do Q&A at the end. Super quickly on Slide 24, as a reminder, IMVT-1402 remains a huge focus for us at Immunovant. We think we've got an FcRn with potential best-in-class efficacy with a safety profile that looks favorable even within the class, obviously, convenient administration with a subcu auto-injector and we use the phrase again here, pipeline and product potential, again, with Graves' among our lead indications where we're expecting pivotal data in 2027. We're now, as I mentioned earlier, expecting the D2T RA data later this year, and that study is fully enrolled. We actually enrolled 170 patients in that study, up from the anticipated 120 originally, and that was in part just due to speed of enrollment and the level of enthusiasm from the patient in that community. Moving over to mosli on 25, and we'll definitely spend some time later this year talking more about PH-ILD and mosli and setting the stage for what we expect there. But that study is fully enrolled with thanks to those patients investigators and the Pulmovant team. PH-ILD remains an exciting opportunity for us where targeted delivery gets at a disease where lung is the primary site of disease activity. We think we have a convenient once-daily dosing regimen in a disease where existing therapies mostly have multiple daily inhalations. And there aren't very many existing therapies bluntly. We expect or hope for tolerability benefits. And then as I think you know, we showed really the best ever PVR reductions in the PAH population. And if that translates, we may be able to get some best-in-class efficacy as well. So really excited about what we could do there later this year. I think it will be a really important part of our story in the coming months. And then finally, and as before, I'm not going to spend a ton of time talking about this today because we're so close in here, but the jury trial in the Moderna case is scheduled for March 9. We continue to make progress there and the sort of major update there in the recent weeks is that we got the -- earlier this week, we got the first of the summary judgment decisions, which covered a few things and had some puts and takes generally. But one thing we were quite happy with is the favorable decision on Section 1498, which sets us up for the case that we were sort of "hoping for" in this trial where almost all of the doses that we have asserted are going to be covered in this jury trial. So looking forward to that and obviously, more to come there. Finally, just a really brief financial update on Slide 28. R&D expense of $165 million, adjusted non-GAAP of $147 million for the quarter, G&A of $175 million, adjusted non-GAAP of $71 million for a total non-GAAP net loss of $167 million. Cash remains very strong, $4.5 billion of consolidated cash in the business. So plenty of capital to get us to profitability with dry powder to do other things as well. As a reminder, we still have share buyback authorization and are happy to have that sort of capability. On Slide 30, as discussed, just a really catalyst-rich period ahead of us. A couple of these things checked off now. Obviously, the beginnings of the summary judgment also make progress and just feeling good across the board with a lot more updates to come this year. It should be a big year for us. And a big few years on Slide 31 before I go to Q&A, multiple commercial launches potential in the coming years. Obviously, brepo and DM would be first with that NDA now in, multiple NDA and BLA filings. We continue to have even sort of more future POC study readouts even among the ones we've already announced and now 9 or more pivotal study readouts, including cutaneous sarcoidosis coming over this time line, which is just a really exciting slate for us to build on. So with that, thank you again for listening. I'm going to stop talking and open up the line for Q&A. Operator: [Operator Instructions] Thank you, operator. Our first question comes from the line of Corinne Johnson with Goldman Sachs. Corinne Jenkins: I think you've mentioned today and previously that you'd consider further development expansion opportunities for brepocitinib. And I'm curious how these data kind of inform the direction you'd like to go. Maybe you could also help us kind of size the opportunity set, particularly with respect to like what percentage of the patient population you think are great candidates for this relative to NIU and dermatomyositis. Matthew Gline: Yes. Perfect, Corinne. Thanks. It's a great question. Look, I think the first thing is we are absolutely enthusiastic about further development of brepo. We have other indications that Ben and the team are hard at work at. I don't -- I think the -- what I would say the main thing about this data is just that it continues to underscore how strong an agent brepo can be in these patient populations that need it and sort of drives enthusiasm, but I don't know that it reveals anything specific or new other than we're continuing to think about other forms of sarcoidosis, et cetera. CS is another indication where we will be the first and only drug approved if we're successful from here. And then on patient population, look, I think this is right in the sweet spot of what we've been trying to do, not just bluntly for brepo, but across the different drugs we're developing, where we're in this kind of large orphan market. And again, we might do things outside of this category, but it's been a really good space for us and for others with tens of thousands of patients, a big opportunity, high unmet need. And we think it will be the kind of thing that we can attractively launch and that we can make a successful franchise around. So it feels great from an ability to benefit these patients' perspective and from a commercial perspective as well. Ben, anything you'd add there? Benjamin Zimmer: I would just add that I think -- and this is something we've felt already, but this data really enforces that of the alignment of TYK2/JAK1 inhibition to T cell polarization, both as we see here, predominantly Th1 driven, but also Th17 driven. And the mechanism of TYK2/JAK1 inhibition really does align to that through IL-12 and interferon gamma for Th1, IL-6, now IL-23 for Th17. And I think that's really one of the mechanistic hypotheses around the distinctive benefits of TYK2, JAK1 inhibition. Others are obviously the type 1 interferon suppression that's very important in dermatomyositis in addition to the T cell polarization. But I would kind of highlight that this data really enforces that NIU has some overlapping mechanism as well, where obviously, we had really strong Phase II data, excited to see that Phase III result. But I think just as we think about not just kind of the unmet need of indications as Matt articulated, but also diseases where TYK2/JAK1 inhibition is going to really be, in our view, potentially better than any other form of immunosuppression. I think this data kind of reinforces some of our hypotheses there. Operator: Our next question comes from the line of Dave Risinger with Leerink Partners. David Risinger: Let me add my congrats as well, Matt and team. So obviously, the data was phenomenal. I had a couple of questions. First, with respect to the headline CSAMI numbers, they were similar between the 2 arms. The press release obviously mentioned different baseline characteristics. Could you just add a little more color on that? Second, with respect to the FDA time line, obviously, OCTAGAM is approved for dermatomyositis. But is there a chance for the FDA to elect to grant priority review? Could you talk about that a little bit? In DM I'm talking about. Matthew Gline: Thanks, Dave. Those are both great questions. On the CSAMI point, I think Ben hit on this well in his presentation as well. Look, I think if you look at the table, I can pull up the slides in a second. But if you look at the table in the presentation on baseline characteristics, I'd say there are some relatively small -- this is a small proof-of-concept study. It's a relatively small in each arm. And so you can see some relatively significant differences on some aspects, including duration of disease as well as morphology of disease with more plaque predominant patients, which are those more recalcitrant patients on our 45 arm than on our 15 arm. And I think that's probably in part what's responsible for the sort of headline numbers looking similar. And you can see that they separate more, again, as Ben hit pretty well in the presentation on the more stringent endpoints like the proportion of patients hitting a 10 or more point CSAMI benefit. So we feel pretty good about that translating into Phase III. And then on the FDA time line, look, I think the answer to that question is DM is a severe disease with not a lot of options. And so there's certainly a chance, but that ultimately is up to FDA. Operator: Our next question comes from the line of Yaron Werber with TD Cowen. Yaron Werber: Congrats. Really nice to see this data. I got a couple of questions. One is price. The IVIg is around 180, but the concomitant sort of price for VYVGART for these indications around $870 gross. So maybe help us understand how you're thinking about pricing of brepo. And then secondly, as you -- and I know this might be a little premature, but from Pfizer owns 25% of the JV, you'll obviously consolidate all sales of brepo. How do we handle their 25% ownership? Because you're not going to be paying a dividend, but I imagine you'll have to sort of give them their 25% of the profits. What is that going to hit the P&L? Matthew Gline: Yes. Thanks, Yaron. Those are both good questions. Look, I think on price, it's -- we obviously have not decided on a price yet. It's too early to have an answer to that question. What we've said before is taking bookends that are not so different from the ones you quoted there. I think our view is IVIG is probably a little bit more expensive than that in practice those bookends are a reasonable place to think about in terms of the pricing envelope for these indications is what we said before, and I think that continues to stand. I think it gives us a lot of room. So I think stay tuned, but this will be an orphan price drug. And then on the -- what I think is really sort of an accounting math question. So we'll fully consolidate all of the results, losses, sales, everything. And then there'll be a below-the-line minority interest that attributes the portion of Pfizer's earnings. But again, it will be below the net income line. And then in terms of how cash comes out, obviously, if we distribute cash out, Pfizer will get their portion of that cash and we'll get our portion of that cash. The only other comment I'll make there is, and we said this elsewhere, the early portion of the relationship with Pfizer had dilution protection for their ownership stake. That's been exhausted now. And so for any further capital into Priovant, Pfizer will either need to match their portion of our spend or will be diluted and we'll wind up owning more. Operator: Our next question comes from the line of Brian Cheng with JPMorgan. Lut Ming Cheng: Congrats on the data here. Two questions from us. As we think about the Phase III, what's your latest thinking about the size and the dose that you have picked? And just curious if you have any thoughts about how we should think about the stability of efficacy going from a Phase II to Phase III for this indication. It seems that you have a pretty large gap going from 22 to the 5-point delta that seems clinically meaningful. How should we think about deterioration? And I have one quick follow-up as a housekeeping question. Matthew Gline: Yes. Thanks, Brian. Look, I'm mostly going to hand over to Ben for these questions, but I'll just say it feels like we've got a fair amount of cushion in the quality of this data. And also, a, this was a relatively small study. There aren't a lot of other studies to go on in CS. So we kind of got to take our guidance from here. But it was nice to see a low placebo response. Ben, do you want to talk a little bit about that and about whatever we can share at this point on Phase III design? Benjamin Zimmer: Yes, sure. I mean, first, just on erosion, obviously, it would be hard to do any better than this. But I think that the minimum clinically important difference, as we've discussed, is 5 points. Here, we have over 20 points, we could have significant erosion and still have a very compelling data set and a very compelling product profile for patients and physicians. That said, I would also note this is -- it was a U.S.-only study, but 15 sites for the 31 patients. So this was a multicenter, multi-dose placebo-controlled trial, very rigorous for a smaller proof-of-concept study. So while I think that there's always some risk of erosion, in particular, while the very low placebo rate is consistent with natural disease course, you can never be sure of the behavior of placebo in these inflammatory disease trials, particularly when you move to larger global trials. But broadly speaking, I think this data gives us an incredible cushion to still have an effect size in Phase III that maybe is as large or maybe is not quite as large, but still would be extremely compelling. As far as the design of the Phase III in terms of size, I think we would probably be looking at sort of similar size per arms to the DM trial roughly, but we need to kind of take this data into consideration and think more about the powering and have final discussions with FDA on it, including as related to the indication safety set that they would want to see to support approval. So we'll have more to share on that after we engage with FDA. And the same is true on dose. I would say that I think our incoming hypothesis to this trial is that 45 milligrams is based on the totality of the 1,500 patient data, we have a very compelling potential option for these patients balancing benefit and risk. And certainly, I would say, in totality, this data reinforces that. You see really excellent efficacy results from the 45-milligram arm, including on some of these higher bar, more stringent endpoints starting to see real separation with 15 milligrams. And then certainly, in terms of the safety data, nothing that would suggest the overall safety profile of 45 milligrams that we've seen across all of the different indications in which it's been studied, that nothing in this data to suggest there's anything specific to cutaneous sarcoidosis separate from those. So I think broadly speaking, I would say we're very excited about 45 milligrams coming into the study. We're even more excited about it coming out of the study. 50 milligrams also performed very well, and that's great to see. It really just speaks to the overall efficacy potential of the product. And so we'll kind of have a final update on that after we engage with the agency. Lut Ming Cheng: Got it. And maybe just one quick one on the housekeeping side. So -- looking at the 10-Q from Immunovant, can you give us a little bit more color on the return for certain rights around batoclimab, [indiscernible] HanAll? Is there any read-through to how we should think about the setup for the TED data readout later this year? Matthew Gline: No is the short answer to that question, meaning there's no read-through anything. It's just as we get closer to that data, depending on what we decide to do with batoclimab, we decide to further develop, we'll have to make a decision around how to work together with HanAll on next steps there. So that's really nothing to say. Operator: Our next question comes from the line of Dennis Ding with Jefferies. Anthea Li: This is Anthea on for Dennis. Congratulations on the data. I wanted to ask 2 questions on upcoming catalysts. First on Daubert, can you explain how important Dr. Mitchell's testimony is to the case improving direct infringement and whether or not there's any risk to that being taken out, so to speak, ahead of trial? And then on PH-ILD, thoughts on the competitive landscape and if sotatercept could work in the disease as well? Matthew Gline: Thanks. Both good questions. Look, on Genevant, as we said, we really can't talk too much about an ongoing litigation. There are a variety of Daubert motions in front of the court, what they are visible, and the judge will make a decision on all of them and anything within the range as possible. Obviously, we're hoping for favorable best outcomes in each case. On the PH-ILD question, look, I think the answer is, in theory, any drug that improves PVR could work in PH-ILD. Systemic vasodilation has not in and of itself been a great approach in PH-ILD, but sotatercept certainly could work in PH-ILD. Right now, we are slated, I believe, to be the first non-prostacyclin non-treprostinil in PH-ILD. I suspect given the amount of unmet patient need, there will be others behind us, but I think we have a really favorable profile as we enter that space. Operator: Our next question comes from the line of Yasmeen Rahimi with Piper Sandler. Yasmeen Rahimi: As an Immunovant covering analysts would love to spend time on 1402 and get some color around your near-term RA readout. Obviously, the study is upsized. Help us understand as the study is coming to an end reading out, what you hope to see and how you're sort of preparing for filing and how soon you could actually get ready for that first Phase III registrational study to be shared? And then I'll jump back in the queue. Matthew Gline: Thanks. I appreciate the question. Look, I think -- in terms of expectations for RA, I think the short answer to that question is, on the one hand, these are patients with high unmet need. And so in some sense, the bar for efficacy is relatively low compared to what we may be used to seeing in RA. On the other hand, there's just very little precedent data for drugs in late-stage RA with sort of this level of pretreatment. And so it's hard to know. I think we're doing some work on that very question now, and we will share some guidance on what would cause us to run the second study before we put out that data. So I'd say stay tuned for that. Remember, these are burned out patients with pretty tough disease at this point. So obviously, if we're excited about the data, there's a potential for it to be a big product. Obviously, we will engage with the agency once we've got the data and think about what a plan looks like. I think the base case expectation should be that this is one of a couple of studies that we'll have to run just because this is a relatively smaller randomized withdrawal trial. But we'll see the data, and then we'll better answer that question. Operator: Our next question comes from the line of Prakhar Agrawal with Cantor. Prakhar Agrawal: Congrats on these amazing results. So maybe on brepo in CS. Just wanted to better understand the market opportunity here. You've talked about 40,000 eligible patients. Would all of these be eligible for brepo therapy and meet the inclusion/exclusion criteria for the trial? And if that's the case, do you think this is a similar size opportunity as dermatomyositis, and maybe just one follow-up on the Phase III design. Would the time point of the endpoint be 16-week similar to your Phase II, given your -- you already have the safety database? Or would you have to test longer? Just trying to figure out if there is any ways to accelerate development here. Matthew Gline: Yes. Thanks, Prakhar. Great questions. Look, I think the short answer on market opportunity is this is a patient population that's sick with high unmet need. And assuming our Phase III data looks similar to our Phase II data, I think a lot of these patients are going to be enthusiastic about a better treatment option. It's probably a modestly smaller indication than dermatomyositis just in terms of total end. I mean, obviously, DM is 40,000 patients in treatment, but 70-plus thousand total patients. So I probably think of this as an exciting opportunity, but a little bit smaller than the DM opportunity, although, again, it depends on the Phase III data. And then I think the short answer on Phase III design is let's just wait until we've had the conversation with the FDA before we sort of talk about final outcomes, but we're going to be looking to leverage as much as we can of what we've learned from the Phase II study. And obviously, to the extent that we can match parameters on which we're confident, we'll do that. Operator: Our next question comes from the line of Samantha Semenkow with Citi. Samantha Semenkow: Congrats on this very good safe data. I'm wondering what percentage of patients in the BEACON study had organ involvement, if you have that? And were you able to collect any data that would allow you to assess whether brepocitinib impacted organ-specific manifestations? And then just as a follow-up there, do you see a path to expand into other forms of sarcoidosis with brepocitinib? Matthew Gline: Yes, thanks. Look, I'll take the second of those questions, which is certainly it's something we will evaluate in terms of further places to study brepo. And as I said before, we have ideas inside and outside sarcoidosis that are exciting. So stay tuned, and we'll be back with it. On the first question in terms of patients' organ involvement and what we can learn from it. Ben, anything you'd share about that? Benjamin Zimmer: Yes. Around 60% of the patients had some pulmonary involvement and around 30%, inclusive of that 60% had some other organ involvement, mostly ocular involvement. We did take some exploratory endpoints related to those in the trial. We haven't analyzed that yet. Ultimately, the study was not designed or set up to evaluate benefit in those other organ systems. So I don't expect us to learn anything too meaningful from that, but it's certainly something we will take a look at. And I think the important point to note is this is a real-world cutaneous sarcoidosis population, given these -- many of these patients do have multiple organs involved. Operator: Our next question comes from the line of Yatin Suneja with Guggenheim. Yatin Suneja: A quick one for me on brepo on the data that you provided. Like if you look at the curves, they continue to deepen over 16 weeks. So I'm just curious to understand from you, how should we think about further -- do you expect further deepening, further separation? Just talk about if somebody gets treated for a year, how should we think about it? And then if you can just talk about the scope and the size, I don't know if you touched on that already of the Phase III study. Should it be similar to what you did in DM? Matthew Gline: Yes. Thanks. I mean just to reiterate on Phase III, and I think Ben shared a thought about that. But I think in general, until we talk to FDA, it's like -- it's hard to commit to a specific study design. So I think like let us get through that, and then we'll be back with a full accounting of the study design. But I think we're prepared to run and enroll a nice sizable study if that's what we need to do. I think we feel good about what we need there. And then in terms of -- look, in terms of continued deepening we're just looking at this data for the first time this week. So I think we're continuing to explore all the various features. I think it's one of the KOLs who was also involved with the study, gave a quote to some journalists. When I think his comment was if the data had been half as good and there have been twice as many side effects, it still would have been a great outcome. Look, obviously, long story short, there are certainly potential ways for this data to be even better with longer therapy with other parameters, but I think the answer is if we can come close to replicating this in a Phase III program, it would be a huge win. So I think we should be offset there. Operator: Our next question comes from the line of Douglas Tsao with H.C. Wainwright. Douglas Tsao: I guess, Matt, I'm just curious with brepo, how broad are you now thinking about the opportunity, right? I mean I think we've seen great results, obviously, in CS today on DM as well as NIU. There is obviously a lot of data with JAK inhibitors in various indications, but not necessarily full randomized trials or proof of concept. I mean is that the breadth of universe? Or is there other white space that you're also thinking about where JAKs haven't been explored at all, but perhaps it's worth exploration just given the magnitude of effects that you're starting to see? Matthew Gline: Sorry, could you just -- yes, how broad we think about the brepo opportunity? Thanks, Doug. Great question. Look, I think the short answer is, I think you can see from our indication selection already that we've been creative and thoughtful in going after indications with high unmet need, including lots of places where JAKs have not been explored. And I think there's a lot of opportunity here. I'll just reiterate something Ben said, and Ben, if you want to do it again as well. I think it's a really good point to hit. Look, I think anywhere that TYK and JAK are both important is a particular area of focus for it because it gets with the uniqueness of our mechanism. And I think we've done a really nice job, again, thanks to Ben and Priovant as well, the Priovant team on exploring that biology. I think we have more ideas in that category. Ben, anything you can sort of add there mechanistically or otherwise? Benjamin Zimmer: No. I mean, I think I covered it earlier. I would say that the answer is both. I think there are some indications where there's maybe some IITs or clinical reports from off-label use of other JAK inhibitors where we think TYK2, JAK1 inhibition is really optimally suited for it. And I think those are indications we're evaluating that would obviously be highly derisked. I also think as we -- to your point, as we continue to see more and more excellent data here, I think we're definitely looking into some obviously higher risk, but also exciting potential opportunities where there's less proof of concept, and we would see what we end up with there. Douglas Tsao: And Matt, if I can, one follow-up. Just obviously, business development has always been such a big part of the Roivant story. But just given the sort of expanding horizons for both brepo as well as IMVT-1402. How are you thinking about capital allocation in terms of external versus sort of just internal R&D investment? Matthew Gline: Dollars go to the best opportunity wherever they are is the short answer to that question. Look, we're funded through profitability on our existing portfolio. Obviously, things like running the Phase III program in cutaneous sarcoidosis are no-brainers at this point, and we're definitely going to do it and adding additional indications for brepo or 1402 or for mosli are attractive options because those mechanisms are strong and will work in other places. That said, and I'm sitting across the table from Mayukh right now, the world is full of attractive opportunities, and we look at all of them. So I think we've absolutely got opportunities to deploy sort of externally as well, and it continues to be a core part of what we believe we are good at. Operator: Our next question comes from the line of Derek Archila with Wells Fargo. Derek Archila: Congrats on the data. So just quickly on Immunovant in terms of -- we saw positive data for nipocalimab in systemic lupus. So curious about how you think about the read-through to cutaneous. And then second question, just in terms of commercial synergy between brepo and 1402. Obviously, we're Immunovant covering analyst. So just curious how you think about fielding a sales force in the most cost-effective manner to leverage both brepo and 1402 between the 2 companies. Matthew Gline: Yes, thanks. Look, these are both really good questions and important areas for us. On SLE, first of all, I was on record long before the brepo study in SLE saying that anybody who wasn't afraid of a lupus study is, I think the word I used idiot. And so I'll say congrats to J&J on the positive data in SLE. It's always impressive when people are able to deliver those kind of results. It certainly supports the use of FcRns in diseases with a lot of complicated immune activity going on at the same time. There's probably some read-through to CLE in the sense that there's some pathophysiological overlap there. But every lupus study of any kind is its own special flower, and we'll have to be successful in CLE on our own. We like cutaneous lupus in part because we know that derms are pretty good at reading those kinds of endpoints. And so we feel good about that. Again, CLE is a different competitive landscape than SLE, and we're watching that bar as well. On the sort of commercial question, look, the first thing I'll say is even bluntly within a big pharma company these days, the truth is that for de novo launches, mostly you deploy a field apparatus that is specific to the program because you want to engage with those very specific physicians because you want sort of full voice share of your field force on the product. And so I'm not sure I think of like "sales force" as the most important commercial synergy, but we are definitely thinking about things like contracting expansively to make sure that we can get maximal benefit from commercial scale across the portfolio. And there definitely are areas where that is top of mind for us that I think will translate to benefit both for the commercial performance brepo and for the commercial performance of 1402 as those launches progress. Operator: Our next question comes from the line of Ash Verma with UBS. Ashwani Verma: So for bato, just upcoming the TED results, the data that you're expecting. Just curious how you're thinking about that in the light of recent Vyvgart setback in TED. In your case, how confident are you that a positive Graves' disease readout would translate to success in thyroid eye disease? Matthew Gline: Thanks. Look, I appreciate the question. Obviously, TED is out there, and that data is coming when we have both studies in the first half of this year. I don't think there's like a ton of -- a ton to say about that at this point. Those studies are going to happen, and we'll put the data out. Obviously, we know from our own Phase II study in TED as well as from our own Phase II work in Graves' that the drug is active in patients with hyperthyroidism. And I think that should translate in both indications to some degree of efficacy. And we don't think there's a lot of read-through from TED either in argenx' case and argenx obviously also doesn't as well or in our own situation in -- to Graves' disease in the sense that we have -- look, obviously, both -- we have all of our Phase II data in Graves' and the diseases are pretty different. Like the TED study enrolled mostly euthyroid patients. So they're pretty different fundamentally in terms of who was in the studies. So I feel like we are confident in the efficacy or potential efficacy of FcRns in Graves' disease and not particularly focused on what information there is from TED. Obviously, once we get the TED data and can talk about it, there will be information there from patients who happen to be hyperthyroid at various points in that study and how those patients look, and we'll take full advantage of that data in optimizing our Graves program. But beyond that, I'd say not much read-through between the programs and looking forward to getting all that TED data together once we've got it. Operator: Our next question comes from the line of Thomas Smith with Leerink Partners. Thomas Smith: Great to see the rapid enrollment and the over enrollment for 1402 in D2T RA, and I appreciate the update on the data timing. I just want to clarify, should we expect that you'll report both the open-label and randomized data from this study together? Or is there potential we could see some of that open-label period 1 data first? And then as a follow-up, we noticed on Slide 31, the expectation for Graves' launch by the end of '28, but not MG, although you're expecting Phase III data for both indications in '27. Just wanted to ask if that's purely a function of data timing there or if there are some other strategic considerations with respect to pricing or competitive landscape? Matthew Gline: Thanks. I appreciate both questions. Look, I think -- on the data release timing for the RA study, I don't think we've made a final decision on how exactly we'll put that data out and when. But I think it's reasonably likely now that we know both are coming this year that we'll wait for the randomized withdrawal period before we talk about it. Obviously, that first period is open label, and so we'll get some information from it as we go on. And then I don't think there's much to read into the exclusion from MG in 2028. In fact, there's probably some possibility it actually does, in fact, also launch in 2028. And so I think stay tuned once we get that data, once those studies are -- once we know the exact time line of those studies, we'll be able to provide more guidance on specific launch time lines. Operator: Our next question comes from the line of Alex Thompson with Stifel. Alexander Thompson: Maybe one on sort of the competitive landscape in Graves. I guess with argenx entering the area and maybe trying to follow their strategy of chasing fast follower indications here, like how confident are you that you can maintain your lead in Graves' if argenx were to run maybe 26-week studies or even 1 instead of 2 studies? Matthew Gline: Obviously, the extent of our lead in Graves' -- thank you for the question. The extent of our lead time in Graves' will depend a little bit on argenx' study design and what they decide to do. And until we know what that design is, it's going to be hard to say. Certainly, shorter studies will be faster than longer studies mechanically. I think we have a lead in Graves' that will be significant roughly no matter what design argenx runs. We have great relationships with those KOLs and the doc community. We've been out there. One of our studies is also 26 weeks. As a reminder, the 2503 study is 26 weeks. So look, I think the answer is we will have a significant lead in Graves' disease. How significant that lead is may depend a little bit on what the competition does. But this is also one of those -- whatever going out run the bear situations or whatever. I think mostly our focus is just getting those studies done and out as quickly as we can and getting out into that population, and it's such a large and exciting population that it just doesn't -- it doesn't really matter. The other thing I'll say is, as a reminder, we feel like we showed pretty conclusively in our Phase II data that the deeper IgG suppression that we expect to deliver will matter in this population. And I think especially on remission. And I think that will also be a significant factor in Graves' disease. So looking forward to getting all that data together. Operator: And this concludes the question-and-answer session. I'd now like to turn the call back over to Matthew Gline for closing remarks. Matthew Gline: Great. Thank you, operator. Thank you, everybody, for the good questions. Thank you all for listening this morning. I want to once again thank everybody involved in all of this, including particularly with the cutaneous sarcoidosis data, the patients and investigators involved in that program as well as the Priovant team for their execution there, but also everybody at Roivant and all of the investigators on all of our studies. And look, we've got a lot more to come this year. So I'm sure we'll be back together soon, and I'm looking forward to continuing the discussion. Thank you, everybody, and have a great day. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Welcome to the Reinsurance Group of America Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jeff Hopson, Head of Investor Relations. Please go ahead. Jeff Hopson: Thank you. Welcome to RGA's Fourth Quarter 2025 Conference Call. I'm joined on the call this morning by Tony Cheng, RGA's President and CEO; Axel Andre, Chief Financial Officer; Leslie Barbi, Chief Investment Officer; and Jonathan Porter, Chief Risk Officer. A quick reminder before we get started regarding forward-looking information and non-GAAP financial measures. Some of our comments or answers may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ from expected results. Additionally, during the course of this call, the information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation and quarterly financial supplement, all of which are posted on our website for a discussion of these terms and reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation, which again is posted on our website. And now I'll turn the call over to Tony for his comments. Tony Cheng: Good morning, everyone, and thank you for joining our call. Last night, we reported Q4 operating EPS of $7.75 per share, which is our second consecutive record quarter in terms of earnings. Our adjusted operating return on equity for the trailing 12 months, excluding notable items, was 15.7%, which exceeded our intermediate-term target range of 13% to 15%. The quarter capped off another year of excellent financial results with strength across our businesses and geographies. These results underscore the value and diversity of our global platform and the exceptional work of our local teams. Looking back at the full year 2025 results, we delivered record operating EPS, generated a 15.7% ROE and increased the value of in-force business margins by 18%. From a capital perspective, we deployed $2.5 billion of capital into in-force transactions at attractive risk-adjusted returns, reinstated share buybacks and maintained a strong balance sheet with $2.7 billion of excess capital. These are clear indicators that we are successfully delivering on our strategy and are on track to continue meeting or exceeding our intermediate-term financial targets. Now let me highlight a few specifics from the fourth quarter. Beginning by region, the U.S. was particularly favorable, driven by management actions and variable investment income, with individual life mortality in line with expectations. EMEA results reflected strong volume growth and favorable experience. And APAC continues to see growth momentum along with in-force actions. In the quarter, we benefited from the continued contributions of our balance sheet optimization strategy. We saw the positive effects of various management actions in terms of current earnings and ROE, an increase in future value and an improvement in our liability risk profile. These actions are a regular part of our daily operations, though the timing and size can be difficult to predict. Additionally, we continue to see contributions from new business that we have added over recent years, including the Equitable block. We are confident that our most recent vintages of new business will generate risk-adjusted returns that meet or exceed our targets. Moving to investments. Our team and platform delivered strong results, boosted by favorable variable investment income coming from our alternative investment portfolio. Our team continued their efforts to reposition certain acquired portfolios, and we are on track to see these benefits in the periods ahead. To be clear, our portfolio repositioning leverages our expertise on both sides of the balance sheet with strong asset liability management to incrementally enhance our risk-adjusted returns. Additionally, we continue to expand our capabilities, including external partnerships to enable us to offer superior client solutions. On the capital front, we again repurchased shares, allocating $50 million this quarter at attractive prices. A balanced use of excess capital is an important part of our plan to generate long-term shareholder value. Shifting to full year 2025 performance. Our diversified global platform continues to deliver strong long-term results. Our operations in North America, Asia and EMEA have all been successful in executing on our strategy and delivering attractive financial results. Our APAC region produced excellent bottom line results for the year. Pretax operating income, excluding notable items, was up 18%, reflecting strong underlying growth and favorable underwriting experience. This business continues to grow at a nice rate given our success in delivering product development across the region as well as some of the favorable market and regulatory dynamics in places like Japan and Korea that lead to a high level of opportunities to solve client issues through in-force transactions. In EMEA, our full year pretax earnings, excluding notable items, were up 35%, reflecting continued strong new business growth, along with favorable experience. North American results reflected the contribution from the Equitable block, which continues to perform in line with expectations and strong contributions from in-force management actions. These positives helped overcome the challenging results from U.S. Group, specifically the excess medical business. We fully reprice this business for 2026 and expect a significant improvement in results over the next year. Looking beyond the recent renewal cycle, we completed a broader strategic review and have decided to exit the group health care lines of business. For the year, both organic flow and in-force transactions were very strong, with in-force transactions particularly robust from the Equitable deal and a wide range of other opportunities that we executed on. Focusing on organic new business, we continue to have very good success and momentum built on our long established biometric expertise and innovative mindset. We continue to see ongoing strength in Asia, driven by our product development and range of innovative solutions. Similarly, in the U.S., our value-added underwriting solutions and underwriting outsourcing efforts have given us strong momentum in a market that is generally considered mature. The 2025 successes I've highlighted are visible in the increased value of in-force business margins. We introduced this concept in 2024 to convey the underlying value and future earnings power of our in-force business. It is a measure of how much value is being created by a range of means, most importantly, new business, but also management actions and experience. In 2025, the value increased by $6.6 billion or 18%, with meaningful contributions from both new business and management actions. Over the past two years, the future expected value has increased by over $11 billion or approximately 16% per annum. Stepping back, let me provide some perspective on how we are positioned today and for the future and why we expect to deliver on our strategic and financial objectives. RGA has several unique strengths, including strong biometric expertise, asset management capabilities, a global platform, market-leading brand and flexibility to partner across the industry. We leverage these strengths as we execute across four key areas of focus. First, we use a proactive business approach to create win-win transactions, generating higher returns for RGA and greater value for our clients. Second, we optimize our balance sheet, including in-force liability management, improved risk-adjusted investment returns and leveraging third-party and internal sources of capital. Third, we operationally scale the platform and ensure that our portfolio of businesses aligns with the opportunities in the market. And lastly, we maintain a sharp focus on capital stewardship, ensuring we achieve the right balance between allocating capital to attractive business opportunities and returning capital to shareholders, which is critical to us. Whether it is the record 2025 results or the past three years where we have met or exceeded our ROE and EPS targets, RGA is delivering successfully on our strategy. We have strong momentum, a clear focus and the right strategy, and we remain confident in our ability to generate attractive shareholder value going forward. With that, I will turn the call over to Axel. Axel Philippe Andre: Thanks, Tony. RGA reported record pretax adjusted operating income of $515 million for the quarter or $7.75 per share after tax. For the trailing 12 months, adjusted operating return on equity, excluding notable items, was 15.7%. During the quarter, we achieved strong results across our global businesses. This was generally driven by the continued emergence of earnings from recent new business, including the Equitable block, favorable in-force management actions and strong investment performance. As Tony mentioned earlier, we continue to execute on our strategic initiatives, which positions us well for 2026 and beyond. I'll speak a bit more about 2026 expectations shortly. We deployed $98 million into in-force transactions in the quarter and $2.5 billion for the full year. We remained selective in the quarter, but overall had a very successful year across multiple geographies and products. On the traditional side, our premium growth was 7.4% year-to-date on a constant currency basis, which has benefited from strong growth across North America, EMEA and APAC. Premiums are a good indicator of the ongoing vitality of our traditional business, and we continue to have strong momentum across our regions. We also completed $50 million of share repurchases in the quarter at an average price of $187.40, bringing total repurchases to $125 million since we reinstated buybacks in the third quarter. Our capital position remains strong, and we ended the quarter with estimated excess capital of $2.7 billion and estimated next 12 months deployable capital of $3.4 billion. The effective tax rate for the quarter was 23.8% on adjusted operating income before taxes and 22.8% for the full year 2025. Looking ahead to 2026, we expect a tax rate in the range of 22% to 23%. We continued our balance sheet optimization strategy in the quarter with additional in-force management actions. For Q4, these actions had a $95 million favorable financial impact. Managing our in-force block remains a core part of our strategy and has significantly contributed to results over the past few years. As a reminder, these actions come in various forms, ranging from large upfront actions such as strategic recapture to more recurring items like rate increases on specific blocks of business. Turning to biometric claims experience, as outlined on Slide 11 of our earnings presentation. Economic claims experience was unfavorable by $51 million in the quarter with a corresponding unfavorable current period financial impact of $53 million. Approximately half of this result was driven by the U.S. group business, consistent with the updated expectations that we communicated earlier in the year. Claims experience in U.S. Individual Life was in line with expectations. Taking a step back, since the beginning of 2023, when we more fully emerged from COVID, economic claims experience for the total company has been favorable by $226 million. As a reminder, the favorable economic experience that has not been recognized through the accounting results will be recognized over the remaining life of the business. Before getting into the segment results, I'd like to discuss a new slide, highlighting certain key considerations for the quarter and the year. On Slide 9, we've included details on the financial impact of certain items, including actual to expected biometric claims experience, variable investment income and in-force management actions. After considering these impacts, we view run rate EPS for 2025 at approximately $24.75 per share, which we believe provides a reasonable basis to apply future EPS growth expectations. We are also reiterating our intermediate-term targets of 8% to 10% annual EPS growth and a 13% to 15% return on equity. Regarding ROE, we acknowledge that we are running at or above the high end of the range and we'll continue to evaluate this target. For 2026 specifically, we are assuming a 7% variable investment income return. This is above the 6% in 2025, though below our long-term expectations of 10% to 12%, primarily due to a still muted environment for real estate sales, which is when income from real estate assets is recognized. Regarding in-force management actions, our activity has been elevated in recent years, generating earnings of about $75 million in 2023, $225 million in 2024 and $135 million in 2025. We will remain active going forward, but the timing and size of these actions is highly unpredictable. Thus, we are projecting a more limited financial impact compared to recent experience. Additionally, we will continue to balance capital deployed into the business with returning capital to shareholders through quarterly dividends and share repurchases. Our base case expectation for capital deployed into in-force transactions is around $1.5 billion in 2026. And we also expect to allocate $400 million of excess capital to reduce financial leverage during 2026. We intend to remain opportunistic with share repurchases and expect total shareholder return of capital to range between 20% to 30% of after-tax operating earnings over the intermediate term. Moving to the quarterly segment results on Slide 7. The U.S. and Latin America traditional results reflected the favorable impacts from in-force management actions and strong variable investment income. These were partially offset by the expected unfavorable group claims experience noted earlier in the year. A quick note on the group business. The block is now fully repriced, and we expect significant improvement in 2026 results back towards our historical run rates. The U.S. Financial Solutions results reflected the contribution from the Equitable transaction, which continues to perform in line with our expectations. The Equitable business generated earnings consistent with our $60 million to $70 million guidance for the second half of 2025, and we continue to expect $160 million to $170 million of earnings from the transaction in 2026. Canada traditional results reflected favorable impacts from group and Individual Life businesses. The Financial Solutions results were in line with expectations. In the Europe, Middle East and Africa region, the traditional results were largely in line with expectations with favorable other experience offset by modestly unfavorable claims experience. EMEA's Financial Solutions results reflected favorable longevity experience and strong growth in the segment. We continue to see high-quality opportunities and the longevity business remains an area of notable growth for us. Turning to our Asia Pacific region. Traditional had another good quarter, reflecting favorable underwriting margin and the benefit of ongoing growth. The segment performed very well this year, which is a reflection of our excellent competitive position and our execution of value-added solutions to clients. The Financial Solutions results were in line with expectations. Finally, the Corporate and Other segment reported an adjusted operating loss before tax of [ $54 ] million, impacted by higher financing costs and general expenses. For 2026, we expect a corporate and other loss of approximately $50 million to $55 million per quarter. Moving to investments on Slides 12 through 14. The non-spread book yield, excluding variable investment income, was slightly higher than Q3, primarily due to new money rates in excess of portfolio yields. While the new money rate was lower in the quarter, primarily due to lower market yields and a lower allocation to private assets, it remains above our portfolio yield, providing a tailwind to our overall book yield. Total company variable investment income was above expectations by around $48 million, driven by higher limited partnership income. Overall, our portfolio quality remains high and credit impairments were in line with expectations for the year. Turning now to capital. Our excess capital ended the quarter at an estimated $2.7 billion, and our next 12 months deployable capital was an estimated $3.4 billion. It's important to note that we manage capital through multiple frameworks, including our internal economic capital, regulatory capital and rating agency capital. From a regulatory lens, we maintain ample levels of regulatory capital in the jurisdictions where we operate. Also, our strong ratings are important to our counterparty strength, and thus, we manage our rating agency capital to support those ratings. On a holistic basis, considering all capital frameworks, we remain very well capitalized. In the quarter, we successfully retroceded another block of U.S. PRT business to Ruby Re, and we are actively working on additional retrocessions. We still expect vehicle to be fully deployed by the middle of 2026, and third-party capital remains a key component of our capital management strategy. During the quarter, we continued our long track record of increasing book value per share. As shown on Slide 19, our book value per share, excluding AOCI and impacts from B36 embedded derivatives increased to $165.50, which represents a compounded annual growth rate of 10% since the beginning of 2021. To summarize, this was another great quarter to close a very successful and rewarding 2025. We continue to execute on our strategic objectives, and we are confident in our ability to deliver on our intermediate-term financial targets. Specifically, our adjusted operating EPS, excluding notable items, has grown at a compound annual growth rate of more than 10% since the beginning of 2023. And our adjusted operating ROE, excluding AOCI and notable items, has averaged around 15%, which is at the high end of the targeted range. With that, I would like to thank everyone for your continued interest in RGA. This concludes our prepared remarks. We would now like to open it up for questions. Operator: [Operator Instructions] Our first question today is from Wes Carmichael with Wells Fargo. Wesley Carmichael: I wanted to start on capital allocation. So you had a strong deployment year in 2025 with Equitable and another $1 billion on top of that, bought back some stock. I guess my question is, a couple of quarters ago, you spoke to a 20% to 30% payout ratio in terms of buybacks and dividends. As you look at the opportunities in front of you and excess capital you have and will generate, is that 20% to 30% payout ratio still the right level? And what might change your view there? Axel Philippe Andre: Yes. Thanks for the question, Wes. Look, as we stated earlier, we reinstated share buybacks in the second half of 2025, and we repurchased $125 million of stock in 2025. We're taking a balanced approach to capital deployment. Maintaining financial flexibility is very important to us. We continue to see attractive opportunities to deploy capital into new business at strong risk-adjusted returns, which also aligns with our strategy and leverages our unique strengths but we also recognize the importance of returning capital to shareholders. We're targeting 20% to 30% total payout ratio going forward, but we also have the flexibility to be opportunistic as the year goes on. Wesley Carmichael: Okay. And my follow-up is if you continue to grow the asset-intensive business, and I think you may have had this question before, but curious if anything has changed in your mind. But would you be open to additional partnerships with asset managers or alternative asset managers? And I know you do a lot of this yourself in-house, but just wondering if you gain access to any additional capabilities or perhaps even some outside capital. Leslie Barbi: Wes, it's Leslie Barbi. Thanks for that question. You might be interested to know that we have been using external partners for decades, and we definitely continue to plan to do that. Really, when we look out in the market. We're constantly talking to potential partners. We want to make sure we don't miss any additive capabilities or expertise, anything that can add value for RGA and our shareholders. I think this flexible approach and our ability to partner is a real strength because what we're trying to do is really get the right capabilities and the right expertise into the total opportunity set. So to reinforce that, we're absolutely already using external partners, and we're very open to continuing to do that if it adds value for RGA. Operator: The next question is from Joel Hurwitz with Dowling & Partners. Joel Hurwitz: I wanted to touch on Group Health first. Can you just let us know what rate actions you took in '26? And then Tony, I think you said you'll be exiting the business, I guess, after '26. What drove that decision? And any color on the overall size of the business that you're exiting and sort of what run rate earnings were expected to be? Axel Philippe Andre: Yes. Joel, this is Axel. We've taken significant actions to fully address the U.S. health care excess book. We raised rates by 40% on average, beginning mid-2025 through January 2026, which gives us confidence that 2026 would improve over 2025 results. As mentioned in the prepared remarks, following a strategic review, we have decided to stop writing new business effective immediately and also to not renew existing business at the end of the current 1-year term across our group health care lines of business. So for some context, the U.S. health care business has approximately $400 million of annual premium and generates approximately $25 million of pretax run rate earnings in a typical year. So this decision will have limited impact in 2026, will primarily emerge in 2027 results. We remain focused on best positioning RGA for the future by ensuring that we're deploying capital in businesses that are strategically aligned, and we also believe that the rate actions taken will result in significant improvement to the U.S. Healthcare results as the business winds down. Joel Hurwitz: Got it. Very helpful. There continues to be activity in the market and optimism from primary writers on further derisking of legacy blocks like long-term care and universal life with secondary guarantees. I know you've done a little in this space, but just wanted to get an update on your appetite for these types of businesses. Tony Cheng: Yes. Let me take that one. Thank you very much for the question. Look, we remain very selective and disciplined on ULSG and LTC long-term care risk. As you know, we have significant biometric risk capabilities, but we also keenly recognize the need for higher hurdle rates on these lines of businesses, especially within our public company balance sheet. Now it's important to note that all of our ULSG and LTC businesses have been priced with updated assumptions and has performed well over time. And then the final point is that our ULSG and LTC liabilities are less than 10% of our balance sheet today, and we expect it to remain this way going forward. Operator: The next question is from Jimmy Bhullar with JPMorgan. Jamminder Bhullar: I had a couple of questions. One was on the Equitable block. You're reinsuring 3/4 of the block, but your results -- there's not a long history, but the results this quarter were not correlated between the two companies because they basically had weaker mortality than normal, you guys had better. So I'm just wondering if you could just give us some color on what parts of the book you're not covering either by vintage or by type of product or any other factor? Axel Philippe Andre: Yes. Thanks for the question, Jimmy. This is Axel. Maybe let me start with the high level. The Equitable transaction, first of all, generated earnings consistent with our $60 million to $70 million guidance for the second half of 2025. We also continue to expect $160 million to $170 million of earnings from the transaction in 2026. Now there are four key drivers of economic upside for RGA relative to the original performance of this block. Number one, we repriced the business, which allowed us to reflect updated mortality and policyholder behavior experience. This means our reserving assumptions differ from Equitable's, and therefore, will produce different actual to expected mortality experience on the same block. Number two, we benefit from uplift from higher asset yields. We're repositioning the transferred assets into a higher-yielding environment and in a manner that is consistent with our overall portfolio asset allocation targets and ratings. Number three, we operate with lower expenses as we've absorbed the business into our existing infrastructure and did not bring over their expenses. Lastly, number four, we were able to benefit from capital efficiency given our legal entity structure. So also, please keep in mind that there are meaningful ongoing benefits to our strategic relationship with Equitable, including underwriting new flow reinsurance business and participation from AllianceBernstein in our sidecar strategy. Altogether, we remain confident that the Equitable transaction will generate strong risk-adjusted return for RGA. And then lastly, you're correct that our share of this business does not represent a 75% quota share of the entirety of Equitable's life business, but it is only a portion of that business. Jamminder Bhullar: And are you able to share what it is that you don't cover, whether it's older rate business, IUL, like anything in that regard? Axel Philippe Andre: So I'm not going to get into the specifics, but suffice it to say that, of course, we monitor very closely the claims reporting from Equitable and that the performance has been in line with our expectations. We would also note that Equitable on their call cited less reinsurance coverage on these particular claims that impacted them. Operator: The next question is from Suneet Kamath with Jefferies. Suneet Kamath: First question just on the capital deployment. If I look back to 2023, it looks like you've deployed about $5 billion of capital. And I guess the question is, if we think about the earnings power of that deployment, how much of that would you think is that sort of full earnings power? Like I know Equitable is not there yet, so that's $1.5 billion out of the $5 billion. But of the $3.5 billion left, are you getting your full expected returns at this point? Or is there still more in front of us? Axel Philippe Andre: Yes. Great. Thanks for the question. Well, it is an important question. Look, at a high level, we still view our 8% to 10% EPS growth target as a good intermediate-term target. As we've said before, we can achieve this with approximately $1.5 billion of capital deployed into in-force transactions, together with the ongoing growth of our traditional flow business and with a level of share repurchases consistent with our stated target total 20% to 30% payout ratio. So when thinking of recent capital deployment, in particular, the Equitable transaction, keep in mind that it occurred in the middle of 2025. So it did contribute to 2025 earnings with some further ramp-up expected in 2026. The 8% to 10% is an intermediate-term target. Higher levels of capital deployment may allow us to come in at the higher end of the range; however, over the intermediate term, we're comfortable with the 8% to 10%, which we have met and exceeded at times in recent years. Suneet Kamath: But should we think about the non-equitable business as sort of fully earning at this point? Or is there still more on that piece? I'm talking about the $3.5 billion of related deployment. Axel Philippe Andre: So like we've discussed before, on any capital deployment, there's a period of repositioning of the asset portfolio and as a result, a ramp-up in earnings. And our results reflect the blend of capital deployment and the trajectory of that earnings ramp-up. All of that is being factored into our intermediate-term EPS growth target. Operator: The next question is from Tom Gallagher with Evercore ISI. Thomas Gallagher: Just shifting gears to -- away from mortality to morbidity. The -- can you comment on both the Manulife long-term care risk transfer deal and your broader exposure to long-term care? How has that been performing if you just look at it on a 2025 basis? Is that in line? Is that in line with your ROE? Has that been a lot higher? Any clarity there? Jonathan Porter: Yes. Tom, this is Jonathan. We don't talk about experience at a block-by-block level. But what I can say is that we're very happy with our LTC business, and it has performed well over time. And as you know, we have focused on a subset of available LTC business that's available in the market that aligns with our risk appetite and return expectations. And we continue to manage our overall exposure to the product relative to the size of our balance sheet. So we expect this to continue to be our approach going forward. Thomas Gallagher: And Jonathan, would you say the performance of that -- any broad range ROE that that's been trending at? Jonathan Porter: No, Tom, we don't break down the performance at that level to discuss externally. But again, just to reiterate, we're very happy with the performance of that LTC business over time. Operator: The next question is from John Barnidge with Piper Sandler. John Barnidge: My first question, can you talk about your exposure in the investment portfolio to software-related companies and how you're thinking about disruption from AI within the portfolio? Leslie Barbi: Thanks, John. This is Leslie. So in terms of your first question on the software, we look closely at that exposure. I'll note that software lending is typically done against enterprise value or revenue. It's become more popular in the market, but we've not been a big participant in that. So when we drill down on our exposure within direct lending, it's very modest, less than 30 basis points of our total investment portfolio. So we're very comfortable with where we're positioned. In terms of AI, that's something among many other factors that we continue to look at across the portfolio, so analyst by analyst, and we discuss it in our portfolio management meetings. And like our approach to anything that's changing in the market, we look at trends that are coming, assess where they could impact. We make decisions where we need to and take actions at those times. And as we get more information because this will definitely be evolving. So we'll continue to do that and actively managing the portfolio. John Barnidge: And sticking with the portfolio, if I can. Leslie, you talked about using external partners for decades that have specialized capabilities. We saw a transaction earlier this year in January with cross ownership between alternative asset managers, which resembled the transaction from a number of years prior in some ways. And so curious about maybe the evolution in the relationships that you've already had for decades with kind of the new environment. Leslie Barbi: Okay. Thanks for that question. I'm not sure I was completely clear on what you were referring to, but let me just comment generally about our partnerships or use of external managers. So we certainly -- we look at what capabilities we want on the platform and then -- who is best suited to do that. So often, it's our strong internal teams. Other times, we want to use an outside partner that has different or more scaled expertise than we have. We've also engaged in partnerships where when we have a lot of alignment, it's win-win. We can see that our alignment, our culture, our needs are all going to align for a long time. We will engage in partnerships. And so we've done that a number of times in the past. There's a few smaller ones we've announced. There's aspects of larger ones you may have gleaned from some of our other transactions. But it's really engaging in this more wholesome approach and making sure all the value is considered. Operator: The next question is from Alex Scott with Barclays. Taylor Scott: First one is on, I guess, regulatory regime in Europe. And my understanding is Solvency II is going to have some changes that are beneficial to invest in things like alternatives and some of the privates that are out there, et cetera. Are you seeing any increased competition in pricing related to that? Do you anticipate that, that will happen at all? I'm just trying to understand how to think about those changes. Axel Philippe Andre: Yes. Look, let me start here and if Tony wants to add something. So we have multiple legal entities. We're a global company. We have presence in Europe, in APAC, in America, in Bermuda with multiple jurisdictions and regulatory regimes that we operate in. So we're obviously well aware of the benefits of the various regimes and the ability to pool risks and achieve efficiencies. And we're engaged with our regulators in terms of monitoring the evolution of the regulatory regimes. We've been active in EMEA for a long time with our longevity business, with our asset-intensive business and our traditional business. Tony Cheng: Yes. And Alex, let me add to it. And Axel absolutely alluded to it at the end. In EMEA, the large majority of our profits in our business is longevity swaps, which have no asset risk and really rely on, gosh, I guess, 52 years of phenomenal experience in mortality and longevity. So really, the change you're sharing has less of an impact, obviously, to that business. What I would add is we obviously are very focused on blocks of business that have both asset and biometric risk in it. It leverages off one of our strongest strengths, which is able -- ability to reinsure both sides of the balance sheet. So even for the plain vanilla types of blocks, it really is not in our sweet spot. And there's a lot of opportunities around the world we can pursue that have both the asset and biometric risk, which is where we focus. Taylor Scott: Yes. Understood. Yes, I was thinking more along the lines of your biggest competitors being the multiline reinsurers. I think they generally manage the Solvency II. So even outside of EMEA, one could theoretically think that those companies may be able to get more aggressive on pricing. But it sounds like you're not seeing that at all right now, at least, right? Tony Cheng: Yes. Look, I confirm we -- that has not bubbled up to the surface of being even a threat or risk going forward. Operator: The next question is from Mike Ward with UBS. Michael Ward: Kind of a good segue there. Just wondering, Tony, if you could elaborate on any specific regions or product lines that you think might be looking incrementally attractive this year so far? Tony Cheng: Yes. Thanks, Mike. Maybe I'll just go around the regions around the horn and talk a bit about our pipeline and answer your question there. Look, I'd say our pipeline is both rich and diverse. And as you know, we always focus on the quality of the pipeline as much as the quantity of business opportunities. So firstly, in Asia, we continue to see a strong pipeline, both in the product development area as we continue to serve the emerging middle class as well as the financial solutions as clients adjust to the new capital frameworks in markets like Japan and Korea. I've already mentioned the U.K. longevity market that continues to be strong as a market, and we continue to be the market leader, and that momentum continues into 2026. And then in the U.S., we continue to benefit, obviously, from the industry realignment as we saw with the Equitable deal. But let me -- it's really important to note that there are many more modest sized wins due to our biometric and underwriting strength that collectively are very meaningful in terms of returns and positioning us strategically in the future. So all in all, the pipeline is rich and diverse. It's across the board. And as a result, that's one of the reasons why we're so optimistic about delivering attractive returns from the business. Michael Ward: Great. And then just in the U.S. on traditional kind of mortality, pretty solid result, I think, considering the severe flu season. Just wondering if you have any insight if it's ticked up in January at all? Just wondering if you have any view there. Jonathan Porter: Yes. Mike, this is Jonathan. It's still too early to predict the final outcome of the current flu season, but the latest declining trends in population level flu activity in the U.S., Canada and the U.K. are encouraging. So influenza hospitalizations look to a peak at year-end, and that peak was at the higher end of a normal flu season range. But since that time, those hospitalization rates are down substantially. This year, the Northern Hemisphere flu season is driven by influenza A, and there's no evidence at this point of increased virulence compared to other seasonal strains. And when we look at our Q4 results, we didn't see any material evidence of seasonality in that experience. And as we noted in the prepared remarks, our mortality experience was in line overall. Operator: The next question is a follow-up from Tom Gallagher with Evercore ISI. Thomas Gallagher: Axel, I just wanted to make sure I understand all the components of earnings. I followed everything you said in terms of the 8% to 10% intermediate-term EPS growth expectation. And it sounded to me because of the $1.5 billion of capital you expect to deploy into in-force deals in 2026 that you, all things equal, should be running at that 8% to 10% intermediate-term growth rate in 2026 would be my best guess. But I guess, based on how you're thinking about things for '26, are there any other adjustments you would make to that? The two that I could think of would be your alt return assumption is a little better, so that could provide upside. And then to the extent that you do any more in-force transactions, I don't think you've included those, but any further color you could give? Axel Philippe Andre: Yes. Tom, thanks for the question. So I would point you to Slide 9 in the deck, where we show our key assumptions, right, for 2026. Number one, we, of course, are assuming much improved U.S. group experience, which was the largest contributor to the unfavorable biometric experience in 2025. Number two, we are assuming a smaller contribution from in-force management actions since it has had outsized positive impact in recent years. And lastly, we are also assuming a variable investment income return of 7% for 2026. So the key takeaway is that we view $24.75 as a reasonable starting point for 2025 run rate EPS. And we are reiterating our intermediate-term 8% to 10% EPS growth target, which, as you said, assumes approximately $1.5 billion of annual capital deployed into in-force transactions. That applies to the intermediate term. We don't comment specifically on the year-by-year forecast. Thomas Gallagher: And Axel, sorry, just to follow up. The baseline, the $24.75, does that have any of the in-force management rate actions in it? Axel Philippe Andre: Yes. Look, I appreciate the question. So like I said, right, it's important to remember, we manage the in-force business, and it's a core part of our strategy. It will continue to be. We take a partnership and holistic approach to these situations, balancing the client relationship with our long-term business. We feel this approach is a means of differentiation, leading to other business opportunities. We've had very good success over the past 3 years. I'll remind you, we've generated approximately $425 million of cumulative pretax income and significant long-term future value. Like we said, in-force actions are unpredictable in terms of size and timing. Looking towards 2026, we feel there's less opportunity compared to recent periods. And thus, we expect a more limited impact on earnings going forward. So like I said, as a reminder, the $24.75 of 2025 run rate earnings implied from Slide 9 removed all in-force actions from 2025 results. Therefore, actual in-force actions in 2026 could provide upside to these targets. Operator: The next question is a follow-up from Alex Scott with Barclays. Taylor Scott: I wanted to ask on Japan, just around the macro volatility associated with interest rates and FX. Does that have any impact on your business? And I guess, connected to that, does it create new opportunities or reduce the opportunity set? How should I think about how it affects in-force and go-forward deployment there? Tony Cheng: Yes. Thanks, Alex, for the question. It's Tony here. Look, as you shared, look, Japan has strong tailwinds from the recent regulatory changes and like you mentioned, the macroeconomic changes and clients are taking actions to address balance sheets which results in considerable opportunities for risk transfer in RGA. And we are incredibly well positioned with our strong local presence, obviously, our trusted client relationships and our world-class expertise on both sides of the balance sheet. And this is why it's one of our key markets. Now the impacts you've referred to, look, when we look at the competition that's entered the Japanese market, many of which are alternative asset managers, they've had some success in the more vanilla asset-intensive business. But let me reiterate, our focus is on the sweet spot, which are transactions, which have both asset and biometric risks and leveraging off that key strength. So we remain very optimistic about our position in Japan and the ongoing momentum in the market overall and RGA winning a very good share of that. Jonathan Porter: Yes. And Alex, this is Jonathan. Maybe just on the in-force part of your question. So just as an overarching comment, higher interest rates are good for us from an overall earnings perspective, given our positive reinvestment cash flows and illiquid liability profile. With regards to the Japanese asset-intensive business, our exposure to disintermediation risk from higher rates is modest, and we wouldn't expect to be -- have a significant impact at the current rate levels. And then specifically, on blocks -- on our older blocks of in-force business, we have high minimum guaranteed interest rates and they're protection-oriented, making them less likely to have higher lapses. And on our newer vintage products, we have protections from surrender charges and market value adjustments. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tony Cheng for any closing remarks. Tony Cheng: Thank you for your continued interest in RGA. We've had a great quarter to cap off a great year, and we look forward to continuing to deliver in the future. This ends our Q4 conference call. Thank you. Operator: The conference has now concluded. Thank you for attending today's call. You may now disconnect.
Pekka Rouhiainen: Good morning, everyone, and welcome to Valmet's Fourth Quarter Results Webcast. My name is Pekka Rouhiainen. I'm the Vice President of Investor Relations at Valmet. And with me today are Valmet's President and CEO, Thomas Hinnerskov; and our CFO, Katri Hokkanen. Today, we will walk you through Valmet's fourth quarter and also highlighting some of the full year highlights, the most notable one being the full year margin, increasing to a new record of 11.9% as our strategy, delivered its first results during the second half. The agenda for today is straightforward. First, Thomas will present the Q4 and full year highlights, including the acquisition of Severn. Next, Katri will walk us through the financial development in detail, and then Thomas will return to discuss the dividend proposal, the guidance for 2026 and the short-term market outlook for the next 6 months. And after the presentations, we'll open the lines for your questions. So thank you for joining us today and your interest in Valmet. And with that, let's get started, Thomas. Thomas Hinnerskov: Thank you, Pekka. 2025 was my full first year as CEO at Valmet, and it's been a true transformative year. We've been driving many changes and initiatives, and I'll get back to some of those later in the presentation. Therefore, firstly, I want to be thanking the Valmet team for all the hard work and commitment throughout the whole year. I also would like to sort of thank everyone at Valmet personally for being very open and welcoming me to Valmet and being open for the behavioral and cultural aspects we've been working on in order to speed up our execution and being bolder in our thinking. Let me start by setting the overall frame for today. We operate in a softer market in the second half of the year. But even though the market is going through a softer patch in the short term, we do remain confident that our strategic choices are the correct ones, and they will take us to the next level of performance by 2030. So with that, let's start with the full year highlights. For the full year, we delivered a resilient performance. Net sales held steady and our comparable EBITA margin reached, as Pekka said, a record of 11.9%, up 0.6 percentage points from previous years. This was driven by the bold operating model changes we decided already in the first quarter when the market was still largely in a better shape. That timing really mattered, and we were ahead of the curve. It gave us the efficiency benefits when the environment turned softer later in the year without us having to react defensively at a challenging moment. Process Performance Solutions performed exceptionally well and Biomaterial Solutions and Services remained stable or remained -- maintained stable margins despite our customers' low operating rates and overall weaker global economy. Cash flow stayed strong at EUR 581 million and orders remained solid against a very demanding comparison period. The Board of Valmet proposes a EUR 1.35 dividend per share, unchanged from last year. Overall, Lead the Way is now being embedded across the organization and the benefit becomes visible already in the second half of last year. With that, let's have a look at the fourth quarter. The overall fourth quarter picture is quite similar to the full year. The market was subdued in biomaterial services like we anticipated. And unfortunately, we saw a more muted demand also in the parts of our Process Performance Solutions, especially in the pulp and paper automation market was slower than expected. Also some of the packages in automation actually got postponed in the end of the year. When we exclude the exceptionally large Arauco order and the FX from the comparison point, orders were very close to last year's level, so which is a solid achievement, I think, in this environment. Profitability was clearly a highlight. Our comparable EBITA margin reached an all-time high of 13.3% for the quarter, driven by the operating model improvements implemented earlier in the year. Those actions decided when the market was still better, gave us an efficiency that we needed in the second half. We secured several important wins, including our largest ever energy order for a biomass power plant in Berlin. So these kind of projects add to our installed base and create long-term life cycle opportunities for us. Process Performance Solutions delivered another excellent quarter with a margin of 21.9%, very good execution from the team and a strong starting point as we invest back into growth going into '26, like we've talked about earlier as well. And finally, we announced the acquisition of Severn Group just before Christmas. Severn brings leading severe-service valve technologies, a high-quality installed base, truly strengthening our flow control in several key process industries, so a very strong strategic fit for us. One important clarification. Our 2026 guidance does not include this acquisition. We will include Severn in our guidance once the transaction is fully finalized, which we expect will happen in Q2. So overall, a strong quarter operationally, supported by disciplined execution and the benefit of the choices we made earlier in the year, even though the market didn't support us with tailwinds. Let's take a closer look at the order development behind the quarter. As expected, orders for the quarter decreased year-on-year in both segments, mainly because of the comparison period including the exceptionally large pulp mill order from Arauco in Q4 2024. Like earlier said, this order impacted also biomaterials services and Automation Solutions orders intake in Q4 last year. That single project alone create a very demanding benchmark for this quarter, obviously. Against that backdrop, our performance was solid. We secured our largest ever energy order for the Berlin biomass power plant, which also came with extensive service agreement, highlighting our life cycle approach that we have launched early in the year at our strategy. This is an important long-term value driver for us. Overall, our energy business had a good year and was able to close some key wins. In biomaterial services, the market remains subdued, and we saw a decrease in service orders compared to Q4 last year. This is fully in line with what we communicated earlier, operating rates, investment activity has been under pressure, and we saw the impact in our Q4 financials. In Process Performance Solutions, the environment softened, particularly in the pulp and paper automation. The difficult end market of our customers showed also in automation's demand during the quarter and furthermore, some package deals did not materialize and were postponed for later. Going forward, we see the market now stabilizing from the weaker Q4 level. So overall, while the headline year-on-year comparison shows a clear decline, we had a decent quarter in a soft market and continue to capture some strategically important wins that strengthen our installed base for the long-term service opportunities. Let me then highlight one example that illustrates the strength and the versatility of our automation technology. We secured the automation delivery for the next-generation Polarstern, polar research vessel. This is a mission-critical platform for a vessel operating in some of the most extreme environments on earth. The order showcase how far beyond the traditional process industries our automation offering today reaches. When a customer like this chooses Valmet to run a vessel like this, it is a strong testament or a statement of trust in the reliability, safety and sophistication of our systems. It also builds long-term value. These vessels have multi-decade life cycle and the automation is central to their operation. That creates recurring life cycle revenue and further strengthen our installed base in a segment where we already hold a leading global position in cruise and marine arbitration. So while the quarter was soft in pulp and paper automation, this kind of win demonstrates the underlying competitiveness of our technology and our ability to grow in diverse markets. Let's look at another concrete example of our strategy to further strengthen our Process Performance business and diversify outside our traditional biomaterial business. We are -- yes, we are very excited, I have to say, to be able to announce the acquisition of Severn in the fourth quarter. This is a strategically important step for Valmet in the mission-critical flow control business. Severn brings leading severe service valve technologies, a strong installed base and deep customer relationship in industries that are complementary to ours, to our biomaterial business and businesses as refining, chemicals, energy and gases as well as metal and mining. So the strategic fit is excellent. Severn has a proven track record in demanding applications where reliability is key and this strength in our Flow Control business, both technology-wise, but also commercially. It clearly expands our addressable market and increase our presence in segments where we see long-term growth potential beyond our traditional biomaterial business. It also takes us to top 5 globally in the valves business. The combination also brings clear synergy opportunities, broader market reach, complementary offering and the ability to increase service presentation or penetration in a large, high-quality installed base. Severn generated around EUR 250 million of revenue in 2025 with an EBITDA margin of about 16%, reflecting a solid operating foundation. We expect the acquisition to close during the second quarter of this year. And overall, very good strategic fit. In addition, it strengthened Flow Control, broaden our portfolio and improves our growth profile over the long term. Now let's turn to Process Performance Solutions. Process Performance Solutions delivered a record year in comparable EBITDA. Orders came in at EUR 372 million, decreasing as anticipated due to the very strong comparison period, which include the landmark automation order from Arauco last year. Net sales remained at last year's level. Flow Control continued to grow organically while Automation Solutions saw a decline, particularly or partly, I would say, reflecting the softer demand condition we already discussed on the previous slides. The clear highlight is profitability. Comparable EBITDA reached a new record of EUR 90 million, and the margin increased to 21.9%. The margin was supported by solid commercial execution, operating model efficiencies and overall disciplined cost control. So even with a softer automation market and a tough comparison on orders, PPS continued to show strength and resilience. However, we do want to be mindful of the fact that we don't expect the margins to continue at this record level into 2026 as we will be investing back into long-term growth by hiring key personnel, both in the sales but also in R&D. Now let's move to the Biomaterials Solutions and Services. Starting with orders. The highlight win in the quarter was the Berlin biomass power plant order, which I mentioned earlier, but compared to last year, exceptionally strong fourth quarter, orders were clearly lower as the comparison period included the very large Arauco pulp mill order. Full year services orders were up 4% organically and represented 52% of the orders received. Looking at the market environment, the biomaterial services market continued to be soft, very much in line with what we saw already in the third quarter. In fact, the year was divided into sort of 2 parts, a good active first half, followed by a clearly softer second half as customer operating rates were visible in the market. On the net sales side, development was as expected. Capital net sales came in at a solid level in the quarter, and we saw the Aramco project progressing well. In total, we booked roughly EUR 400 million of Aramco as net sales during 2025, and we estimate that roughly another EUR 400 million will be booked as net sales in 2026 as the project continues to advance according to plans. In Services, net sales decreased organically by about 7%. This reflects the order mix in the recent quarters, which have been more tilted towards longer lead time mill improvement projects. Also along with the FX impact, that mix effect was clearly visible in the net sales for the fourth quarter as well. Comparable EBITA amounted to EUR 123 million with a margin of 11.6%, unchanged from last year. Biomaterial services net sales were lower, but the operating model efficiency we implemented early in the year supported the segment's margin development, and I'm very pleased that we made those decisions when we did. Without them, the year-end would have been significantly tougher for this segment in terms of delivering the margin. This covers the operational and market development for our segment this quarter. To give you a deeper look at our financial development, I'll now hand over to Katri, our CFO. Katri, the floor is yours. Thank you. Katri Hokkanen: Thank you, Thomas. And actually, before I begin, I want to sincerely thank the Valmet Finance team and our Investor Relations team for a very strong year-end reporting effort. This was the first annual closing under our new renewed operating model and reporting structure. We introduced several improvements to our quarterly and annual reporting during the year. So delivering these changes while maintaining excellent accuracy and clarity required significant teamwork. And I want to thank everyone involved for their dedication in this. I'll now take you through Valmet's financial development, focusing in the fourth quarter. I will cover our profitability, cash flow, balance sheet and other key financials. And as always, my aim is to provide a clear and transparent view of our financial position and the drivers behind our performance. Let's start with an overview of our net sales and comparable EBITA for the fourth quarter. Net sales amounted to EUR 1.5 billion in Q4, and this was EUR 51 million lower than in the comparison period, and this was mainly due to a negative currency impact of approximately EUR 42 million as the euro strengthened against U.S. dollar and some other key currencies. Organically, net sales were only 1% lower than Q4 last year, showing steady development in both segments. Comparable EBITA reached EUR 196 million, and the margin rose to 13.3%, which is the highest quarterly margin in Valmet's history. The increase was driven by the cost savings from our own operating model renewal, which continued to support profitability in the second half. And by the end of the year, we realized approximately EUR 35 million in cost savings related to the operating model renewal. And this includes approximately EUR 20 million in the fourth quarter and the targeted EUR 80 million annual cost savings run rate has been reached now. Like I said earlier, we will be investing part of those savings back into growth. So the incremental net savings impact will be roughly EUR 30 million in the first half this year. I'm pleased to note that even with the weaker market and currency headwinds, our operating model and disciplined execution allowed us to deliver another quarter of strong financial performance. Let's move next to our order backlog. At the end of 2025, Valmet's order backlog amounted to EUR 4.3 billion, which is EUR 146 million lower than at the end of 2024. Based on the current delivery schedules, we expect approximately EUR 3.1 billion of the backlog to convert into net sales during this year. And this is in line with the level we guided last year when a similar amount of backlog was expected to be recognized as net sales during 2025. And our book-to-bill ratio for the full year was 1, reflecting the softer market in the second half of the year. Even so, the absolute backlog continues to provide a very solid visibility for this year. Overall, the backlog remains at a healthy level, supporting stable deliveries for the year ahead. And as always, our teams are working hard to create a solid amount of book and bill during the year on top of the order backlog. Moving on to our cash flow and working capital next. Cash flow from operating activities amounted to EUR 189 million for the fourth quarter, bringing the full year operating cash flow to EUR 581 million. Our comparable cash conversion ratio for 2025 was 94%, which is in line with our long-term average and demonstrate the strength of our cash generation capability. Net working capital decreased to EUR 29 million at year-end compared with EUR 134 million a year ago. And I'm very pleased to see over EUR 100 million released during the year. CapEx for the year totaled EUR 103 million, representing about 2% of net sales, and this is broadly in line with previous years. And we expect this to increase a bit this year. Efficient cash generation, together with disciplined capital allocation, remain the key priorities for us, and they both support and enable both operational flexibility and also our long-term growth ambitions. Let's move on to our balance sheet and leverage position. At the end of 2025, Valmet's net debt amounted to EUR 904 million, and our gearing decreased to 35%, down from 38% in the third quarter. Net debt decreased by EUR 41 million from Q3, even though we paid the second dividend installment of EUR 0.67 per share, which totaled EUR 123 million in Q4. Our net debt-to-EBITDA ratio improved sequentially to 1.40 compared with 1.50 at the end of the third quarter. We are well within our target of under 50% gearing, which means we are in a good position for the upcoming Severn acquisition as well. It is estimated to increase Valmet's gearing by approximately 15 percentage points once completed. The average interest rate of our total debt was 3.4% at year-end, decreasing from 4% a year earlier. During Q4, we also completed our first Schuldschein loan transaction, which amounted to EUR 375 million. And this transaction strengthens our long-term debt structure, diversifies funding sources and broadens our debt investor base. So big congratulations once more to the team who made this transaction happen. Net financial expenses decreased slightly to EUR 62 million for the year. And overall, the balance sheet remained strong, which gives us flexibility as we continue to execute our strategy even in a softer market. Moving on to our capital efficiency and EPS. Our comparable ROCE for the full year was 13%, and this is a solid level and slightly higher than a year ago. However, our long-term financial target is to reach a 20% comparable ROCE by 2030, so we still have work ahead of us. Main driver behind the lower ROCE compared to 2022 is the series of acquisitions we have made in recent years. These have increased our capital employed. We remain confident that these investments will support stronger returns over time, and they fit well with our strategy and long-term financial ambition and increase shareholder value. Adjusted earnings per share for the year was EUR 1.82. The year-on-year decrease is mainly related to changes in the expensing of fair value adjustments from acquisitions. And just as a reminder, adjusted EPS excludes acquisition-related impacts, but it does include items affecting comparability, which is sometimes misunderstood. Looking at the key financial figures for the fourth quarter, I'm pleased to note that almost all the numbers are in the black for Q4, with the exceptions of orders for reasons we have already discussed and net sales, which decreased mainly due to currency impacts. Comparable EBITA increased to EUR 196 million, up 2% from the previous year, and the margin improved to 13.3%. EBITA and operating profit also increased from last year's levels. Cash flow from operating activities was EUR 189 million, up 7% year-on-year in Q4 and 5% in 2025. For the full year, items affecting comparability amounted to minus EUR 85 million compared to minus EUR 53 million in 2024. The increase in these costs was mainly driven by restructuring expenses related to the operating model renewal. On a full year basis, our tax rate was 25.7%, which is in line with Valmet's historical ETR level, which has been around 25%. You will also notice that our effective tax rate in Q4 was higher than usual as there were some one-off impacts in the taxes. That concludes my review of the key financials. Thomas, over to you, please. Thomas Hinnerskov: Thank you very much, Katri. Very clear, very transparent, very good. Thanks. So let's start with the dividend. So we laid out our capital allocation priorities back at the Capital Market Day last year in June. First, organic growth. We are reinvesting part of the operating model savings back into growth, particularly into strengthen commercial execution. This is a deliberate choice to support our long-term profitability. Secondly, strategic M&A. We expect to close the approximately EUR 410 million acquisition of Severn in 2026, a significant strategic step aligned with our portfolio ambition. Thirdly, dividends. Our policy is to pay out 50% of profit for the period or minimum 50% for the period. The Board's proposal is a EUR 1.35 dividend translating into 89% payout ratios and EUR 249 million in total dividends, unchanged from last year. Fourth, share buybacks, which remain a flexible tool depending on the balance sheet strength and other capital allocation needs of the previous authorities. Overall, the proposed dividend is consistent with our policy. It reflects confidence in Valmet's cash flow and long-term financial position. Let me start with the short-term market outlook for the first half of 2026 compared with the fourth quarter. In PPS, the market softened in Q4, particularly in pulp and paper automation, but also in Flow Control, where earlier tariff cost prebuying turned into a temporary headwind. From here, we do not expect further softening. We see the PPS market stabilizing at the Q4 level and improving modestly during the first half of 2026. In Biomaterials Solutions and Services, the market environment in pulp, packaging and paper remained soft and highly dependent on the timing of any possible individual customer decision. Biomaterials services are also expected to remain soft, but not to worsen from current levels, which is why we've adjusted the wording. Capacity utilization, especially in Europe and China remains low and continues to pressure our customers' profitability. From our perspective, the market is flattening, not deteriorating further. Turning then to our 2026 guidance, which we published today. First, we expect net sales to remain at previous year's level. This reflects the flat order backlog and the short-term market environment I just described. Second, we expect comparable EBITDA to remain at previous year's level or increase. The drivers are clear. On the positive side, we'll have additional net savings of roughly EUR 30 million from the operating model renewal as well as the first benefits from the new global supply unit. On the more cautious side, general market uncertainty remains high and for that reason, we guide for flat or increase. Our long-term ambition remains unchanged. Our 2020 target is a 15% comparable EBITDA margin, a clear step up from the 11.9% in 2025. And we continue working with determination to progress also in 2026. Despite the market challenges, our simplified operating model, our focused strategy position us well to navigate near-term volatility and to continue creating long-term value for both our customers and our shareholders. With that, I'll hand over to Pekka for instructions on the Q&A. Pekka Rouhiainen: Thank you, Thomas and Katri, and let's now go to the Q&A part here. [Operator Instructions] But we start with the questions here from the platform since we have a few. So first of all, Thomas, can you discuss the Services market in 2025 and the outlook for 2026 for biomaterial services as it's one of the important factors for the guidance? Thomas Hinnerskov: Yes. Clearly, that is one of the swing factors for the guidance. Looking back 2025, I think divide the year in 2 parts. The first half, clearly strong, especially in the beginning of it with parts, but then also sort of over the summer period, good mill improvement projects coming off, some prebuying ahead of the tariffs as well. We also saw that in the first half. Then turning into a softer second half that really reflect our customers' operating rates and the challenges that they are going through. Going then into '26, which I think is what we are most sort of interested and passionate about how that will turn out. Clearly, softness continues. We don't think -- we don't see that it's going to be more soft than what we experienced now, but it is going to be soft. It is a bit foggy in terms of looking sort of further out how it will. But then I think it's -- I think we -- what we are doing as well ourselves is we're investing in commercial capabilities. We strengthened our life cycle concepts to actually help our customers. There's still a lot they can do in terms of the mill improvement projects to drive up their efficiency so they become more competitive in their market. And I see that as a positive thing, but it's in our hands that we can actually drive that ourselves. Pekka Rouhiainen: Thank you, Thomas. Thank you for that clarification. And then about the guidance, it was already reflected here, but we received also a few questions before the call started. So does the guidance include Severn acquisition? And what kind of financial impact? So 2 questions here. Do you expect from Severn in 2026? Thomas Hinnerskov: Yes, good point. I think it is very important to clarify that Severn is not included in our guidance. It's too early to do that. We will, of course, include it once we close it in the second quarter. That is clear. Severn had a 2025 estimate of roughly EUR 250 million of sales. That will, of course, come into Valmet at the time we close the deal from a run rate perspective. Pekka Rouhiainen: Yes. Thank you. And then a question on the Services net sales, maybe going to Katri here. So what's the Services net sales decreased in Q4, so were there some specific drivers for that decrease? Katri Hokkanen: Good question. Thank you. First of all, organically, it went down by 7%. So FX played a role there. But Thomas discussed or told in his presentation that as you remember, in Q3, our orders were a bit more tilted towards these mill improvement projects, and they take longer time to recognize as revenue. So that was the main reason. Pekka Rouhiainen: All right. Thank you. Thank you for those. And please use the platform. We'll address those questions also later if there are any more. But now we go to the conference call. So operator, I hand over to you. Operator: [Operator Instructions] The next question comes from. Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I have 2. Firstly, on the biomaterials. So the margin trend was better in Q4 than in Q3, if we look at the year-on-year development and the absolute level. The question is what was behind that improvement? I mean you said that you got a bit more cost savings in Q4 than Q3, but was that the reason? Or was there something else in the underlying business? Thomas Hinnerskov: Basically, if you think about -- I think we also said it in part that a large part of that margin improvement in Q4 for buyer was that they had part of the operating model changes that they actually received or that impacted them positively. And as you probably remember, Panu, we said roughly 2/3 of the savings from the operating model comes into the biomaterial business. Panu Laitinmaki: Okay. Then secondly, on the process performance, you said in your comments that you don't expect the margin to remain at the record high '25 level. Were you referring to the Q4, not continuing at the '22 level or on a kind of full year basis, what you reported for that division? Thomas Hinnerskov: I think we specifically are commenting on that it will not stay on what sort of Q4 level going forward. So as you recall from the Capital Market Day, this is one of the areas where we want to invest into driving more organic growth with investing into sales resources and further R&D resources that we started executing right after the Capital Market Day and the strategy was launched. Some of these recruitments are coming online late last year and early this year, and that put -- we can say, increase the cost level and therefore, take the margins down. Then it's also clear when you drive sales in this area, we will not see the bottom line impact as fast because it takes a bit of while before it really gets into the service mode of these solution. Katri Hokkanen: And may I build on top of that. So if you look at the PPS margin, so it was actually really strong on the second half of last year. And we expect it to ease a bit, but still remain on a solid level. Thomas Hinnerskov: And you also remember, Panu, we said it in Q3 as well, we were commercially ahead of the curve in terms of anticipating some of the cost challenges that now comes online from a tariff perspective, et cetera. Operator: The next question comes from Mikael Doepel from Nordea. Mikael Doepel: So I have a couple of questions or 2 basically. I'll take them one by one. So firstly, on the Service segment, I appreciate the comments earlier. But if you could give a bit more comment there, you say it's still a tough or a soft market, you could say. Is there any region that stands out in terms of consumables demand, for example? And how do you see the rebuilds and other projects if you look at the current environment? And also if you think about the trajectory for the business in the midterm, do you see any pent-up demand building up currently? And also, is there something in this cycle that is different from the past? In other words, do you see any reason why demand would stay weak beyond a few quarters? Thomas Hinnerskov: Michael, thanks for joining and thanks for the call -- thanks for the question, even though you are calling in. Good question. I think let me elaborate a little bit because I think it is an important driver. There's probably 3 elements I'm sort of looking into when we think about it. You asked a little bit about are the areas geographically where there's differences. I think it's clear that North America took some capacity out end of Q2, Q3. Now they're running at very good operating rates. That's great to see that, that actually also impacts our business also going now into this year. On the other hand, we had some quite low operating rates, in particular, in the China Asia market, which then, of course, also have impacted the Service business. Do we see that continue? I think with the -- can we get into a global economy where there's a little bit less uncertainty that will also drive consumer behavior and confidence up, which will then, of course, will be helpful for our customers, which will then create more demand and therefore, the operating rates will go up. I think that's -- I think it's harder to see that it should go further down from here. I think that is a pretty stressed or pretty low end of the market range that we're in. Then what also I think is going to help us in the sort of going forward is if you look at our capital business in this area for '25, then I would say just sort of give you a little bit of more flavor to this. Pulp business, we probably have a 50% market share there last year. Packaging business on the capital side, I'm not talking about, capital on the packaging business, definitely leading for sure in terms of capturing a very strong position there last year. And then on tissue, we also had a hit rate that was well above the 50% last year. So that builds also the installed base, even though it was a relatively soft market also on the capital side, but it does help us going forward. Mikael Doepel: Okay. And then another question on the project or the capital business you just mentioned. So if we think about the larger potential greenfield projects out there, how would you describe the current market environment and the pipeline? I mean, do you see the increased geopolitical uncertainties pushing projects out in time or even some cancellations? Or are things actually progressing as planned? Any color there would be helpful. Thomas Hinnerskov: Yes. No problem. I think -- not a big change from when we talked last. I think that sort of situation basically is the same. They are the same projects in Latin America, as everybody knows about. There's some -- still some activity across other parts of the world. I think our pipeline generally looks the same as what it did a year ago when we look at sort of our sales pipeline. So with that, I don't think there's bigger changes. Maybe a bit of further color, I would say, I think North America, with the old installed base, there is good opportunities for our customers to actually improve their current operation by doing larger mill improvement projects. It's always difficult to sort of predict when it actually happens, right? Mikael Doepel: Sure. Absolutely. And then just a brief follow-up on that and related to Arauco. I think you mentioned that you expect revenues of about EUR 400 million from that project in '26. What was that in '25? You might have said this, but I missed it, sorry. Thomas Hinnerskov: Roughly the same. So it's roughly evenly distributed. So if you think from a run rate perspective, you're going to see the same net sales in '26 as you saw in '25. We've been happy with the progress in the fourth quarter as well, progressing really well on all the different install islands, so -- and very pleased with how the team is managing and operating that. Operator: The next question comes from Tom Skogman from DNB Carnegie. Tomas Skogman: This is Tom Skogman from DNB Carnegie. I would like to get a bit more clarity on the savings program. So if you first start with this EUR 80 million program for white collars, I think you said the incremental savings in the P&L in '26 will be around EUR 30 million. But is this kind of the total impact also adjusting for the growth plans that you have? Or should I take away some of this EUR 30 million kind of build the bridge? Thomas Hinnerskov: Yes. Good question, Tom. And that's like we said before, you need -- we had roughly EUR 30 million in '25. We'll have another EUR 30 million in '26. The EUR 30 million in '26, that is sort of net of investment into growth. Tomas Skogman: Okay. So that's the total impact. And then I'm a bit surprised that you don't give out any information at all about this EUR 100 million savings program or kind of supply chain savings and manufacturing footprint. Should I estimate some savings at all this year? Or is this kind of not the thing for '26 or for '27 and beyond? Or what should I think? Thomas Hinnerskov: Yes. That's a good question, Tom. There are a couple of parts to the whole global supply savings, right? The EUR 100 million we talked about back in June. Clearly, there's some that we are driving sort of relentlessly sort of get short-term impact from -- particularly from a procurement perspective. Then we're also looking overall footprint, how does that actually -- where should we focus our manufacturing capabilities, so how to think about, and of course, we will throw more color to that and information about that as we progress throughout '26, and there will be sort of -- yes, so you'll know more about that. I would probably think about having something similar to the operating model savings in your spreadsheet. Tomas Skogman: So around EUR 30 million savings this year and nothing in '25 basically? Katri Hokkanen: Yes. I would have said double-digit millions. So very much in line with what the Boss just said. Tomas Skogman: But there were no savings here in '25, right? Katri Hokkanen: They really start to materialize in 2026. So that's the thing. Thomas Hinnerskov: And when you have to think about why did we say no savings in '25, Tom, is sort of like we think compared to what we have seen earlier, right? So we talk about where -- how are we cranking up the machine to deliver more, right? And that... Tomas Skogman: But can you just give some thoughts about where you will get this kind of half the supply chain and then the rest is kind of factory closures and what of this will be reinvested also so we don't plug in too much into our models? Thomas Hinnerskov: Yes. It's clear that some of these savings in terms of driving our global competitiveness are very, very important from a competitiveness perspective, of course, also from a margin expansion perspective. So some of it will be or will have to be in particular in today's environment, be reinvested into actually winning the projects. That is clear. Tomas Skogman: Yes, I understand that. Okay. And then finally, the Severn order trend in '25, you just said the sales what it was, but can you give some indication on the order trend there? Thomas Hinnerskov: For Severn? Tomas Skogman: Yes. Thomas Hinnerskov: Yes, let's come back to that when we close. Operator: The next question comes from Sven Weier from UBS. Sven Weier: The first one is a follow-up on Michael's regarding the greenfield project pipeline and your position in the Chinese market because obviously, we've seen a few projects there last year. I think there's another one coming this year, at least one. So we always talk about South America, but there's quite a few things happening in China. So how do you see your chances of winning something there in 2026? That's the first one. Thomas Hinnerskov: Yes. Thanks, Sven, and thanks for joining. China market, important market for us. We're well established. We delivered the first machine there back 90 years ago, I think. So we've been a long-standing supplier into the Chinese market. It is clear, as you said, some of the dynamics we see in the China market is that they are going -- they have aggressive generally investment philosophy, but they're also going more integrated, which we have sort of not seen to the same extent before. So they're going more backwards into actually having their own pulp supply, and that will drive demand for pulp projects in the Chinese market over the next couple of years. Sven Weier: But you also see that going ahead in your current pipeline for this year? Thomas Hinnerskov: Yes. Yes. It's always difficult to say sort of when does things really pan out. I have to sort of say that as well. But yes, we do see it in the pipeline. Sven Weier: And the second question I had is just around the guidance because obviously, with flat sales, you give a bit of a point guidance on revenues, which I appreciate. But on EBIT, right, you say flat, but could also increase. I just wonder about the moving parts, right? Because, I mean, operating leverage is not going to have an impact if your revenues are flat. I mean what are the -- and you talked about the savings. I mean, should we expect a big mix impact on the bridge? And I mean, what kind of range are we talking here? Could it be a significant increase? Or are we talking about a relatively narrow range here also for EBIT? Thomas Hinnerskov: Yes. So good question. So what's really the sort of the swing factors here? I think as we've shown in last year, especially second half, we've taken sort of our own destination really in our own hands, right? We sort of -- with having been early on, on the operational savings, which then hit the bottom line already second half. Swing factors going into '26, I would say, to a very large extent, 2 things: service growth and then growth in our PPS business. Lots of -- Katri talked about our order backlog, but still a lot of book-to-bill going into or have to be happened this year in '26, right? And that's mainly thinking about PPS and the service, especially maybe on PPS, which may be especially on the automation systems. Sven Weier: The upside is not limited by the EUR 30 million net savings, but there could be also a positive mix effect on top of that if things go well. Thomas Hinnerskov: Yes. Back to how does the growth come in Service and in particular and in PPS, yes. Sven Weier: Which would then be more, I guess, back-end loaded on Service, given that short term, the Service market is still difficult, as you said, right? Thomas Hinnerskov: Exactly. Exactly. And that, of course, as you're saying, that creates the mix impact as well, which then drives up our margin. Operator: [Operator Instructions] The next question comes from Timo Heinonen from Handelsbanken Markets. Timo Heinonen: It's Timo from Handelsbanken. I mean I'm sorry if you already commented this, but the Service profitability very strong in fourth quarter. And of course, I know that the cost savings, but at the same time, the sales are down quite a bit. I think it must have been some underlying improvement. I mean that the margin is up only because of the cost savings? Thomas Hinnerskov: First of all, thanks for joining, Timo. And did you mean -- are you talking just about the Bioservice or did you talk about the whole thing? Timo Heinonen: Bioservices, of course. Thomas Hinnerskov: Sorry, once again, I couldn't hear you. Timo Heinonen: I mean if we look at what the margin could have been and then, of course, you have had some cost savings, but then the revenue being down. So it seems that you have been able to kind of improve the underlying margin as well, yes profitability improving, excluding the cost savings. Katri Hokkanen: Timo, as you know, we cannot give comments on the Services profitability overall. But if you look at the buyer side, the main driver for -- because the volume was dropping, then margin was kept was actually the operating model savings. So that was the #1 thing. Timo Heinonen: Okay. But no kind of underlying improving, I mean, pricing or anything like that? Thomas Hinnerskov: Not significant, I wouldn't say. [Technical Difficulty] getting ahead of the curve from the softness in the market, and that's what we are quite pleased with that, that decision really proved out to be the right one. Operator: The next question comes from Tom Skogman from DNB Carnegie. Tomas Skogman: I would just like to understand the dynamics a bit better in China because to me, it seems like you have other competition there than you have in the Western world, and it's very hard to understand what is kind of happening to your market shares in China in board machines and in pulp mills. I mean we see so few order announcements from you regarding Chinese customers, especially on the pulp side, but there seems to be a lot of things happening there. So I would like to understand it a bit better. Thomas Hinnerskov: Yes. I think -- I mean, I'm not sure I fully get your question, Tom. So forgive me. So ask a follow-up if I'm not answering you on that one. I think China market, yes, it is a different market than some of the others. There's some different competition. But clearly, our large Chinese customers, they do look at total cost of ownership or cost per tonne or being the most efficient. They understand probably very, very well that it is about having the lowest operating cost, especially in that market where there also is overcapacity. So how do you actually get to be able to compete effectively and profitable in that market as well. And that's where I think our technology comes really into play because we can deliver that with the most -- or the lowest total cost of ownership to our customers, right? Tomas Skogman: But if you look at pulp mills in China, I mean, what is your market share there the last 5 years or so? And is there any kind of change going on? Thomas Hinnerskov: Yes. I don't think we disclose sort of regional market shares. But I think, as I said, I think it was to Michael's question, that we had a good year in our pulp business as well with sort of a 50% -- taking 50% of market share from a global perspective. Tomas Skogman: But are there other competitors in China in pulp mills? I mean this is really what I want to understand, how are you doing against them in kind of midsized projects, et cetera, if that's kind of one of the hopes that there will be things happening this year? Thomas Hinnerskov: I think our advantage also in the Chinese market or maybe in particular in the Chinese market even more so is back to most efficient equipment, but also this thing about being able to support the customers in the start-up, in the process and start-up of the equipment, and that's where other competitors, especially sort of local competitors don't have the capability at all. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Pekka Rouhiainen: Thank you, operator, and thank you for the good Q&A session. There are no more questions in the digital platform either. So I think it's time to start to wrap up. So the Q1 report for Valmet will be published on April 28. I hope to see many of you in the roadshows and seminars we are planning to attend in Q1. But now I'd like to hand over to Thomas for you for any closing remarks. Thomas Hinnerskov: Thank you, Pekka. And thanks, everyone, who joined us today for a good discussion here on this webcast and other venues as well. First and foremost, I just really want to thank the Valmet team for the hard work and commitment during the past year. Thanks to the finance team for delivering another great transparent report all at the right time and had all the deadlines. To sum up or maybe also maybe even more importantly, I want to have send a big thanks to our customers for the trust that you have shown us throughout the year and for a lot of you, very challenging year. And I sincerely think that we've also played it back and try to deliver as much value and make you as competitive as you possibly can in your markets as well. But thank you very much for the trust. To sum up, we achieved a record high EBITA margin in Q4, thanks to the early action we took last year. 2025 was a true transformative year for Valmet with new strategy, new operating model, a lot of initiatives. Next strategic milestone is the Severn acquisition, which makes us even better positioned for growth in the Process Performance Solutions and outside our biomaterial core. So with this and despite some market headwinds, we are starting the year 2026 from a position of strength. See you out there. Have a great weekend when you get there. Thank you.
Operator: Good morning. My name is Joanna, and I will be your conference operator today. I would like to welcome you to Canopy Growth's Third Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to Tyler Burns, Director, Investor Relations. Tyler, you may begin the conference call. Tyler Burns: Good morning, and thank you for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, Luc Mongeau; and Chief Financial Officer, Tom Stewart. Before financial markets open today, Canopy Growth issued a news release announcing the financial results for our third quarter fiscal 2026 ended December 31, 2025. The news release and financial statements have been filed on EDGAR and SEDAR and will be available on the website under the Investors tab. Before we begin, I would like to remind you that our discussion during the call will include forward-looking statements that are based on management's current views and assumptions and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of the news release issued today. Please review today's earnings release and Canopy's reports filed with the SEC and SEDAR for various factors that could cause actual results to differ materially from projections. In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars unless otherwise stated. Following remarks by Luc and Tom, we will conduct a question-and-answer session where we will take questions from analysts. With that, I will turn the call over to Luc. Luc Mongeau: Thank you, Tyler. Good morning, everyone, and thank you for joining us today. Q3 was a quarter where Canopy Growth delivered significant progress on multiple levels, and it reinforced my confidence that we're building stronger business. For me, the fundamentals of the business are both about how the business is performing and our financial strength, which allows us to execute with discipline. Across the organization, our teams are focused on the right things, and that focus is starting to pay dividends. We're building a company that can consistently deliver superior experiences for consumers and patients, grow and manufacture high-quality products and create consistent value over time. On the balance sheet, we ended the quarter with $371 million in cash and cash equivalents and a net cash position of $146 million, putting us on solid footing as we move into the next phase of execution. Post quarter end, we completed a USD 150 million recapitalization that improved our liquidity and extended all debt maturities to 2031. This gives us more flexibility around near-term financing, including how and when we use tools like the ATM and more room to make the right long-term decisions. This financial strength matters because it allows us to act intentionally. A good example is the proposed acquisition of MTL Cannabis, which we announced during Q3. MTL brings an accretive profile, a strong entrepreneurial leadership team and high-quality cultivation capabilities to our platform. They've built a profitable, cash-generating business that we expect to be accretive to the combined organization. High-quality flower, cost efficiency and operational discipline are the foundation of any scale cannabis company, and MTL strengthen our ability to achieve all three. Following closing, MTL will strengthen our leadership position in Canadian medical cannabis, enhance our presence in Quebec adult use, and importantly, provide high-quality flower supply that we can leverage to drive growth domestically and in international markets. Turning to our Q3 business results. The focus on fundamentals is really paying off. In Q3, we delivered our slimmest adjusted EBITDA loss to date, driven by continued cost discipline and improving execution across our Canadian medical and adult-use channels. In Canada medical, net revenue grew 15% year-over-year, our sixth consecutive quarter of growth, supported by a high-quality, best-in-class patient experience, strong service levels and increasing engagement with insured patients. We've also taken deliberate actions to preemptively mitigate the financial impact of the proposed changes to the veterans reimbursement program while continuing to support veterans with best-in-class care and innovative high-quality products. We expect to continue strengthening this platform, maintain our leadership position in Canadian medical cannabis and use our scale to elevate service and drive margin improvement over time. In Canadian adult-use, we're seeing continued momentum as well, with net revenue up 8% year-over-year. Growth this quarter was driven by strength in pre-rolls and vapes supported by focused innovation and improved execution at retail. What really gives me confidence here is not just the growth we're seeing today, but where we're directing our attention. We're shifting our focus towards elevating the quality of our brands, strengthening product innovation and improving the quality, potency and cost of our flower to delight consumers and patients alike. Looking ahead, our focus now turns to unlocking the next phase of growth, particularly in Europe, where we are spending significant time and attention. In Q3, we started stabilizing the international business, improving execution and laying the groundwork for growth with net revenue up 22% sequentially. Progress on EU GMP certification at our Smiths Falls facility, combined with our continued focus on elevating flower quality across our sites, is expected to position us to better serve international medical markets as demand continues to develop and regulations continue to evolve. Additionally, access to MTL's high-quality supply will fuel our strategy. There's more work to do, but I see a meaningful opportunity ahead. At Storz & Bickel, net revenue grew 45% sequentially, with the new VEAZY vaporizer reinforcing our strategy around affordability and portability. Our focus remains on accelerating product development and strengthening sales and market execution, especially in North America, where we believe cannabis consumers should experience the joy and fullness of flavor that an S&B device offers. In the U.S., through Canopy USA, we remain indirectly invested in one of the world's largest THC market, providing us with long-term strategic optionality as the regulatory environment continues to evolve. So overall, this was a quarter of real progress. Our balance sheet is stronger, Canadian cannabis sales are growing, and the confidence of our team continues to build. Looking ahead, the business is well positioned to unlock additional value through elevated cultivation, innovative brands and disciplined execution. I'll now turn it over to Tom to walk through the financial results in more details. Thomas Stewart: Thanks, Luc. I echo your sentiments and remain confident in the direction our business is heading. The third quarter reflects our continued focus on disciplined execution across the business, while sustaining cost savings and significantly improving our balance sheet. With our aggressive cost-saving actions taken to date, we have been able to identify and capture $29 million of annualized savings, far exceeding our initial expectations. This, coupled with the growth we are witnessing in the Canadian business, gives us the confidence that we can achieve our goal of positive adjusted EBITDA during fiscal 2027. Turning quickly to the balance sheet. We ended the quarter with our strongest net cash position since fiscal 2022 with $371 million of cash and short-term investments and a net cash position of $146 million. We further strengthened our balance sheet subsequent to quarter end with the previously announced recapitalization, which enhanced our near-term available cash while extending our debt maturities to 2031. These actions reinforce our financial foundation as we continue to execute against our operating and strategic priorities while expanding our near-term financing flexibility, including greater discretion over the timing and use of our remaining ATM capacity. With this level of balance sheet strength and expected sustained improvements to our operations, I'm extremely encouraged as we close out the fiscal year. I will now review our detailed segment results, starting with global cannabis. Q3 cannabis net revenue was $52 million, up 4% compared to a year ago. This growth was led by Canada medical cannabis with revenue increasing 15% year-over-year to $23 million, marking another record quarter. This growth was driven by continued expansion in insured patient registrations and larger order sizes. Our medical teams' focus on improving service levels, including faster fulfillment and reduced shipping times, continues to generate positive results. Canada adult-use cannabis revenue increased 8% year-over-year to $23 million, supported by growth in infused pre-roll joints and our new All-In-One vapes from Tweed and Claybourne. In addition, disrupted retail operations in British Columbia reduced purchases by the province during the quarter, which created revenue headwinds not expected to recur in the fourth quarter. Turning to international cannabis. Sales increased 22% quarter-over-quarter, reflecting stabilization and a return to growth. As we retooled our supply chain, we saw encouraging signs of operational improvements as we exited the quarter. Cannabis gross margin was 25% in Q3 as compared to 28% in Q3 last year. The year-over-year decrease in gross margin percentage was primarily attributable to lower sales in international markets and a change in sales mix within the Canadian adult-use market. Turning to the performance of Storz & Bickel. Storz & Bickel net revenue was $23 million in Q3, an increase of 45% sequentially, driven by traditionally strong seasonal sales with Black Friday online sales increasing 16% year-over-year and the first full quarter of sales for the new VEAZY device, offset by softer demand in certain markets and tariff-related pressures. Storz & Bickel gross margins decreased to 37% in Q3 from 40% last year with tariff impacts and lower volumes providing gross margin headwinds. Moving to operating expenses. Excluding the impact of acquisition, divestiture and other costs, which includes litigation costs and recoveries from previously divested businesses, SG&A expense decreased 12% year-over-year. This improvement is the direct result of our ongoing cost savings initiatives, which remained a central focus for Canopy. These savings, combined with the performance of our Canadian cannabis business led to our narrowest adjusted EBITDA loss to date of $3 million. We remain focused on balancing cost discipline with maintaining the capabilities required to execute in our core markets. Free cash flow was an outflow of $19 million in Q3 fiscal 2026, down from an outflow of $28 million in the same period last year. The year-over-year decrease primarily reflects a reduction in the cash interest payments due to a reduction in our debt balances and decrease in working capital movements. As we move forward, our focus remains on delivering positive adjusted EBITDA in fiscal 2027, improving inventory turns and tighter capital allocation, all of which support sustainable free cash flow improvements. Looking ahead, in Canada cannabis, we expect continued strength in adult use driven by innovation, expanding distribution with key accounts and elevating our flower capabilities. In Canada medical, we remain focused on patient growth and service excellence which we expect to continue to drive growth in the medical channel. In international cannabis, our priority is operational stability and execution with sequential improvements expected in Q4 and into fiscal 2027, driven primarily by performance in our European markets. With this momentum, we expect to see improvements in our cannabis gross margins in Q4 and into fiscal 2027. At Storz & Bickel, VEAZY momentum and cost discipline remain key drivers as we navigate near-term macro and tariff headwinds. With Storz & Bickel's strongest quarter being Q3 traditionally, we can expect the sequential top line comparison in Q4 to be challenged. With the expected growth in top line revenue on improved gross margins as well as the cost saving initiatives executed today, we would expect Canopy to achieve positive adjusted EBITDA during fiscal year 2027. Furthermore, upon the expected closing of the MTL transaction, Canopy expects to consolidate MTL's results from the closing date onwards, which will contribute to net revenue, gross margin and adjusted EBITDA improvements. While integration planning is already underway, our immediate focus post close will be on ensuring operational continuity and beginning to capture the strategic and cost synergies we have previously outlined, while also maintaining our disciplined approach to financial management. In closing, I want to underscore that our priorities across the business remain clear and unchanged, rigorous operational execution, disciplined capital allocation and achieving positive adjusted EBITDA. With these three elements, we are positioning Canopy for sustainable long-term success. I will now turn it back over to Luc for his closing remarks. Luc Mongeau: Thank you, Tom. For me, the takeaway from this quarter is clear. The focus we've placed on fundamentals is working, and it's strengthening the foundation of our business. We have made real progress on the balance sheet, build momentum across our Canadian cannabis businesses, and took an important step forward with the proposed acquisition of MTL Cannabis. With that foundation in place, our focus now shifts to accelerate in Europe, expanding the reach of Storz & Bickel and elevating cultivation, quality and efficiency at scale across our platform. From my very first day, I believe that Canopy Growth has the potential to transform, refine its focus, improve its structure and deliver on its promise of a sustainable and profitable cannabis company. With each quarter, we're demonstrating sustainable improvement, and I'm confident we're positioned to gain further momentum as we move into fiscal 2027. Thank you. Operator, we'll now take questions. Operator: [Operator Instructions] First question comes from Aaron Grey from Alliance Global Partners. Aaron Grey: First for me, I just wanted to dig a bit more in terms of the international business and what to expect maybe for the next 12 to 18 months for growth opportunities. MTL had a small international business today, but it does seem their production capabilities could help you improve your international supply chain. So maybe any color in terms of how to think about the timing of that flowing through? And is there any additional capacity needs to ensure MTL's legacy domestic business continues to be serviced? And then additionally, in terms of the EU GMP at Smith Falls, how should we think about potential timing of that and that improving your international supply chain capabilities? Luc Mongeau: I hope you're well. Thank you for the question. Okay, there's a lot to unpack here. Let's start with flower. So we've demonstrated in the past, when we have flower in Europe, our capabilities out there, whether it's sales, distribution, I mean, deliver results. And so the focus is really in ensuring that we have the right supply of flower going to Europe. So we've been -- the team have been doing quite a bit of work in recent weeks and months to ensure that our demand signals that we're seeing in Europe are well integrated with our growth capabilities in North America. And this has been pretty much fully resolved. So we're in a good place where we can really meet the demand better than we did in the past. Let me give you a bit of a -- maybe a bit of a data point. So during Q3, our sales team in Europe had about two strains -- for a long period of time, two strains to sell. We forecast that in early fiscal '27, they'll have over a dozen different strains up to sell. So we're confident that we're unlocking supply of flower there. This will build on the unique capabilities that Canopy has established over the years. So Smith Falls is already EU GMP qualified. We're going for a, let's call it, a second level of certification. All the docs are in a road to get this approved. So we feel confident there. As well, we have the facility in Europe, and we have a facility in Germany in SLR that can receive, clear and distribute flower in Europe. And we're continually doing operational improvements there. So we feel really good there. As for MTL expanding capacity, we've met with the extremely qualified team there. They have amazing growers. Plans are in place to ensure capacity improves. As well, we're working on our facilities at Canopy to improve yield out of our facilities and the work streams are there. We're seeing great progress. So our level of confidence to build step change performance in Europe next year is building every week. Aaron Grey: Appreciate the color and data points there. That was really helpful and thorough. Second question for me is maybe just touching on the expectations for the gross margin, both on the legacy business, on how you expect those to trend, particularly for cannabis, which has been volatile over the past few quarters, both on the up and downside? And then how best to think about layering on MTL, which has had a higher legacy gross margin profile? Thomas Stewart: Yes. Thanks, Aaron. I'll take that one. So as Luc said, we're excited about the acquisition of MTL and believe it really complements and enhances the existing business in Canada as well as abroad. With MTL's historical margin performance, which you're right, does exceed ours, we're targeting in the near term here, we blended gross margin of, say, mid- to high 30s. But I think there's still a lot of runway after that as we see the European business stabilizing and grow just given the high price points in the European market. So definitely, we expect the MTL transaction to be accretive to gross margin and as well as to our adjusted EBITDA. Operator: The next question comes from Bill Kirk from ROTH Capital Partners. William Kirk: Tom, when you said a positive adjusted EBITDA during 2027, does that mean for the full year? Or does that mean one of the quarters in the fiscal '27 will be positive? And do you expect positive numbers if you were to exclude the contribution from MTL? Thomas Stewart: Yes. So a couple of parts there. So as I said on the call, Bill, I am encouraged by the progress we continue to make to grow the business and course correct our cost structure. We continue to work towards achieving adjusted EBITDA positivity as soon as possible. We will benefit -- or we will see headwinds with the veteran changes, and that's a lot of the reason why you're seeing us take more aggressive cost-saving actions now. So I'll say we're trying to get there as quickly as we can, Bill, and we would expect to be there at some point during fiscal 2027. William Kirk: Okay. And then for my second question, the indebtedness maturities are out to 2031. You're sitting on net cash. So would you expect the period, the last 5 quarters or so, that period of large equity issuance and dilution, would you expect that to be over? Thomas Stewart: Yes. So yes, we're pleased with the current balance sheet position we're in after completing the January recap with a lot of the cash we have on hand now, I would fully expect that does reduce our utilization at the ATM in the coming quarters, but we will preserve capacity for future strategic opportunities as and if they arise. Operator: [Operator Instructions] The next question comes from Pablo Zuanic at Zuanic & Associates. Pablo Zuanic: Luc, can you comment in terms of the domestic medical business, there's this proposal in the budget to reduce the cap for veterans from $8 per gram to $6 per gram that could become effective by April 1? Where are we that? Is there room do you think that, that will be delayed or scratched? Luc Mongeau: Pablo, thank you for the question. This is a very important subject, and we want to make it clear that Canopy is really not in support of this reduction because it can potentially impact the level of care that veterans receive. So as you can imagine, we've channeled a lot of efforts to work with the authorities to see if this could be either delayed or the reduction may be minimized. So far, we have not been successful. So we're taking all the actions to maintain both the integrity of the quality of the care and service the veterans are receiving. And at the same time, we're taking all the actions to maintain the integrity of our margins. So as Tom said, we were -- we took additional actions to be even more stringent on our efficiencies on cost savings. We're able to find more cost savings. So we're doing everything we can to maintain the integrity of our margins. Tom, anything to add? Thomas Stewart: No, I think it definitely presents a headwind for us, but we're taking the actions now prior to the changes coming to effect to make sure we could preserve adjusted EBITDA performance to the full extent possible. Pablo Zuanic: Right. And before I ask my follow-up, I mean, according to my math, the veteran part of the domestic medical business, it's almost about 2/3 of the market. Or am I wrong in that calculation? Thomas Stewart: You mean the total cannabis market on the medical side in Canada, Pablo? Pablo Zuanic: Right. Yes. Would the veteran piece be about 2/3 of the total market roughly? Luc Mongeau: 2/3 of the total medical? Pablo Zuanic: Yes, of the market in Canada. Luc Mongeau: Yes, no, that's -- we can follow up with you. For me, I look at the market in a couple of ways. The adult-use market in Canada is close to $5 billion, growing at 4% to 6% every year. The medical market is about somewhere between $300 million to $400 million. We can get back to you with the exact numbers. The veterans are a good portion of the medical market, but there are other large group of insured and noninsured medical patients in Canada as well. So what's important there, Pablo, is that, look at it, in the last quarter, we grew at 50% in this highly profitable market. MTL is growing at double digits as what was their last reported results. Combined together, we're going to be the #1 player there. We care about the veterans. We care about all cannabis patients in Canada. And we're doing everything, as I mentioned, to maintain the integrity of our service and our care and the integrity of our margin. So as we come together with MTL, we'll look at every single synergies possible there. We'll have the benefit of greater scale to maintain margin integrity and more to follow. Operator: Next question comes from Brenna Cunnington at ATB Capital Markets. Brenna Cunnington: So just looking back to the balance sheet here. So cash balance of roughly $376 million ending the quarter and roughly $425 million following the recapitalization, so quite the war chest that you're building up here. We know that some of the cash will be going towards the consideration for MTL. So kind of a two-pronged question here. So could you shed some light on roughly how much cash you're wanting to keep on hand and the top priorities for the excess cash? And then also, could you remind us of roughly how much spend will be needed right off the bat for MTL integration? Thomas Stewart: Brenna, so I would say from a cash standpoint, we want to make sure we have sufficient flexibility, and we want to maintain sufficient cash if we -- as and if we find opportunities in the market. So I'm not going to pinpoint that to a number, but I would say this is a healthier position than probably you would expect in terms of cash level. For the MTL acquisition, and again, this is math we could do here. But it will be probably between $40 million and $50 million of costs is what we're expecting the cash outlay to be, Canadian dollars, for the MTL acquisition. Brenna Cunnington: Okay. Perfect. And then just looking at Storz & Bickel, so good to see some of the improvements here. Looking ahead, and apologies if I missed this in the prepared remarks, but given the dynamics at play here, what can be done to help improve sales and make it sort of more stable going forward? Luc Mongeau: Yes. Thank you for the question. Storz & Bickel, amazing brand, amazing products, amazing company. I strongly suggest to anybody who has never used the device to try it. It's still a brand that has very low brand awareness, very low trial and everything, especially in the U.S. And so it's -- the strategy to drive growth and value creation is two-pronged. Real expansion of market penetration, usage in the U.S. and well acceleration of the innovation, this -- an innovation we see in a couple of ways, price point expansion. As we expand into affordability, we see the brand really exploding. We're seeing it with the VEAZY right now, which is the entry-level device, and it's doing extremely well, and we will continue to expand that way. And right now, we're only offering devices that are suited to flower, and we can expand the brand into devices that use concentrates and distillates, which is a very large segment of the market that we're not playing in. So multiple avenues for growth and value creation expansion for the brand. Operator: Thank you. This concludes Canopy Growth's Third Quarter Fiscal 2026 Financial Results Conference Call. A replay of this conference call will be available until May 7, 2026, and can be accessed following the instructions provided in the company's press release issued earlier today. Canopy Growth's Investor Relations team will be available to answer additional questions. Thank you for attending today's call.
Operator: Hello, and welcome to the Orange Fiscal Year 2025 Financial Results Conference Call hosted today by Koen Van Mol, Xavier Pichon and Antoine Chouc. Please bear in mind, this call is being recorded. [Operator Instructions]. I will now hand you over to your host, Koen Van Mol, to begin today's conference. Thank you. Koen Van Mol: Thank you, operator. Good morning, everyone, and welcome to Orange Belgium H2 2025 Earnings Call. My name is Koen Van Mol. And with me today are Xavier Pichon, our CEO; and Antoine Chouc, our CFO. They will walk us through the company's performance as well as the strategic initiatives for the second half and full year of 2025. After the presentations, we will be open -- we will open the floor for questions. And now I will pass the floor to Xavier. Xavier Pichon: Thanks, Koen. Good morning, everyone. Thank you for joining us today as we present Orange Belgium's financial results for the second half and the full year of 2025. So as we look back at the second semester and full year of '25, I'm pleased to report that we are on track with our Lead the Future strategy. We made significant progress across key areas, including network leadership, digital transformation and customer experience. Let me start with some key highlights. At the start of the second semester, we signed an MoU with Proximus to access each other's infrastructure and improve access to gigabit networks in Wallonia. This collaboration will enable us to provide access to high-speed connectivity to our customers while optimizing our investment spend. In the meantime, we continue to extend and to upgrade our gigabit fixed network to meet the demand on our customers for the high-speed Internet. Recently, our network leadership has been validated by Ookla, recognize Orange Belgium as having the fastest 5G network in Belgium, reflecting our commitment to superior mobile performance. Over the past semester, we have observed a consistent improvement in the customer experience, which directly reflects the dedicated efforts and strategic initiatives we have implemented to enhance this aspect of our service. In parallel, we actively encourage our customers to migrate to the new portfolio and the reasons demonstrates its attractiveness and the value it offers to our customers. From an environment perspective with our efforts have resulted in a 6% year-over-year reduction in CO2 emissions, encompassing Scope 1, 2 and 3 emissions, reflecting our commitment to sustainability and environmental responsibility. Also, we launched the Smartphone Pass, empowering parents in digital education and increase our digital inclusion beneficiaries by 30% compared to '24. Slide #6. So in a natural, turning to commercial results. Our performance in H2 '25 was very encouraging. Our mobile postpaid customer base grew by 2.5% year-on-year, reaching 3.5 -- 3.55 million customers with net additions of 38,000 during the semester. This growth was driven by the continued appeal of our customers' offers and targeted promotional campaigns. On the fixed side, our cable customer base increased by 1.8%, totaling roughly 1.04 million customers reflecting the success of our convergent offers and high-speed connectivity. For the full year, our revenue performance was slightly below last year with total revenues at EUR 193 million, down 1.5%. This decline was partly due to the nonrenewal of Belgium cable rights as well as a decrease in low-margin activities such as incoming SMS. However, our EBITDA grew by 3.4% within EUR 566.1 million, supported by synergies from the VOO acquisition and ongoing cost efficiencies. Our CapEx increased modestly by 1.8% to EUR 376 million rough million, reflecting investment in RAN sharing, 5G deployment and gigabit network expansion. These investments are crucial to provide the optimal customer experience we want to offer. These results show the strength of our strategy, the quality of our execution and the dedication of our teams. At this point, I'd like to hand over to our CFO, Antoine, who will provide a deeper dive into our financial performance and explain our guidance for '26. Antoine Chouc: Thank you, Xavier, and good morning, everyone. Let me take you through the details, starting with the evolution of our revenues on Slide 7. So as shown on the slide, I hope you can see it on the stream, our total revenues declined slightly by 1.5%, partly due to the nonrenewal Jupiter Pro League football rights, which impacted the service revenues. Service revenues from convergent offers increased by 3.8%, reaching EUR 634 million, while mobile service revenues declined by EUR 6.7 million -- 6.7% to EUR 563 million, reflecting ongoing market dynamics. On Slide 8, let's zoom on the EBITDAaL evolution. On the cost side, we maintained tight control of our expenses throughout the year. Our direct cost totaled EUR 636 million, reflecting disciplined management and ongoing efficiency initiatives. Indirect costs amounted to a bit less than EUR 500 million, which is down 6.2% compared to last year. This reduction was driven by our continuous effort to optimize overheads, streamline processes and of course, leverage synergies from the VOO integration and several other operational improvements. All these cost control measures contributed significantly to our EBITDAaL growth. For the full year, EBITDAaL increased by 4%, reaching EUR 566 million, which is slightly above our initial guidance range. This growth was primarily fueled by the realization of energy from the VOO acquisition, which helped reduce operating costs as well as ongoing efficiency measures across network and corporate functions. Furthermore, our focus on operational excellence allowed us to offset some of the pressure from market dynamics. And finally, the nonrenewal football rights supported the improvement in EBITDAaL. This solid financial foundation demonstrates our ability to generate strong cash flow and maintain a healthy balance sheet. Now let's move to Slide 7 regarding eCapEx. For the full year of 2025, our CapEx, excluding license fee totaled EUR 376 million represented an increase of EUR 2.1% year-on-year. This reflects our continued investment in key strategic carriers. A significant portion of the spending was allocated to the implementation of the renting program, which is critical to optimizing our network infrastructure, accelerating our 5G deployment and reducing our costs. We also invested in upgrading our cable network and began the initial stages of our FTTP rollout. Let's move to Slide 7 -- 10 sorry. Consolidating our results, we can confirm we are well in line with our guidance for the full year of 2025. Thanks to the important efforts we've made, we slightly exceeded our EBITDA guidance and achieved EUR 566 million, as said, which is slightly above the range between EUR 545 million and EUR 565 million. And with an amount of EUR 376 million in eCapEx, we are exactly in the middle of our bracket, which was between EUR 366 million and EUR 385 million. All in all, we have well achieved the guidance we had established beginning 2025. Let's move to Slide 12. Looking forward in 2026, we expect an increase in our EBITDA by around 3.5% in comparison to 2025. And we also forecast a decrease of our eCapEx and that will reach approximately EUR 360 million. I'd like to conclude this presentation on a more personal note because today marks my final conference as CFO here as I'll be taking the role of CFO of Orange France as from April 1. I'd like to say how honored I've been to serve as CFO during this pivotal years for Orange Belgium. It's been a pleasure to engage with the analyst and investor community over the past few years. Thanks for challenging us and pushing us to do better and a special thanks to the most dedicated among you who continue to follow us despite the lower liquidity of the stock. I'm very proud of what we achieved together with the team over the years. We strengthened Orange Belgium financial profile and profitability. We've always been very disciplined on execution and we have now a clear road map for sustainable value creation. I'm absolutely fully confident that Orange Belgium strengthened by the acquisition and the successful integration of VOO is very well positioned to tackle all the challenges ahead and I wish all the best to the Executive Committee and all the teams. With that, I'd like to conclude my presentation, and we'll be more than happy to answer all your questions. Koen Van Mol: Thank you. We will now the Q&A session where you have the opportunity to ask questions regarding the results. Operator, may I ask you to open the floor for questions. Operator: [Operator Instructions] First caller, please go ahead. David Vagman: David Vagman for ING. The first one on the 2026 EBITDA guidance. So can we discuss its key building blocks? So looking at incremental cost savings synergies, pricing revenues and also football rights. I guess it's quite some degree of uncertainty there, but what have you modeled basically there? So that's my first question. Second one, you talked a little bit about the fiber investment and FTTP investment. Should we expect significant start, maybe not in 2026, but then when should we expect, let's say, then to come and you have the drop in RAN sharing investment. But so basically, how should your CapEx evolve in the coming years? And then the last question, maybe more for Xavier, looking multiple commercially and strategically. So what are you hoping for Orange Belgium in the long term? So when you joined, I think you were very bullish on fixed and market share, if I remember correctly. Now of course, you have a high chance of achieving very significant wholesale fixed revenues in the South. So has your view changed on what Orange should do or not do? Antoine Chouc: Okay. So I'll maybe take the first 2 questions, and then I'll leave Xavier answer to your third question. Regarding the main building blocks of our EBITDAaL growth expected for next year. Clearly, the main driver is an increase in VOO's -- synergies coming from VOO acquisition. We're still -- we still have some room for such an increase over -- and I think we will reach kind of plateau for this synergy in 2028. But so we still expect a growth of, let's say, EUR 15 million of synergies next year that will fuel our EBITDAaL growth, and we have many other cost efficiencies that will also help us on top of these synergies. We will also be helped by a slight increase that we expect in our service revenues. 2026 will be the year where we will be back to growth. It will be fostered by the good commercial dynamics, especially on mobile, but also thanks to the price increase that we announced that we launched and implemented at the beginning of the year. And yes, football rights could also contribute to this EBITDA growth, but is there still some uncertainty as you know, regarding whether or not it will be renewed and at what price. There are still discussions ongoing, and we will be more than happy to continue the distribution of this football rights for our clients. We can do that. We will only do that if we can reach a good and healthy financial agreement with DAZN. When it comes to CapEx, as you can see, we announced and we commit on a decrease of our CapEx for next year. So clearly, we will start -- we will increase our FTTH deployment, but it will remain quite limited in 2026. So no big change expected. It will be -- it will still be year for some kind of a preparation to lay the ground for an acceleration from 2027, 2028. So we will have an increase in our FTTH rollout pace from 2027. And maybe I can let Xavier answer to your third question. Xavier Pichon: Thanks, David, for your specific question. On the goal we've had, I would say, 5 years ago, actually, this is exactly what we did. So we did what we announced. Of course, we did it for most of the numbers while we acquired VOO in the South. When we arrived 5 years ago, we were a whole buyer for the nationwide, I say. Since we bought VOO, now we became full MNO in the South, which is not, of course, the case in the North. But we're happy with Wyre and Telenet, of course, in the North, but this is not the same, I would say, situation between the -- between the 2 regions. In the South, we are quite now a core leader with roughly 40% market share on the fixed and convergent area. So this is what we aim to do in the sales. And now, of course, nationwide, we need to deliver also growth -- organic growth in terms of net acquisition, which was not the case in '25. You're right, I would say. And this is something also we've chosen to do pragmatically, seeing the market, seeing, of course, the value-driven strategy we're having since now years, okay, we decided not to, I would say, follow others and to make sure that the value generation was according to our plan. So of course, this is something we also -- we worked on through the head now. We see most of the peers also generating volumes on lead-ins. This is, of course, what we did, but we decided to smooth a little bit thanks to the value policy we're having. Operator: Ladies and gentlemen, we currently have no questions coming through. [Operator Instructions]. Well, there are no further questions. So I will hand you back to Koen to take questions from the webcast. The floor is yours. Koen Van Mol: We still have some questions on the chat. So the question is twofold. Could you please zoom in on the time line to operationalize the fiber collaboration with Proximus? And second question, the mobile -- zoom in on the mobile competitive situation overall and specifically the evolution of the churn rate to Digi. Xavier Pichon: So maybe on the first one. So we are having, I would say, some discussion with the authorities here in Belgium locally, of course, BIPT and ABC. So this is something we are, I would say, working on at the moment for the South, of course. There is also requirement on the market, depending on the North as well. So this is something we have worked on as well. So we are not, I would say, be on the driver's seat for that, but this is something that has been discussed with the authorities. Normally, they should give a statement on these agreements by the end, I would say, by the end of the year of '26. So of course, this is something we are waiting. And then afterwards, we'll see, of course, how to make sure to implement this agreement as soon as we can. For the question #2, Digi? Koen Van Mol: The mobile competitive situation overall and focus specifically on Digi. Xavier Pichon: So on the market, this is maybe a bit different on the mobile side because you know that since Digi came, I would say, at the end of '24. So we've put a dedicated policy to make sure that our market share will be, of course, sticking to what it was previously. So we decided to align hey, I would say, to the first Digi offers late '24 and early '25. Since the -- I would say, not so present in the market. So we decided to join the value policy we are having, I would say, broadly, including of course, the fix we've just discussed, but also on the mobile side. So this is why we haven't seen, honestly, so much churn from Orange to Digi so far. So this is something, of course, which is very scrutinized within the company. So, so far, I would say, so good for Orange. So this is it for the moment and we see, of course, for '26, what will happen on this dedicated market. Koen Van Mol: Okay. In the meantime, another question came in. So are you seeing much fiber deployment from Digi? Do you think Digi will be credible FMC competitor over the medium term? Xavier Pichon: I think in Belgium people who are familiar with -- so this is something that is organized, I would say, locally. So we are dedicated. We are having -- all the peers are having dedicated tools, technical tools where we need to announce and of course, say what we will do in terms of fiber rollout and all the civil works. So yes, we see Digi, coming in some dense areas in, I would say, around some cities. But this is not something we are focused on, actually. We are having our own strategy. We are having our own now 4 gigabit and modernized network in the South. We are relating -- we are related to Wyre and Telenet in the North. So this is something that is, of course, very precious for us as we are having the most, I would say, integrated and gigabit proposal nationwide, of course, with satellite on top. So we are much more focused on what we are doing actually. Koen Van Mol: And another question from the chat. Any comments you can make on the mobile and fixed ARPU in 2026? You have said you hope to go back to growth on service revenues. Antoine Chouc: Yes, sure. As you know, we don't disclose our ARPUs anymore and of course, not forecast in our ARPU evolution. But what I can say is that, yes, we plan to be back to growth in B2C retail despite the market pressure and we -- that's -- and we are quite confident that we'll be able to achieve this goal. I would say a low single-digit growth. Xavier Pichon: But back to growth. Koen Van Mol: Okay. There are no further questions in the chat. So we can conclude this analyst call. We would like to thank you for your participation. Would you have any follow-up questions, please to contact the IR team for any additional questions you may have. Thank you very much, and have a good day.
Nancy Llovera: Good morning, and welcome to Axtel's Fourth Quarter 2025 Earnings Webcast. My name is Nancy Llovera, Axtel's Investor Relations and Corporate Finance Manager. And today, I am joined by Armando de la Pena, Chief Executive Officer; and Adrian de los Santos, Chief Financial Officer. Financial information for both Axtel and Controlado Axtel, including the unaudited fourth quarter report, is available on our corporate website. We will begin today's session with an overview of our business performance followed by a Q&A segment. For your convenience, this webcast is being recorded and will be available on our website. Before we begin, please note that today's discussion may include forward-looking statements. These statements reflect management's current views and expectations and are subject to risks and uncertainties that could cause actual results to differ. Axtel assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I will now hand the presentation over to Armando. Armando de Pena: Thank you, Nancy, and thank you all for joining us today. I wish you well this year. Before reviewing our financial results, I would like to comment about fourth quarter and full year performance as well as opportunities we see for our business. Results in the fourth quarter capped a year in which we generated the highest annual operating cash flow in our history. Fourth quarter performance faced a tough comparison versus a strong fourth quarter 2024, particularly in EBITDA. A 14% increase in Government segment revenues helped offset marginal declines in the Enterprise and Wholesale segments. For the full year, we increased revenues, EBITDA and generated $80 million in cash flow. Even excluding the extraordinary first quarter cash flow related to the execution of the conclusive agreement with a major mobile customer, cash flow still improved more than 20% year-over-year, demonstrating our commitment to financial discipline and shareholder value creation. The year presented challenges in closing new projects as customers remain cautious amid economic uncertainty. Although we expanded the Enterprise segment opportunities pipeline by 24%. New contract acquisitions remained similar to 2024 levels. Services such as cybersecurity were particularly affected by slower adoption of new offerings and upgrades by clients. Overall, customers' technology and telecommunication investments were focused mainly on cost optimization rather than capacity expansion or modernization. Mixed performance across the enterprise segment business lines resulted in 3% growth, moderating from a stronger growth achieved in 2024. Mobile services delivered a robust moment with revenues expanding by over 50%. And IT services posted a solid growth of 13%. These gains were particularly partially offset by a more modest growth of 1% in the telecom services and a decline in cybersecurity revenues. Notably, the 1% growth in telecom services significantly outperformed overall industry trends, highlighting the resilience of the core business despite a challenging market environment. The decline in cybersecurity revenues reflects a difficult comparison to the extraordinary performance achieved in 2024 as well as a softer demand conditions across the industry. The Government segment delivered a solid fourth quarter following a year with limited new public acquisitions and auction opportunities, which were mostly restricted to renewal of ongoing services. Performance for the year was well balanced with recurring revenues growing at 22% and onetime revenues increasing 24%. During the year, we continued the implementation of the new platform for the digitalization of our international trade documentation in Mexico, contributing to the growth of our recurring revenue. This initiative is particularly meaningful as it emphasized Axtel growth in advancing the digital transformation of international trade in Mexico and reinforces our commitment to delivering innovative high-value solutions. The Wholesale segment had a very positive year with revenues growing close to 20%, supported by a contract with a major hyperscaler customer. Our new Querétaro Texas fiber optic route deployed in 2025 is expected to continue generating opportunities for infrastructure and capacity sales, capitalizing on the next-generation low latency network with more than 5x the capacity of competing routes. Axtel announced a collaboration agreement with McAllen Data Center, MDC, to strengthen digital interconnection along the Mexico United States border through the integration of MDC Center 2 as Axtel's new primary point of presence in Texas. This alliance represents a significant step in meeting the growing demand from operators, enterprises and digital platforms requiring greater density, neutrality and stability in the cross-border connectivity. As part of our artificial intelligence strategy, Axtel established a strategic alliance with SimplyAsk, a Canadian company specialized in AI-driven automated solutions. This partnership adds virtual assistance and intelligent agents into the iAlestra's portfolio, solutions characterized by rapid flexible deployment and immediate results. Organization effectiveness remains a key factor in our artificial intelligence and business agenda, require the mix of talent, experience and diversity of perspectives. General diversity has been a strategic priority for many years, and it's embedded in certain trade agreements. In 2025, women represented more than 25% of the workforce with strong representation at senior leadership positions. Looking ahead, the 2026, the organization will evolve following the planned retirement of 2 executive directors. As part of this transition, the enterprise and government commercial organization will be consolidated after a single executive leader. And all artificial intelligence initiatives will be centralized within one team under the executive leadership of commercial development. We remain committed to maintaining an agile and efficient organizational structure aligned with evolving needs of the business in 2026 and beyond. In 2025, we strengthened our infrastructure to capitalize on the increased demand of AI-driven data transport between the United States and Mexico. We also diversified our U.S.-Mexico connectivity portfolio by linking our Cancún network to Trans American Fiber TAM-1, submarine cable, providing an alternative route to the U.S. East Coast and Central and South America. Likewise, our new generation Querétaro Texas route is expected to bring meaningful business opportunities in the years ahead. In 2026, we aim to continue outperforming industry growth by focusing on cross-sell and upsell opportunities, particularly with our top accounts. In the Government segment, we will pursue multiyear projects to expand our base of recurring revenue. For Axnet, we will enhance connectivity toward the U.S. and promote high-capacity services, particularly wavelengths, driven by hyperscaler data centers and artificial intelligence. We will maintain our financial discipline, increase cash flow generation and continue building stronger business and financial platform in the best interest of our shareholders and all stakeholders. I will now turn the call over to Adrian for additional remarks and discuss Axtel's financial results. Adrian de los Santos Escobedo: Thank you, Armando, Nancy, and good morning to all participants. Last year, we prepaid $55 million of our syndicated bank loan using cash generated from operations. In addition, we refinanced nearly $90 million more through a new 10-year loan with Bancomext, shifting our debt profile to 60%, 40% pesos and dollars, respectively. Our goal is to align our debt currency mix with that of our revenues. In 2025, we generated approximately 20% of our revenues in dollars, which are generated in both pesos and dollar. Notwithstanding the higher proportion in peso-denominated debt, which carries a higher interest rate, we estimate $45 million in interest expenses for 2026, a $5 million reduction compared to last year, resulting from the debt prepayments achieved in 2025 and the more favorable interest rates environment expected for 2026. During the fourth quarter, Fitch Ratings upgraded the company's credit rating from BB- to BB with a stable outlook. This reflects expectations of continued delevering and solid cash flow generation. We will maintain active engagement with both rating agencies to ensure that their assessments accurately reflect Axtel's strong operating and financial performance. For 2026, we expect ongoing economic uncertainty and anticipate that clients will remain cautious in their technology and telecommunications investment decisions. We're continuing to advance the development of artificial intelligence-based solutions supporting clients who are primarily focused on optimizing their operations. Internally, we will concentrate resources on the business lines with the strongest demand and maintain strict discipline in our spending and investment decision. Under this scenario, we estimate revenues of MXN 12,850 million and comparable EBITDA of MXN 3,800 million. We expect capital expenditures of approximately $83 million and cash flow generation of more than $60 million. Based on these estimates, our net debt-to-EBITDA ratio should reach approximately 2x by year-end. For budgeting purposes, we are using an average exchange rate of MXN 18.65 per dollar. I will now move on to review our financial results for the fourth quarter and full year. Fourth quarter revenues decreased 1% year-over-year, while full year 2025 revenues increased 7%, reflecting solid performance across all 3 business segments. Enterprise revenues declined 3% in the quarter, mainly due to a 10% contraction in IT and cybersecurity services following extraordinary licensing and equipment sales recorded in the prior year. Within IT, hosting and systems integration revenues grew 30%. Telecom revenues were stable year-over-year as solid performance in managed networks and mobile services revenues offset the expected decline in collaboration services. For the full year, enterprise revenues increased 2%, supported by 6% growth in IT and cybersecurity solutions and a 2% increase in telecom services, driven by strong results in connectivity, managing networks and mobility, exceeding telecom industry performance. Voice revenue declined 6%, representing 7% of this segment revenues. Government revenues grew 14% in the fourth quarter, driven by a 59% in recurring revenues. Full year revenues increased 22%, supported by a similar increase in recurring revenues, reflecting the company's successful strategy to renew 99% of expiring contracts and expand service penetration among existing federal customers. Revenue mix consisted of 70% federal and 30% state and local entities. Wholesale infrastructure revenues decreased 5% in the quarter, primarily due to a lower volume of upfront high-capacity contracts in this period. However, for the full year, revenues increased 19%, driven by strong demand from high-capacity contracts due to AI-related data transport and increased data center connectivity. Even excluding extraordinary revenues from the conclusion of our workout agreement with a mobile customer in the first quarter, revenues will have registered double-digit growth in the year. Fourth quarter cost of revenues, excluding depreciation and amortization, decreased 5%, resulting in a contribution margin improvement to 66% compared to 65% a year ago. Enterprise segment costs declined 9%, reflecting stronger margins in IT and cybersecurity services. Government segment costs increased by 2% with margin expansion supported by greater proportion of recurring revenue. Wholesale segment costs increased 5%, reflecting lower margins in the quarter. For the full year, cost of revenues increased 5% with lower enterprise costs offset by higher government and wholesale costs, probably aligned with the revenue trends. Contribution margin remained stable at 71%. Commercial and operating expenses are allocated to the 3 business segments, while corporate expenses remain centralized. Commercial and operating expenses increased 35% in the quarter and 11% for the full year, mainly due to the extraordinary bad debt provision benefit recorded in the Wholesale segment during the fourth quarter of 2024, creating an unfavorable comparison base. General corporate expenses increased in the quarter and for the full year, driven by higher personnel expenses. Higher personnel expenses were influenced by labor legislation changes and an extraordinary pension provision benefit recorded in 2024. Excluding these effects, company-wide personnel expenses will have increased 6% in the year. EBITDA reached MXN 833 million in the quarter, a 30% decline compared to fourth quarter 2024, reflecting lower contribution from the business segments and higher corporate expenses. For the full year, EBITDA increased 3%, supported by contributions across all 3 business segments affected by higher general corporate expense. EBITDA margin stood at 31% for the year. CapEx totaled $86 million, equivalent to 13% of total revenues compared to $72 million in 2024, equivalent to 11% of revenues. The increase mainly reflects an extraordinary investment related to the new Querétaro-McAllen fiber optic deployment and the renewal of a 15-year fiber optic lease ensuring the long-term resiliency and competitiveness of our network infrastructure. Cash balance at year-end reached $73 million compared to $39 million at the beginning of the quarter. Fourth quarter cash flow was positive $40 million and full year cash flow was positive $80 million, resulting from $196 million in EBITDA, $20 million in positive working capital, $86 million in CapEx and $49 million in interest expense. Additionally, we recorded $71 million debt reduction in the year. Year-end net debt stood at $456 million with a net debt-to-EBITDA ratio of 2.3x compared to 2.5x a year ago. And with this, we conclude the presentation and open the call for questions concerning both Axtel and Controladora Axtel. Nancy Llovera: [Operator Instructions] Our first question comes from [ Miriam Toto ]. Unknown Analyst: Can you hear me? Nancy Llovera: Yes. Armando de Pena: Yes. Andres Coello: Okay. Sorry, this is Andres Coello with Scotia. I think you are projecting very little revenue growth for this year. It seems like a conservative projection. And I'm wondering if that is a direct response to weak economic conditions. So I'm wondering if you can just discuss a little bit what you're seeing in terms of corporates willing to adopt IT solutions and how the economy may be affecting your outlook for this year? Adrian de los Santos Escobedo: Thank you for your question, Andres. In summary, I could say that the corporate clients are taking longer to make decisions. They used to take decisions in a month or 2 months or so or a certain period and now that has doubled sometimes and in cases even delay until further notice. Particularly, as you said, at least in our case, in services or solutions that require evolution, require to upgrade but not necessarily inflicting any pain today. So increasing capacity, if the network is saturated, that's not delayed at this -- or that's not being delayed what we saw last year but operates in cybersecurity, for example, that's taking longer for corporate clients to make decisions. So yes, definitely, there is a more conservative approach. Clients are coming more with the request of how can we help them optimize their operations. We're not seeing significant expansion in new retail, new branches of banks, new locations, which obviously more locations, more presence means more services for our industry. So that's more or less what we're seeing in the economy. We're not seeing a market, an industry that's stagnant. It's just a slow business environment that has been prevailing since last year. Andres Coello: Okay, Adrian. And regarding the Infrastructure division, do you see the possibility of any other major projects for perhaps telephone companies or also the big data consumers or AI-related projects, et cetera. How do you see the Infrastructure division? Armando de Pena: I will take that one, Adrian. Thank you. Our current new fiber from Querétaro-McAllen, is the only one with a new technology and all the new requirements in order to communicate the data centers of Texas with Mexico mainly. So that brings us an excellent opportunity to capitalize, as you were asking. We are very active with customers that could rely on this connectivity. So we do see opportunities on that as well as the alliance, the commercial alliance that we did with Trans American fiber for the East Coast of the U.S. and South America. So we are in a much better position for hyperscalers and big carriers, and that's mainly explained with the increase in CapEx because we are investing in the future demands, as you said, of AI and data center. So yes, we do see opportunities. But this opportunity sometimes take months to [Foreign Language]. Adrian de los Santos Escobedo: To crystalize. Armando de Pena: Sorry, to crystalize. So we do see for the second semester that we could achieve some opportunities there. Nancy Llovera: Our next question comes from Emilio Fuentes. Emilio Fuentes: And I was wondering what is your take on the competitive environment in the Enterprise segment. And in that context, what are Axtel's competitive advantages given the increase in importance it has gained also for the other large integrated players? Adrian de los Santos Escobedo: Could you repeat the second part of your question, please, Emilio? Emilio Fuentes: Yes, that competitive environment and Axtel's competitive advantages and given how this sector has gained relevance for other large integrated players in the country. Adrian de los Santos Escobedo: Yes, sure. The competitive advantage has been tough. Always there is -- there is a participant that holds a significant market share. But nonetheless, we've been able to compete since the inception of Alestra and Axtel. Today, what we see is customers are looking for reliable partners, are looking for post service interaction. We have seen clients that might go away and come back sometime later because price was maybe an attractive decision maker, but both service was not necessarily what they were expecting. So what I can say is we're dedicated B2B company. Second, we have an extensive network that provides the foundation for all the connectivity or database solutions that it's the base layer on which we add services like cloud, IT, managed services, obviously, cybersecurity. So we leverage our infrastructure to continue adding solutions and services that have more attractive or have greater growth opportunities. We, obviously, over the so many years that we have been in operations, we have maintained a large number of certified engineers that when you're dealing with major brands in our industry, you need these certifications in order to deploy, to install and to maintain services. So we have that environment in Axtel that, obviously, we think we are a very attractive competitor in the industry, and we've been maintaining that position for a while. I don't know if that answers your question, Emilio. Emilio Fuentes: Yes. Nancy Llovera: We have another question from the Q&A function. What are your refinancing plans and timing for that? Adrian de los Santos Escobedo: Thanks, Nancy. We started this refinancing process last year, first of all, by reducing debt that's the most efficient way to refinance debt. And on top of that, we were able to secure as informed a 10-year loan in pesos that shift the percentage of our debt in higher proportion in pesos now. And this year, we will expect to conclude the last piece of the refinancing where we would take out all maturities that come due in 2027 and 2028. We expect to do that this year. Hopefully, we can be able to execute before the end of the third quarter. Nancy Llovera: Thank you, Adrian. There are no further questions at this time. Thank you all for your interest in Axtel and for joining us today. If you require any additional information, please feel free to reach out. Have a great day.
Operator: Thank you for standing by. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ventas Fourth Quarter 2025 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to BJ Grant, Senior Vice President of Investor Relations. You may begin. Bill Grant: Thank you, Jenny. Good morning, everyone, and welcome to the Ventas fourth quarter and full year 2025 results conference call. Yesterday, we issued our fourth quarter and full year 2025 earnings release, presentation materials and supplemental information package, which are available on the Ventas website at ir.ventasreit.com. As a reminder, remarks today may include forward-looking statements and other matters. Forward-looking statements are subject to risks and uncertainties, and a variety of topics may cause actual results to differ materially from those contemplated in such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, all of which are available on the Ventas website. Certain non-GAAP financial measures will also be discussed on this call and for a reconciliation of these measures to the most closely comparable GAAP measures, please refer to our supplemental information package posted on the Investor Relations website. And with that, I'll turn the call over to Debra Cafaro, Chairman and CEO of Ventas. Debra Cafaro: Thank you, BJ. I want to welcome all of our shareholders and other participants to the Ventas fourth quarter and full year 2025 earnings call. 2025 was an outstanding year for Ventas. We delivered strong results from the execution of our 1-2-3 Strategy focused on senior housing, as secular demand from a large and growing aging population strengthens and supply remains constrained. We are intent on the significant value creation opportunity ahead. We plan to use our advantaged position, proprietary Ventas operational insights platform, financial strength and industry relationships to capture the unprecedented multi-year growth opportunity in senior housing, while we also help individuals live longer, healthier and happier lives. In 2025, we drove growth at scale. Our normalized FFO per share increased by 9% and our same-store SHOP cash net operating income grew 15%, our fourth consecutive year of double-digit SHOP NOI growth. Our enterprise value exceeded $50 billion, and our fourth quarter annualized NOI and SHOP NOI reached $2.5 billion and $1.3 billion, respectively. We raised $7 billion of capital from a wide array of sources at attractive prices during the year. Our investment activity also accelerated as we closed $2.5 billion of high-quality senior housing investments that enhance our enterprise growth. By year-end, we owned over 83,000 SHOP units and 53% of our NOI was generated by our SHOP community. Our investors were rewarded in 2025 as Ventas delivered total shareholder returns of 35%, significantly outperforming our industry benchmarks by wide margins and the S&P 500 in a year when it reached record highs. The Ventas team has been outstanding in its commitment to each other and to excellence as we've worked together to deliver value and performance across our stakeholder base. We are keenly focused on the multiyear NOI growth and value creation opportunities ahead. Let's start with the durable and powerful demand trends in senior housing. This year marks a historic demographic inflection point when baby boomers start to turn 80. This cohort of nearly 70 million individuals is the wealthiest generation ever. As the baby boomers age, the over-80 population should grow 28% in the next 5 years and double in 2 decades. Today, more people than ever are choosing senior housing for the valuable benefits it provides at an affordable cost that is comparable to the cost of staying at home. Senior housing is a consumer-driven private pay business that provides important support, socialization and safety benefits to residents. We were once again reminded of the value of senior housing during the recent winter storms, when care providers across the country kept residents safe, warm and well cared for in our communities, while many seniors living alone lost power and heat. Meanwhile, the new supply of senior housing continues to hover around all-time lows. To put this in context, there were only about 2,500 new senior housing units started in the fourth quarter of 2025. While we expect over 2 million people to turn 80 in 2026. Both sides of this demand-supply imbalance are weighted strongly in our favor, and Ventas is exceedingly well positioned to capitalize on this unprecedented opportunity. With a long runway ahead, we intend to continue executing our strategic vision of; one, delivering outsized senior housing organic growth; two, making value-creating investments focused on senior housing; and three, driving cash flow throughout our portfolio. We also want to extend our trajectory of enhanced financial strength and flexibility. Ventas has built a scale platform to drive outperformance. Our experienced team, proprietary analytics tools, strong balance sheet, data capture and industry relationships give us a competitive moat in senior housing that continues to expand. With our vision, strategy and market positioning in place, I'll close on our 2026 operating guidance, investment activities and dividend increase. In 2026, we expect to deliver high single-digit growth in normalized FFO per share led by SHOP. We expect SHOP to produce our fifth consecutive year of double-digit same-store cash NOI growth with occupancy, rate and margin, all showing healthy year-over-year increases. Our total company same-store cash NOI growth should be nearly 10% in 2026. On the investment front, our team and our pipeline are extremely active. Our #1 capital allocation priority remains U.S. senior housing. We've already closed over $800 million in high-quality senior housing acquisitions year-to-date, and we are highly confident we can complete $2.5 billion of investments focused on senior housing this year. We intend to remain aggressive in expanding our senior housing business through investment activity that provides attractive risk-adjusted returns and enhances our enterprise growth rate. Finally, I'm pleased to share that our Board of Directors has approved an 8% increase in our quarterly dividend on the strength of our performance and positive multi-year outlook. Earnings and dividend growth are important components of the Ventas investment thesis. The whole Ventas team is aligned and focused on continued outperformance at scale, and we're in it to win it. With that, I'm happy to turn the call over to Justin. J. Hutchens: Thank you, Debbie. I'm pleased to share the results of a successful 2025 with both organic and external growth in our senior housing business. I'll start with SHOP. We had a really strong fourth quarter in our SHOP same-store portfolio. Revenue grew over 8%, led by occupancy growth of 300 basis points year-over-year and 100 basis points sequentially, demonstrating strong demand and sales execution. The occupancy growth was led by the U.S. at 370 basis points, with a particularly strong contribution from our independent living communities. Furthermore, our communities in the U.S. top 99 markets outperformed NIC by 160 basis points. RevPOR grew 4.7%, even with the mix impact of the outsized occupancy growth in our lower-priced independent living portfolio. NOI grew 15.4% year-over-year in the fourth quarter, led by the U.S. with 18%. Margin grew 180 basis points to over 28%, driven by 50% incremental margin. A quick note, as I reflect on the full year, I'm particularly proud about the occupancy. We achieved a better-than-expected 280 basis points of average occupancy growth across the portfolio led by the U.S. with 350 basis points. Once again, we saw broad-based contributions to SHOP performance across our operating partners, such as Sunrise, Atria, Discovery, Sinceri, Senior Lifestyle and the Groupe Maurice, who continue to deliver exceptional care and services to our senior population and very strong financial results. Looking ahead, we see significant opportunities for growth across multiple areas. We have spent the past several years taking numerous actions to ensure we are ready to meet this moment of accelerating demand in senior housing. We are positioned for continued organic growth and occupancy rate and operating leverage across the SHOP portfolio. Our U.S. portfolio is well positioned for a long runway of growth at only 86% occupancy. We expect contributions to growth across the portfolio and particularly growth drivers will include our new high-quality, high-performing acquisitions, the 45 communities that were transitioned from the triple-net lease with Brookdale to SHOP and our evolving Ventas OI execution in collaboration with our operators across the broader portfolio. With this backdrop, I'm pleased to give our 2026 guidance for SHOP. We expect the same-store NOI growth range of 13% to 17%, driven by occupancy growth of 270 basis points year-over-year and RevPOR growth of 5% supported by in-house rent increase assumptions of 8%, which are stronger than in the past couple of years. Operating expenses are expected to grow 5% again this year as we continue to add occupancy. I'd note that we've included modestly higher expenses in the first quarter, reflecting the recent severe weather across the U.S. With these components and the positive operating leverage, we expect that margin will continue to expand in 2026. Summarizing guidance, we are looking forward to our fifth year in a row of double-digit SHOP NOI growth with 15% at the midpoint. I'll give a quick update regarding the 45 transitions of former Brookdale communities. They have fully converted the SHOP and are now operated by 5 experienced transition partners, whose senior leadership teams are highly engaged. Capital refresh projects are underway with most expected to be completed ahead of the key selling season. While still early, we anticipate modest NOI growth in 2026 and remain confident in the long-term opportunity to double NOI across this group of communities. At the core of what we do is delivering a high-quality living experience for our residents. Our communities support safety, connection and independence, while providing the amenities, professional care and services that enhance daily life, creating peace of mind for the families of residents that experience is delivered at a compelling value proposition. On average, residents can afford to live in our communities almost 7x longer than the typical length of stay. The quality of care and services we provide is reflected in strong resident outcomes across our portfolio. For instance, at Atria Senior Living, we've seen a third consecutive year of improvement in Net Promoter Scores signaling growing advocacy among residents and their families and continued outperformance versus industry benchmarks. Le Groupe Maurice has also been recognized for the sixth consecutive year as the leading senior housing brand in Quebec based on an independent survey evaluating safety, building quality, programming, service levels and the quality of staff. More than 70% of Sunrise's communities are in the best senior living rating by U.S. News & World Report, further validating their strong customer engagement and ability to deliver a differentiated experience for residents and families. Furthermore, Discovery Senior Living achieved a #1 JD Power customer satisfaction ranking, validating their ability to integrate communities, improve performance and sustain resident experience. It's no wonder there is increasing demand for senior housing. Today, we partner with 43 operators across our SHOP portfolio, providing meaningful coverage across the senior housing continuum of care, diverse geographies and a wide range of price points. Importantly, as more operators and communities are integrated into the platform, our data and analytics capabilities become increasingly powerful, reinforcing the network effects that drive performance and widening our competitive moat relative to other owners of senior housing. Our ability to manage senior housing at scale is a core competitive advantage. Our differentiated platform allows us to support a broad range of operators, enabling us to match the right operator with each community in each market and capture incremental growth opportunities. Ventas OI execution is at an all-time high. In 2025, we significantly deepened our collaboration with operators through site visits, senior management meetings, operator summits and active asset management. This engagement enables us to work shoulder to shoulder with our operators on key priorities such as NOI driving CapEx, dynamic pricing, sales execution and rigorous benchmarking across key operating metrics, all in support of our relentless pursuit of creating environments where seniors thrive and investments flourish. We plan to further elevate this engagement as we meaningfully expand the capabilities of our senior housing team and enhance our interdisciplinary approach to supporting and growing our network of high-performing operators. Furthermore, the Ventas OI platform is also technology agnostic meaning operators can plug into Ventas OI from a wide variety of operating systems contributing to our ability to scale. Now turning to investments. We concluded 2025 with $2.5 billion of senior housing acquisitions. We really like what we've been buying. Our senior housing investments are squarely within our right market, right asset, right operator framework. Improved Ventas' overall SHOP portfolio quality are poised for outperformance due to favorable supply and demand dynamics and increase the company's enterprise growth rate. In the aggregate, these investments have already created significant value based on the strong operating performance achieved under our ownership that is in line with our expectations. 2026 is off to a strong start with over $800 million of wholly owned senior housing investments across 7 transactions closed already this year. This brings our cumulative senior housing acquisitions to $4.8 billion in a little over a year. For the full year of 2026, we're providing guidance of $2.5 billion of investments focused on senior housing and we have high confidence in achieving this amount given the momentum we continue to see in our pipeline. While competition for senior housing assets has increased as additional capital flows into the sector, Ventas is uniquely positioned to deploy capital where we have strong conviction and where we can fully leverage our differentiated competitive advantages, our scale, relationships and operating expertise allow us to aggressively pursue opportunities where we believe we are best positioned to create value. We are seeing a broader and more diverse set of potential transactions in the market across a range of investment profiles. We seek senior housing investments that combine durable in-place cash flow and growth with the potential to generate attractive risk-adjusted returns consistent with our low double-digit to mid-teens unlevered IRR targets. Our relationship-driven approach to sourcing, structuring and executing transactions, combined with the continually expanding network of high-quality operator relationships continues to provide Ventas with differentiated access and the ability to win compelling opportunities. Ventas remains a senior housing partner of choice for operators seeking the benefits of Ventas OI in the scale, capital and operating support of our platform. Since 2024, over 70% of our transactions have been with pre-existing operator relationships. Sellers are equally focused on repeat business, reflecting our consistent execution and reliability of the counterparty, which in turn creates incremental opportunities for follow-on investments. Over the past year, more than 50% of our transactions were with repeat sellers. In closing, we are looking forward to an exciting 2026 as we continue to drive organic and external growth in our senior housing business. Now I'll hand the call to Bob. Robert Probst: Thank you, Justin. I'll share highlights of our fourth quarter and full year 2025 performance, our recent capital raising activities and we'll close with our 2026 outlook. We finished 2025 strong with 10% year-over-year growth in normalized FFO per share in the fourth quarter. This increase was driven by same-store property growth of 8%, led by SHOP, which increased 15%. Our Outpatient Medical and Research, or OMAR, business grew same-store cash NOI by nearly 4% year-over-year in the fourth quarter. Outpatient medical same-store NOI increased by 4.5%. Occupancy in outpatient medical reached almost 91% in the fourth quarter, the sixth consecutive quarter of year-over-year occupancy growth. Our outpatient medical in-house property management teams have delivered 6 straight quarters of TTM retention exceeding 85% and very strong tenant satisfaction. Meanwhile, our research portfolio, which represents 8% of total NOI grew same-store NOI by 30 basis points year-over-year supported by occupancy gains from university tenants. Looking at our full year results. We delivered normalized FFO of $3.48 per share, a 9% year-over-year increase and at the high end of our guidance range. This growth was achieved through solid execution of our 1-2-3 Strategy, led by SHOP organic NOI growth and $2.5 billion of accretive senior housing investments. Strong organic growth in equity funded investments also worked together to improve our leverage to 5.2x in the fourth quarter, the best it's been since 2012. Since the beginning of 2025, we demonstrated our advantaged access to multiple pools of capital. We raised over $7 billion since the start of last year. including nearly $4 billion in bank, bonds and mortgage debt and $3.2 billion of equity issuance. We have $12 billion of unsettled equity to fund future investments. I'd highlight that our leverage pro forma for the unsettled equity is approaching 5x, and our growth outlook in 2026 suggests the trend of lower leverage is expected to continue. Let's conclude with our full year 2026 growth outlook. For 2026, we expect net income of $0.57 per share at the midpoint. We expect 2026 normalized FFO per share to range from $3.78 to $3.88 or $3.83 at the midpoint. This guidance midpoint represents 8% year-over-year growth on a comparable basis. The building blocks of our guidance are similar to 2025 and are driven by our strategy. The 8% growth in normalized FFO per share or $0.27 per share is expected to be led by SHOP NOI growth and accretive investment activity. Netted against offsets, including the expiration of noncash rental income from Brookdale and higher net interest expense from refinancing maturing debt. Our total company same-store cash NOI guidance midpoint increase of nearly 10% year-over-year is led by SHOP at 50%. Our OMAR same-store guidance midpoint of 2.5% is consistent with our growth in 2025 and is led by growth in outpatient medical. Triple-net is expected to grow over 4%, led by cash rent increases in January for Brookdale in our triple-net senior housing business. I'd note that beginning in 2026 and as reflected in guidance, our normalized FFO will exclude noncash stock-based compensation expense, which had $0.08 per share impact in both '25 and '26 as adjusted, it has no effect on our year-over-year growth rate. Our guidance also includes equity funded investments of $2.5 billion focused on senior housing. G&A growth in 2026 on a cash basis is generally in line with the growth of our enterprise, or in the low $150 million range in 2026. We are investing in our organization in support of the company's increased asset base and expanding asset management initiatives. A more fulsome discussion of our guidance assumptions can be found in our Q4 supplemental and earnings presentation posted to our website. To close, we are extremely pleased with our 2025 performance. The entire Ventas team is determined to continue to deliver outperformance at scale and superior performance for our shareholders. With that, I'll turn the call back to the operator. Operator: [Operator Instructions] And your first question comes from Jim Kammert with Evercore. James Kammert: Bob, just finishing up on your comment there. On the Brookdale sort of reset on the triple net side, obviously, 4% is because of the rent bump. But prospectively, that's kind of -- it goes back to a 1% to 1.5% kind of business. Is that a reasonable assumption for the triple-net as a whole? Robert Probst: Yes, Jim, I would say more like 3% on average for escalators. Obviously, the January Brookdale increase is outsized, but that would be a run rate assumption outside of that. James Kammert: Okay. That's great. And then another housekeeping. In the guidance, obviously, you have the quest to continue to gradually deleverage. And with the 503 million or so expected average shares for '26, what does that imply for the year-end count, sort of like a 27.5 million kind of net incremental shares for the year? Is that in the ballpark? Or where will we end the year, I guess, if you're providing that share count? Robert Probst: We haven't given a year ending. Maybe we'll do that later in the year. It depends a lot on timing. But what we have assumed is the $2.5 billion of investments are principally funded with equity, $1.2 billion of which is already in the bank. So when you look at the year-over-year increase in shares, it is that. It is a function of the investment's equity funded. So 503 million is the number for the year. James Kammert: Fair enough. And so you're not going to try to get like above that, in other words, about 2.5 I got you're saying. I appreciate that. Operator: Your next question comes from the line of Seth Bergey with Citigroup. Nicholas Joseph: It's Nick Joseph here with Seth. So just on the acquisition guidance of $2.5 billion, obviously, you're off to a good start. I think you're almost 1/3 or probably over 1/3 of the way there already. I think you mentioned high confidence in being able to hit that, but also that competition has increased. So just hoping you could kind of talk about what you're seeing in the market today. Is it more portfolios? And what would drive you below that $2.5 billion just given the pace you're already on? J. Hutchens: It's Justin. Well, first of all, our pipeline is very active and has been. We described the investment activity we've had as having momentum, and we've really been pressing our advantages to execute on our pipeline and the opportunities that are a good fit for us. When it comes to the type of deals we do, we do a number of off-market deals. For instance, the $800 million that we've closed already, half of that, was off market. When it comes to marketed deals, there is increased competition. And what we're finding is where we have our advantages, first of all, the track record of closing, which has caused repeat sellers to opportunities with us. Our operator relationships that have become really deep and strong and expanding those relationships and adding more operator relationships to the platform. There's plenty of activity as well overall in the U.S., and we're getting more than our fair share of that and like our opportunity to continue to do that. Nicholas Joseph: And then just, I guess, unrelated, obviously, it's been a more disruptive flu season nationally, but it seems like occupancy is holding up well. What are you hearing from, I guess, your facilities or your operators on the flu season? And I guess, how have mitigation efforts changed post-COVID? J. Hutchens: Yes. And -- that's a really good question. There has been national headlines around a flu season that was elevated at a point in time. We're not all the way through the winter season, so we'll see how that plays out. In terms of our portfolio, there are a number of things that have changed that -- since the pandemic era that have improved infection control. One is simply that we're using more protective equipment such as masks. There's -- we're isolating. The general public is better at just staying away if they have infection, washing their hands. There's a -- so therefore, I'd say, a heightened awareness around any kind of infection in our communities and the management of that is much better than it was at one point in time. Having said that, we're also experiencing minimal flu impacts. It's been very mild and very few reports of any kind of outbreak whatsoever at this stage. Operator: Your next question comes from the line of Vikram Malhotra with Mizuho. Vikram Malhotra: So just maybe on occupancy in the SHOP portfolio. You talked about sort of the weather impacting expense a little bit. Just can you walk us through a couple of things? Like how are you baking seasonality into the first and the fourth quarters? And does weather impact either occupancy or flu impacts, et cetera? What are you baking in as you go through the year for your occupancy guide? J. Hutchens: Yes. So in the 270, we've assumed seasonality. And that would include just normal seasonal impacts, and that could be weather, it could be flu related. That's in the guidance. And I think you know how the seasonality works. Obviously, we'll have more -- usually more move-out activity, a little less move-in activity in the winter season, and that's the end of the year and the beginning of the year. And then the key selling season, May to September, is where we have outsized move-in activity and generally lower move-out activity. So that's the big opportunity every year, and we look forward to performing well within that and delivering the 270. That's the assumption. The comment I made on the call was really referring to expenses. There was obviously some recent severe weather, and we've incorporated expenses related to that in the first quarter, which is also obviously baked into the full year guidance. Vikram Malhotra: Okay. Great. And then just obviously, the acquisition pipeline is very strong. I wanted to talk about dispositions potentially in senior housing, whether it's into your fund or elsewhere, like Canada, for example, now 97% occupancy. In the U.S., you have another bucket that's sort of underperforming, I guess, their Tier 3 markets. But maybe you can expand upon the future growth opportunities in both those buckets and whether anything there could be disposition candidates? J. Hutchens: Yes. So there's a lot in there. I'll mention -- so first of all, we're always going to have some amount of pruning that we'll do within the portfolio, and there's a $200 million that's assumed. That would include some senior housing underperforming. We still have -- there's always a bottom part of the portfolio that doesn't have the long-term potential that we like to see it have. So that creates disposition opportunities. In terms of Canada, one thing that's interesting about that, it's a very high-quality, high-performing portfolio. It doesn't grow as much as the U.S. It's also much smaller. It was 30% of our SHOP portfolio just a few years ago. It's down to around 16% today. And that's because the U.S. is growing in every way organically and externally. And so Canada has become kind of a smaller footprint. You mentioned the other markets. And what -- if you look at Page 11 of the sub, people that are following along. In the other markets, we have more of a mid-market product, and that is mostly independent living. We also have assisted living. And a lot of those communities have benefited from our plans in terms of refresh, putting new operators in place and offer a growth opportunity. They're in good markets with strong net absorption and a lot of the actions that we've directed towards the portfolio have benefited that category, and it has relatively low occupancy. So we'll look forward to growth opportunity there. Vikram Malhotra: Congrats on the strong results. Debra Cafaro: Thank you. Operator: Your next question comes from the line of Julien Blouin with Goldman Sachs. Julien Blouin: Maybe, Justin, on the Brookdale transitions, can you give us a look under the hood, sort of what are the lowest sort of easiest hanging fruit that can help drive that immediate growth and improvement in 2026 you mentioned? And then maybe tying that to Ventas OI, how does that platform help your operators improve the performance of the newly transitioned assets? J. Hutchens: Yes. Great question. And we had a number of triple-net to SHOP conversions last year. The biggest part of that was the former Brookdale communities that were in the lease that moved to SHOP. Those communities are -- have a lot of advantages. They're large scale. They're in markets that have strong net absorption. We have 5 new operators in place. All of those operators have experienced transitioning. We have CapEx planned. A majority of them will have had their refreshes done by the key selling season. I'd say that's one of the biggest actions we're taking early. And then we expect the performance to be good over time. It's not really a 2026 story per se, at least some modest growth there, but '27 and beyond is where we really expect to see ramped up performance and go after that doubling of the NOI that we've talked about. Julien Blouin: Got it. That's really helpful. And then I think in the past, you've talked about how the time to turn a unit is very short given the limited wear and tear in senior housing and in your portfolio. But I was wondering if you had any thoughts about the time it takes to secure a new resident to replace an outgoing one and sort of how that might have changed in the last 12 to 24 months, and sort of how waitlist lengths sort of play into that? Have they sort of grown over the last 12 to 24 months as supply has subsided? J. Hutchens: Has what grown? I didn't hear that last part. Julien Blouin: The length of waitlist? J. Hutchens: Yes. So the sales cycle, it tends to be really short in assisted living. We could -- sometimes inside of 60 days of getting a lead, you would expect them to make a choice, whether it's with us or with another option that they're pursuing. Some move much faster than that, way inside of 30 days, sometimes even just a matter of days in terms of the sales cycle. Independent living could be much longer. It's more of a discretionary choice. And we are seeing really the big demand driver isn't as much about the sales cycle as it is just the increasing senior population that's accessing our services. And then our sales execution has obviously been excellent because we've been able to outperform our markets for many, many quarters, in years in a row now. And why is that? Well, it's because of the investment in our portfolio, the operators we selected, the OI platform that we've layered on to ensure that we have good performance. And we really like our opportunity, probably very obviously, moving into this next phase where we have even better demand. We're just really well positioned to continue to drive occupancy. Operator: Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Unknown Analyst: This is Sam on for Tayo. A lot of my questions have been asked already, so I guess I'll throw this one out there. Do you guys have any -- I guess, can you -- how do you guys -- how should we think about the cadence of deals for the remainder of the year? Robert Probst: From a modeling perspective, this is Bob. I would assume over the course of the year sort of ratably would be a good modeling assumption. Unknown Analyst: I appreciate it. Robert Probst: Okay. Debra Cafaro: Thank you. Operator: Your next question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: On the assets that you're acquiring, I assume they're coming in at kind of like low 90% occupancy. How much more occupancy upside is possible there? I know you mentioned you have SHOP properties that are 100% occupied and you're underwriting or use. What are you assuming on the occupancy upside? J. Hutchens: Yes. So we -- first of all, we do have a number of different types of kind of senior housing profiles in our pipeline. And that can include some value-add opportunities, really high-quality opportunities that actually have a lower occupancy that we've managed to source. So we'll expect even more occupancy runway if and when we close those investment opportunities in our pipeline. We've had -- our favorite has been the kind of the high-performing stabilized. If you're 90%, you have 10% to go. And when you have markets that are projected to go all the way to 100% occupancy over the next few years, that's a very reasonable expectation. So we're going to focus on -- we have a lot of occupancy upside. We're 86% occupied in the U.S. That's been designed largely by moving our triple-net communities over to SHOP, and then we've been buying these high-quality newer communities as well. So we really like the portfolio positioning and the opportunity to grow occupancy. Michael Goldsmith: Got it. And we kind of touched on this a little bit, but just maybe ask more discretely. You talked a little bit about competition. The portfolio -- some of the blended cap rates of your acquisitions to start the year were sub-7%. So it is -- and I know historically, it's kind of been in that 7% to 8%. So like should we expect kind of being -- remaining the year in that like sub-7% range or -- and that's shifting down, let's say, 50 basis points, like 6.5% to 7.5% versus 7% to 8% maybe historically? Just trying to get a sense of where the market has moved. J. Hutchens: Well, it's not surprising given the quality of this asset class that there's a lot of interest in it. So there certainly is more competition. Clearly, it hasn't slowed us down at all given how strongly we're positioned. There's a drifting down in cap rates. You can see it in our sub -- we reported under 7%. And I would say we'll report our expectations as we close deals moving forward. Debra Cafaro: And as Justin said, we remain -- we are highly competitively advantaged in making acquisitions in senior housing. Michael Goldsmith: Good luck in 2026. Debra Cafaro: Thank you. Operator: Your next question comes from Michael Carroll with RBC Capital Markets. Michael Carroll: I just wanted to build off of the seniors housing valuation question. I mean, obviously, private market valuations have improved. I mean how difficult is it to buy assets under or at replacement cost today? I mean, is there an idea of like how big of the discount is today versus it was maybe 1 to 2 years ago? J. Hutchens: It depends on what you're buying. So we've had -- we've been buying consistently under replacement cost. There's been some that have been a little closer to replacement cost, and it's really just a function of the age of the property usually. So we've had some really nice high-quality newer communities that you're buying closer to replacement costs. We have others that are way below still. So we're looking to try to stay at or below in terms of our investment criteria, and we've been able to do that really consistently. Debra Cafaro: And rents would we still have to -- and rents would still have to grow significantly to justify new construction. Michael Carroll: Okay. Great. And then just on the pipeline that you have today, I mean, I know that you have a $2.5 billion target for the year. You already completed about $840 million. I also know how conservative Ventas is with putting investments within their guidance ranges. So of the $1.7 billion unidentified deals, I mean, should we assume that there's a pretty good horizon or line of sight on completing those specific deals? J. Hutchens: So we're describing it as high confidence. So you can interpret that. Yes, and the pipeline keeps growing as well. Operator: Your next question comes from the line of John Kilichowski with Wells Fargo. John Kilichowski: My first question is around the balance sheet and G&A really. When I look at what you gave in terms of same-store and the acquisition number, they are both great numbers and maybe the FFO was slightly below where we would have expected. And I think part of that was some higher interest expense and maybe some G&A that we're not thinking about. Could you walk us through the building blocks there and the assumptions, maybe there's some conservatism because you've already prefunded, I believe, $500 million, but maybe there's more there that we're not considering. Robert Probst: Sure. Let me unpack a little bit. So there are 2 key drivers as you look at the year-over-year growth of 8% outside of the tremendous growth in SHOP and external growth. And that is, first and foremost, the expiration of the noncash Brookdale amortization we disclosed that ad nauseam. That's $0.04 year-over-year. And so that's one item to note. The second is refinancing maturing debt. We do have $2.2 billion of debt to mature this year. That's higher than the last couple of years. And obviously, there's a refinancing increase relative to debt on the books. Those 2 alone explain the difference between 8% and 10%. I mentioned in my prepared remarks, G&A. We are investing in the enterprise. As you would expect us to do, we're growing scale in senior housing. We're investing behind the platform. Meanwhile, we are very, very focused on efficiency and effectiveness at the same time. But believe that we've got the right balance there. But we do have growth in our G&A in the guide as well. John Kilichowski: Got it. That's very helpful. And then my next one is on the 15% same-store guide. What does this imply in terms of U.S. growth? And then just overall, how much of this is just you capturing the opportunity in front of you? And how much can you attribute this to like what you talked about in your opening remarks with Ventas OI? J. Hutchens: So we're not really giving U.S. and Canada separate. But clearly, U.S. was 18% in '25. It gives you a feel for the outsized growth potential that we have in the U.S. The -- we really, like I said before, we like how the portfolio is positioned. It's well invested. We have the right operators in place. We continually take actions. You mentioned Ventas OI. I'll just give you a flavor for some things we did in '25 as a proxy for the types of actions we take. So we added 12 operators last year. And so our platform is designed to onboard operators, bring them into the OI platform, help them to really be able to focus on the day-to-day execution. We had 88 redevs that helped to improve our competitive positioning. We had 26 communities that transitioned to new SHOP operators, and then we converted 74 from triple-net to SHOP to position ourselves with that lower occupied opportunity and long runway of growth. And so we're always taking portfolio actions, but on top of that, we're also taking operational type actions. And this is where I think the power of the platform really comes into play. And our operators have the responsibility for running the day-to-day business. We have this powerful platform to help really highlight for them opportunities to improve, and that could be anywhere from sales, pricing and other operational benchmark improvement opportunities. So we'll continue to kind of press that advantage and execute in '26. Operator: Your next question comes from the line of Rich Anderson with Cantor Fitzgerald. Richard Anderson: So allow me to be pain in the you know what with my 2 questions. First, on supply. I guess, Debbie, you said rents need to grow significantly to justify new construction. Well, they are growing significantly, as you guys have pointed out. And I'm wondering how supply doesn't become a relatively near-term concern just around the narrative. We've seen it happen in industrial and data centers and multifamily when that was growing at 20%. So to what degree are you sort of preparing for that and because the senior housing was oversupplied before the pandemic as some of us remember. So I'm just curious, I know it's great now, but what's the strategy over the next 5 years to keep sort of that reality in line of sight? Debra Cafaro: Yes. Thanks, Rich. The multiyear NOI growth opportunity has a really long runway, and it's principally driven by demand because of the absolute explosion of the over 80 population, which is our customer base. And as I mentioned, the starts are literally in the 2,000 a quarter level right now. There's over 2 million people turning over 80 in 2026, and that continues to grow as far as I can see. And we know that the -- the cost to develop are high, labor, materials, et cetera. We know there's about a 3-year cycle. And what we project is that even if new development starts that there is a surge, a step function in demand as you look forward in 3, 4, 5 years. And so the demand overwhelms or should overwhelm any incremental new supply. So that's how we're looking at it. And you've referred to earlier periods. The senior population growth was very flat to low single digits. We expect it to be 28% over the coming 5 years. So we think the best is yet to come. Richard Anderson: Okay. That's perfectly good color. Second question is on the affordability comment. I think somebody said maybe it was Justin 7x -- they could afford to stay 7x longer than the average length of stay, which is an interesting stat. But in my mind, it's affordable to people who can afford it if that -- it sounds silly to say, but I would argue the vast majority of seniors cannot afford this product. I don't know what the penetration rates or how you calculate that, but it's got to be at the very low end of the scale. So I'm just curious if you've given any thought to a more affordable product to sort of capture a broader range of seniors as we go through this that can afford it. I know that's being done in a way and some other companies are doing that. I'm just wondering if you're sort of modifying your strategy to some degree to get at what is the majority of the senior population, in my opinion, that can afford this product. Debra Cafaro: Rich, Debbie here. So yes, Justin did quote, and I talked about the fact that our industry provides a very important valuable benefit to seniors and their families in our communities at an affordable cost. And we have a page in the deck that's actually very illuminating on this Page 16. And I also mentioned that baby boomers who are starting to turn 80 are the wealthiest generation ever, and they control about half the country's wealth. And what's really important is, as Justin said, our residents can afford senior housing almost 7x what it actually costs for them to live there. And more importantly, it's effectively a replacement expense for what seniors are paying to live in their homes alone and get any kind of modicum of in-home care similar to what's provided in the senior living communities. And on top of that, the seniors aren't alone, they're getting the socialization and safety and support of a communal setting. So we really do believe that the product provides valuable benefits. Anyone who's ever used it in their families is understands that and that it truly is an affordable cost to this generation that will be the resident base and is starting to become the resident base starting in 2026. Richard Anderson: Can I give you my mother's phone number so you can call her and tell her that. Debra Cafaro: We do it all the time. We get calls all the time because it's a very needed benefit that we provide in our business. Operator: Your next question comes from the line of Farrell Granath with Bank of America. Farrell Granath: This is Farrell Granath. My first question is around your pipeline. I know you've added some additional color and a lot of questions about it. But just when thinking about entering into '26, is there a quantifiable difference between what your pipeline is today versus what it was 1 year ago for '25? J. Hutchens: We disclosed that our pipeline in U.S. senior housing is $35 billion. And that -- some of which we closed last year, some of which is still in the pipeline. Some of it closed this year already and some of it is still in this high confidence group that we described earlier. And I would describe the pipeline as growing. It's certainly becoming larger. We're seeing more midsized deals. We continue to see flow business as well. So yes, there's more opportunities than we had a year ago. Farrell Granath: Okay. And then also when looking at your same-store SHOP occupancy, you've now reached around that 90% threshold and your margins are around 28% or mid-28s. I'm just curious about now that you're stepping into a higher RevPOR growth and also layering in Ventas OI, where can we potentially see this margin number move? Are you seeing additional revenue growth or margin expansion from the layering of the Ventas OI? J. Hutchens: Yes. So just like really in a very focused way, I would say we had 50% incremental margin in the fourth quarter. We expect in our numbers -- our guidance number of '26 that, that will be in the 50s. So more margin expansion opportunity in '26. I mentioned the rent increases in my prepared remarks were 8% this year. They were 7 last year. So we're starting to see higher in-house rent. We do have underlying improving trends in move-in rents as well. So there's good support for better pricing moving forward, which makes perfect sense given the supply-demand dynamic that Debbie described, and then also just having more communities that are becoming higher occupied. Operator: Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Juan Sanabria: All right. Justin, you mentioned dynamic pricing in the context of Ventas OI. So just curious if you can give us a sense of where you are in the process and the ultimate goal on how you expect and hope to price these units over time? J. Hutchens: Yes. I would -- I mean, we've been working on dynamic -- everything Ventas OI related, we've been working on really since 2022. And it's an evolving platform. The capabilities are improving every way. They're being more technically proficient and also really importantly, way better at executing in the field. And I would say that's one of the areas that really helped in '25, and we look forward to really expanding and pressing upon in '26. And in order to be able to deploy Ventas OI, you have to have high adoption from our operators. And they are highly engaged with us. So I couldn't be more happy with their willingness to work with us and therefore, execute moving forward. So I would say we're -- I'll always say we're early stages because it's an evolution and the goal is to get even better at it, whether you're talking about dynamic pricing or just execution across the whole platform. And as Bob said, we're putting more resources behind it. And so we're going to continue to just get even better at it moving forward. Juan Sanabria: And just a quick follow-up to Farrell's question. On the flow-through margins kind of can you remind us how those should trend as you get higher and higher in occupancy? I think 90% is like a critical number where you don't necessarily have to add really any incremental headcount from a labor perspective. So if you could just remind us on how that may or should change as occupancy continues to grind higher. J. Hutchens: It gets better, the higher the occupancy goes because the operating leverage kicks in. Like I said, in '26 as we kind of hover around this low 90s percent, we're expecting incremental margin in the 50s. And then we would expect that over time, as we move up the ladder towards 100% higher incremental margin, usually around 70% or so, the higher you get. So we'll have -- that's really one of the most powerful aspects of senior housing is that high operating leverage, and we expect to benefit from that over the course of the next few years. Juan Sanabria: Good luck to the rest of the year. Debra Cafaro: Thanks, Juan. Operator: Your next question comes from the line of Michael Stroyeck with Green Street. Michael Stroyeck: One question on the acceleration in RevPOR growth expected in '26. Is this a function of assets that were already seeing good growth growing even quicker or more properties that were laggard starting to catch up? Any color on where that step-up in growth is coming from would be helpful. J. Hutchens: Yes, it's really -- yes, sure. And it's really just broad-based, and it's primarily driven -- one of the biggest drivers is obviously in-house rent increases and have that be around 8% versus around 7% a year ago is a big boost to RevPOR. And we always like to use a rule of simple -- really simple rule -- oversimplified rule of thumb, and that is that RevPOR is 2/3 of the in-house rent increase amount. So that puts you just under 5%. But we're also seeing solid underlying trends in terms of move-in rents as well. So honestly, this is another category that just kind of seems like we're at the beginning here. And we're pleased with the results. But as we move ahead into this strong demand environment, we look forward to performing even better on that front. Michael Stroyeck: Got it. That's helpful. And then maybe one on the outpatient research business. Does 2026 guidance assume any additional occupancy loss within the research portfolio? And do you expect that NOI has troughed in that business? Robert Probst: Yes. This is Bob. I'll take it. So looking at '25 is a perfect analogy, I would say, as we think about '26. So in '25, overall, OMAR delivered same-store 2.5%. Within that, the MOBs were over 3 modest decline in research given the backdrop there. That's a pretty good example of what we think is going to happen and continue on in '26, very, very similar. We kept the midpoint the same. So led by outperformance in outpatient medical and hanging in there on the research business. Operator: Your next question comes from the line of Mike Mueller with JPMorgan. Michael Mueller: Bob, can you give us more color on the decision to exclude noncash stock comp going forward from NFFO? And then what's embedded in the guide for G&A expense this year? Robert Probst: Sure. So first and foremost, just to be very crystal clear, it's $0.08 of noncash stock-based compensation expense in both '25 and '26. We want to make sure everyone understands that we've modeled that in terms of our growth rate on a like-for-like basis. Why are we doing that to your question? We think that's getting to where the market is in terms of health care REITs and therefore, making it more comparable for you, the investor, as you look at our earnings. So that's the reason. In terms of G&A, I mentioned in my prepared remarks, we are investing in the platform. We are growing the platform. Low $150 million range on the cash G&A, and that's on a growth rate in line with our enterprise growth rate is the expectation. Operator: Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Just 2 quick ones. I couldn't help but notice the occupancy delta between the IL and AL product. I guess just wondering, is that all acuity driven? And strategically, do you have a preference? Or is there an optimal mix as you're buying new assets versus IL and AL? J. Hutchens: Yes, sure. So we did have some outperformance in our independent living portfolio. We'll expect that to continue to some degree in '26. I mean, we're performing really well across both independent living and assisted living. But that's been an area of strength in terms of occupancy growth, and we'll continue to press on that. We're about half and half by units, independent living and assisted living. And when we target acquisitions, we do like a mix. We do like that continuum of care offering, not exclusively, but when we see it, we definitely give a higher priority because it offers independent living, assisted and memory care together or at least 2 of those 3 together, which just can attract a broader audience in terms of demand and also service offering. Ronald Kamdem: Great. And then can you just spend 2 seconds on just labor costs and then maybe the CapEx -- maybe CapEx per unit even because I saw the numbers were up, but presumably there's more units. But just broad-based trends on labor costs and CapEx per unit for the product would be great. Robert Probst: Yes, I'll take those. So on labor costs, we're assuming effectively just on a per hour basis, kind of normal inflation. Nothing unusual there. And we are seeing, of course, significant volume growth when you look at the 5% OpEx guide, that is really a function of the volume, but that would be a good proxy for per hour on wages specifically. On CapEx, we did give the FAD guide. That is up year-on-year from about $300 million to $400 million. You nailed it. It's led by more units, some inflation as well, but that's the driver. Operator: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Justin, just going back to the 8% in-house rent increase, have you seen any increase in move-outs as a result of the higher increase this year? And then could you just speak a little more broadly to some of those leading indicators? J. Hutchens: Yes, sure. So first of all, it all starts with the quality of care and service delivery. That is paramount. And I mentioned in my prepared remarks; it was really rewarding to be able to highlight some of the -- just the industry-leading recognition we're getting in our operators that we work with in that regard. That's what's most important. We're delivering really good services. We've established trust with residents and their families. And therefore, the value proposition is recognized by the customer. And therefore, we're not seeing anything unusual in terms of financially driven move-outs. Austin Wurschmidt: That's helpful. And then I just wanted to go back with a follow-up to the noncash comp question. And wondering if going forward, should we be expecting any change to the composition of cash versus noncash comp moving forward? Because obviously, there's implications then on the year-on-year comparison for growth. Robert Probst: No. In '25 and '26, I mentioned both are $0.08, and I wouldn't expect going forward there to be anything unusual as it relates to the noncash piece. Austin Wurschmidt: Appreciate the time. Debra Cafaro: Thank you. Operator: Your next question comes from the line of Wes Golladay with Baird. Wesley Golladay: I just have a quick question on development. I guess when do you think it would start to pick up, albeit off of a low level? And then how would Ventas like to participate? Would you like to lend develop or just wait and buy them afterwards? J. Hutchens: Okay. Good question. So we like acquisitions. We like buying durable, well-established in-place cash flow that will grow. That's been our priority from an investment standpoint. In terms of development, first of all, we think rents need to be 20% to 30% higher, and that's even at a relatively modest development yield. There's -- this is a tremendously well-supported business, though, in every way as we described on this earnings call. And so it's very reasonable to expect that there will be new supply. We would also expect that the first to come to -- that you would see announced in terms of starts would be ultra-premium products. And that's a product that it is so differentiated in terms of price when they enter a market that they don't -- they're well positioned to be the price leader. So that would be the kind of the exception that you would see come early. And then -- but it's still going to take some time. Rents need to catch up. And when they do, as Debbie mentioned, you have a 3-year runway. And when that supply opens, you're hitting this tremendous amount of demand. So we really, really like the outlook in that regard. Operator: I will now turn the call back over to Debra Cafaro, Chairman and CEO of Ventas, for closing remarks. Debra Cafaro: Well, everyone, I do want to say we had a great year at Ventas in 2025, and we look forward to having another one this year. I want to thank you for joining today's call and for your interest in the company. We look forward to seeing you soon. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.