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Fredrik Dalborg: Good morning, everyone, and welcome to the AddLife Fourth Quarter Presentation. This morning, we will take you through the highlights of the quarter and then, of course, open up for a Q&A session. After that Q&A, we do encourage you to stay on because we have recorded a wonderful video of one of our companies, this time, Biolin, a manufacturer of advanced research instruments. So now let's go. I'm very pleased to note that the AddLife companies were able to wrap up 2025 in a good way. We saw continued profit improvement. We saw strong profit and strong cash flow. On the EBITA margin account, we saw that Labtech were able to protect the very high level at 14.1%, EBITA margin, same as we had in the strong fourth quarter of last year. And on the Medtech side, it improved to 12% compared to 11.6% in the corresponding quarter of last year. Overall, we saw healthy customer demand in our markets. But of course, currency effects impacted our sales growth, but the currency adjusted sales increased by 2% in the quarter. We are working diligently with profit improvement initiatives, and this is one of the core parts of our business model. We have seen for many quarters now a continuous improvement, and we do expect that to continue in the future as well. In the U.K., we have had a long-standing dialogue with a key partner in the area of endoscopy. They have chosen to go direct, and we have supported them in that, handing over the team and the resources related to that business, and we have received a consideration of SEK 158 million in the quarter. So this, in combination with the strong cash flow that we saw has helped us to achieve a net debt-to-EBITDA of 2.2. So this -- with this, we achieved our goal of remaining at 3 or below, and we have actually far exceeded the ambition as well. So very pleased with that. So now I hand over to Christina, who will take us through the details of the quarterly financials. Welcome, Christina. Christina Rubenhag: Thank you, Fredrik. We had a stable growth in the quarter after a very strong fourth quarter last year. Organic and acquired revenue growth was 2%, while adjusted EBITA growth was 5%. In the quarter, we had negative effect from currencies. And looking at revenue, it was minus 5%, and the EBITA was impacted with minus 7%. We have 2 financial targets within AddLife. One is to improve profit with 15% year-over-year. On the long term, this is supposed to come approx half from acquired and half from organic growth. Looking at 2025, organic growth was 10% and acquired growth contributed with additional 2%. Then we had FX impacts in the quarter. So total EBITA growth for 2025 was 8%. So including currencies, sales growth was minus 3% in the quarter with organic and acquired growth of 1%, respectively. We had stronger gross margin. This is due to price management, also increased prices in new tenders and the product mix where we are moving towards more advanced high-margin products. We had higher OpEx in the quarter as well, driven by growth investments and also some specific projects. The adjusted EBITA margin was up to 12.4% in the quarter compared to 12.3% last year. Also, lower interest costs continue to have a positive impact on the profit and loss. And then adding divested operations, profit before tax increased with 129%. EBITA margin is clearly in a positive trend. Looking back to 2023, we were at 10.5%, increasing to 11.3% and now we end 2025 on 12.1%. Looking at the fourth quarter, Labtech margin remained at a high level of 14.1%, same as last year, while Medtech increased to 12% from 11.6%. Full year EBITA margin has also increased for both business areas. They are approximately at the same level now. Labtech, 12.5% and Medtech is on 12.4%. An increasing EBITA margin has been a focus area throughout the last 3 years, and that remains a top priority moving into 2026. Operating cash flow is normally high in the fourth quarter, and this year was not an exception. We delivered almost SEK 900 million in the quarter and for the full year, it was SEK 1.4 billion. Also cash conversion remains high at 111%. Excluding sales of operation, it was at a high 98%. And to be above 100%, that is a little bit too high. So going forward, probably in the range of 95% is more realistic. And of course, focus on working capital efficiency remains a priority also in 2026. Working capital contributed with SEK 426 million in the quarter. And here, we had lower inventory. We had strong collection of accounts receivables and also account payable was higher. Looking at inventory towards sales, we were at 16% throughout 2025, slightly better compared to '24 that was 17%. Acquisitions in the quarter relate to Pharmacold and Opitek. Net debt was reduced with almost SEK 800 million in the quarter. With majority of the loans in euros, here, we had a positive impact from currencies. But the main reason for the net debt to be reduced in the quarter was due to repayment of loans and increase of cash. When we talk about net debt, we include in addition to bank loans and deducting cash, lease liabilities, contingent consideration, pension liabilities and provisions. Net debt in 2025 decreased with almost SEK 900 million. And at the end of the year, leverage were at 2.2, which is clearly below the target of 3 or below that we set up for ourselves. Net debt towards adjusted EBITA was 2.5. The second financial target for AddLife is to have a profit over working cap of above 45%. 2025 ended at 62% compared to 51% last year. And debt has been reduced via self-generated cash flow. And entering into 2026, we now have a balance sheet that supports both organic and acquired growth. And with that, I hand over to Fredrik again. Fredrik Dalborg: Well, thank you, Christina, for that thorough review, and now we will get into the business areas summaries. So starting with Labtech. As you may remember, Q4 of 2024 was a very strong quarter for Labtech. And this quarter, we saw currency adjusted revenues declined a little bit by 3%. We're really pleased to note that the EBITA margin were maintained in spite of that slight drop in revenue. So we are still at 14.1%, same as the corresponding quarter last year. So that's very healthy. We saw a little bit less instrument sales in this quarter compared to last year. And in that last year quarter, we had a very high level of instruments being delivered linked to various tenders that we won. In the market in general, there has been some hesitation with academic market sales. We saw that this quarter also, but slightly better, I would say. We also saw a little bit of caution in the pharma industry segment. In the third quarter of this year, we were really pleased to note a very healthy development in Central and Eastern Europe, and we saw that continue into Q4. So that helped a lot, wrapping up the quarter for Labtech in a very healthy way. Moving on to Medtech then. We saw growth, excluding currency effects at 4% and acquired growth was 1%. EBITA margin improved to 12% from 11.6% in the corresponding quarter. Capital sales in the U.K. have been weak for some time now, as many of you have noted. We were really pleased to see that, that actually improved in the fourth quarter. So that's great news. As I mentioned earlier, we have an agreement with a supplier to hand over the endoscopy business in U.K. and receive the consideration for that. Elective surgery in general in the European market tended to be relatively flat. The patients list weren't really shrinking. And on top of that, we also had strikes in U.K. as well as in Spain during the month of December. So number of surgical procedures was relatively low. But anyways, a good growth in the Medtech business and also helped by a healthy development in Homecare, which we think will continue going forward. We talk a lot about improving margins, and that is indeed a key activity for us, actually what we have chosen to prioritize the highest. So what are we actually doing? We are working on margin improvement initiatives in the eye surgery business, we are strengthening the margins in Homecare. We are working with specific initiatives in the companies where we see further improvement potential. And then on a more general level, we are always driving gradual and continuous performance improvement programs across all companies. This is a key piece of our business model. We are also pruning our product portfolio, removing products that are less profitable and adding new and advanced high-margin products. We are also increasing the share of own products. And of course, the acquisitions we make are focused on higher-margin segments and are expected to contribute to this positive development in terms of margin. And we do these activities, we drive them, of course, starting with our fantastic companies within the group. They are all led by strong and empowered leadership teams, and they have a very nice entrepreneurial spirit that we like to see. So they are very strong in this continuous work to improve margins. They are also supported by a group of experienced business unit leaders. We are also leveraging the activities we have within AddLife Academy and a strong group of business controllers. And on top of that, the companies together with the business unit leaders work on an acquisition agenda improving margins over time. So with this, we have a lot of activities ongoing. We have seen a lot of good results, and we do expect those results to continue. I also want to highlight our unmatched European coverage. This is something that we have been working on for quite some time, creating a pan-European footprint. So of course, our origins in the Nordics are strong, but we are very strong in Western Europe, Central and Eastern Europe as well as Southern Europe. This is important for us because it gives access to a very large market. It gives us more supplier opportunities. We are also able to choose from a broader range of acquisition targets, which is quite powerful because we can be selective and really choose the acquisition targets that are attractive in many ways, including healthy multiples. So -- and I also want to move forward to acquisitions now. Again, acquisitions are again becoming a very important growth driver for us. And in the month of December, we were very pleased to welcome 2 new companies to the AddLife family, starting with Pharmacold, which is a specialized in highly customized refrigeration technologies as well as services for the pharma industry and for the health care sectors. Together with Holm & Halby's customer base and regulatory know-how, we see great potential for these highly customized products and to grow that business even further. So a very nice and healthy acquisition here, relatively small, but with great potential. Another acquisition that we concluded in the month of December is a Danish manufacturer specializing in patient positioning products that address both staff ergonomics as well as the patient safety. We have worked with this company for many years. We know the products well, and they are really well renowned in the market. This business will become part of Mediplast and very much in line with the strategy that we have to increase the share of our own products. So a nice addition to the business and very much in line with the strategies that we have laid out. So very happy to also welcome Opitek to the AddLife family. So to summarize the quarter, we are very pleased to note that the margin improvements, they do continue in the fourth quarter as well as for the full year, of course. And we are working diligently on these efforts, and we do expect further potential to improve the margins going forward. Of course, currency effect impacted revenues, but organic and acquired growth were positive compared with a strong Q4 in 2024. We're very pleased with the fact that net debt-to-EBITDA is now at 2.2. So this means that our ambition to reduce it below 3 has been achieved and exceeded. With this, we have strengthened the balance sheet, and this enables us to really pick up the pace with acquisitions again, which we did already in December, and we expect a lot of activity going forward. So I can really say that we look forward with confidence and enthusiasm to a strong 2026. Thank you very much. And with that, we open up for Q&A. Fredrik Dalborg: All right. So thank you for listening into the presentation. And now we are ready for questions. And I think we see a few of you having raised the hands already. So [ Philip ] maybe you can start and don't forget to unmute. Unknown Analyst: I hope you can hear me now. Fredrik Dalborg: Yes. Christina Rubenhag: I can. Unknown Analyst: Starting on the U.K. market recovery, positive to hear that you're seeing some early signs there. Could you elaborate a bit on the momentum you're seeing entering '26 and what you're seeing throughout the coming year here? Fredrik Dalborg: Yes, of course. Thank you. Good question. So as you may remember, we have seen for really the whole year a bit of a hesitation in primarily capital spending and capital investments in the U.K. market. And we're pleased to note that in the fourth quarter, that actually started to improve again. So that's a healthy. Sign. Looking at the general trend in the U.K. market, there was a little bit of a, I would say, subdued surgical procedures because of flu and also strikes and whatnot. But capital really did pick up. So we're pleased to note that. So that's a good sign also for the future. We can also note that as we have stated before, the NHS has become more and more clear in their vision for the future, where after the election immediately was relatively big. It's become more and more focused and clear what they are planning to do and in January, we have seen further statements talking about robotic surgery, talking about AI, talking about gene sequencing, things that we, as a group, are quite engaged in. So I think these are all positive signs. I hope that's an answer to your question, [ Philip ]. Unknown Analyst: Yes, of course. Good. And while we're on the notion of U.K. and also perhaps Spain, the strikes in December, early December, is it possible to quantify that impact or give any indication of how large that impact was? Fredrik Dalborg: A little bit tricky, but I think we should look at it as a few days of lost surgical procedures. So a few days of lost sales in U.K. as well as in Spain. Unknown Analyst: Sure. Makes sense. And then perhaps finally for me, and then I'll get back into the queue. You talked about an improvement in home care market, which is positive, of course. How sort of -- what's your visibility on it? And how sustainable is it? Is it throughout the year? Or is it a few months or... Fredrik Dalborg: Well, I think we're starting to see signs of improvement, but we still have work to do. I mean it's still an area where we think there is further growth and margin improvement potential. So there are a few things that are going on here. We have a few initiatives that have been worked on with -- in terms of product launches and so on that are now starting to show signs of really picking up the pace. So that's exciting that a lot of that is on the technology side. On top of that, we have also seen in multiple countries, a healthy trend in terms of construction. So some new care homes and so on that are being built or being planned to be built. So I think the outlook is in general in that market is improving. And our internal initiatives are also starting to show signs of results. So more work to do, but some positive direction there, I think we can see. All right. Thank you for good questions. So I think we have Ulrik here. Ulrik Trattner: Yes, hopefully, you can hear me, all right. Fredrik Dalborg: Yes, we can. Yes. Ulrik Trattner: A few questions on my end. You commented on a slightly softer Labtech market, especially in Denmark and a bit of caution from the pharma companies. Is that something that you see broad-based and something you potentially could elaborate a little bit about? Fredrik Dalborg: Well, not super broad-based. I think it's quite primarily a Denmark thing where we see a little bit of hesitation just very recently. We're not super worried about it. I think there is a healthy underlying market and growth there. So I think in 2026, that should pick up again is our expectation. So nothing dramatic there. But looking at our numbers, Denmark came down a little bit on the sales side, partly currency, but also a little bit of a slower activity. But again, we do think it's temporary. Ulrik Trattner: And just general on the market conditions because I remember like 1 year ago, we did see a trend shift in tender activity. You entered into a few higher-margin tenders, and that looks to have continued throughout '25. So can you just give us sort of the state of the sort of tender market where we're at versus what we entered into '25? Fredrik Dalborg: I think we're -- we have seen the impact of these tenders. There were quite a few in fairly short period of time that we were successful in winning and those instruments were installed -- a lot of it were installed back in Q4 in 2024. So that was a bit of a peak on the instrument sales there. Of course, we have been benefiting from those sales related to the instruments that were installed. So the consumable sales have been supporting us throughout the year and will continue to do so going forward. Tender activity in general, I think it's normal, I would say, activity ongoing for sure, but sometimes there's a little bit more sometimes there's a little bit less quarter-to-quarter. But then overall, no trend shift really, I would say. I hope that's answer your question. Ulrik Trattner: Yes, yes, absolutely. That's perfect. And you sound optimistic about continuous margin improvements. And you guys have spoken before that there is improvements to be done in Homecare. And you've done a lot of tail cutting on the Medtech side generally throughout '25. Have you seen the full effects of the tail cutting? And are you done on that end where you feel -- obviously, there's some natural tail cutting going on, I guess, in your business, but majority of it is done in '25. And second question would be then the follow-up if you have enjoyed sort of the full effects on the margin side from those cutting out lower-margin products? Fredrik Dalborg: There were a few bigger measures taken during the year, you're correct. So we've seen that playing out nicely. So -- but the evolution of the product portfolio, it continues. And so there, I'm sure that we will be looking at portfolios and taking out less interesting products. For sure, we are adding a lot of new things. So I think the -- over all of 2025, we've increased our activity in terms of business development, finding new suppliers. And that has generated a number of new products being brought into the portfolio. Some of them have started to sell, but sometimes it takes time, especially if it's a novel technology and these activities and increased resource, both in the larger companies, but also using our network to support the smaller companies evolution of the portfolio. So I think more to come in terms of continuous addition of advanced products for sure. Ulrik Trattner: Great. And last question on my end before getting back into the queue. Can you say anything about the margin profile of the divested endoscopy business, if it was on par with rest of Medtech or roughly where they were at? Fredrik Dalborg: Yes. It was a healthy margin business for sure compared to the Healthcare 21 other product line. So good margin business. All right. Thanks, Ulrik. So now we move forward, so we have Albin here, right? Are you ready for us? Albin, are you ready for us? Daniel Albin: All right. I think I will stay on the margin side here. We've never seen such high gross margin in Q4. And of course, you're working with it, focusing on it. But is this just like the new focus? Or is it some timing effects as well? And how should we think about the gross margin heading into '26? Fredrik Dalborg: Yes. I think. Do you want to comment on that, Christina? Or is it something... Christina Rubenhag: There's no one-offs into it. No, it's more the result, I think, of the continuous work that has been done during the last 3 years. Fredrik Dalborg: So nothing dramatic disturbing the comparison, I would say. I think it's -- like Christina said, something we have prioritized and something that we're working on and something that every company is contributing to. Daniel Albin: All right. That's good to hear. And then on the M&A pipeline, you're now down at 2.2x net debt-to-EBITDA impressively. So can you give us an update on the pipeline? And how do you find the competition and pricing in the market currently? Fredrik Dalborg: Yes. No, I think we're very pleased that we have reached a really good level on the net debt-to-EBITDA. So we can put these concerns about balance sheet behind us. That's nice. We have been expecting this and preparing for it, right? So we have over the last almost 2 years, been gradually gearing up the activity and resource that are focusing on acquisitions. So the business unit leaders are driving their respective agendas for what type of acquisitions they want to make, and they are supported by a strong team of transaction specialists here in -- at the head office. So this pipeline looks healthy. We have a number of discussions ongoing, and we have a pretty clear plan of what we expect to do in the coming quarters. So I think we are optimistic about it. And then, of course, we are picky. We do stick to our criteria. We are picky about valuation and so on. And since we have a quite long list of attractive targets and we can search all over Europe, as we mentioned earlier, we will be picky when it comes to quality of company and the valuation as well. But I think it looks good. So we're excited about it. Daniel Albin: That's clear. And then looking at net sales per country, I just noticed that rest of the world is now down at SEK 2 million. Maybe I missed something here, but what does that stem from? And is that part of the plan? Fredrik Dalborg: Rest of the world, I think that's primarily China, Australia, U.S. to some extent, yes. So it's coming down a little bit. Well, I think we're clearly seeing some of our companies that are selling into the U.S. market, primarily research, certainly feel a change in behavior there. But it's -- on a group level, it doesn't really move the needle. But for those companies, it's obvious. And now let's move forward to Jakob. Let's see. I think he's still on mute, right? Jakob Lembke: Can you hear me? Fredrik Dalborg: Yes, we can hear you. Jakob Lembke: My first question is on the Medtech EBITA margin. Just to understand -- or looking at the U.K. on the sales, it seems that the U.K. actually grew in the quarter but you still say that the profitability is down from the U.K. [indiscernible]. Fredrik Dalborg: Well, I think if we look at the U.K. for the whole year, it's been negative, unfortunately, in the first 3 quarters. But now it improved significantly in the fourth quarter. So we're pleased about that. And it was driven to a large extent by more capital sales. So that's exciting. So the question there on the profitability, I think that we received a question earlier that asked about business that we're discontinuing and whether that was a high or low-margin business, I would say it's a good margin business in line with what we normally see in the U.K. market. So that's how we would look at it. Is that -- was that the question you asked? Jakob Lembke: Yes, not really. I mean, if I recall correctly, you had quite good sales to the U.K. a year ago. And now you were able to grow that earnings contribution from the U.K. in this quarter as well despite the sort of negative impact from flus and worse operating days and so on. Fredrik Dalborg: Yes. I think the conclusion is that a number of surgical procedures hasn't really grown. It's been a little bit challenged by flu and strikes and whatnot. But it's been holding up, so to speak. And then on top of that, we've seen a marked pickup when it comes to capital. So that's good. I mean it's been a bit of a challenge, a decline over the past few quarters, but now it's changed direction. So that's a positive. Jakob Lembke: Okay. Then just if we look forward, last year, I think Q1 was clearly the strongest quarter in terms of EBITA margin for Medtech. Is that still what we should expect in 2026? I know there's a sort of U.K. budget effect in Q1. Fredrik Dalborg: Yes. I think we don't want to really make any projections or forecasts or outlooks for coming quarters. But normally, we do see Q1, the final year of the fiscal year for NHS is normally strong. Of course, the discontinued business, there might be in previous years, some sales related to that, that will not happen in Q1. But other sales will. So that's to keep in mind. But apart from that, I don't want to give any real outlook for the coming quarters. But of course, we -- in general, we are -- we think many parts of our business is really picking up the pace, and there's a lot of stability in other parts. So I think overall, we're very optimistic about the future. Jakob Lembke: And just a short follow-up. The divested business, is that more capital or consumables? Fredrik Dalborg: Mix. Capital and consumables and service. Jakob Lembke: Okay. And then just a final question, sort of a follow-on on the M&A pipeline. If you can talk a bit about sort of what type of companies you have in the pipeline and also the size, if -- it's more smaller companies or larger ones? Fredrik Dalborg: Well, yes, I think we have a good mix in the pipeline. We're actively in active dialogues with a few and then analyzing a number of others and so on. So it looks pretty healthy. We are sticking to our criteria, which means that the company should be below EUR 50 million in turnover and the sweet spot is probably lower than that, say, EUR 10 million to EUR 30 million, somewhere in that neighborhood, EUR 10 million to EUR 30 million of turnover. And they should also be in areas that we understand and then we have a good knowledge base to assess the companies. We love the entrepreneurial ones, of course, prefer to buy companies from entrepreneurial owners. So we're sticking to the plan here. And of course, what we can look at the previous acquisitions, I think Edge and BonsaiLab are excellent examples of acquisitions we like to see. The ones we made in December are also great additions, but they are a little bit on the small side. So a little bit -- little bigger than that, but certainly not the very big ones of 2021 and 2022. Christina Rubenhag: And of course, an EBITA margin contributing to the growth as well. Fredrik Dalborg: Yes. Of course. So I hope that gives some clarity, but hopefully, we will be able to communicate more about that in the not-too-distant future. And now we have Mattias. I think, he's on mute. Mattias Häggblom: I had only a few left. So -- but I'm going to try and push you a bit more on the M&A side. So you state in the report you will be fully able to execute your growth plan for both organic and acquisition-driven growth. So is it possible to give us maybe a number or range in terms of your aspiration for '26, if not at least compare with the contribution from M&A in 2025, which added 1%, so which is obviously below -- it's a more towards the right direction. But should we think about a 5% to 7% contribution? Or what -- obviously, dependent on deals and signatures, but your aspiration would be interesting to hear. Fredrik Dalborg: Yes. Something like that, Mattias. I mean, traditionally, we have said that to achieve our 15% profit growth target, roughly half of that should come from organic and half of it from acquisitions. And in the past, we're kind of proud that we have almost achieved that 15% through organic activity. The organic activity will continue, no doubt. But in 2026 and beyond, we should get back to that more of that mix of roughly 50-50 over time. So that means a few more acquisitions. So we have 3 in 2025, right? So it's going to have to be a few more than that. Mattias Häggblom: That's helpful. And then with regards to the divestment and the SEK 140 million in revenues, obviously, you spoke about Q1, so obviously, no more shipments there. But then in the report, you talked about an ability to gradually replace it over time, but perhaps not already in '26. So talk about that process in terms of gradually replacing. Fredrik Dalborg: Yes. So I think that's a great point. That's something -- first of all, I would like to say having a setup like this where we hand over a business to a supplier is fairly normal, right? This is something that happens all the time in the life of a distributor. What sets this apart a little bit is we really got handsome payout for all the work we've done to build that business. So that's a positive in many ways. And then, of course, this is something we know happens from time to time. So we work in a continuous way to add new products to the portfolio. And we like to add more products and to broaden the portfolio as well as evolving it towards even more advanced products. So this has been ongoing for a while. We don't expect and actually don't want just one quick replacement of the same size. We would rather have a few more products added to it. And of course, that's not starting now. That's been ongoing for a long time now. So the gradual addition of products has started to happen and will continue during the year. I think, will there be a big chunk of the business immediately replacing it of the same size coming in Q1? No, but it's been ongoing for quite some time. So I would say a gradual replacement of that business is already ongoing. Mattias Häggblom: That's helpful. And final question for me. You spoke about products that were discontinued due to shaping the portfolio towards more higher-margin products. I didn't catch if Christina perhaps quantify what portion of sales that were discontinued during the year to help us understand the bridge from 2024 base to where you ended 2025. Christina Rubenhag: We haven't really quantified that. But then if we look at the mix of everything that then it's approx 1% [ reduction ] yes. Fredrik Dalborg: Gustav, yes. Gustav Berneblad: It's Gustav here from Nordea. Just to come back to Medtech here and our favorite topic of AddVision. In terms of that margin, can we get some sort of ballpark indication of how that is progressing here? Is still within the range of mid-single digits? Or what's your view there? Fredrik Dalborg: Yes, mid-single digits. It is improving over last year, not dramatically, but it is improving. It's better than last year Q4. So that's, that's nice. We have actually taken quite a few measures within that group in this quarter as well, the things that we have seen that needs to be addressed and have been addressed in the quarter. So that gives us further confidence in the direction of the British and German business. In other parts of the business, I think as you know that we have, what I would say, achieved a good level of stability and a nice trajectory. So that's great. So now with these measures, we hope that the same thing will apply for all the parts of the business. So mid-single digits still improving, but of course, lots of more upside, I would say, in that business before we are happy with it as it stands. Gustav Berneblad: No, that's perfect. Then do you expect effect already here in 2026 from these measures you have taken here recently or... Fredrik Dalborg: Yes. Christina Rubenhag: Yes. Fredrik Dalborg: Yes. We're aligned there. Gustav Berneblad: And then in terms of Labtech, just as one final question here. Given that you saw, I mean, lower instrument sales in Q4 and of course, I mean, compared to Q4 last year was a strong quarter, we know that. But in terms of the Labtech margin, I mean, did you see a net positive mix effect on the margin coming from gene sequencing? Or how would you describe it? I mean, we saw organic growth down 3%. So just to get a better understanding there. Fredrik Dalborg: Yes. I think it's a good point. I mean we didn't have the same level of instruments as the somewhat unusual Q4 of last year. So we're actually quite happy with the fact that we remained at 14.1%. That's a very healthy margin. So I think you're correct. There is a healthy underlying trend in that business. Some of the businesses are gradually improving, great customer relationships and strong supplier relationships and also doing an excellent job in adding new products. Others still have some work to do in -- primarily those on the research side, where we had seen a little bit less stability in demand, but I think we have a quite impressive product portfolio, and we see good evolution in those areas. We have made some changes also there in the past few months. So I think we're confident that we are on the right track there as well. So I think it's a healthy business, but there is also room for improvement. Gustav Berneblad: Okay. So it sounds more like it's structural rather than a temporary mix -- positive mix effect in Q4 then? Fredrik Dalborg: Yes. I would say there's a structural improvement underneath, so to speak. Okay. So now let's see. Do we have any more questions? None seem to be raising their hand. But thanks, everyone, for listening in, and thanks for great questions. And you're all free to e-mail or call afterwards if you want to follow-up on specific topics. So with that, we wrap up. But I do encourage you to stay on to see the video about Biolin. Biolin is a very exciting company, developing and manufacturing really advanced products for the research field. So please take a look at that if you have a few more minutes to spare. Thank you very much, and take care.
Operator: Hello, everyone. Welcome to Silicon Motion Technology Corporation's Q4 2025 Earnings Conference Call. [Operator Instructions] I must advise you that today's call is being recorded. This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include, without limitation, statements regarding trends in the semiconductor industry and our future results of operations, financial conditions and business prospects. Although such statements are based on our own informations and informations from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties and actual market trends and our results may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons. Potential risks and uncertainties include but are not limited to, continued competitive pressure in the semiconductor industry and the effect of such pressures on prices, unpredictable changes in technology and consumer demand for multimedia consumer electronics, the state of and any change in our relationship with our major customers and changes in political, economic, legal and social conditions in Taiwan. For additional discussions on these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission. We assume no obligations to update any forward-looking statements, which apply only as of the date of this conference call. With that, I would now like to hand the call over to your first speaker today, Mr. Tom Sepenzis, Senior Director of IR and Strategy. Thank you. Please go ahead. Thomas Andrew Sepenzis: Good morning, everyone and welcome to Silicon Motion's Fourth Quarter 2025 Financial Results Conference Call and Webcast. Joining me today is Wallace Kou, our President and CEO; and Jason Tsai, our CFO. Wallace will first provide a review of our key business developments and then Jason will discuss our fourth quarter results and outlook. Following our prepared remarks, we will conclude with a Q&A session. Before we begin, I would like to remind you of our safe harbor policy, which was read at the start of this call. For a comprehensive overview of the risks involved in investing in our securities, please refer to our filings with the U.S. Securities and Exchange Commission. For more details on our financial results, please refer to our press release, which was filed on Form 6-K after the close of market yesterday. This webcast will be available for replay in the Investor Relations section of our website for a limited time. To enhance investors' understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have, therefore, chosen to provide this information to enable you to perform comparisons of our operating results in a manner consistent with how we analyze our own operating results. The reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued yesterday. We ask that you review it in conjunction with this call. With that, I will turn the call over to Wallace. Chia-Chang Kou: Thank you, Tom. Hello, everyone and thank you for joining the call today. I'm pleased to report that we delivered another excellent performance in the fourth quarter, exceeding our revenue and near the high end of operating margin guidance and positioning us for a record-breaking year in 2026. We benefit from strong demand across all our markets and through the introduction of compelling new controller and solutions. We increased market share in existing and new markets and expect the momentum to continue throughout 2026. We remain focused on delivering long-term growth, while investing heavily in next-generation products, increasing our engineering resources to support new product end markets and further positioning Silicon Motion for long-term market share expansion. While 2026 memory and storage industry dynamics are challenging given the supply tightness of NAND and DRAM and rapidly increasing prices of these components, we believe our resilient operation strategy and our unmatched NAND maker relationship will allow us to deliver strong growth across our business. Given our current backlog and sales plan, we believe that first quarter '26 revenue will be the lowest of 2026 and expect sequential growth throughout the remainder of the year. As we continue to introduce the [indiscernible] compelling new eMMC and UFS controller, PCIe client SSD controller, MonTitan enterprise SSD controllers, enterprise bodes solution and our expansion in Ferri automotive portfolio, we expect to deliver broad-based growth and to deliver the highest annual revenue in the history of the company in 2026 as we capitalize on multiple new products and execute on our continuing diversification strategy. I would like to start by addressing the current market environment. The rapid adoption and growth of AI has introduced significant demand across all memory and storage technology, including HBM, DRAM, NAND flash and even hard drives. The new and growing demand has led more recently to supply constraints, tight market condition and increasing pricing pressure across multiple markets, including AI and enterprise storage, boot drive drives, PC, smartphone and most other markets that use NAND flash. AI CSPs has attempt to lock up all the DRAM and NAND supply through 2026, which has made it increasingly difficult for other market player to get product and is driving significant intra-quarter price increases. Given the growing supply constraint in DRAM and NAND, industry analysts are beginning to take a more cautious approach regarding smartphone, automotive and PC unit growth in 2026. Silicon Motion, however, remain extremely well positioned in the consumer market despite the tight condition given our long-standing partnership with all the major flash vendors, our expanding market share within our existing market and the introduction of the new higher ASP products. We are leveraging our strong relationship with flash makers, OEMs and module maker to help secure NAND supply for our smartphone and PC OEM customers and ensure steady access to NAND even in the tight times. We are delivering greater value add to both our NAND maker partners and OEM customers, driving stronger partnership that will lead to sustainable long-term growth. As a result, despite the expected market headwind, based on our existing backlog, we expect growth in all our major product lines in 2026, including automotive, mobile, PC, enterprise SSD and boot drive storage solution given our strong and growing market position and leading product portfolios. I would now like to discuss our highlights in eMMC and UFS. Growing AI demand in focusing a more disciplined CapEx approach by memory and storage market to prioritize resources across multiple technology products and market. Increasingly, we are seeing additional opportunity for Silicon Motion to supply controller as NAND makers shift their internal resources to focus on DRAM, HBM and customized memory technology for high-performance AI requirements. The mobile market is a prime example of this trend as NAND makers are actively exiting mobile in favor of DRAM HBM, which has led our mobile business to outperform in 2025 as our eMMC, UFS business grew 25% for the full year, far outperforming the smartphone embedded market. Module maker are seeing great assets to access by using local NAND supply, coupled with our controller, just as many of other NAND flash maker have looked in to exit the mobile market in favor of the enterprise. We will continue to benefit given that we are the only meaningful merchant controller maker for the eMMC and UFS. While the overall smartphone market is expected to decline this year due to higher DRAM and NAND component cost, we expect the continuing shift from NAND flash maker to module maker to continue in 2026 and further benefit our eMMC, UFS controller business. Leveraging our strong relationship with local NAND makers and helping to align supply with handset OEMs and module maker will lead to continuing outperformance for our business. In addition, the market for eMMC are vast and growing with over 900 million units shipped annually. We are shipping eMMC into automotive, industrial, commercial, IoT, smart device, streaming device and many other markets. As flash makers has all but exited for eMMC market, the competition has diminished significantly and we are experiencing strong revenue contribution from this segment. Given our current backlog and customer outlook for 2026, we expect to significantly outpace the market and deliver another strong year of growth of our eMMC and UFS business despite the difficult market environment. I will now discuss our client SSD business. 2025 marked a turning point of our client SSD business, given the success of our new PCIe 5 controllers. We introduced our 8-channel PCIe 5 controller at the end of 2024 with 4 flash maker partners and nearly all module maker makers, setting us a clear path to grow our client PC market share from 30% today to 40% over the next few years. We expect our new DRAM-less 4-channel PCIe 5 controller that we introduced last quarter to ramp significantly throughout 2026, targeting the mainstream market and driving higher adoption of PCIe 5 given that it is DRAM-less, making it easier for our customers to create SSD despite DRAM shortage. We have secured design wins with 4 NAND flash makers, including the 2 from South Korea for TLC and QLC SSD and nearly all the module maker for this controller. And we expect to benefit from higher ASP and profitability as this new controller enters the mix. Until the memory and storage makers increase their big production capacity to alleviate the current shortage, the PC market will likely experience some difficulty driven by both shortage and demand destruction from higher prices. Silicon Motion, however, remain in excellent position to grow its PC business in the near to long term, given market share gains, ASP increases and growing decision by the NAND flash maker to walk away from the consumer business in favor of AI. And we expect continued growth from our client SSD business in 2026. I will now provide an update on our enterprise business. The opportunity of Silicon Motion in data centers and AI infrastructure expanding daily. Current expectation are for data center and AI infrastructure investment to exceed $1 trillion by 2030 and the [indiscernible] of NAND technology expanding rapidly to help store and process large volume of data quickly. The need for increased speed and lower latency has driven greater adoption of SSD in the data center. And the industry is increasingly looking to adopt NAND solution in one storage, compute storage and eventually near GPU storage as well. Interest in our growing portfolio of MonTitan controller is increasing as they are ideally suited to address the evolving requirement of AI workload for both compute and storage. In the December quarter, we began end user qualification of TLC-based high-performance compute SSD using MonTitan with multiple customers. This qualification will progress throughout the first half of calendar 2026 and will begin to ramp commercially in the second half of the year. High-capacity QLC-based storage SSD represents the largest addressable market for MonTitan and we remain on track with multiple customers to begin qualification this year. Our MonTitan QLC one storage solution offers significant advantage over HDD for AI inferences, including speed and power. Additionally, demand for QLC storage solution has accelerated in recent months given the current supply shortage of HDD. Over the next few years, we expect the QLC SSD will become a compelling alternative to HDD as they offer unmatched economies of scale, which will lead to lower prices over time, in addition to the inherent speed and power advantage. During 2026, we plan to tapeout our first 4-nanometer chip, a PCIe 6 version of MonTitan that is targeting hyperscalers, NAND flash maker, storage system provider, CSPs and other Tier 1 customers. We have been developing the chip in association with multiple partner customer and expect this new controller to drive additional success for MonTitan beginning in the 2027, '28 time frame. I'm pleased to announce that we have already secured design wins with multiple Tier 1 customer for this new controller, which is expected to ramp significantly in 2028. We remain confident that MonTitan will ramp to represent at least 5% to 10% of revenue, exiting 2026 and should experience further success in 2027 and beyond as our entry into enterprise market scale meaningfully in the near to midterm. And finally, I would like to discuss our enterprise-grade full drive storage business, which is rapidly evolving into a significant new era of growth for our company. We are allocating -- we are collaborating with multiple customers to develop an enterprise boot dive solution that can work across multiple platforms. In the fourth quarter, we started volume shipment to the leading AI GPU maker for their current DPU product. We are currently working with this customer to qualify the next-generation version of their DPU as well as their -- for several NVLink and Ethernet switches of their new GPU/CPU platform that are expected to launch in the second half of 2026. This next-generation DPU and switch product require higher capacities with much higher ASP and unit volume, creating a significant new growth opportunity for Silicon Motion. We are also working with other potential customer, including a leader -- leading search engine company to develop enterprise-grade boot storage drive based on our leading controllers. With the enterprise boot drive, our complete SSD product, this business will face greater exposure to our NAND scarcity and the high price environment, placing greater emphasis on sourcing NAND to supply our customer. While this has become more difficult given the supply constraint and recent price increases, we remain confident that our relationship with the NAND flash maker developed over the past 20 years will help us succeed with these significant new opportunities. For our Ferri storage solution, we are seeing strong demand from our automotive and industrial customers, especially in the tight NAND environment, our customer are relying more on us for steady and consistent supply to ensure smooth supply chain dynamics. We will continue to play a more strategic role and partner to our Ferri customer but we will also look to balance revenue growth with margin stability to drive profitability growth. In conclusion, the fourth quarter of 2025 delivered a significant growth for our business and accelerated our boot drive storage business. In 2026, beginning in the first quarter, we expect to continue to reap the reward of our investment in MonTitan, our 6-nanometer client SSD controller and our new portfolio of eMMC and UFS products that are experiencing rapid growth and the ramp of automotive business to about 10% of total business by the end of this year. We have never been better positioned as a company given our expanding product portfolio and scaling in a large new market, including the AI and enterprise storage market. I'm increasingly confident that we will deliver strong, broad-based, sustainable sequential growth throughout 2026 and beyond as we scale multiple existing and new opportunity. Now let me turn the call to Jason to go over our financial performance and outlook. Jason Tsai: Thank you, Wallace and good morning to everyone joining us today. I will discuss additional details of our fourth quarter results and then provide our outlook. Please note that my comments today will focus primarily on our non-GAAP results unless otherwise specifically noted. A reconciliation of our GAAP to non-GAAP data is included in the earnings release issued yesterday. In the December quarter, sales increased 15% sequentially and over 45% year-on-year to $278.5 million, coming in well above the high end of our guided range and surpassing our $1 billion target run rate set at the start of the year as we experienced continued strength in mobile demand and strong growth in our PCIe 5 client SSD business. Gross margins was at the higher end of our guidance range and increased again in the quarter to 49.2% as we capitalized on new product introductions and benefited from mix shift towards client PC products. Operating expenses increased sequentially to $83.2 million, given increased investments in our emerging AI and enterprise SSD and boot drive storage businesses. Operating margin increased sequentially to 19.3%, within our guided range, driven by the higher-than-expected revenue and gross margin during the December quarter. Our earnings per ADS was $1.26. Total stock compensation, which we exclude from non-GAAP results, was $15.8 million in the fourth quarter. We had $277.1 million in cash, cash equivalents and restricted cash at the end of the fourth quarter compared to $272.4 million at the end of the third quarter of 2025. Cash increased in the fourth quarter from improved operational performance, offset by a combination of dividend payments of $16.7 million and an increase in inventories to support expected strong business ramp. Our team is executing well despite the difficult NAND and DRAM pricing environment. During the fourth quarter of '25, we continue to invest in new advanced [ geometry ] products for our existing markets and for our emerging enterprise markets, including MonTitan SSD and enterprise boot drive solutions. These investments will be ongoing in 2026 as we support new growing interests for our new enterprise portfolio. For the first quarter of 2026, we now expect revenue to grow 5% to 10% to $292 million to $306 million, up sequentially and counter to typical seasonality. We expect continued strength across nearly all our product segments with a particular emphasis on mobile where we expect significant outperformance due to continued market share gains. Gross margins are expected to be slightly lower sequentially to -- at 46% to 47% in the March quarter, given the product mix. But we expect overall margins to recover back to our target range of 48% to 50% throughout the year, as the mix of newer products increases, including our PCIe 5 controllers and our enterprise SSD solutions. Operating margin is expected to be in the range of 16% to 18%. Our effective tax rate is expected to be 19%. Stock-based compensation and dispute-related expenses is expected to be in the range of $10.8 million to $11.8 million. We're well positioned for growth this year and expect 2026 to be a record revenue year for Silicon Motion with sequential revenue growth each quarter. We anticipate additional tapeout and development costs, especially from our upcoming 4-nanometer tapeout in the second quarter, will drive higher operating expenses in the second and third quarters of the year. Our focus has always been growing profitably and 2026 is no exception. We anticipate full year 2026 operating margins to improve as compared to 2025 despite our higher investments this year. While the current supply shortages and resulting component increases are creating headwinds, our pipeline for growth in 2026 and beyond remains stronger than it has ever been in the history of our company. We remain focused on our market and product diversification strategy, which has already begun to deliver results. We have successfully entered the enterprise market with our boot drive storage solutions and are currently in the end customer qualifications with our MonTitan enterprise SSD products, which are expected to scale in the second half of 2026. Our leading position in the merchant controller market and unmatched NAND maker partnerships will drive higher share in eMMC and UFS, client SSDs, enterprise, automotive, boot drives, storage, high-performance and high-capacity enterprise and data center storage markets. And I look forward to sharing our progress in greater detail when we report again in 3 months. This concludes our prepared remarks. I'd like to open the questions -- open it up to questions now. Operator? Operator: [Operator Instructions] First question comes from the line of Mehdi Hosseini from SIG (sic) [ SFG ]. Mehdi Hosseini: Two for me. How should I think about the mix of eMMC, UFS revenue, especially in the back half of the year exiting this year? And I'm asking that because I'm under impression that there is a diversification by end market. It used to be a smartphone driven and now there is auto and I want to better understand how that diversification is going to play out towards the end of this year? And I have a follow-up. Chia-Chang Kou: Our UFS controller majority is smartphone. eMMC controller majority is in IoT devices, smart device, streaming device and set-top box and nonautomotive. So the combination, I think the -- around probably 40% controller -- or probably roughly is similar, 50% for smartphone, 50% for nonsmartphone area. Mehdi Hosseini: Okay. And then on the BlueField, how will revenue contribution play out? I think your commentary implied that there could be some revenue contribution later this year. And how would it impact your gross margin? I'm under impression that for BlueField, the COGS is going to change. You actually have to go procure NAND. And if you could just comment on it and let me know is the wrong assumption, that is corrected, how procuring NAND would actually impact the overall gross margin? Chia-Chang Kou: Yes. BlueField -- our boot drive is a solution for BlueField and also several other switches platform. We need to procure the NAND and NAND price at the market price. So we have to work out with the customer, we can pass through the cost increase to the end customer. So it is challenging but ongoing process quarter-by-quarter. It definitely will impact some of our gross margin but we manage the margin pass-through. So I think because even the customers, they have at least 2 to 3 supplier, so they're based on the price and based on the supply and depends the percentage. We believe BlueField-3 is for -- primarily for this year [indiscernible] and the NVLink and the Ethernet switches is for the second half and really more volume in 2027. Operator: Next question comes from the line of Neil Young of Needham & Co. Neil Young: My first question is, I wanted to understand how you're segmenting revenue from the boot drive opportunity. And same question for MonTitan. Are they both in SSD solutions? Or is it just the boot drive, are you placing that in SSD solutions? And then at what point -- I think you sort of just answered this but just for clarification, what point do you anticipate revenue from the next-gen boot drive and those other switch opportunities that you talked about, with the leading GPU maker? When do you expect revenue for those to begin to ramp? Jason Tsai: Yes. So you're right. For the boot drives, that's going to be part of our SSD solutions that we talk about each quarter. Enterprise controllers, MonTitan is part of our controller business. We will give you guys more color as it's appropriate. Chia-Chang Kou: I think we -- when we talk about 5% to 10% for our company revenue, does not include the boot drive solution. So currently, that's only kind of MonTitan controller. But boot drive solution is part of our enterprise business. The -- we cannot comment regarding what percent about the boot drive. I think this year it's relatively still small but I think next year will be much bigger. But #1 is, we're trying to secure the NAND supply. Currently, we have 2 NAND supplier. One is secure but the other is not. So we're working with our NAND partner continually to support the major project. Jason Tsai: We expect the next-generation DPU revenue to begin for us sometime in the back half of the year. Neil Young: Okay. That's helpful. And then the second question. I just wanted to ask about the smartphone strength in 1Q. Maybe if you could just provide a little more detail sort of what's driving that? I think it's predominantly market share gains but if there's anything, different customer behavior or anything that you guys are seeing, that would be great. Chia-Chang Kou: So first of all, as you know, probably 2 NAND makers walked away from the mobile storage. And we see -- but they're also still selling the wafer to module maker. And I think we benefit from majority module maker using silicon motion controller. They not only use NAND maker from U.S. and Japan but also use local NAND maker in China. That's why we continue to gain market share. And we see -- we gained market share from [indiscernible] and we expect to start to ramp the high end by end of 2026. Jason Tsai: Anything else, Neil? Next question. Operator: The next questions comes from Craig Ellis from B. Riley Securities. Craig Ellis: Congratulations on the great execution, guys. I wanted to start out by going back to the comments on sequential growth through the year and just better understand some of the product level gives and takes as we go through the year. I think from what I've heard, it sounds like we'll see some real strength starting the year from eMMC and UFS and the color on MonTitan transition from sampling to revenue ramp-up would suggest more of a back half of the year orientation towards SSD solutions. And I think that would lead SSD controllers plugging along. Along with that, if we have sequential growth in the 3% to 5% range, we exit the year annualizing at a $1.3 billion to $1.4 billion run rate. Is that the right level of growth we should be thinking about? Or are you thinking about growth higher than that? Jason Tsai: Yes. So you're -- I think you're right on some of these things. I think certainly strength in the first half of the year is coming primarily from eMMC and UFS. We'll see client SSD controllers ramp throughout the year but first quarter should be seasonally weaker. And then we'll see the MonTitan products begin to scale in the back half of the year. We do anticipate quarter-on-quarter sequential growth this year. We are not providing full year guidance specifically beyond just sequential growth and we expect this year to be a record year. Chia-Chang Kou: So let me add some comment. I think we have very strong backlog and we have a very strong momentum from all product line. But because some of the products like automotive, Ferri and the boot drive, we required to procure the NAND. So the case by case, some business, we probably just bypass, some business we become strategic, we're going to take. So even potentially, we have a much higher growth rate but we might skip some of the business if the margin didn't meet our company target. So that's why we balance and the thing. But just from the backlog in the business, we decide to engage, we have a sequential growth quarter-by-quarter. Craig Ellis: That's helpful. And then the follow-up question is really a longer-term question. for you, Wallace. You and I have known each other a long time. I've seen you transition the business previously from a USB and memory card business to one that's more oriented to smartphones and PCs. And it seems like you're doing it again, transitioning the business to include a very significant enterprise quotient. The question, do you see a point in the 2027, 2028 time period for that enterprise quotient is actually bigger than the consumer business? Would love to get your views on that and how you see the longer-term arc of the company playing out. Chia-Chang Kou: I think enterprise segment definitely is a target one to grow. But when we can -- the enterprise portion exceed the consumer portion, we cannot really reveal to you. We target -- try to accelerate the momentum. But I think the boot drive is a really pretty strong business for us. We also have a multiple customers, not just one of the GPU customer. And in addition, automotive storage also very strategic. And we believe if we can procure NAND stably, we can grow even much faster. So we have a multiple weapon to grow but enterprise is stronger portion and we do have a -- some new product coming in the next 2 years. So we're excited -- we're very exciting about the opportunity to grow but just be patient with us and hopefully can grow much faster even 2027. Operator: Our next question comes from Suji Desilva of ROTH Capital. Sujeeva De Silva: Congratulations on the progress here. Maybe stepping back on calendar year '26, you talked about it being a growth year. You talked about 5 segments, auto, mobile, PC, enterprise, boot drive. Maybe you can talk about which ones would have the highest percent or dollar contribution to the growth in '26, given some of the moving parts around NAND supply and so forth? Chia-Chang Kou: Percentage, I think the enterprise controller definitely grow much faster. Boot drive also is new to us. It growth percentage is much bigger. But from dollar-wise, I think the mobile controller, eMMC, UFS is a bigger one and it will exceed probably about 35%, 40% of our total company revenue. So I think these are all strong momentum to grow but we also see a more balanced growth continually moving to 2027. Sujeeva De Silva: Okay. All right. And then specifically on the notebook SSD controllers, can you just talk about the puts and takes of how the year-over-year would trend given there's obviously NAND tightness and PC demand impact because of the cost of the inputs going up versus your share or your mix shift to premium, how that would all net together into a year-over-year trend for notebook SSD controller? Chia-Chang Kou: So this is a very good question. I think the -- as you know very well, DRAM and the NAND supply is really very tied to PC OEM customers. So some can -- are able to secure the supply, some don't. So it gave a tremendous opportunity to Silicon Motion because the NAND maker, they move all the resource allocation to CSP. So the [indiscernible] is not enough for all the PC maker to meet their demand. So the -- because we have a 4 NAND maker using PCIe 5, 8-channel controller, 4 NAND maker also use a 4-channel [indiscernible] controller that balance about their internal allocation to fulfill the demand for NAND maker. In addition, because there's a shortage from NAND supply to PC OEM, module makers start to take -- takes the opportunity. So because we have majority module maker design win, that's why we fills the other gap. So even the total unit shipment for 2026 PC OEM will decline but I think for 5% to 10%. But we still have a pretty strong confident to grow continually in 2026. Jason Tsai: And also, Suji, keep in mind, it's a combination of higher share, higher ASP products as we transition to PCIe 5, even with the 4-channel PCIe 5 controller, it's still a much higher ASP than a comparable PCIe 4. So we're going to get the benefit of both higher share and higher ASPs this year in spite of any sort of macro issues around PC unit volumes. Operator: Our next question comes from Gokul Hariharan from JPMorgan. Gokul Hariharan: So just wanted to understand, again, on the client SSD controller. What is the conversations you're having on the -- from the PC OEMs, given many of them are already sounding a little bit more skeptical about overall demand? Is there any indication that the spec migration is slowing down because of the cost inflation from PCIe Gen4 to PCIe Gen5 because the general commentary in the industry seems to be about some degree of despecing of certain specs. Just wanted to understand if you can give some indication of what is the baseline like PC market expectations that you have? And then how are you building on top of that, both for market share and units and ASP to kind of get to growth in the client SSD business? Yes. That's my first question. Chia-Chang Kou: Yes. I think, Gokul, you got a very good question. It's -- we cannot comment for each individual PC OEM. But overall, I think the 2026 PC unit shipment will decline 5% to 10% and each OEM perform differently. Now regarding the sharp NAND price and DRAM price increase, so PC OEM outpaced the price increase quickly. So I think from value line and many would despec the storage product. So [indiscernible] gigabyte go down to 120 gigabyte. But for high end, they need to increase the price. So from despec portion, I think they will lose the demand and interest from value line customer. So that is a fact. So I think the impact for each of PC OEMs are different. And we see this is a current challenging situation for all the PC OEMs. And we work with the -- our module makers and work with the NAND maker because we also depend on their internal allocation for the NAND quarter-by-quarter. So it is very challenging. But because we have a much better position, so we have a much stronger opportunity to grow continually in 2026. Gokul Hariharan: Got it. And any comments about like the PCIe Gen5 penetration? I think last year, I remember it was like 5% to 8%, or 5% to 6%. Are we expecting that this goes to like high teens, 20% by end of this year? Chia-Chang Kou: Yes. So PCIe Gen5 is supposed to ramp much stronger in 2026 but for 8-channel high end because of DRAM shortage, that's why 8-channel increase will slow down dramatically in 2026. However, the PCIe 5 4-channel DRAM-less because no DRAM has much more to build the SSD to ship. So we see the much stronger demand for DRAM-less PCIe 5 controller, especially from the second half to ramp more meaningfully. Gokul Hariharan: Okay. Understood. Second question on the boot drive storage. Could you help us understand how big this business could be because you've got the biggest GPU customer and it looks like for the next platform, this is going to be mandatory. And I think you just mentioned you're also getting the biggest ASIC program out there as well. So you're kind of locking up probably 80% or 90% of the market share of the market already from the addressable market. How sizable is boot drive storage business going to be? And are you still going to stick with the NAND bundle kind of model here? Or is it going to be eventually like NAND pass-through at higher margin? Chia-Chang Kou: Yes. First of all, let me talk about the TAM. I think, first of all, the DPU, the boot drive business, it depend on the several factor, right, including the success of the DPU. But so far, we see the volume is very meaningful in 2026. And the -- all the leading CPU and GPU maker, they use a multiple supplier, 2 or 3 supplier. So we are not the sole supplier for the DPU program. We see this year revenue relatively around $50 million but I think next year will be much higher. So it all depends the NAND procurement from us. So it's a case by case because we have multiple programs, not just one GPU customer. We have a multiple customer and also some will ramp up from Q4, the new program. So it depends how success we secure the NAND, also whether we can pass through the incremental cost to the customer with a meaningful margin. So this is all the negotiations. So it's -- some is dynamic. And we just make a reasonable meaningful forecast for this year. And -- but it is a very strategic business for us for long term. So we work closely and build a partnership with our GPU partner. Hopefully, this will become a much larger business in '27 and '28. Operator: [Operator Instructions] Our question is from Craig Ellis from B. Riley. Craig Ellis: Wallace, I wanted to just talk about something and ask about something that we've started to see much more broadly with NAND flash and DRAM OEMs of late and see if it's got applicability to Silicon Motion. And the topic is long-term supply agreements, LTAs or LTSAs. Is that something that would make sense for SIMO? If so, where would that be? Would it not make sense for SIMO? Just talk about the gives and takes with any move in that direction. Chia-Chang Kou: We currently we did not have the LTA agreement but I think based on partnership and relationship, see, because in the past, we never want to build a much bigger revenue from storage solution. And for automotive, because automotive sector, they are the lowest priority for NAND and DRAM maker. That's why many, many major Tier 1 supplier come to Silicon Motion, ask for help. That's why we will case by case to make a decision whether we can support them. If the -- we are able to pass through the incremental cost to the automotive supply chain and we will do the business. If the other hand, for boot drive, it's more strategic business. So some -- in certain case, we might have to sacrifice the margin lower than our corporate average margin because more strategic. So balancing, I think in the long term, because we cannot use a multiple NAND selection, it's take a time and the customer does not want to change the NAND solution either. So we just have to work out the -- with our NAND partner to get a stable supply. The challenging thing is much more severe than anybody can imagine because CSP really demand much more than the current supply can support. And that's why even leading smartphone maker have a tough time to procure their NAND and LPDDR5 supply. So this is the fact. And it's just not one NAND maker cannot supply us because just they really have tough time to do allocation and so many big Tier 1 customer ask for help and ask for supply. So this is a challenging situation right now. Craig Ellis: That's really helpful. The follow-up somewhat relates to the way you concluded that. And it's an inquiry on some of the inside baseball, not asking for customer names. But if we go back to January 5 or 6 when NVIDIA said that, okay, look, the bottleneck in inference is all around the DPU. It's all around the storage. We've got to find a way to drive a 5x increase in inference processing time. We're going to do it with much more NAND-intensive architectures. The question is, what have you seen from existing and new enterprise customers following that? Have you seen that catalyze new levels of engagement? And what does it mean for how you think about R&D and just how you're looking at opportunities going forward? Chia-Chang Kou: Because in -- AI inferencing is growing much faster than anybody can anticipate. So there's so many new technology, so many new storage technology around, right, for KV cache, how you can improve the latency, how you really -- and capacity also increased dramatically because so many new content, new data need a storage device to keep it. So this is a huge momentum and need the NAND maker to increase capacity. But because there's a limitation for land, for clean room, for equipment build, it all take your time and it need a tremendous CapEx. So a lot of the several NAND, DRAM maker, their preference is definitely DDR and HBM, right? So the left over -- the CapEx for the NAND is limited. But then we see the demand is very strong and so many variable technology and it's just much more and they all need MonTitan to fill the role. And hopefully, I think our customer and ourself can secure the NAND and we can pay our duty to fulfill obligation to be part of the AI game. Operator: I would like to invite once again Mr. Matt Bryson from Wedbush to ask question. Matthew Bryson: Awesome. Sorry about that. Great quarter. One question, one follow-up for me. So you have the large fabs seemingly shifting allocation away from handsets and PCs to support that cloud demand. And that, at least to me, seems like it creates significant room for share gains for SIMO over a multiyear period, particularly in the Chinese handset market. But we also know that China tends to prefer Chinese production when it's a viable alternative. At the same time, it also seems like the Chinese controller vendors have really struggled to compete technically. So would you mind just talking a little bit about competitive dynamics, whether anything is changing in that market and some of the structural dynamics that might make it hard for the domestic Chinese players to compete? Chia-Chang Kou: I think the Chinese controller maker, they will have tough time to secure TSMC advanced technology node. So I think the -- to beyond 12 nanometers, like 7 nanometer, 6 nanometer, 5 nanometer, it's -- they have to be applied and to be approved by TSMC or Samsung in order to fabricate their advanced technology node product. For mature technology for 22 nanometer, 28 nanometer, China local fab can fabricate but that is really legacy product. So I think that is tough in part and we believe we need to mention the technology, how good they are or whatever. But that is a manufacturing point of view. We see due to the NAND supply shortage, I think create another dilemma. So that will probably give even tough time for China local supplier. But to say that, I think both YMTC and CXMT, they also try to increase capacity as much as they can but just take time. Jason Tsai: Another thing, Matt, is that our controllers manage everybody's NAND, right? And so working with a lot of the module makers, especially in China, that does qualify a lot of local production there because we're using -- the module makers are building a lot of these solutions for the Chinese handset OEMs as well. Chia-Chang Kou: Using our controller not only can sell in China locally, can sell to internationally. Matthew Bryson: Makes sense. And so just one more quick question. With regards to the lower gross margins in Q1 on mix, Jason, can you just talk to whether that's lower margins on controllers or whether it's -- you're shipping more modules and so the NAND weighs on the gross margins? Jason Tsai: Yes. As we've talked about before, eMMC and UFS, our mobile controllers tends to be a little bit below corporate average. So as that business is a little bit stronger here in the first quarter, that's going to have some pressure on our gross margins in the near term. But as we have MonTitan and more PC client SSD products ramping in the back half of the year, we do expect to see improvements in our gross margins as we go into the back half of the year. Operator: At this time, there are no further questions on the line. I'd like to hand the call back to the management for closing. Chia-Chang Kou: Thanks everyone, for joining us today and for your continuing interest in Silicon Motion. We will be attending several investor conferences over the next few months. The schedule of this event will be posted in the Investor Relations section of our corporate website and we look forward to speaking with you at this event. Thank you, everyone, for joining today. Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Brookfield Asset Management Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Jason Fooks, Managing Director of Investor Relations. Please go ahead. Jason Fooks: Thank you for joining us today for Brookfield Asset Management's earnings call for the fourth quarter and full year of 2025. On the call today, we have Bruce Flatt, our Chairman; Connor Teskey, our Chief Executive Officer; and Hadley Peer Marshall, our Chief Financial Officer. Before we begin, I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable U.S. and Canadian securities law. These statements reflect predictions of future events and trends and do not relate to historic events. They're subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impacts on our company, please see our filings with the securities regulators in the U.S. and Canada and the information available on our website. Let me quickly run through the agenda for today's call. Bruce will begin with an overview of the quarter and the market environment. Connor will discuss our activity in 2025 and outline the key drivers of our growth for 2026. And finally, Hadley will discuss our financial results, operating results, balance sheet and dividend increase. After our formal remarks, we'll open the line for questions. [Operator Instructions] And with that, I'll turn the call over to Bruce. Thank you, Jason, and welcome, everyone. James Flatt: 2025 was another strong year marked by continued growth across the business and consistent execution against our long-term strategy. Let me start with a few highlights. We raised $112 billion of capital during the year, reflecting strong demand from institutional, insurance and individuals for our diverse suite of strategies. We also invested a record $66 billion of capital over the past year into high-quality assets and businesses that form the backbone of the global economy. We made these investments in areas where we have deep competitive advantages and strong operating capabilities, positioning us to generate very attractive risk-adjusted returns. At the same time, we monetized $50 billion of equity from investments at very good returns, demonstrating that stabilized high-quality assets and essential service businesses continue to attract strong demand. As a result of all of this activity, fee-bearing capital increased 12% over the year to more than $600 billion. Fee-related earnings reached a record $3 billion, up a very strong 22% year-over-year, driven by growth in our capital base and continued operating leverage across the business. Distributable earnings were $2.7 billion, an increase of 14% from the prior year. Our distributable earnings are almost entirely fee-based, as you know, and long duration, and our cash flows are further reinforced by the diversification of our platform across asset classes, products, geographies and client channels. This diversity and lack of reliance on any single segment or product provides our business with many growth options, providing a platform to grow across economic cycles and varying market conditions. Turning to the broader market environment. We entered 2026 with a constructive backdrop. Interest rates have stabilized, economic growth is resilient and transaction activity has increased due to improved confidence in valuations and market liquidity. In this environment, we are seeing renewed global demand for real assets that generate stable cash flows and provide inflation protection, areas where we have focused for decades. While near-term conditions are supportive, what matters most to our business are the long-term structural forces that shape global capital allocation. We are fortunate to remain at the forefront of the largest global investment trends. These trends remain firmly in place and continue to expand the opportunity set for private capital. An important structural shift is also taking place in how capital is allocated. Individual investors are increasingly gaining access to private assets through retirement and long-duration savings vehicles. This represents a significant expansion of the addressable market for private assets. Retirement and individual portfolios are among the largest and fastest-growing pools of capital globally, and they are naturally aligned with long-duration income-generating real assets. With our scale, track record and diversified platform across infrastructure, power, real estate, private equity and credit, we are well positioned to meet this growing demand. Our ability to invest through cycles, recycle capital and partner with long-term investors continues though to differentiate our platform. This combination positions us to deliver strong growth over time and supports our long-term objectives, including doubling the business by 2030 and generating a 15% annualized earnings growth. Now before I turn the call over to Connor, I want to touch on our leadership announcement today. As part of our long-term succession process, we announced that Connor Teskey has been appointed CEO of Brookfield Asset Management. I will continue as Chair of the Board as well as CEO of Brookfield Corporation. We began this process 4 years ago when Connor was appointed President of BAM. Over that time, Connor has taken on running virtually everything. So this title change merely matches title to substance. There is hence no real transition and our partners and people have all been involved in this. Connor has played a central role in building Brookfield's investment strategy, scaling our renewable business globally and developing many of the leaders who now run our businesses. He brings deep investment expertise, strong judgment and a long-term mindset that is fully aligned with Brookfield's culture. He's actually closer to what the next backbone of the global economy is, and we are excited about that. I've never been more thrilled about the prospects for our business than I am now. I intend to continue supporting Brookfield, focusing my energy where I can be most useful and will remain fully invested and involved to assist the whole team. Of course, as CEO of Brookfield Corporation, we have a substantial interest in ensuring Connor and BAM are hugely successful. With that, I'll turn the call over to Connor to discuss our performance in more detail and how we are positioned for a strong 2026. Connor David Teskey: Thank you, Bruce, and good morning to everyone on the call. I'm honored to be assuming this new role, especially at such an exciting time in BAM's growth story. With Bruce's support and the incremental approach to transition we have been taking for years, we are already fully operating under our new structure. I look forward to continuing to work closely with our team to deliver strong results for our clients and our shareholders and continue to grow our business around the megatrends shaping the backbone of the global economy. With that, now let's turn to our results. 2025 was not simply about raising capital. It was about putting that capital to work at scale and doing so with discipline. On the deployment side, we were active throughout the year across all of our businesses, investing in high-quality assets at attractive values. In renewable power, we invested in Neoen, a leading global developer with long-term contracted clean power assets, and we acquired National Grid's U.S. renewables platform, expanding our footprint in North America. In private equity, we invested in Chemelex, a global industrial technology business with mission-critical products. Our infrastructure business acquired Hotwire Communications, a leading U.S. fiber-to-the-home operator serving both residential and commercial customers; Colonial Pipeline, the largest refined products pipeline in the United States and a part of Duke Energy Florida, a vertically integrated electric utility with long-duration regulated cash flows to name only a few. Our real estate business recently acquired Generator Hospitals, a differentiated hospitality platform benefiting from structural growth in experiential travel and urban tourism, and we acquired National Storage REIT, the largest self-storage company in Australia. Collectively, these investments reflect our focus on essential assets and businesses with durable cash flows, strong downside protection and meaningful opportunities for operational value creation. 2025 was a record year for investment activity, and it gives us a strong foundation as we look ahead. Turning to fundraising. 2025 was also an excellent year across the platform, continuing our momentum to be market-leading in each of our businesses. We completed final closings for 2 major flagship funds, the fifth vintage of our real estate flagship and the second vintage of our global transition flagship. Both were the largest funds we've raised in their respective series and exceeded our targets with broad and diversified support from existing investors as well as new relationships. These fundraises are particularly important given where we are in the cycle. In real estate, we have significant dry powder at a point in the cycle where we're seeing attractive entry points, particularly in larger, high-quality assets where there are a limited number of players with scaled available capital. In transition, demand for power continues to accelerate globally, driven by electrification, AI growth and energy security. Together, these dynamics create a growing opportunity set for long-term capital, and we are well positioned to capture it. While our flagship fundraises were successful, the overwhelming majority of our fundraising this year, nearly 90%, came from non-flagship strategies, underscoring the growing breadth and durability of our fundraising engine. These complementary strategies included continued momentum across our infrastructure and private equity platforms through a range of products as well as further expansion of our private wealth platform. We raised capital across a wide range of funds, [indiscernible], demonstrating the depth of investor demand for our products and our ability to raise capital consistently across market environments and flagship cycles. A key theme this year has been the continued scaling of our credit platform. Through a combination of organic growth and strategic acquisitions, we have meaningfully expanded our origination capabilities and product breadth. When combined with our long-standing partnership with Oaktree and the full integration of that business, we are building one of the most comprehensive global credit platforms in the industry, spanning real asset credit, asset-backed finance, opportunistic credit and insurance-oriented strategies. We are also preparing for a meaningful expansion of our asset management mandate with Brookfield Wealth Solutions upon the closing of their acquisition of Just Group, which we expect in the coming months. These 3 initiatives alone, Oaktree, Just Group and the credit managers we acquired in the fourth quarter are expected to generate more than $200 million of incremental annualized fee-related earnings, which positions us well for a very strong earnings growth in 2026 as that is all before any additional fundraising from our flagships and the approximately 60 strategies we will have in the market or deployment. Looking ahead, 2026 is shaping up to be another record year for fundraising with strong momentum across the business that we expect will drive meaningful growth, especially within both our infrastructure and private equity platforms. Starting with private equity, we recently launched the seventh vintage of our flagship fund at a time where clients value our differentiated approach. Our private equity business focuses on value creation driven by operational improvement rather than leverage or multiple expansion. We have executed this strategy for 25 years because it works across market cycles. However, today's environment plays directly to our strength as a long-term owner and operator of mission-critical, essential assets and businesses. Private equity was the first fund we launched more than 25 -- we've delivered some of the strongest returns in the industry. With market conditions aligned with our approach and a deep pipeline of opportunities, we expect this vintage to be our largest private equity fund to date. Alongside our flagship fund, we continue to broaden our private equity platform. We recently launched a new strategy tailored for the private wealth market, which is well aligned with client demand. We also saw strong fundraising across our complementary strategies, including our financial infrastructure fund and our Middle East partner strategies, both of which we expect to reach final close this year as well as our venture technology platform, Pinegrove, which recently held a final close on its inaugural fund at $2.2 billion, exceeding its target. In our infrastructure platform, we also see a meaningful step change emerging in 2026, driven by the breadth of strategies we now have in the market and the scale of the opportunity in front of us. This year, we will have all of our infrastructure strategies fundraising concurrently, including the launch of our next flagship infrastructure fund, which we expect to be our largest to date. Alongside the flagship, our infrastructure debt strategy is in the market and both our open-ended supercore infrastructure fund and our private wealth infrastructure vehicle continue to scale with each seeing record inflows in the fourth quarter. Further, later this year, we expect to launch the second vintage of our infrastructure structured solutions strategy. Together, these strategies position us to raise and deploy capital across the full spectrum of risk and return within the infrastructure asset class, taking advantage of our leading platform and the strong market conditions and growing investment opportunity set. Building on this foundation, last year, we launched a $100 billion global AI infrastructure program, anchored by our inaugural AI infrastructure fund with a $10 billion target. The fund already has strong momentum with $5 billion of commitments at launch, reflecting the early conviction in the opportunity. Our objective is to deploy more than $100 billion of capital across the full AI infrastructure value chain from land and power to data centers and compute capacity. leveraging Brookfield's existing scale and digital infrastructure and energy to deliver integrated, long-duration solutions that support the global build-out of AI. We've already announced several transactions for the strategy, including most recently a $20 billion strategic AI joint venture with Qai, focusing on developing integrated AI infrastructure in Qatar. These initiatives reflect a growing opportunity for long-term private capital to fund infrastructure that has historically sat on corporate and government balance sheets, and Brookfield is uniquely positioned to lead in this space. Taken together, our execution in 2025 and the initiatives already underway position us extremely well as we enter 2026. With strong fundraising momentum, a scaled deployment platform and clear drivers across private equity, infrastructure and credit, we feel very good about the growth outlook for the business and expect 2026 to be at or above our long-term targets. With that, we will turn it over to Hadley to walk through our fourth quarter financial results and discuss the durability of our earnings in more detail. Hadley? Hadley Peer Marshall: Thank you, Connor. As mentioned, we've had a great quarter as well as year, and I'll provide an overview of these results and how we're positioned for 2026. In the fourth quarter, we delivered strong performance. Fee-related earnings, or FRE, were up 28% from the prior year period to $867 million or $0.53 per share in the quarter, bringing FRE for the year to $3 billion. That brings our margins to 61% for the quarter and 58% for the year. Our business has significant operating leverage. So as our growth initiatives scale, our margins improve. That said, after buying the remaining stake of Oaktree, which operates at lower margins, it will bring down our consolidated margin even though the transaction is highly accretive and strategically strengthens our platform. Plus, Oaktree's margins are near cyclical lows, reflecting the countercyclical nature of its business. In that same quarter, we will also enhance disclosure around our partner managers as these businesses have scaled, becoming more meaningful. Instead of reporting only our share of their FRE, given their smaller historical contribution, we will break out our share of partner manager revenues and expenses, which will not impact FRE or DE, but should provide investors with clear insights as our platform continues to evolve. Distributable earnings, or DE, were $767 million or $0.47 per share in the quarter, up 18% from the prior year period, bringing distributable earnings over the last 12 months to $2.7 billion. Growth in DE continues to closely track growth in FRE. This reflects the high-quality, recurring and stable nature of our revenue base and the limited reliance on carry or transaction-driven income. The primary driver of earnings growth in 2025 was our strong fundraising and deployment activity. Over the past year, we raised $75 billion of capital that became fee-bearing, and we deployed $16 billion of previously raised capital that also became fee-bearing. As a result, fee-bearing capital grew by 12% year-over-year or $64 billion to a total of $603 billion. This growth reflects both strong inflows and disciplined capital deployment across the platform, even as we continue to return capital at an accelerated pace to clients through realizations and distributions. Turning to fundraising. The fourth quarter marked our strongest fundraising quarter ever, with $35 billion of capital raised across more than 50 strategies. This success underscores the breadth, depth and diversification of our platform that enables us to sustain consistent momentum regardless of individual fund cycles. Within our infrastructure business, we raised $7 billion, including $5 billion for our AI infrastructure fund. We expect the first close for the strategy in the coming months with a target size of $10 billion. We also raised $900 million for our super core infrastructure strategy, bringing the fund to $14 billion and $900 million for our infrastructure private wealth strategy, our largest quarter yet, which puts the strategy at $8 billion. Within our private equity business, we raised $1.6 billion, including $900 million for our private equity special situation strategy. And we had our final close of prime's opportunistic strategy at $2.2 billion, exceeding our target, a very successful outcome for our first-time fund. Within our credit business, we raised $23 billion of capital, which represented a record quarter. Driving our credit fundraising was real asset and asset-backed finance strategies as well as our insurance channel. This includes nearly $9 billion of capital raised from Brookfield Wealth Solutions. We also raised $5.6 billion from our long-term private funds, $1.4 billion of which was for our fourth vintage of our infrastructure mezzanine credit strategy, $4 billion for our perpetual credit funds and $3.2 billion for our liquid credit strategies. Over the past decade, we've been intentional in evolving our business to become more diversified across not only client types, but asset classes, strategies, products and geographies, which has reduced our reliance on any single market cycle or source of capital. Along with our long-term disciplined approach, this has allowed us to compound earnings across varying economic environments and strengthen our resiliency. Today, our earnings base is well balanced across each of our businesses, infrastructure, renewable power and transition, private equity, real estate and credit, with no single business contributing more than 1/3 of our fee-related revenues. As an example, the introduction of our transition platform 5 years ago and the expansion of our credit platform have meaningfully broadened our earnings mix and enhanced durability. In 2026, we will be fundraising across nearly 60 strategies compared to only 4 in market just 10 years ago, enabling more consistent and diversified fundraising. We now serve more than 2,500 institutional clients globally, alongside a private wealth platform reaching nearly 70,000 clients and insurance solution business managing over $100 billion of fee-bearing capital on behalf of approximately 800,000 policyholders. Importantly, this breadth allows us to grow through different market environments by shifting capital toward asset classes and regions where opportunity is strongest, while also creating a stable, resilient earnings stream that can perform consistently in different market environments and continue to grow across cycles. Looking ahead, a more balanced share of our fundraising will come from individual investors as private wealth, annuities and more retirement and 401(k)s will be able to allocate to alternative investments. Turning to our balance sheet. We continue to operate with a strong asset-light financial profile that provides flexibility to support growth. In November, we issued $1 billion of new senior unsecured notes, including $600 million of 5-year notes at a coupon of 4.65% and $400 million of 10-year notes at a coupon of 5.3%. We ended the year with $3 billion of corporate liquidity, providing ample flexibility to support ongoing operations, strategic initiatives and growth across the business. As we look ahead to 2026, we are positioned for another very strong year, and I will emphasize again that the best is yet to come. Our performance as a disciplined investor sets us up to capitalize on the strong momentum across the business with continued capital inflows from institutional, insurance and retail channels and a pipeline of opportunities to deploy capital at attractive returns. Given our strong financial position and significant growth prospects ahead, I'm pleased to confirm that our Board of Directors has increased our quarterly dividend by 15% to $0.50025 per share or $2.01 per share on an annualized basis. The dividend will be payable on March 31, 2026, to shareholders of record as of the close of business on February 27, 2026. That wraps up our remarks for this morning. We'd like to thank you for joining the call, and we'll now open up for questions. Operator? Operator: [Operator Instructions] Our first question comes from Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: So clearly, manager consolidation is continuing, and the recent emphasis seems to have been on private credit and also secondaries. With regard to secondaries in particular, is that an area that you consider strategically important and a gap that you might look to fill? Connor David Teskey: We've made a few complementary acquisitions in recent years focused on areas where we wanted to expand and build out the platform. Looking ahead, we would expect probably to be slightly less active, focused primarily on the further acquisition of our existing partner fund managers. Beyond that, we'll continue to be incredibly selective and opportunistic. In terms of secondaries, it is a space we track very closely. It's growing rapidly. It's a segment of the market where our expertise would be very clearly differentiating, and it would add an additional service that we could offer to our clients. So we do track the space, but we will be very opportunistic, only looking at opportunities that would be highly additive and complementary. But you would be correct that if we were going to do something, secondaries is probably near the top of the list. we would focus on a platform that we thought would grow significantly as part of the broader Brookfield ecosystem. Operator: Our next question comes from Alexander Blostein with Goldman Sachs. Alexander Blostein: Connor, congrats. Obviously, I think well deserved on many fronts. Question for you guys around the growth for 2026. So it sounds like a lot of momentum in the business on multiple fronts as you highlighted. When you refer to at or above long-term targets, I just want to dig into that a little bit more. I believe your long-term targets, you generally talk about FRE. I think at the Investor Day, you talked about that being 17%. So is that what you're referring to when you think about '26? Do that include Oaktree and Obviously, those are going to be additive to that FRE? So I was hoping to just unpack that a little more and if possible, get a sense of the sort of organic FRE growth within that statement for the year. Connor David Teskey: So we expect 2026 is going to be very strong. We had strong momentum that accelerated throughout the past year and positions us very well going into next year. You are absolutely correct. In our 5-year plan, we expect growth rates in, call it, the mid- to high teens, and we absolutely have an outlook today that exceeds that level. Maybe just to put some substance around that, there are 3 initiatives, the acquisition of the remainder of Oaktree, the closing of Just Group and some of the acquisitions we made in Q4 that will add $200 million to FRE growth that have already been funded. Beyond that, the earnings this year and going forward will benefit from what we expect to be a further step change in our fundraising. And we thought we had a strong year this year. Next year is going to be even better. And this is driven by continued growth in credit and then outsized growth in both PE and infrastructure where in each of those platforms, we'll have all of our strategies in the market. And then the last thing just in terms of 2026 outlook, in terms of investment and monetization, obviously, this will be market dependent. But based on the very constructive environment we're currently experiencing, the major trends that we continue to be on the forefront of and the large pipeline of deals that we have in the near term. If market conditions hold, we see no reason why 2026 wouldn't also be a market step-up from 2025 in terms of deal activity as well. Operator: Our next question comes from Michael Brown with UBS. Michael Brown: So a lot of anxiety surfaced in the market yesterday around AI-driven disruption, including within the alternative space. Based on our analysis, your exposure screen's below peers, but could you maybe break down Brookfield's software exposure broadly across private credit and private equity funds? And then additionally, for the industry, Connor, I'd love to hear your high-level views on how AI-related disruption could flow through the private asset ecosystem. And if there are major losses, how do you think LP allocations to private assets could react? Connor David Teskey: So there's really 2 punchlines from our side. First and foremost, this is a strong net positive for our business. It validates our focus on digital infrastructure and servicing increased power demand to support the growth and increased penetration of AI. These are some of the largest and most active platforms we have at Brookfield. And the announcement's not yesterday, but the increasing tailwinds over the last several months only provide further support for those initiatives. Obviously, this question is topical given the significant market move yesterday. But given our firm-wide focus on AI, this is a trend we've been tracking for a while. And as a result, the punchline is our exposure across the organization is very minimal. As a reminder, our portfolio is almost entirely focused on long-term contracted real assets where we don't take any technology risk or build on spec. Maybe to get into some of the specifics you asked about, within our private equity portfolio, we have less than 1% exposure to software businesses. Within our credit business, our focus has been on areas of expertise such as infrastructure and real estate credit, real asset lending and asset-backed finance where we get benefits from the Brookfield ecosystem, and we have no software exposure. And then within our corporate credit portfolio, we've been actively positioning to where we see the best risk-adjusted returns. And as such, our opportunistic credit strategies have very little software exposure and our performing credit strategies are significantly underweight relative to indices. Taking that all together, our firm-wide focus has been being positioned to benefit from increased AI penetration. And therefore, the headlines yesterday just further reinforce our conviction in that theme. And our disciplined approach to building our credit business has once again put us in a favorable position to manage through this volatility and to continue to be a net beneficiary of the impacts from AI. Operator: Our next question comes from Bart Dziarski with RBC Capital Markets. Bart Dziarski: Connor, also echoing the congrats on the CEO appointment. I wanted to ask around liquidity, just given you pay out most of your free cash flow. And so with the $2.5 billion of debt outstanding now, would you consider the business in a place where it's fully funded? And just related to that, could you give us a high-level sense of the duration over which the $130 billion-ish of uncalled commitments could get called? Hadley Peer Marshall: Yes, sure. So this is Hadley. I'll take that question. In terms of our balance sheet and liquidity, we're in a really good place. We've got over $3 billion of liquidity. Now part of that is in anticipation of funding our share of the 26% of Oaktree that we currently don't own. And so that's a critical component. So we're well capitalized from that perspective. But then looking forward, we've been instrumental in supporting our business, whether that's through initiatives around our complementary strategies and the growth there as well as our partner managers and buying additional stakes related to our partner managers. So we're in a really good position. For some time, we've benefited from the cash on hand from the spinout, but it slowly entered the bond market earlier last year and anticipate when we look forward in terms of our leverage, obviously, the capacity is quite ample and will continue to build as our business grows. But when we look at 2026, we'll be much less active than we were in 2025, given we were obviously in a big growth area and wanting to support that growth. When we look at our other area of liquidity, that's the uncalled capital at $130-ish billion, that's a significant amount of capital that can turn into fee-bearing capital. And this is a critical component of our business. We always want to be in a position where we've got liquidity to take advantage of the environment that we're in. So a good example of that is our BSREP, our flagship for real estate closed its fundraising earlier in '25. And so in a great position to have ample liquidity to be quite active. And in Peakstone, the announcement we made yesterday is a good example of that. And so our flagships obviously have built into some of that uncalled capital. But separately, our credit strategies, which are also heavily in market last year and some into this year, have uncalled capital that will get deployed over time and become fee-bearing capital. So that will take a few years to get called, but it puts us in a really good position no matter what environment we have going forward. Operator: Our next question comes from Craig Siegenthaler with Bank of America. Craig Siegenthaler: And Connor, first just big congrats on your promotion to CEO of Brookfield. And I think you're probably the youngest CEO in asset management, too. So my question is on artificial intelligence. So Brookfield has really built a leading business servicing the AI industry. So like your peers, it's a lot of picks and shovels, not actually the AI models. So data center and power. Can you talk about the mix of capital being deployed today between equity and also debt? And on the equity side in data centers, is it mostly investment-grade tenants like the hyperscalers? And I'm sorry, but one more I'm going to squeeze in, if you can address this one, too. And on the leases, they're, I think, almost all 15-year plus leases. Are there scenarios where they can be broken early or no, because there's a financial benefit to the data center provider when it's broken? Sorry about the 3, but they're all kind of related. Connor David Teskey: So in terms of themes across Brookfield, AI continues -- AI and AI infrastructure and the value chain that supports the increased penetration of AI remains at the top of the list. And this is not only the digital infrastructure, but also the energy generation that is required to support these data centers. Just as a general comment as to why the market opportunity is so robust today, you've got 3 dynamics that are all compounding on themselves. One, more data centers are being built. Two, the data centers that are being built are now larger. And then the third one is historically, the financial investor in a data center typically funded the rack in the shell. Increasingly, there is an opportunity for those that have the scale and the operating capabilities to not just fund the rack and the shell, but to fund the rack, the shells, the chips, the servers, the power supply, the grid redundancy, the substation, the interconnect, the whole system, if you will. And that's creating a very large and attractive investment opportunity on both the credit side and the equity side because while that wallet is getting bigger, it's still backstopped by that same long-term take-or-pay offtake with one of the greatest either hyperscaler or sovereign credits in the world. In terms of our pipeline today, it's as large as it's ever been, and we expect it to only continue going forward. There's 2 things that perhaps we would highlight that are of interest. There is the largest component of growth for AI demand is the hyperscalers. And we are absolutely leading in supporting and investing the infrastructure to support their AI initiatives. But there's also a growing opportunity to support sovereign AI. This is the AI offtakes from countries to support the national interests of those regions. Again, very high-quality credit offtakes, large-scale investment opportunities where our skills can be brought to bear. And this is an area where we do think we're market-leading given our announcements with Sweden, France, Qatar, et cetera. The last point I'd simply make here is this is not just an investment opportunity. We are seeing incredible demand from our clients to get exposure to this investment theme. We announced our AI infrastructure fund with a target of $10 billion. We've already secured $5 billion. We expect we'll hit our targets and expect the broader program to be well north of $20 billion when we include the co-invest given the size of some of these investment opportunities. And sorry, I'm just seeing here. The second part of your question, these are very strong long-term offtakes, very similar to what we would expect in other infrastructure asset classes. These are take-or-pay where if we continue to provide the asset, the offtaker is locked in. And similar to what we do on the power side, the real estate side, the infrastructure side, AI infrastructure is no different. We spend a lot of time ensuring it's a great revenue construct backed by a great high-quality credit counterparty. Operator: Our next question comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: Maybe just sticking with AI and data centers. I understand the U.S. administration wants to see new data centers stand up their own power generation. Curious, how do you see that impacting bottlenecks? And as you invest in data centers, talk about how you're bringing together your greenfield power capabilities, which is a major differentiator for you? And how you're expanding your capacity there given bottlenecks? Connor David Teskey: There is no question. The bottleneck to AI growth today is not capital. It is not demand. It is electricity supply. And unlocking that electricity supply and the slogan, bringing your own power, is a key differentiator. And while electricity grids around the world are doing everything they can to increase their capacity as much as possible, they very simply cannot keep up with the increased level of demand that we've been seeing in recent years, it's only going to accelerate going forward. And therefore, our ability to bring unique solutions beyond just simply flowing power through the grid is a key differentiator. Our ability to bring quick to deliver power through our investment in Bloom Energy, longer term, our ability to use nuclear solutions through Westinghouse and then behind-the-meter energy storage and renewable solutions that can be hooked up directly to these data center complexes. All of these are different ways that we can look to capture this significant demand and essentially not be restricted by the growth of the grid that is not going to keep up with the opportunity set we see in front of us. Operator: Our next question comes from Dean Wilkinson with CIBC. Dean Wilkinson: Congrats, Connor and Bruce. Just want to circle back on credit overall. I mean there's been concerns around private credit, I guess, going back to September of last year. Can you comment just on what you're seeing in credit within the portfolio, a general view and maybe a comment on some of the redemptions that you're seeing in the industry in the private wealth strategies. Connor David Teskey: So the market demand for credit continues to be very robust, and it's driven by the same drivers we're seeing across our equity business, huge capital requirements to build out assets around key themes of energy and digitalization and deglobalization. And maybe to dive into what we're seeing, we continue to see very strong demand and attractive spreads in real asset and asset-backed lending where, quite frankly, demand continues to outweigh supply. And we expect that dynamic to continue going forward. We are seeing incredibly tight spreads in select pockets of more commoditized segments of the market. And while that subset specific, some uncertainty in this space is significantly increasing the pipeline for our opportunistic credit business, which we have seen increase its activity over the last couple of months. In terms of credit flows, you're absolutely right. Across the market, there were modest increases in retail redemptions or wealth redemptions late last year. For us, these were very modest and very manageable. But what they shouldn't overshadow is on the institutional side, we're still seeing very robust inflows into credit, especially those products that are well positioned to outperform in this market. Operator: Our next question comes from Dan Fannon with Jefferies. Daniel Fannon: Just wanted to follow up on just the outlook for wealth flows. You've obviously had very good momentum exiting 2025. Can you talk about your product road map as you look into 2026 and beyond as well as just the continued momentum? Connor David Teskey: So 2025, our growth in the wealth channel was a little bit north of 40%, 4-0 percent. We expect that to continue in 2026, particularly on the back of a number of new products we launched in the space at the end of the last year, notably in the credit and private equity segments. And those are seeing great early receptions. In terms of our outlook for the business, we're going to continue to build incrementally. This is an amazing opportunity in terms of the scale, the potential scale for our business. And we absolutely intend to capture it, but we want to go about doing it the right way. We're focusing, first and foremost, on getting the right products on the right platforms. Here, we're having an incredible amount of success. Secondly, we're very focused on raising prudent amounts of capital to ensure that through these wealth products, we deliver the same strong and consistent returns that have defined our business for years. We feel that is the right way to build this business over time so we can lead in this space the same way we lead in the institutional space. And it's clearly not restricting our growth taking this approach given our 40% plus CAGRs. And then maybe lastly, the one thing we are doing is taking some incremental steps in 2026, really around brand awareness for Brookfield and also filling out our product offering, most notably on the credit side. Operator: Our next question comes from Crispin Love with Piper Sandler. Crispin Love: First, congratulations, Connor. And then just on my question, FRE margins have expanded nicely in recent quarters to 60% plus. Can you share your views on the margin trajectory from here? How do you feel about sustainability of current margins, potential for further expansion just given some of the tailwinds that you've discussed for the business broadly? Just any puts and takes there would be great. Hadley Peer Marshall: Sure. So I can describe that. I mean you're absolutely right about the margins and the operating leverage that we've seen play out. As a reminder, when we close the 26% of Oaktree, that will have a shift in our margins just because of where they operate and the cyclicality of their business. But the other thing that we mentioned that we're going to do, which is really just a onetime presentation change is take our partner managers, which have continued to grow as a business and our share has grown, which is reflecting more into our numbers, we're going to actually bifurcate their revenues and expenses, the portion that we own, whereas today, we include only their FRE. So this change won't impact FRE or DE, but it will increase the reported revenues and costs as a result, impact the margins. Now the reason why we've always just shown their FRE is because they were a small part of the business. But as mentioned, they continue to grow, and we're quite excited about that. So we want to provide more transparency around that. And this should also help investors better understand the components of our credit business specifically as well as the underlying fee rates for our credit strategies. But importantly, to get to really the crux of your question, the margins for our business will continue to improve because of that operating leverage that's built in across all of our platforms. In fact, when we look forward, every -- especially for 2026, every business should have stronger margins, except maybe real estate only because they don't have the catch-up fees. So we're quite excited about the business in general for 2026 and onwards, and that will be reflected in the margins. Operator: Our next question comes from Mario Saric with Scotiabank. Mario Saric: I just had a quick follow-on question with respect to the emerging pursuit of the individual investor and wealth channel. I think, Connor, you highlighted 3 initiatives for '26 on that front, including brand awareness. I'm just thinking from a cultural perspective, Brookfield's culture has been very consistent, very strong, excellent institutional culture to make Brookfield where it is today. How do you balance the drive for brand awareness on the private kind of individual wealth side with maintaining kind of that institutional culture that you've had historically? Connor David Teskey: Our culture is one of our biggest and most valuable assets, and it is not going to change going forward. It guides how we operate, how we partner with our clients, how we're disciplined and take a long-term view to investing. When we speak about increasing brand awareness, one of the important things is it's about increasing the awareness of the Brookfield brand, which, to your point, is very distinct. It speaks to stability. It speaks to discipline. It speaks to long-term focus. And that's all we will be reinforcing. One thing we're incredibly proud of at Brookfield is everybody represents the brand. And that's really what we're going to look to reinforce. As we do increase the brand awareness, it's just ensuring that people know who Brookfield is and what we stand for. Operator: Our next question comes from Jaeme Gloyn with National Bank. Jaeme Gloyn: Congrats as well, Connor. On the private wealth market as that continues to evolve and access for private markets and 401(k)s expands, how should we be thinking about the potential impact on BAM's fee-bearing capital and FRE? And what do you need to have happen for that to become material? Connor David Teskey: So when we think about the large opportunity in the future for the individual investor, we think about that in 3 parts: the retail and high net worth channel, the insurance policy and annuity holder and the 401(k) and retiree benefit market. In that third bucket, we do expect the opportunity set to be very, very large, but we expect it to grow incrementally over time. In terms of what's happening in the near term, we do expect guidance to come later this week, which we expect will be highly supportive of alternatives in 401(k)s and will include -- we expect initiatives that will create catalysts for increased reviews of alternatives within these portfolios. And we are very well positioned to capture these opportunities in the DC channel. We are already working with leading target date fund managers to provide the best of Brookfield strategies to improve participant plan outcomes. We've been focusing on professionally managed portfolios and target date funds where we can co-develop sleeves and solutions with the existing providers of those products. And in that regard, we're very confident that we can demonstrate value for cost while meeting the regulatory requirements. And that really goes to the strength, track record and durability of our private investment strategies. Maybe the last point just on this market because we're very excited about it. From all stakeholders, we continue to receive very positive feedback that our focus on high-quality downside protected real assets that provide cash yield and inflation protection is uniquely suited to the objectives of these plan participants. And that's what we'll be looking to offer on an increasing basis going forward. Operator: Our next question comes from Kenneth Worthington with JPMorgan. Kenneth Worthington: Connor, congratulations. My question is for Hadley. There was a more meaningful increase in the long-term fund and co-investment revenue in both the transition and private equity businesses this quarter. For transition, it went from like $5 million to $28 million sequentially. In private equity, the revenue went from $44 million to $62 million sequentially. What drove the jumps here? And to what extent is this sequential jump in revenue this quarter sustainable at these levels? Or were there one-offs that we should be accounting for? Hadley Peer Marshall: So one thing to keep in mind, and we've mentioned this for PE is Pinegrove, and they had a great first fund with a final close of $2.2 billion, and that had catch-up fees. So that's what you're seeing there. So there's some catch-up fees there, but that is capital that's now going to be earning FRE going forward. So very exciting outcome there. On the transition side, what you're seeing there is one of our partners that we have in terms of some revenues that they generated from there. That is probably a little bit more one-off generated that the overall business is performing quite well, but they did have a solid wind. And so that's something that you're seeing flow through there. Operator: Our next question comes from Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: Congrats to Connor as well. Hadley, can you just give us a sense of how you arrived at the 15% div bump and whether or not you expect to be below 100% payout ratio next year? Hadley Peer Marshall: Yes. So look, we do a lot of forecasting and analysis around our business by each business, tops down and bottoms up. So this is a thorough analysis that we conduct. It does make it a little bit easier when we've got $200 million of FRE coming in for 2026 that we can forecast with incredible certainty around Oaktree and Just Group. So that's quite supportive. And when we think about our payout ratio over time, as you know, we target around the 95%. And so that is the goal that we're going to be leading into, especially as we get in carry, which is the second leg of our growth. So what gives us that confidence around 15% is the analysis that we performed and then the overall long-term goal from that perspective. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Jason Fooks for closing remarks. Jason Fooks: Okay. Great. If anyone should have any additional questions on today's release, please feel free to contact me directly, and thank you, everyone, for joining us. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to Corteva Agriscience 4Q 2025 Earnings. [Operator Instructions] I would now like to turn the call over to Kim Booth, VP, Investor Relations. Please go ahead. Kimberly Booth: Good morning, and welcome to Corteva's Fourth Quarter 2025 Earnings Conference Call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and David Johnson, Executive Vice President and Chief Financial Officer. Additionally, Judd O'Connor, Executive Vice President, Seed Business Unit; and Robert King, Executive Vice President, Crop Protection business unit, will join the Q&A session. We have prepared presentation slides to supplement our remarks during this call, which are posted on the Investor Relations section of the Corteva website and through the link to our webcast. During this call, we will make forward-looking statements, which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including, but not limited to, those discussed on this call and in the Risk Factors section of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today's presentation, we'll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in our earnings press releases and related schedules along with our supplemental financial summary slide deck available on our Investor Relations website. It's now my pleasure to turn the call over to Chuck. Charles Magro: Thanks, Kim. Good morning, everyone, and thanks for joining us. I hope your year is off to a great start. Before we get into our results, I'd like to provide a quick update on our separation and what you can expect this year. It is still early in our overall planning, but we remain on track for a second half separation, most likely sometime in the fourth quarter. Now for some details. Over the past several months, a subset of our Board has been very busy with a global CEO search for new Corteva. We are making good progress and expect to make an announcement on that in the first half. At or around the same time, we intend to launch the official name and brand identity of SpinCo, which is very exciting for me at least and will really bring this transition to life. As we progress into the latter part of the first half, we'll be announcing the core executive leadership teams for both companies, we'll be working with the credit agencies on our capital structure submissions, and we will likely have filed the initial and first amendment of our Form 10 with the SEC. The second half is where we'll essentially be getting the separation to the finish line. We expect to go effective on the Form 10, announce our Board appointments and receive the final approval on the capital structures of the 2 companies. We'll also be completing the separation of our IT systems. And last but not least, we currently expect to hold our Investor Day events in mid-September. As for net dissynergies, we are still estimating roughly $100 million, $50 million of which is built into this year's guide. We'll keep you informed on our progress on a timely basis over the coming months. So now let's move to our financial performance. Let me start by saying by all accounts, 2025 was a strong year for Corteva. Our results for the fourth quarter were in line with our expectations. With the exception of outperformance on our controllables and even stronger cash flow generation than we anticipated. We grew the top line low single digits while improving operating EBITDA, low double digits, leading to over 200 basis points of margin expansion, pushing us over the 22% mark for the first time as a public company. This is a testament to growing demand of our technology, exceptional performance of our dedicated commercial teams and combined with disciplined execution on operational efficiency in both businesses. Our Seed business performed well again this year with organic growth in every region as well as share gains in both corn and soybeans. Seed delivered about $340 million of net cost improvements as well as $90 million in royalty improvement, reflecting our growing position in North America corn and progress in soybean licensing in Brazil. As noted last quarter, we're expecting to cross double-digit trade penetration for Conkesta this year in Brazil, the largest soybean market on the planet with over 300 basis points of margin expansion this year alone and our out-licensing business just catching its stride, I have to say it's fun to imagine what things might look like in another few years with our growth platforms, including gene editing in hybrid wheat really starting to take off. Our Crop Protection business is also performing well delivering top and bottom line growth as well as margin expansion this year and what I'd still describe as less than ideal market conditions. As we updated you last quarter, this business already has an incredible $9 billion pipeline of differentiated technologies. But in order to remain ahead of the curve, we are in the process of ongoing asset and sourcing optimization. For the full year, our CP business generated over $300 million of productivity and cost benefits, which improves our resilience as we make our way towards what we still expect to be improving market conditions in 2026. From an industry perspective, the overall ag fundamentals remain mixed. We're still seeing record demand for food and fuel and major crop inventories are within normal ranges despite large crops in Brazil and North America. Farmers continue to prioritize top Tier C technologies while managing tighter margins. Given the high corn area in the U.S. last year, it's logical to assume we'll see a few million acres shift back to soybeans in 2026, all of which is factored into our guide. In the Crop Protection market, most notable is that we are expecting modest growth in 2026, something we haven't seen in a while. Although we continue to experience competitive pricing dynamics in some major markets, including Latin America and Asia Pacific, underlying farmer demand in terms of applications remains consistent with historical levels. So what does all this mean for 2026? We are reiterating our preliminary operating EBITDA midpoint of $4.1 billion, which is 7% growth versus the prior year. Included in that estimate is momentum in our Seed Licensing business, growth in Crop Protection volumes driven by new products and biologicals and productivity benefits in both businesses. It's still quite early in the year with winter still firmly in place but we feel good about how 2026 is shaping up. Now before I turn the call over to David, I'd like to address some new developments since we last spoke in November. We recently reached a comprehensive resolution with Bayer related to our seed freedom to operate. Not only does this agreement allow SpinCo to remain focused on its forward trajectory and value creation opportunities, including continued investment in innovation, it also provides business certainty from ongoing litigation. We are pleased to have reached an agreement, which solidifies the use of existing technology rights in our own corn, canola and cotton product portfolios, including our own germplasm. As a result of this resolution and the progress we've been making across the broader out-licensing spectrum, we now expect to achieve royalty neutrality in 2026, which is 2 years ahead of our most recent expectations. In North America, this agreement will accelerate the introduction of existing Corteva proprietary triple-stack corn technologies for licensing. We now expect to be licensing as early as 2027, an acceleration of 5 years. This resolution also facilitates the introduction of our third gen aboveground trait platform in North America corn, which will be available for branded sales and licensing by the end of the decade. This is an acceleration of 2 years. Finally, this resolution includes a new licensing arrangement, which allows us to expand our addressable market by entering the cotton licensing market in the U.S., a space in which we do not currently participate. Leveraging our strong 2025 free cash flow, we committed to a payment of $610 million, which was largely completed last month. However, over the course of the next 10 years, we believe this agreement will generate about $1 billion of aggregate earnings upside for Corteva across our corn, cotton and canola portfolios through both out-licensing and branded sales. In summary, we consider this resolution to be a win for our long-term strategic objectives. But more importantly, this is a win for farmers and for agriculture at large as this resolution strengthens competition and offers farmers more choices when making purchasing decisions. Getting back to 2026, let me wrap up by saying what I say to our employees. We are one team until we're not. Based on our latest time line, we'll spend more time together than apart in 2026, and we're going to stay focused on controlling the controllables. Our intended separation is about sharpening focus, accelerating innovation and unlocking value that has been earned through performance, and we are committed to delivering results like this past year throughout this transition period. With that, I'll turn the call over to David. David Johnson: Thanks, Chuck, and welcome, everyone, to the call. Let's start on Slide 7, which provides the financial results for the fourth quarter, second half and full year. While it's more meaningful to look at our business in halves, I'll briefly touch on the quarter. Sales and operating EBITDA for the quarter were down versus prior year, largely due to lower volume in Seed and Crop Protection, coupled with higher compensation expense. While it's worth knowing that the fourth quarter of 2024 was a record quarter for Corteva and this year was the second highest fourth quarter on record for us as a public company. Organic sales for the quarter were down 4% compared to prior year. Crop Protection saw volume and price declines of 2% and 1%, respectively. Price declines were largely due to competitive pricing dynamics in Latin America and in line with expectations. Volume declines in Crop Protection were primarily driven by a seasonal shift and timing for North America to first half 2026 along with timing of fungicide demand in Latin America. Seed had pricing gains of 3% versus prior year, evidencing our price for value strategy with volumes declined 8%, largely due to timing shift of safrinha sales into the third quarter of 2025 and the shift of North America deliveries into the first half of 2026 as a result of freight optimization and weather across the Midwest. Looking back at the second half, sales were up 4%, and operating EBITDA was up 16% driven by better price and mix in Seed, continued execution on controlling the controllables and volume gains in both segments. Organic sales were up 2% compared to prior year. Crop Protection saw volume growth of 1%, offset by price declines of 2%, largely driven by competitive pricing in Latin America. Seed had price, mix and volume gains of 3% and 2%, respectively, versus prior year. Focusing on the full year. Organic sales were up 4% over last year with growth in both Seed and Crop Protection. A continuation of our price for value strategy along with increased corn acres in North America and Latin America drove Seed price/mix and volume gains of 3% and 2%. Crop Protection price was down 2% for the year as expected, driven by competitive market dynamics, mostly in Brazil. Crop Protection volume was up 5%, but gains in nearly every region. Notably, new products have strong demand and biologicals delivered double-digit volume gains compared to prior year. Operating EBITDA was up 14% over prior year. Operating EBITDA margins of over 22% was up about 215 basis points, driven by organic sales growth coupled with significant benefits from lower input cost and productivity. Moving on to Slide 8 for a summary of the year. Operating EBITDA was up more than [ $470 ] million to $3.85 billion. Price and mix volume gains and cost benefits more than offset currency headwinds. Seed continues to make progress on its path to royalty neutrality with about $90 million in reduced net royalty expense. This improvement was driven by increased out-licensing income in North American corn and lower royalty expense in soybeans. We finished the year with a net royalty expense position of around $120 million. Seed and Crop Protection combined to deliver over $650 million in net cost improvement, including lower seed commodity costs, raw material deflation and continued productivity actions. SG&A for the year was up compared to prior year driven by higher commissions and compensation expense. The increased investment in R&D aligns with our target just over 8% of sales for the full year. As expected, currency was $217 million headwind on EBITDA, driven by the Brazil real, Canadian dollar and Turkish lira. Both Seed and Crop Protection finished the year with impressive EBITDA growth and meaningful margin expansion over prior year. Together, this translated to over 22% operating EBITDA margin. In addition, free cash flow has improved by about $1.2 billion from prior year to $2.9 billion. This is driven by our increased EBITDA, lower cash taxes and working capital discipline. With that, let's go to Slide 9 in transition to the updated outlook for 2026 and the key metrics we are tracking. Our updated 2026 guidance reflects the continued momentum from our 2025 performance and continued confidence in delivering on productivity and cost benefits. 2026 operating EBITDA is expected to be in the range of $4 billion and $4.2 billion or approximately 7% improvement over prior year at the midpoint. This would post at the low end of the 2027 EBITDA framework we outlined in our last Investor Day. Meaningful margin expansion is expected to be driven by organic sales growth, together with benefits from improved net royalty expense and productivity actions. Operating EPS is expected to be in the range of $3.45 to $3.70 per share, an increase of 7% at the midpoint, which reflects higher earnings growth and lower average share count, partially offset by higher net interest expense. Free cash flow in 2026 will be impacted by separation items and the Bayer agreement. Absent these, we would be in line with our long-term target we communicated at our 2024 Investor Day. We remain committed to returning cash to shareholders as we progress through the separation. We announced the first quarter dividend last week, and we are targeting about $500 million of share repurchases in the first half of 2026. Turning to Slide 10. in the 2026 operating EBITDA bridge, growing from approximately $3.8 billion in 2025 to $4.1 billion at the midpoint. Total company pricing is expected to be slightly up with pricing gains in Seed partially offset by declines in Crop Protection. While we expect the Crop Protection market to grow, we expect prices to be down low single digits for the year. We are expecting volumes to be relatively flat in Seed as North America share gains are expected to be offset by the corn to soy planted area shift, and have a full year under our Brazil soybean shift to licensing. Crop Protection volume is expected to be up mid-single digits, driven by demand for new products and biologicals, which are expected to outperform the rest of the portfolio. We expect approximately $120 million improvement in net royalty expense driven by the continued ramp-up of Conkesta E3 soybeans and PowerCore Enlist corn licensing. We expect to deliver around $200 million of productivity savings in 2026, partially offset by approximately $80 million in tariffs. SG&A and R&D as a percentage of sales are expected to be relatively flat with 2025 levels. Keep in mind, this includes approximately $50 million of net dissynergies. We are expecting a currency tailwind versus 2025. This is largely driven by the Brazilian real, euro and Canadian dollar. The appreciating foreign currencies are expected to translate to a low single-digit tailwind on net sales and approximately $75 million tailwind on operating EBITDA. Together, this translates to approximately 7% operating EBITDA growth at the midpoint and about 50 basis points of margin expansion. Regarding the timing of sales and earnings in 2026, we are expecting about 60% of sales and roughly 85% of EBITDA to be delivered in the first half of the year. With that, let's go to Slide 11 and summarize the key takeaways for the year. 2025 was a record year for Corteva with strong organic growth across both Crop Protection and Seed. Performance was driven by volume, favorable mix and continued adoption of our differentiated technologies. In Crop Protection, demand for our novel modes of action and biologicals remain strong, while Seed benefited from our price for value strategy and solid execution across key markets. Importantly, this growth reflects underlying demand and execution. We also delivered record free cash flow in 2025 driven primarily by higher earnings and working capital improvements. Tighter operational discipline and greater year-end cash collections improved cash conversion. As a result, we returned approximately $1.5 billion to shareholders in fiscal 2025 through a combination of dividends and share repurchases. Our capital allocation priorities remain unchanged, investing in the business, maintaining a strong balance sheet for Corteva and the future independent companies, and returning excess cash to shareholders in a disciplined manner. Looking ahead, our 2026 guidance reflects growth in sales, operating EBITDA and margins. We expect continued demand from our differentiated technology, supported by our innovation pipeline and ongoing productivity and cost actions. With that, let me turn it back to Kim. Kimberly Booth: Thanks, David. Now let's move on to your questions. I would like to remind you that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions. Operator: [Operator Instructions] Your first question comes from the line of Chris Parkinson with Wolfe Research. Christopher Parkinson: Chuck, could you just kind of help us break down Slide 27 a little bit more with the Bayer litigation. It seems like there are 2 or 3 key buckets of what this accelerates as it leads into the chart that you published across triples, insect resistance and cotton. I'd love to hear if it actually affects the acceleration of E3 or Conkesta in terms of the next-gen stuff. So I'd love to hear the breakdown of that. And then also in that chart, do you assume any gene editing assumptions? Or is that purely a corollary of what was announced yesterday evening? Charles Magro: So let me start, and then I'm going to have Judd unpack some of the finer details. So first, we're very pleased with the agreement. And I personally view this as being extremely strategic in terms of what our overall licensing ambitions can be. And so this is a comprehensive agreement. We've been working with Bayer for quite some time. These things are very scientifically based. They're very -- there's a lot of legal precedent here for us to work through. But I'd say what the agreement does is it provides 2 broad things. The first is we now have freedom to operate and an increased access to the licensing market, which is extremely important to us. You know our ambition when it comes to our licensing business, and it's really centered around the expectation to accelerate our corn licensing business to as early as 2027, which is years ahead of our original plans. We're also going to enter the cotton licensing market, another big opportunity for Corteva. But I'd say more importantly, this is great for farmers and for agriculture in general because it's going to give our farmer customers simply just more choice. So now we're going to have a strong licensing portfolio for soybeans, for corn and for cotton. And if you look at it financially, the big picture, it really does set us on a path, as we said today, to deliver about $1 billion in licensing income in the next decade. The second thing that this does, this agreement does is it resolves all the outstanding litigation with Bayer. And I think that's very helpful from a clarity and risk management perspective. So that's what this agreement is intended to do. Like I said, I'm very pleased with the agreement. Judd, do you want to just talk about some of the finer details? Judd O’Connor: Yes. Thanks, Chuck, and thanks, Chris, for the question. And I think Chuck captured it all extremely well. And we're still needing to bring product through the R&D pipeline, but maybe let me touch on it. One, we've got freedom to operate in canola in specific markets around the world where that's very important to us. Number two, we're going to be able to bring, as you see here, triple-stack options into the market 5 years earlier than what our previous plan was with complete freedom to operate and the ability to line up and provide additional volumes with our licensees that we've got tremendous amount of demand building with licensees today. Number three, we get to bring our next proprietary third-gen above-ground product 2 years forward into the marketplace. We also provided Bayer license for Enlist cotton. They provided us an opportunity to license their HT4, and this provides us an opportunity to license in cotton, which we had no freedom to do previously. So comprehensively it creates a tremendous amount of opportunity for us to continue to accelerate our ambitions in this space. We've got our germplasm funnel that has continued to widen, so that we've got the -- or the germplasm that we need to be able to provide these traits. And it just puts us in a really great spot. It's a great investment for all of our constituents, whether that be farmers or whether it be investors, whether that be our licensees if we work closely with them going forward. And we're excited to be able to put the certainty and freedom to operate in the hands of our R&D team so they can start streamlining the lines that they're bringing forward as well. So thanks. Operator: Your next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent Andrews: Some more clarification on the Bayer agreement. Firstly, it sounds like there is some existing licensing expense that was going through the income statement that with the payment of the $610 million, you will no longer expend. So number one, is that true? And can you tell us how much it is? And whether you had contemplated that back in October when you gave the original guidance? And then secondarily, you referenced HT4 having a license on that from Bayer. Can you clarify whether in future years, if you do elect to use that, whether you'll have to pay any per acre royalties today or in the future for that? Or is that all encompassed in the $610 million and you kind of have an all you can eat on that? David Johnson: Okay, Vincent, this is David. I'll handle the first part of that question. Perhaps Judd can follow up with the end. So in our current guide, we have $120 million of net royalty benefit in '26. A portion of that is the fact that there were some Bayer royalties that we will not be paying now in '26 and '27, so that's what accelerated us to a net neutral position in '26, which is 2 years ahead. The rest of the benefit of the entire overall agreement is really later past 2027 when it adds over $100 million a year. And that gets more into the freedom to operate and more on the offensive on the licensing income piece. Operator: Your next question comes from the line of Joel Jackson. Judd O’Connor: So maybe I'd jump in here. Joel, thanks for just a little bit of time to answer Vincent's -- the second piece of Vincent's questions on access to HT4. Does that come royalty-free? No, it doesn't come royalty free. I mean we would have a royalty that's associated with that as they would with the license that we would provide reciprocally with them. So -- but it puts us in a really good position with certainty as terms of path forward and making sure that we can continue to bring our products in the marketplace. So, thanks. Joel Jackson: I'll ask my question now. So I just want to follow up on that a bit, too. I went back to your Investor Day deck from late 2024. And if I compare your -- how you're showing you're going from a net outflow payer of royalties to becoming positive, and I look at that chart versus the chart you presented last night in your deck, it looks the same through 2030, and now you show a 2035 where it's $1 billion. I'm just trying to reconcile that with statements that you're pulling forward things to this decade, from after next decade, you're pointing 2 years forward, 5 years forward. But it looks the same through 2030 and more incremental 2031, 2032, 2033, 2034, 2035. Can you reconcile that, please? Charles Magro: Joel, look, I'd have to look at the details that you're going back to the Investor Day, but it should not be the same. The acceleration that this agreement gives us is pretty powerful. When we were thinking about our original royalty journey, we were really talking about soybeans and then corn starting in late next decade. And now we're talking about corn starting now, basically in 2027, and then the introduction of cotton now. So when you put all that together, I think that what you're going to see is that we've really put our licensing business in a much higher gear than what we could have done absence of clarity around this comprehensive agreement. So we'll have to go back and we'll look at the numbers. But the acceleration from a freedom to operate is real, and it's pulling our corn in many cases, many years ahead, and it's also opening up the door on cotton. I think the other thing is this does not contemplate wheat. So if you start thinking about that, and we've said that our hybrid wheat opportunity combined with our branded business and our licensing opportunity, it would be $1 billion of revenue. So when you start thinking about this strategically as Corteva and then soon to be SpinCo, this provides a huge amount of value creation for our shareholders. The licensing opportunities continue to grow. And as Judd mentioned, even today, we have more demand than we have supply. So this was a matter of clearing up the access to the freedom to operate. And now that we have that, we can set our R&D and our commercial teams to meet the growing demand that we have for soybeans for cotton, for corn and soon-to-be wheat. Operator: Your next question comes from the line of Kevin McCarthy with Vertical Research. Kevin McCarthy: Maybe a 2-part question on the subject of gene editing. As we follow the regulatory developments in Europe, it seems as though there is a developing regulatory framework whereby Europe could open its market to gene-edited seeds. So the first part would be, do you expect that to happen in 2026? And what might it mean for Corteva over the medium to long term? Then secondly, I think one of your gene-edited products is multi-disease resistant corn. I was wondering if you could just provide an update on that product for the U.S. market and when we might expect commercialization of MDR? Charles Magro: Kevin, sure. So look, we're -- if you step back and you look at the global regulatory framework, we're seeing very good progress on support for gene editing around the world. In fact, most of the major producing countries now have policies firmly in place. To your question with the EU, in December, there was an agreement with the EU framework. It still needs to be formally adopted by parliament and the council, and we are expecting that, hopefully, soon, I'd say, by the first half of this year. And we are very supportive of what we've seen so far. We think it's science-based. We think that it's going to be quite practical and it's going to allow us to bring much better crop technology to European farmers and really help, I think the EU from an overall food security and self-sufficiency perspective. And the regulatory framework that is being proposed, I think we'll have some areas where it will actually be a simplified process, which will allow us to get, I think, products to market a lot more quickly. Now we still need China approval. It's probably one of the last remaining significant import markets that we need approval. And we're very hopeful that we'll get that soon. If you think about gene editing, and you know you've heard me talk about this before, there's probably no more important technology right now that we can bring to market to help farmers. And if you start thinking about how thin farmers' margins are right now, this technology can go a lot way to helping farmers improve their profitability. Now to your second question around our products. So that's right. We have a gene-edited fungal disease-resistant corn hybrid, we call it a disease super locus. And I've seen the test plots, it continues to look fantastic in our test fields. And we will be able to bring that to the market most likely within a year or 2 after receiving our overall regulatory approvals and we're pretty excited about that. We'll first bring it to the U.S. market, but then we'll quickly move that technology around the world. Operator: Your next question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Chuck, can you discuss your U.S. order book for the upcoming year? And how the pressure on farmers is manifesting itself into this year's buying activities? Charles Magro: Sure. Well, why don't we start with Seed, and then Robert can talk about CP. Go ahead, Judd. Judd O’Connor: Yes. Thanks for the question. Our order books are very strong at this point in time. Our prepay that we've collected is on par with prior year. And our cash credit mix is very, very similar, plus or minus 1 point or 2. So we feel really good about the position we're in. I guess, translation may be what's your guess on corn acres. I'd say it's February. There's still snow on the ground and that corn versus soy mix, it's going to shift a little bit. There'd be a little bit of weight towards some more soy acres in space of corn. It's all very well manageable and within the guide that we've provided. But feel really good about the start to the year, both with our direct Pioneer as well as our Brevant retail brands. Robert King: David, it's Robert for Crop Protection, very similar story, very strong order books across the Northern Hemisphere. Europe is in full swing, and North America is moving. As we look into January, we're having a strong movement now. Keep in mind, both of these markets this last year grew a few temps, and that momentum continues as we're moving forward here. So thank you. Operator: Your next question comes from the line of Joshua Spector with UBS. Joshua Spector: I wanted to ask on free cash flow. Obviously, really strong performance last year. I mean how are you thinking about the conversion into 2026? Is there something one-off last year that gives back? Or is this something that you guys build on top of? David Johnson: Thank you, Josh, for the question. And we obviously had a very strong end of the year with free cash flow. Some of that was, as Judd had mentioned, we did have favorable cash credit mix at the end of the year. So that was certainly a benefit. It's something that we don't count on every year. So that's probably one element year-over-year, which should be a little bit of a tailwind into '25 and the headwind into '26. When you look at the really -- the major portion of why we were favorable is our working capital management. And where we ended this particular year was down probably 300 to 400 basis points lower than typical in our net working capital as a percentage of sales. So I would say the teams did a really good job. That's also reflected in the fact that in Seed, we had very strong sales and what have you. So our inventories are lower than typical. So I would say going into '26, absent any type of onetime items, and I'll go into those in a little bit more detail, we would be in the range that we articulated during our Investor Day. So free cash flow, about 45% to 50%. And you might ask if that have definitely a few points lower than '25, I would say most of that is because of working capital gain back to normal. So call it another 200 or 300 basis points as a percentage of sales. But this year, when we actually show the number, we will have a few unusual items. We will have the Bayer agreement, which will be an offset to the free cash flow number. As we get later in the year, we will be looking at separation type items. So we will be going into onetime separation cost and we'll likely also want some flexibility because we're committed to have 2 strong investment-grade balance sheet for the separated companies. So we want flexibility to make sure that we're handling that appropriately and that both companies are set up for success in the future. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: A 2-part question. First, your overall revenues in the fourth quarter were roughly flat year-over-year, down a tiny bit, but your SG&A and R&D really jumped. SG&A went from $735 million to $860 million, up about $125 million. R&D was up $50 million. What happened? Why are those numbers so unusually high? And then secondly, can you give us an idea of where you stand with Conkesta soybeans in Brazil? Where is your share? Or what are your revenues? What share do you expect for next year? What kind of revenues do you expect? Charles Magro: Okay. Yes. So I'll handle the first part of the question, and I'm assuming Judd will handle the second part of your question. So on SG&A, R&D, as you can see throughout the year, we have increased our R&D. As a percentage of sales, in total we're up about 8%. And certainly, that's not really much timing on sales or fourth quarter. So you've seen that build throughout the year. On SG&A, as we mentioned in the opening comments, we do have some additional compensation expense, variable compensation expenses sort of items that hit in Q4, also hit in other quarters, but it was probably a little bit more impactful in Q4, especially against the small revenue number. And Judd? Judd O’Connor: Yes. And Jeff, as far as E3 Conkesta, [ CE3 ] in Latin America, and particularly in Brazil, we're going to finish the year after just getting started in this space and going through our multipliers and licensing model, somewhere in mid-single digits in 2025. We expect to double or more than double that going into 2026. We will be completely out of our vertically branded business and be 100% focused on licensing through multipliers, and we believe we're going to be in the mid-teens plus for 2026. So a lot of momentum. We've advanced a number of new genetic platforms and feel really good about how that transition is going. Operator: Your next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets. Aleksey Yefremov: Could you just call on your CP business, what share of your business will be off patent versus patent and new products in '26, given that there is quite a bit of difference between growth in these 2 categories. Robert King: Aleksey, this is Robert. We will remain about flat to what we've been in the past. Keep in mind, we're about 2/3 differentiated on our overall portfolio now, getting good growth out of our new products and biologicals. But we don't have any major shifts coming off patent, like in the industry, there are some big molecules coming off, but we don't play in those markets. So we should be stable, much like you've seen this past year from a portfolio standpoint. I would keep in mind that there's a few things coming to play, though, that are going to help us out a little bit more. And we're waiting on registration, but we hope to have [ Visa ] launch latter part of this year, which will augment that differentiated portfolio. And remember, this is a fungicide that attacks Asian soybean rust, and we're expecting big things out of that molecule as we move forward. Thank you for the question. Operator: Your next question comes from the line of Duffy Fischer with Goldman Sachs. Patrick Fischer: With '25 in the rearview mirror, can you just go by your major crops on Seed in major geographies where you saw either market share gains or if there were any market share losses? And then just I wanted to clarify, on the deal with Bayer, they don't get access to your Enlist in soybeans, is that correct? Judd O’Connor: Yes. Thank you, Duffy. So maybe just walk around the world a bit. From a North America perspective, we were able to continue to pick up share in corn and in soy. As we go into Latin America, we picked up mid-single-digit share in summer. We picked up mid-single-digit share plus in safrinha, tremendous amount of momentum and share in that Brazilian market as well. And as you look at other markets around the world, we had some nice recovery in India in the rainy corn season market, and we saw some nice share gains in sunflower and corn in EMEA. So we had positive impacts in almost all regions around the world. Now in terms of the Bayer agreement, E3 on soy was not part of those discussions at this point in time. Obviously, we have a number of places that we worked with Bayer across, but that was another part of it. So thanks for that question. Operator: Your next question comes from the line of Kristen Owen with Oppenheimer. Kristen Owen: I wanted to ask about the 2026 EBITDA guide. You're in line with the $4.1 billion that you gave us earlier last year. But it seems like maybe some moving pieces around with the pull forward of net royalties, maybe the push in volume from 4Q into 1Q. So can you help us sort of frame what the upside case and downside case look like in this bridge? And I do actually have a follow-up on Brazil Conkesta, if I could ask quickly. Just with the economics, how we should see that show up, that doubling in market share, how we see that show up in the EBITDA bridge as well. Charles Magro: Okay, Kristen. So we'll have Judd answer that. David will take the guide question, but let me just give you my perspective, and I guess my philosophy. We're sitting here in February. It's appropriate, I think, given that outside and in the corn belt, we have a lot of snow. The ground is still frozen, and we are literally weeks, if not a bit more than that, away from putting a crop in the ground. So we are usually, at this point, looking at the market conditions and needing to see what happens from a crop perspective, but it is generally our philosophy not to do too much with a guide in February. Now we can talk about the ups and downs. So go ahead, David. David Johnson: Yes. Maybe it would be helpful to just kind of reiterate what we have in the guide and then we can go from there. So when we look at the $4.1 billion, it is up 7% from the midpoint. The other interesting thing is that is the beginning or the low end of our 2027 range, which would be a year early. So I think all are very positive. I think the other couple of takeaways. One, we are going to show growth in both Seed and CP, very much like we were able to do in 2025. And 2/3 of the EBITDA increase year-over-year will accrue to the Seed business and about 1/3 of CP, again, very similar to what we've seen. So when I think about the bridge and the different elements of the bridge, right now, we have the price impact would be more or less similar to 2025. So low single-digit seed increases. We have increased royalty income. That will be partially offset by the low single-digit CP declines. So not much of a major difference from 2025. We already talked a little bit about net royalties, but that will be a positive. We expect somewhere in the range of $120 million versus the $90 million in 2025. The volume impact in 2026, right now, we have it in as fairly flat for Seed. Again, that's mainly due to the acreage differences between corn and soy in the U.S. that shift. And then CP more or less is forecasted to have a similar benefit in '26 as we continue to see growth in new products and biologicals. Probably the major difference between our bridge in '26 versus '25 would be on the cost improvements. And we still have $200 million built in for cost improvements in '26, then '25, we benefit pretty significantly. About half of our $665 million was really a commodity impact that we do not have included in 2026. We think that's going to be flat in 2026. So that's a major difference there. And we also have an $80 million kind of headwind in our -- in tariffs. So those are the major elements. And then when you go to other, if you look at other between the 2, they're about the same. So when I think about it, price is fairly balanced, royalty is definitely a positive story. The volume is probably the one that you could argue one way or the other at whether or not we're being conservative or not, but it's very early in the season to be able to make that termination. And we'll keep an eye on being able to offset tariffs and include additional cost improvements. One other element we did include, and we put this in the notes is we have $50 million of dissynergies in our number in 2026, which obviously, we would not have had in '25. Charles Magro: Conkesta? Judd O’Connor: Yes. And maybe just a follow-up on the Conkesta question. So for 2026, overall earnings for Seed in Brazil are up significantly. The Conkesta transition and the additional share is certainly a big part of it. That also is part of that $120 million that's in the plan that David just mentioned as well. Operator: Your next question comes from Laurence Alexander with Jefferies. Chengxi Jiang: This is Carol Jiang on for Laurence Alexander. Actually, my question has been asked already. But just a follow-up on the tariff estimation. You estimate $8 million impact from incremental global tariff in 2026. Does this figure also account for the potential secondary effects such as increased dumping of generic product in non-tariff market like Brazil? Judd O’Connor: Yes. I think -- I believe the question is does this include secondary impacts like impacts from Brazil? Is that the question? Chengxi Jiang: Yes, just the $80 million figure. Robert King: Yes, the estimate that we've got on the Crop Protection primarily is where the tariffs all are -- is encompassing everything we've got for the entire business. So it includes all companies, including -- all countries including Brazil. Charles Magro: If it's helpful, almost all of it is CP and almost all of it is China, actives coming in to the United States. Robert King: That's the biggest part. Charles Magro: That is, by far, the biggest part of the tariff impact. Robert King: Correct. Operator: Your next question comes from the line of Arun Viswanathan with RBC. Arun Viswanathan: Most of my questions have been answered as well, but I guess I'll just ask on the $200 million productivity benefits. You guys have obviously been very successful the last few years, bringing up your margins and executing on that productivity. Is that kind of -- maybe you could break that out between Seed and CP if that's relevant. And then is that kind of an ongoing -- how do we think about the ongoing productivity opportunity? Where are you kind of in that journey? I know there's been a lot of discussion about that in the past, but maybe you can just kind of give us some updated thoughts? Judd O’Connor: Yes, sure. No problem. So yes, the $200 million is split somewhat equally between the 2 different businesses. And the way I look at that is it is a running rate. There's opportunities every year in seed, in production and how we go and grow the seed with our farmers, how efficient we can be there. In Crop Protection, typically, your normal productivity year-over-year improvement. I would say beyond that, though, there is further elements in crop when they look at footprint and different optimization opportunities in the future. Charles Magro: I think the one thing to call out is when we gave our financial framework for 2027, we said it would be about $700 million of net productivity and cost improvement, and we had almost that last year. So obviously, with David's communication today around another couple of hundred million on a gross basis. So call it -- he did outline some of the other headwinds we have. So if you call that $100 million net, and that's only in 2026, and then if you play the framework forward into 2027, we're going to far and exceed the original $700 million that we put into our financial framework. We probably overachieved a little bit in '25, but I think '26 and the pipeline that we've got for cost and productivity is still very healthy across the company, and it is more or less split between Seed and CP. Operator: Your next question comes from the line of Patrick Cunningham with Citi. Patrick Cunningham: As we look at the Latin American CP market for 2026, does the current channel inventory position support a return to more normalized purchasing patterns? Or should we anticipate continued volatility in some of the order timing? And have you seen any further impact or improvement of credit and liquidity concerns for farmers in the region? Robert King: Patrick, this is Robert. I'll take that one. As far as LatAm goes, we're expecting the year as we move into this year, crops are in the ground now. And looking at 2026, we're going to continue to see pricing pressures in LatAm. We expect volume growth to take place there, much like this year, more lands going in and the pest and resistance pressures continue to build. So we expect growth to continue to happen there. Pricing pressures, like I said, will continue. And that just has to do with there is more than enough supply in the market nowadays. And so that will eventually tighten back up and from a channel standpoint, the channels are about normal right now for this time of year, We need to let the year play out for the rest of the season to see where we land there. From a farmer standpoint, to touch on that just a little bit. Farmers in Latin America are stressed, very high interest rates, commodity price is a little bit suppressed, but they're still making money by and large. Cash flow is tight for them. And we've been working through a lot of those things with them. Keep in mind, you will have seen that our barter program this year between crop and seed will be near $1 billion in total for revenue there. And so we're doing things to help mitigate risk and to help manage that with farmers. And we think we're in a pretty good position as we head in '26 to have another good year there in a market that is challenged. Operator: Your next question comes from the line of Matthew DeYoe with Bank of America. Matthew DeYoe: You talked openly about kind of the initial days of the announced spin that Seed would be looking to expand beyond corn and soy. And I know you have the hybrid wheat coming out next year, which is obviously exciting. And you're talking a little bit about cotton on the back of the Bayer agreement. But what -- how do you prioritize the new markets? Are there anything beyond that? Are you looking at fruits and veggies more broadly? Do you need acquisitions to get to where you think you want to be in 5, 10 years in the Seed business from a portfolio perspective? Charles Magro: Yes, Matt, let me give you a teaser, but I want you to join us in September when we do our Investor Day for both companies just prior to our separation. So I won't tell you the whole story. But look, I think from a Seed perspective, we have a lot of opportunity in our core businesses. And Judd just articulated a little bit here on this call. So we think there's room to grow in corn and soybeans. And with the agreement now that we have in place, the seed licensing business, I think, is going to be just a great growth platform for us going forward. I think then we've talked about cotton. So that's another new market for us, and we've already covered gene editing. I think gene editing, the capability, if we can provide differentiated technology from our innovation in gene editing, we will consider what I would consider to be tangential or adjacent crops, but we won't go there unless we believe we can provide something that is unique and special to the market. And right now, as we said, our short-term focus is Seed licensing in cotton and corn and in soybeans and then entering the hybrid wheat market. We're going to do that conventionally, but also with gene-edited hybrid wheat. And that market is the largest row crop market on the planet, 20% of our calories are still consumed there as humanity. And we've got lots of new technology coming in with our proprietary traits as well. So I think we've got a lot to keep our plates full right now. But with the advent of gene editing and as we get more comfortable with the acceptance of the science around the world, which certainly looks to me like that's what's happening, it should open up other markets for us in the future. Operator: Your next question comes from the line of Mike Sison with Wells Fargo. Michael Sison: Just a quick follow-up on Crop Protection. It looks like you expect the markets to rebound in '26 versus '25. Anything in particular that gives you confidence there? The double-digit volume growth you have for the year seems to be more biologics and strong demand for new products. And then just a quick follow-up on Brazil pricing pressure in Crop Protection. Is it stabilized, getting worse, getting better? Just curious on that. Robert King: Michael, this is Robert again. Let's talk about CP markets for 2026. We expect to see modest growth in the overall CP market around the world this year. It will be volume will continue to grow. There's going to be some pricing pressures against that. But by and large, we're seeing positive signs around the world. And earlier question this morning about how things looking in Northern Hemisphere on the order books, and like I said, they're strong. So the year started really well from that standpoint. Specific to Brazil, when you think about pricing there and when do they stabilize, et cetera, a couple of things happening in Brazil. When you look at the overall market, there is ample supply of product coming in. And so that is a lot of more generics, in formulated generics, but nevertheless, a lot of supply. But when you think about the differentiated products, we're still seeing a need for that technology and farmers are demanding that. And keep in mind, for us, again, 2/3 differentiated around the world. For us, those products command about a 10% to 15% higher margin than the rest of the portfolio. So yes, we think there continues to be some pricing pressures there from some of the big molecules. But we have a good portfolio to combat that, and we think we're in a pretty good place from a business standpoint as we head into 2026. Operator: Your next question comes from the line of Edlain Rodriguez with Mizuho. Edlain Rodriguez: A quick one. This is a follow-up to the CP question. Like the competitive pricing pressure we're seeing in Brazil and in some parts of Asia, can we ever see that happening in North America or Europe again, like how well protected all these markets from the generics? Charles Magro: Yes, Edlain, look, let me take a stab at that one. I think, look, the businesses, the markets are just fundamentally different. They're structurally built differently the way the farmers buy their channel partners, the infrastructure that's in each of the countries or the regions are different. And we -- no market is immune to having generics, right? Generics have been part of the global CP market as long as I've been around and will always be, and they're in all the markets. I think that what's unique is what's happening in Brazil right now. And look, Brazil is going to grow and there's more area going into production, as we've already said. But I think what we're seeing is that the channel is being a bit more responsible. It looks to us like the channel is functioning still relatively normally. There's a lot of product currently going to ground. But it is a well-supplied market because of the way that they allow their imports. Now what we haven't talked about, I think, specific to Brazil is a lot of this product is coming from China. And it looks to us like China may be taking early steps to control some of their exports. They just repealed their export VAT. So that's going to drive up the cost to export outside -- from China into Brazil that we think is constructive for the market overall. We're starting to see M&A actually from some of the generics in China. I think that will be constructive overall. So I think that when you start thinking about this, we are comfortable that 2026, and I'm going to talk about globally, 2026, we should see some slow growth, which is a lot better than we've seen in the last 3 years. And 2025 was better than '24, right? It was a flat market driven by volume. But as Robert said, our planning assumption today is some headwinds when it comes to pricing in Brazil. But the rest of the markets, I think, are going to be quite healthy. Operator: I will turn the call back over to Kim Booth, VP, Investor Relations, for closing remarks. Kimberly Booth: Great. Well, thanks for joining and for your interest in Corteva. And we hope you have a safe and wonderful day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Greetings, and welcome to the Reservoir Media's Third Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jackie Marcus, Investor Relations. Thank you. You may begin. Jacqueline Marcus: Thank you, operator. Good morning, everyone, and thank you for participating in today's earnings conference call. Reservoir Media issued a press release with results for its third quarter of fiscal year 2026 ended December 31, 2025, earlier this morning. If you did not receive a copy of our earnings press release, you may access it from the Investor Relations section of our website at investors.reservoir-media.com. With me on today's call are Golnar Khosrowshahi, Founder and Chief Executive Officer; and Jim Heindlmeyer, Chief Financial Officer. As a reminder, this call is being simultaneously webcast and will be recorded and archived on the Investor Relations section of our website. Before I turn the call over to Golnar and Jim, I'd like to note that today's discussion will contain forward-looking statements that reflect the current views of Reservoir Media about our business, financial performance and future events, and as such, involve certain risks and uncertainties. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs and projections will result or be achieved. Please refer to our earnings press release and our filings with the Securities and Exchange Commission for more information on the specific risk, uncertainties and other factors that could cause our actual results to differ materially from our expectations, beliefs and projections described in today's discussion. Any forward-looking statements that we make on this call or in our earnings press release are as of today, and we undertake no obligation to update these statements as a result of new information or future events, except to the extent required by applicable law. In addition to financial results presented in accordance with generally accepted accounting principles, we plan to present during this call certain financial measures that do not conform to U.S. GAAP, if we believe they are useful to investors or if we believe they will help investors to better understand our performance or business trends. Reconciliations of these non-GAAP financial measures to the nearest comparable GAAP measures are included in our earnings press release. I would now like to turn the call over to Golnar. Golnar Khosrowshahi: Thank you, Jackie. Good morning, everyone, and thank you for joining us today. We continue to execute our strategy in the third fiscal quarter with a sustained focus on deepening relationships with our top-tier talent through new ventures, investing in the next generation of hitmakers and expanding our presence in emerging markets. Organic growth was up 5% year-over-year, underscoring the strength and demand for our catalog. Music Publishing revenue grew another 12%, while Recorded Music revenue for the quarter was up 8% compared to the year ago period. Both Music Publishing and Recorded Music's revenue growth were driven by acquisitions, an increase in Digital revenue and continued growth of music streaming services. Before reviewing our operational highlights, I want to congratulate the nominees and winners of music's highest honor, the Grammys, held on Sunday in Los Angeles. Our roster contributed to 10 wins across multiple genres. Khris Riddick-Tynes' collaboration Folded by Kehlani won Best R&B Song and Best R&B Performance. Sarah Jarosz and her group, I'm With Her, took home Best Folk Album for Wild and Clear and Blue and Best American Roots Song for Ancient Light. Jony Mitchell received the Best Historical Album Grammy, and Miles Davis' Miles '55, The Prestige Recordings, won Best Album Notes. Our songwriters, Michael League, Steph Jones, Robert Augusta, Mike Chapman, Simon Pilton and John Marco also contributed to wins for Best Alternative Jazz Album, Best Contemporary Country Album, Best Dance Electronic Album and Best Tropical Latin Album. Congratulations to all on a memorable night and an extraordinary year in music. Turning to the quarter's highlights. Reservoir's portfolio is distinguished by its diversification, spanning iconic catalogs and genre-defining artists alongside new and emerging creators across global markets. This quarter reflected that balance. We announced the acquisition of the publishing and recorded music rights of yacht rock icon, Bertie Higgins, adding evergreen hits, including Key Largo to our portfolio. As noted last quarter, Reservoir acquired the Miles Davis catalog in September. This January marks the official launch of his centennial year, and we are working closely with the estate and partners to honor his legacy through a global celebration with key integrated moments all year long, including the feature of Miles Davis' Blue In Green as well as his artwork in a recent ad campaign for Lexus. The debut of celebratory centennial logos, numerous planned releases across the various label partners, a co-branded Miles Davis centennial cigar from premium cigar and accessories company, Ferio Tego, a deal between the states official global merchandising and brand licensing partner, Periscope, and premium men's retailer, John Varvatos, a centennial edition of Miles, The Autobiography, several live performances and festival appearances and more. This quarter was also marked by new partnerships with 2 music icons, R&B legend Gladys Knight, and HipHop icon, TI. The agreement with Gladys Knight includes rights to her income streams across both publishing and master recording catalogs. The deal with TI will see Reservoir work with the acclaimed rap superstar across his entire publishing back catalog and future works as well as select recorded music interests, including master recordings, artist royalties and neighboring rights. These agreements mark our team's proven ability to structure and execute unique flexible deals with legendary talent and further build our portfolio of evergreen hits that are accretive to the portfolio as a whole. Alongside partnerships with established and legacy talent, investing in the next generation of hitmakers remains central to our growth strategy. We welcomed critically acclaimed band, Say She She, with a global publishing deal covering past and future works. This female-led band is redefining discodelic soul and recently kicked off a North American tour. We also added Allison Veltz Cruz, an in-demand songwriter, in the popular country pop space, with #1 hits and credits for artists, including Matt Stell, Tenille Arts, Jason Aldean, Luke Combs and Lady A. Also joining the roster this quarter is Britten Newbill, whose pop and R&B song writing and producing credits include hits by Cap Burns, Olivia Dean, Daya, Meghan Trainor and more. We also continue to invest in high-growth emerging markets. We extended our publishing agreement with multi-platinum Indian hip-hop artists, Divine, now overseen through Reservoir's recently launched subsidiary, PopIndia. Originally signed in 2020, this partnership, including our joint venture with Divine's umbrella company, Gully Gang Entertainment, has helped cultivate new talent across India's hip-hop ecosystem, and we are excited to continue supporting the genre's global growth. Additionally, we entered into a joint venture with Dan's Hall publisher, Abood Music, and Jamaican Star Cordel Skatta Burrell. Skatta's hit record Coolie Dance Rhythm exemplifies how enduring works can reach new audiences through inventive sampling. With uses in global hits by Pitbull, Lil John, Whitney Houston, Fatman Scoop, Nina Sky, 2025 Grammy-nominated gold selling global hit After Hours by Kehlani and more, Coolie Dance reinforces the long-term value of culturally significant music. Through the joint venture, Reservoir and Abood Music will acquire catalogs and sign and develop Jamaican creators, aimed at further advancing the new generation of Jamaica's music scene. Our emerging market strategy remains highly impactful with favorable acquisition multiples and streaming growth rates that continue to outpace both the U.S. and Europe. Our performance this quarter is taking place against the backdrop of sustained growth in the global music economy. As reported by music economist Will Page in December, the global value of music copyright reached an all-time high of $47.2 billion for the year prior. Streaming services continue to follow a relatively regular cadence of price increases, which serve as additional tailwinds for general industry growth. We believe our focus on premium assets, long-term creator partnerships and emerging markets positions us well to drive growth and maximize value creation for our songwriters, our artists and shareholders over time. I will now turn the call over to Jim to discuss our fiscal third quarter financial performance. Jim? Jim Heindlmeyer: Thank you, Golnar, and good morning, everyone. Our third quarter results demonstrated another quarter of financial strength, stemming from our ability to acquire quality catalogs and maintain substantial operating leverage. Our confidence to raise our fiscal 2026 guidance as we head into our fourth fiscal quarter is supported by our impressive roster of talent, and we are excited to continue to build upon a successful first 3 quarters of fiscal 2026. Revenue for the third fiscal quarter was $45.6 million, a 5% year-over-year improvement on an organic basis and an 8% increase when including acquisitions. At a segment level, we posted a 12% increase in Music Publishing revenue and an 8% increase in Recorded Music revenue, both of which were largely driven by an increase in Digital revenue due to the acquisition of additional music catalogs and continued growth at music streaming services. Total cost increased 8% compared to the prior year's quarter due to a 3% increase in administration expenses, a 7% increase in cost of revenue and a 16% increase in amortization and depreciation expenses. This led to an expansion of operating margins given our 8% revenue growth. Turning to operating performance for the third fiscal quarter. OIBDA was $18.1 million, an increase of 11% year-over-year, and adjusted EBITDA was also up 11% year-over-year to $19.2 million. Both OIBDA and adjusted EBITDA benefited from revenue growth, but was slightly offset by an increase in administrative expenses. Interest expense was $6.6 million for the quarter, an increase of $800,000 from the prior year due to an increase in borrowings to support our M&A strategy, which was partially offset by a decrease in interest rates. Net income for the third fiscal quarter was approximately $2.2 million compared to net income of $5.3 million in the third fiscal quarter of the prior year. The decrease in net income was primarily driven by a loss on fair value of swaps compared to a gain in the prior year period as well as increased interest expense and the change in other income. This was all partially offset by an increase in operating income and a decrease in income tax expense. Earnings per share for the quarter were $0.03 compared to $0.08 in the year ago quarter. Our weighted average diluted outstanding share count during the quarter was 66 million. Diving into our segment review for the quarter, Music Publishing revenue increased 12% year-over-year to $30.1 million. This was mainly due to an increase in performance revenue, driven by the strong results from hit songs, and an increase in Digital revenue due to the acquisition of additional catalogs and continued growth of music streaming services. In our Recorded Music segment, revenue increased by 8% year-over-year to $12.9 million. Recorded Music revenue benefited from Digital revenue growth, driven by continued music streaming growth and the acquisition of catalogs and an increase in neighboring rights revenue. This growth was partially offset by a decrease in Synchronization revenue due to the timing of licenses. Now let's turn to our balance sheet. As of December 31, 2025, cash flows from operating activities increased by $5.1 million year-over-year to $38.2 million, owing to an increase in OIBDA and cash provided by working capital. We had total liquidity of $114.8 million, consisting of $20.6 million of cash on hand and $94.2 million available under our revolver. We ended the quarter with total debt of $452.3 million, which was net of $3.6 million of deferred financing costs, and thus, we maintained $431.7 million of net debt. That compares to net debt of $366.7 million as of March 31, 2025. With respect to our guidance range, we are increasing our full year revenue guidance range of $167 million to $170 million to now reflect $170 million to $173 million, which, at the midpoint, implies growth of 8% versus fiscal 2025. Similarly, we're raising our adjusted EBITDA guidance range of $70 million to $72 million to now be $71.5 million to $73.5 million, which signals growth of more than 10% over the prior year at the midpoint of the range. Looking at the fourth fiscal quarter of the year, we believe we are well positioned to achieve our increased full fiscal year guidance ranges. Remaining true to our proven capital deployment strategy continues to position Reservoir to provide long-term value as a partner of choice for worldwide talent, which, combined with our ability to grow the top line without an excess of additional cost, should allow us to continue our track record of growth in the coming quarter and fiscal year 2027. With that, I'll now pass the call back to Golnar. Golnar Khosrowshahi: Thank you, Jim. As you've heard today, we continue to make progress toward our top line goals while maintaining discipline across costs and the balance sheet. Reservoir remains a trusted partner for songwriters and artists around the globe with a commitment to our creators and value enhancement. Our pipeline is strong and diversified with landmark transactions at attractive returns. We look forward to closing out the fiscal year in the coming weeks. With that, we will now open the line for questions. Operator: [Operator Instructions] Our first question comes from Griffin Boss with B. Riley Securities. Griffin Boss: So first off, given the step-up in debt, I would say it appears to be another robust quarter for catalog acquisition, and you mentioned several of the deals that occurred. Is there anything you can say about how the fourth quarter is shaping up for deal activity? Do you expect it to stay at what has been an elevated clip the past 2 quarters? Golnar Khosrowshahi: Yes, we do. We are on track with continued M&A for this quarter. And obviously, things are subject to timing and timing shifts, but we anticipate to be continuing at the same clip. Griffin Boss: Okay. Great. And Golnar, you did mention in your prepared remarks favorable acquisition multiples. So I guess the question is, is it safe to say that you're not seeing any material change generally to the weighted average multiples that you've paid historically? Golnar Khosrowshahi: That's correct, we are not. Griffin Boss: Okay. Okay. Great. And then just last one for me, and I'll pass it off. I'm just curious if there's anything that you'd like to say or comment on regarding the activist investors amended 13D filing last night. I think you've been engaged with that specific shareholder for quite a while now, so just curious if there's anything that you wanted to share about the nature of those discussions. Golnar Khosrowshahi: No, I don't have anything to add. I don't have any information to share. We're very much focused on continuing to grow the business and delivering value for all of our constituents. Operator: [Operator Instructions] Our next question comes from Richard Baldry with ROTH Capital. Richard Baldry: Fourth quarter implied revenues looks like down a little bit sequentially seasonally. And that is what happened last year, but I feel like third quarter had an unusually high other income line. And in prior years, fourth quarter has typically been seasonally pretty strong. Are there any call-outs on unusual onetime events this time around? Or do you think just typical conservatism? Jim Heindlmeyer: Rich, last year, we did call out royalty recoveries related to an audit that we completed. There were actually 2 audits we completed last year, 1 in Q3, 1 in Q4. So those certainly impacted the numbers last year. There's nothing unusual that we are expecting in Q4 this year, but we'll have that dynamic with respect to the comps year-over-year. Richard Baldry: Okay. And the G&A number had -- last quarter had been up pretty meaningfully year-over-year. This quarter, it's almost flat year-over-year. How do we think about the trending on that, and how to look at it on a go-forward basis? Jim Heindlmeyer: Well, I think some of those ups and downs in G&A is driven by the small other segment that we have related to our management business, where, as that revenue goes up or down, the commissions that we pay to the actual managers is impacted, and that sits in our G&A line. So that's driving some of those ups and downs that you see. But I think that what you're looking at for this quarter is -- and certainly, when you look at it on a segment level, it's really where we expect to be. We have normal inflationary pressures on our G&A. But other than that, there's nothing that stands out there. Richard Baldry: And then last one would be, if you look at the ROIs on deals and the pricing, is there a meaningful difference between international versus domestic? Will that sort of skew where you're looking for deals in the future? How do we think about those sort of growth trends? Golnar Khosrowshahi: It's not a secret that we can acquire at more favorable multiples in the emerging markets or at least in some of the emerging markets. I wouldn't necessarily put Latin in that same category, given that, that pricing is pretty mature and on par with Western markets. So from that point, I would say that given the expansion and the growth that is occurring and projected to continue in those emerging markets, we're looking at some equally more favorable returns on those investments as well. Richard Baldry: Got it. And then maybe last one from a very macro level, when you think about price increase at streamers and royalty rates agreements at the highest level, are there any tailwinds, headwinds we should be thinking about as we look out to '27? Golnar Khosrowshahi: I think there's a bit of both. I think we have uncertainty around CRB, and that process is underway. Obviously, that's not a process that is new to us, and we've gone through that before. We have tailwinds in so far as subscription number increases, tailwinds in so far as just the emerging markets expansion, people coming online, price increases across streaming platforms. So I would say there's a bit of both, but we continue to be -- we continue to believe that, on a net basis, there are -- we are looking at tailwinds and continued growth in music. Operator: We have reached the end of our question-and-answer session as there are no further questions at this time. I would now like to turn the floor back over to management for closing comments. Golnar Khosrowshahi: Thank you, operator. We appreciate your support and interest in Reservoir, and we look forward to sharing our full fiscal year results with you later this spring. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning. Welcome to Voya Financial's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Mei Ni Chu, Head of Investor Relations. Please go ahead. Mei Ni Chu: Good morning, and thank you for joining us this morning for Voya Financial's Fourth Quarter 2025 Earnings Conference Call. As a reminder, materials for today's call are available on our website at investors.voya.com. We will begin with prepared remarks by Heather Lavallee, our Chief Executive Officer; and Mike Katz, our Chief Financial Officer. Following their remarks, we will take your questions. I'm also joined on this call by the heads of our businesses, specifically Jay Kaduson, CEO of Workplace Solutions; and Matt Toms, CEO of Investment Management. Turning to our earnings presentation materials that are available on our website. On Slide 2, some of the comments during today's discussion may contain forward-looking statements and refer to certain non-GAAP financial measures within the meaning of federal securities law. GAAP reconciliations are available in our press release and financial supplement found on our Investor Relations website. And now I will turn the call over to Heather. Heather Lavallee: Thank you, Mei Ni. Good morning, and thank you for joining us today. Let's turn to Slide 4. In 2025, Voya delivered strong financial and commercial results that exceeded our targets and accelerated our growth strategy. We delivered over $1 billion of pretax adjusted operating earnings for the full year and significantly grew earnings across all segments. We generated $775 million of excess cash, well above our target. And in 2025, combined Retirement and Investment Management assets surpassed $1 trillion. This achievement illustrates our scale and reinforces the value of our integrated business model. These financial results reflect our outperformance against the priorities we set at the start of the year, accelerating commercial momentum in Retirement and Investment Management, successfully integrating OneAmerica and improving margins in Employee Benefits. Voya's financial performance and strategic progress show the strength of our franchise and our team's consistent focus on execution. Before Mike walks through the quarterly and full year numbers, I'd like to touch on a few key highlights from 2025. In Retirement, we delivered exceptional results across our business. Defined contribution net flows surpassed $28 billion, the highest in Voya's history, and our participant base is fast approaching 10 million accounts, demonstrating our expanding reach. The OneAmerica integration significantly exceeded our financial targets while expanding the capabilities we offer clients and broadening our reach with advisers. We also continued to expand wealth management as a high-margin growth engine. The business generated over $200 million in net revenues in 2025, contributing to our exceptional financial results in Retirement and helping us serve our customers to and through retirement. Across Retirement, our strong margins reflect our scale, our focus on driving profitable growth and our disciplined expense management as we invest in key growth initiatives. In Investment Management, we delivered strong results, reflecting the scale and breadth of our platform and the momentum we're seeing across the business. We delivered a record $1 billion in annual net revenue and 4.8% organic growth, well above our long-term target. Our platform is well positioned in the areas where the industry is growing, including private assets, insurance asset management and the continued expansion of our intermediary platform with actively managed ETFs. We're an established leader in the third-party insurance channel built on our expertise in managing Voya's general account. This channel continues to build momentum heading into 2026 and is a clear competitive advantage. Our record net flows in 2025 drove AUM to $360 billion, highlighting both the competitiveness of our offering and the trust our clients place in our investment capabilities. In Employee Benefits, we made meaningful progress in improving margins and expect further improvement this year. In Stop Loss, we have increased our rates, enhanced risk selection and been disciplined with reserving. Our actions position us well for 2026. Across the enterprise, our results this year reflect the competitive strength of our franchise and the progress we're making against our strategic priorities. Our strong performance drove significant cash generation and positions us well to further increase excess capital in 2026. Together, our growth in excess capital and strong balance sheet gives us flexibility to deploy capital to the most value-accretive opportunities. With that, I'll turn it over to Mike to walk through the financials in more detail. Mike? Michael Katz: Thank you, Heather. 2025 marked a strong year of execution. We generated over $1 billion of pretax adjusted operating earnings, $168 million higher than a year ago. And we increased earnings per share 22% to $8.85. This included EPS of $1.94 in the quarter, which was up 39% from last year. These results were driven by management action throughout the year as we delivered above-plan financial results across all our strategic priorities. We continued our commercial momentum in both Retirement and Investment Management. We significantly exceeded our financial targets integrating OneAmerica, and we achieved substantial margin increases in Employee Benefits. This led to approximately $775 million of excess capital generation in 2025, including approximately $175 million in the fourth quarter. And looking forward, we expect further excess capital improvement in 2026. Turning to Retirement. 2025 was an exceptional year, marked by record commercial results, robust earnings growth and higher value accretion from OneAmerica. We generated nearly $1 billion of adjusted operating earnings in Retirement stand-alone, 17% higher than 2024. This included $255 million of earnings in the fourth quarter. Earnings growth was primarily driven by higher fee-based revenues, which now exceed $1.4 billion. Commercial momentum and our integration of OneAmerica are driving a 21% increase in fee-based revenues year-over-year. Importantly, we finished the year with an adjusted operating margin of 40% as we both drove efficiency across the business while investing in key priorities that accelerate our strategy. We generated a record $28 billion of organic defined contribution net inflows in 2025, and we added $60 billion of assets from OneAmerica. Together, this supported a 30% increase in total defined contribution assets to approximately $730 billion at year-end. We now have a base of approximately 10 million participant accounts for us to serve both to and through retirement. Looking ahead to '26, we anticipate meaningful defined contribution net inflows underpinned by plans expected to fund in the back half of the year. And our scale and leadership position in Retirement provide a strong foundation for durable fee-based revenue growth, increasing cash generation over the long term. Turning to Investment Management. 2025 was a year of record commercial results and revenue. Net revenues exceeded $1 billion in 2025. Both institutional and retail revenues grew year-over-year, contributing to overall adjusted operating earnings of $226 million. This included another year of exceptional investment results as we realized $35 million of performance fees in the fourth quarter. We generated flows of approximately $15 billion, well exceeding our long-term organic growth target of 2%, further scaling our franchise. Flows for the year were broad-based across channels and strategies. In institutional, insurance channel demand for investment-grade credit, commercial mortgage and private credit strategies remain strong. And in retail, international demand for income and growth remained robust, while fixed income and specialty equity strategies drove positive flows in the U.S. intermediary channel. We enter 2026 with significant momentum and are on track to deliver another year of organic growth. Turning to Employee Benefits. Adjusted operating earnings were $152 million in the full year, significantly improved from $40 million in the prior year. A key driver of this improvement included Stop Loss, which I will discuss in a moment. In Group Life, full year loss ratios were at the low end of our target range of 77% to 80%. This included favorable loss ratios in the fourth quarter, driven by better-than-expected frequency and severity of claims. In Voluntary, our full year loss ratios were approximately 50%, consistent with our plan to drive enhanced value for our customers. Turning to Stop Loss. In 2025, we delivered meaningful improvement supported by higher rates, tighter risk selection and disciplined reserving. Full year reported loss ratios improved by 10 percentage points from 94% to 84%. This reflects in part a reserve increase of $37 million in the fourth quarter. Claims experience on the '25 book is developing modestly better than the prior year. However, ensuring we have a well-supported reserve level heading into first quarter is essential. And as a reminder, claims experience for January cohorts will move from approximately 65% to 90% credible on a paid basis through the first quarter. Looking forward, we continue to embed recent experience into our pricing and risk selection. For the January 2026 business, we achieved an average net effective rate increase of 24%, above the 21% increase secured last year. Different than a year ago, we were able to maintain in-force premiums. And we have more opportunities to select our risks with RFP volumes rising, driven by employers seeking greater certainty in their medical spend. Collectively, these actions, reserving, pricing and risk selection have materially strengthened our positioning and support further margin expansion in 2026. Turning to Slide 11. We generated approximately $775 million of excess capital in the full year, including approximately $175 million in the fourth quarter. This meaningfully exceeded our $700 million target in 2025. Exceptional earnings drove a more than 200 basis point expansion in our adjusted return on equity, which now stands at 18.6%. We have been disciplined with our capital in 2025, including our acquisition of OneAmerica, which is generating earnings and returns well above our original targets. More broadly, our strong balance sheet, healthy excess capital and highly cash-generative businesses provide us significant flexibility to deploy capital in the most value-accretive way. In the near term, the best use of that capital is for share repurchases. We will repurchase $150 million of shares in the first quarter and expect to do the same in the second quarter, subject to macro conditions. Longer term, we will continue to be strategic, opportunistic and disciplined with our deployment of capital as we accelerate our strategy. We head into 2026 with clarity on our priorities and great momentum. We exceeded our financial targets in 2025 and expect to do the same in 2026. I'll now turn it back to Heather to share those priorities. Heather Lavallee: Thanks, Mike. Turning to Slide 12. I want to thank the entire team here at Voya. Collectively, we delivered for our customers and positioned Voya for another strong year in 2026. Our priorities for 2026 are clear and compelling: growing excess cash generation, maintaining balance sheet strength and capital flexibility, driving continued commercial momentum in Retirement and Investment Management, and further improving margins in Employee Benefits. These priorities and our continued focus on execution, accelerate our growth strategy and create meaningful value for our customers and shareholders. We are helping our customers build financial confidence and clearing a path for better outcomes today and in the years ahead. With that, I'll turn it over to the operator so we can take your questions. Operator: [Operator Instructions] Our first question is from Bob Huang with Morgan Stanley. Jian Huang: My first question is on Stop Loss, especially regarding the reserve that you've added. Can you maybe give a little bit more details behind the reserve actions? Is it more of a -- you have the reserves mainly just to pad the reserves to be conservative? Or is it more you're actually seeing some losses developing that would cause you to take the actions you've taken? Michael Katz: Bob, yes, first, just let me start by saying and reiterating what I shared in the prepared remarks. When we talk about the January '25 business relative to the January '24 business, it's running modestly better than where we were at this point last year. That includes when we set the reserves coming out of December and frankly, where we stand right now. And then to your question, second, we did increase reserves in the quarter. The importance of the claims experience in the first quarter can't be understated. As I mentioned, we moved from 2/3 complete to 90% complete in the first quarter. And the range of outcomes today is different than what I would say historically for Stop Loss. You hear us talk about 77% to 80%, a 3-point range. But with this health care backdrop, that range is wider, probably double the normal range. And so when we look at the reserving, we think about being on the higher end of that best estimate range. Now when we look forward and we think about the margin expansion that we expect in 2026, we certainly see that coming from not only the perspective of where we price the Jan '26 business, 24% increase we got on that business. And frankly, from a risk selection perspective, we've gotten more opportunities. RFPs are up. And as I just mentioned, we are seeing employers look for this type of coverage as they're really trying to get certainty with their medical spend. I think the big step back here right now is that when we look at Stop Loss, it did not take us off course for an incredible year in 2025. And the actions we've taken across pricing, risk selection and how we reserve for this heading into 2026 positions us to say the same. Jian Huang: Got it. Really appreciate that. So it sounds like your path hasn't changed. So maybe a follow-up on that specifically is the 24% rate increase for the January 2026 cohort. As we go forward, obviously, that's a big rate increase. Do you feel that rate increase is enough or sufficient going forward as we think about just the broader Stop Loss environment where you feel like maybe going into the next few years, there should be more pricing. Just curious, any comments or dynamics on pricing. Michael Katz: Yes, we do. We do, Bob. We feel -- when we think about where trend is, we talked a lot about the fact that we expected higher trend in '25 and '26, and so we went out to get that rate. Certainly, it was easier for Jan '26 than it was for Jan '25 as we were ahead of many in going after that rate. But when we look at this relative to that kind of high single-digit, maybe 10% first dollar trend, you lever that up around, we think, in that 20% range. And so the other piece I'd mention, too, is that demand we're seeing from employers that are looking for certainty of spend. We feel like as we move forward on the progress of margin improvement at the cohort level that we're going to have even more opportunity in 2026, because when you look at the demand, it's up, supply is at best, limited to down. Heather Lavallee: Yes. And Bob, it's Heather. Maybe one thing I would add, just to kind of do the broader step back on stop losses. We've always talked about this being a 2-year journey. And as Mike talked about the $100 million improvement in earnings in '25 is a significant step in the right direction. We aren't declaring victory. As Mike talked about, we're reserving for a wide range of outcomes, but we believe we only have upside from here, which is why we have reiterated our capital deployment plans for the first half of '26. Operator: Our next question is from Tom Gallagher with Evercore ISI. Thomas Gallagher: A couple of Stop Loss follow-ups. Mike, when you said your actions support further margin expansion in '26, are you -- is your baseline the 84% that you did for the full year? Or is it the 91% accident year loss ratio for the Jan '25 cohort like what should we -- when you say improvement from which number, the 84% or the 91%? Michael Katz: I think it's both, Tom. Like when you think about the 84%, I mean, certainly, that's the reported levels of loss ratios for the full year. And as Heather just mentioned, we took the EB business from $40 million to $152 million. That included progress with Stop Loss, but also from the 91% perspective. And I think Bob was getting at this just a moment ago, when you think about reserve levels, and frankly, we -- fourth quarter is super critical when we make that assessment of where do we think the range of outcomes are. As I just mentioned, it's not a 3-point type of wideness in the range. We think it's frankly closer to double that. And we want to be in a position here where we're at the higher end of that best estimate range. Now we certainly need to see where things play out in the first quarter, and frankly, some of the second quarter before we decide where this is ultimately going to land or where we see where this ultimately is going to land. But the one thing I would just kind of encourage folks to think about here is don't conflate where we're reserved at with where this ultimately lands. Heather Lavallee: And Tom, I would just add to it, if you really compare where we were a year ago with our reserve levels, about this time last year, we were close to 95%. And while we're not fully complete, on the '25 book of business, you see it coming in closer to that 90%, 91% range, which is quite an improvement. And so we do think it's prudent given the backdrop to do the reserve adjustments that Mike mentioned. But as you saw last year, things only went in a one-way direction which was a positive direction. And so we see -- we like the progress we made, and we see further upside from here an improvement to build on what we delivered. Thomas Gallagher: I appreciate that color from both of you. My follow-up is just if you look at the, I guess, the loss pick of 91%, it implies loss cost trend was up 20%-ish. Is that the right level that you think is happening across the board for Stop Loss? on a trend basis? Or was there something about your risk selection? Did you get selected against? Do you think your loss experience was worse. I just want to get a sense for like what did you see in the quarter? Was it material worsening? Or is this more conservatism? I just want to get a sense for what do you think actually happened in maybe why -- I think people look at the 91% and they get scared because you went from 87% and 91% and think you don't have your arms around the situation. So maybe just to the extent that you can tell us how confident you are that you have your arms around the situation and you're not seeing adverse selection. Michael Katz: So from a risk selection perspective, it's about a well thought never one. I think when we talked about the Jan '24 business that was risk selection, not where we wanted to be, in any way, shape or form. We made improvements when we think about where we were at Jan '25, and we expect to make even further improvements on risk selection. So it's never perfect. Tom, I think to your question around the trend, as I mentioned earlier, like we think it's in that, call it, 20% high teens level. And so it was more difficult to get rate in the Jan 2025 than it was for the Jan 2026 for the reasons that we were talking about around demand. So when we -- when you just kind of roll that all together, your -- the heart of your question, like do we feel like we have our arms around this? Absolutely, we do. Operator: Our next question is from Mike Ward with UBS. Michael Ward: I was curious about maybe just utilizing the Stop Loss experience. And in terms of leverage in order to sort of cross-sell other products with specific employers, you know what I mean? Like how is that going? Is that becoming material? Is that contributing to your confidence in '26 for the Retirement side? Heather Lavallee: Yes. Mike, it's Heather. I'll let Jay add. But I think what's important to think about is that we're often selling Employee Benefit products to the same brokers and consultants, both the Stop Loss and the Voluntary. And it goes to the point of we see high demand for the products that we're offering. But maybe the last bit I mentioned before I toss it over to Jay is our teams have continued to be highly disciplined on margin over growth. So we're not leading into anything to drive unnecessary growth just given the backdrop. But Jay? Jay Kaduson: Yes. As we think through this heading into '26, as Mike referenced, the supply at best level, we think is actually down, but the demand is significantly up, and we're hearing that from our brokers and intermediaries. And so what it does is it does cause this kind of capacity conversation of there is only so much capacity in the marketplace for coverage. And getting a more fulsome book as we think through the areas of Employee Benefits and where we have and are in similar segments in Retirement, we definitely are changing that conversation. It's happening in front of us. We're engaged in those conversations now. We expect those conversations to continue. We are also seeing more and more from a bundling perspective. So as we get into different questions on different parts of the book, we're seeing a greater opportunity to bundle given what we've done in some of the product lines. And so I think we'll come back to you as this conversation progresses, but it's definitely a leverage point and a conversation point we're having actively with our partners. Michael Ward: And then just for Heather and Mike, you both sounded confident on the idea of expanding your excess cash flow generation in '26. Wondering if you could unpack that a little bit more. Michael Katz: Yes. Look, it really boils down to what we've been talking about in 2025 and what we're signaling around 2026 from a priority perspective, Heather finished with this, really, there's really three elements. I think the first element is the commercial momentum that we've had in both Retirement and Investment Management, record years. Earnings have been fantastic. And then what we just talked about from an Employee Benefit perspective, we made good progress in 2025, but we're not satisfied, and we see even more margin expansion in 2026. That's going to be a contributor as well. And then if you're looking at it from a per share perspective to Heather's point, just a moment ago, we see share repurchases as a key element of the value proposition. And frankly, when you look at our return on equity at close to 19%, we're more than happy to buy shares at these valuations. Heather Lavallee: Yes. And Mike, maybe to build and certainly makes sense while there's a lot of questions on Stop Loss. But if you think about the broader and, frankly, larger portion of our business, we've had an absolutely amazing year in '25. If I think about record revenue and Investment Management, record flows driven by a diversified breadth of solutions with strong investment performance. We've talked about and you heard Mike mention on the call, an absolute record year in Retirement that is setting us up well for continued growth at margins that frankly have been above our long-term target. We're making progress on the build-out of wealth management, which further diversifies that business. And then the OneAmerica, where we've added additional capabilities for our clients. We brought in additional distribution partners but we've also demonstrated really good deployment of capital into an acquisition that generated over 30% unlevered return. So to your question, Mike, yes, we feel confident in our ability to continue to grow cash generation in '26 and are committed to returning that back to shareholders. Operator: Our next question is from Suneet Kamath with Jefferies. Suneet Kamath: I wanted to go back to Stop Loss. Mike, as you were talking about the '25 block, I think you said it was modestly better than '24. And I had sort of expected it to be significantly better just given the pricing actions that you took. So I guess the question is, is this 2-step process that you talked about sort of extending to maybe it's going to take you another year to kind of get there in terms of the loss ratio? Michael Katz: Yes. Look, I think it's a stay tuned, Suneet. We're pricing this business, and we did it in the fall. We'll do it in 2026 to get our target margins. And as we've been talking about, we made a lot of progress in 2025. We're not all the way there. Our expectation is to continue to make progress in 2026, the exact amount of that, I think we'll have a better sense as we get to more in the middle, late part of 2026. But we'll update you along the way. Like Tom was asking earlier, do we have our arms around this, we do, and we're taking action across the three dimensions. And those three dimensions are the pricing, the risk selection and the reserving. And so we think we've taken the appropriate steps in the fourth quarter to make sure that we're in a good position in 2026 to continue that excess capital generation growth that Heather just talked about a moment ago. Suneet Kamath: Okay. And then I guess when you go from 1/3 to 2/3 then to 90% of the experience, is there something in the latter part of how that experience earns in that gives you more information? Or is this just as you saw what happened in the fourth quarter, that's what caused you to take the reserve build? Michael Katz: Yes. It's just timing, Suneet, right? Like fourth quarter is really critical. First quarter is really critical. That's not new news. We've been trying to get that across for the reasons you just called out. And so even though the claims are happening in 2025, we may not be aware of them until 2026. There's just a lag between event and when it's reported. And so with that health care backdrop, I think it's just super prudent to be on the higher end of best estimate ranges for reserves. So that's what we did. Operator: Our next question is from John Barnidge with Piper Sandler. John Barnidge: My first question is on Stop Loss. And Mike, you had some comments about range of outcomes is different today than historically and a lot wider. Is it one of these things with the Stop Loss business with the fourth quarter there just probably is going to be more seasonality going forward in this business, in this backdrop, setting aside the rate need? Michael Katz: Look, I think -- when we look at '24, we look at '25, we're in kind of a once-in-a-generation type of situation as it relates to the health care backdrop. Where this lands as we get deeper into 2026. And is this going to be something that's happening every fourth quarter? Yes, I wouldn't want to signal that. What I would want to signal is that the analysis, the work that we do and what we're putting on our book and the analysis and the work that we're doing in assessing what the right amount of reserves are, that's going to continue. Does the range stay at a similar level in December of 2026 that it is December 2025. We would hope not, but if it is, that's the way we're going to assess it. And all the actions we've taken heading into this year, again, gives us a confidence level that we're going to continue to expand margins in EB, and it's not just a Stop Loss story. It's frankly across the board in that particular business line. John Barnidge: And my follow-up question, can you talk about the strategic rationale of Stop Loss in the context of what it brings in synergies to the growth opportunity in Investment Management and Retirement? Heather Lavallee: Yes, John, it's Heather. Happy to do that. And I think if you look broadly at Employee Benefits and Stop Loss, this isn't a very important product in our overall portfolio. If you think about within the workplace business, stop losses in incredibly high demand for employer clients to help them control really more volatile medical expenses when they choose to self-insure. As you heard Jay mention, there is much greater demand and lower supply. And so we think we're in well positioned, specifically demonstrated by the 24% rate increase we achieved on the book, while maintaining the block size. But it also goes broadly. You think about the supplemental benefits we have is those are really critical for families and employees to cover out-of-pocket expenses when they're in a high deductible plan. It goes to the capabilities Jay talked about in terms of the lead management build-out is that our workplace benefits are designed to help people protect against unforeseen events. And then you think about the complementary nature across Retirement, wealth management and asset management, those are all really around accumulation returns and planning. And so I see them as the opposite side of the same coin is that we've got the right capabilities to serve clients at the workplace. We've got the right capabilities to bring to institutional clients. And it goes back to our vision really helping clients to achieve and secure financial future. So it really is a great strategic asset for us. Operator: Our next question is from Jimmy Bhullar with JPMorgan. Jamminder Bhullar: So I just had a question on the Stop Loss as well. And clearly, the results have improved over the past year as you've implemented price hikes. But it's hard to imagine that you're not seeing something that would have warranted you increasing the pace at which you're building reserves versus 3 to 6 months ago. Like I just don't think you would just willingly raise the reserves just for the hell of it to be conservative. So -- and you haven't answered anything on any of the questions on what it is that you've seen now versus maybe 3 months ago, 6 months ago that have caused you to raise reserves as much as you have. Like I realize you will eventually fix this, but you're just not answering the question on what's happened in the business in the last few months. Michael Katz: Yes. Jimmy, I think again -- and maybe just to give you a little bit of color on the types of that we're seeing, if that's what you're looking for. And it's not a different theme. Like we're seeing the same themes with respect to higher frequency related to cancer, particularly at younger ages. We're seeing the higher severity from a cell and gene therapy perspective. And again, like think about where we are in the development. I think that's the key here, right? We moved from really not developed until we get to the third quarter. But even in the third quarter, we're only about 1/3 developed. And we moved to 2/3 developed in the fourth quarter. That's when we're making the real assessment on the range of outcomes. And then in the first quarter, we're getting a sense of where this lands. And so as I mentioned earlier, when Tom was asking, like, don't conflate where this is landing from where we're reserving at right now. The range of outcomes are wider, and so the prudent thing to do is to be on the higher end of that best estimate range. So the ultimate improvements are going to play out as we move through the course of 2026, but we feel good about where we are, and we feel good about the progress we're making. Jamminder Bhullar: But the range of outcomes, okay, that is wider, but you're choosing to be conservative based on something you're seeing in the market, right, or in the loss environment. Because you could have chosen to be conservative throughout the last several quarters as well. Like I heard all the other questions. That's the reason I asked or I heard all the other answers that you provided. Heather Lavallee: Jimmy, let me add on. I think Mike's been really clear in why we did what we did. But if you take a bigger step back and you think about what's going on in the U.S. health care market, right? We are seeing more cancer claims. We are seeing higher cost of pharmaceutical drugs. That gives a wider range of outcomes. So if we have historically given you a target range of 77% to 80% of a loss ratio, when you think about it, that's a really narrow margin, right? Think about -- if you think about a hurricane trajectory, several days out, you've got a much wider cone. And as you get closer you see a lot -- you have a lot more certainty. And that's really how Stop Loss develops. It is 1/3 complete through the first 9 months of the year. The completion doubles in the next quarter. And so for where we are and given the claims that we see coming in, as Mike hit on that we see '25 coming in favorable to the '24 book. But it really is that range of uncertain outcomes given the broader healthcare backdrop that we just think it is prudent to take the reserves up, and we see opportunities to more surprise to the good versus surprise to the bad. Operator: Our next question is from Wes Carmichael with Wells Fargo. Wesley Carmichael: Maybe first question off a Stop Loss. But in the Retirement business, could you maybe talk about the outlook for full service in 2026 in terms of organic growth? And also, are there any shock lapses that you expect to still come from OneAmerica? Or are we largely through that? Jay Kaduson: Sure. If you think a little bit about where we are heading into '26, we are building off of '25 strong organic DC net flows. If you think about the $28 billion we generated. We also had $60 billion in assets from OneAmerica. Our growing participant base is approximately $10 million, and we've done that in high 90s retention rates. So we do expect that the flows in to continue to be strong. And much of this, we expect to be back half weighted. We do have visibility into some of the plans that are funding in '26. An important data point that we use is around planned RFP activity. And we saw that activity continuing to grow at a healthy and consistent pace heading into '26. We're really pleased with the strong commercial momentum in Retirement, and we'll continue to come back. Again, that's on the heels, if you think about where we finished in '25, Heather referenced this, earnings growth of 17% and above target margins of approximately 40%. So really heading into the year with a lot of strength. Wesley Carmichael: Got it. That's helpful. And maybe just a follow-up on capital deployment. Mike, I hear you loud and clear on buybacks being a near-term use of capital. But could you maybe talk about a little bit further out? Are there more potential roll-up opportunities in the Retirement space? And maybe how many opportunities are out there that are similar to OneAmerica that you might be thinking of? Heather Lavallee: Yes, Wes, it's Heather. I'll take your question. So if you think about it, the industry -- retirement industry continues to be in secular consolidation. And we're viewed as a natural buyer. I think we demonstrated that very clearly with OneAmerica that we can do this quite successfully and deliver for our clients. So we're actively assessing opportunities. We think that the -- there is a number of opportunities that we can pursue. But having said that, we do have a high bar for M&A right now, given what Mike talked about as we see the most value accretion deployment of excess capital is into share buybacks. Maybe the final comment I'd make Wes is, to go back to something Mike mentioned on the third quarter call, is that if we were to pursue a retirement roll-up, it does not take us off track to be able to return capital to shareholders. We understand that, that delivering and returning capital on a consistent basis is important to our shareholders. So if you think about the cash payment of OneAmerica, not a large size. So we think there's something that we can do both. Operator: Our next question is from Alex Scott with Barclays. Taylor Scott: I do have one Stop Loss question, and I promise I'll ask about something different. So when I think about the 91% policy year and I think about the 24% and the fact you took 21% and it didn't get better last year, it does feel like to believe that you can get better off the 84% calendar year, I need to be able to believe that what you're saying on the conservatism and reserves is real. And it's obviously a tough thing to believe just because like we've had this negative momentum broadly in the albeit you did have favorable development of last year, so I get it. But I wanted to see if you could give us some metrics, right? Like usually, we could assess this using -- in property and casualty, something like a paid [ out ] ultimate. So if you could tell us how much in actual cash claims you've paid out so far this year on the '25 policy year versus last year versus maybe the historical average or IBNR as a percentage of reserves, something to help us like have some kind of quantitative evidence that what you're saying is real around this conservatism? Michael Katz: Yes. Again, Alex, I mean that's something we can think about for future calls to put out there. I think, again, as we've been talking about the first quarter is going to be able to put that in a more clear light because I think folks will take information on paid claims and try to compare that to 2024. And it's hard to do that. And why it's hard to do that is, number one, it's a smaller block. Second, we've improved the loss ratio experience and then even claim settlements, which we're doing faster today than we did a year ago can conflate how to think about those things. So we don't want to confuse the matter from that perspective. But again, like we -- when we've been talking about this, we -- the uncertainty around claims in the fourth quarter was high and coming into 2025. It's high coming into 2026. We're happy with how the '24 block is developing, that's developed favorable relative to where things were reserved for coming into 2025. we cannot guarantee that's going to happen in 2026, but that's exactly how we're positioning ourselves. Taylor Scott: Okay. All right. Understood. And then second question I wanted to ask about artificial intelligence. And maybe both the good and the bad, right? Like what are the opportunities you see broadly? But then also from a risk standpoint, are there any parts of your business that could get disintermediated. And I think the stocks kind of moved yesterday on the idea that maybe there's software concerns and investment portfolios broadly. So I'd be open to any kind of color you could provide on that as well. Heather Lavallee: Thanks, Alex, for the question. It's Heather. I'll start, and then I'll ask Matt to add some comments on just how do we see it in the broader investment arena. So first, as you think about AI, the opportunities, as you'd imagine, it's something we're leaning into. Our focus is on leveraging AI to be able to improve client experience to help us to drive efficiencies and to support scale and growth. We are deploying it right now across a number of areas within our claims organization, within our contact center, certainly within technology as we think about how it allows us to speed up some of the software, the programming that we're doing. So it's something that we are leaning into. It's not new. We've been leveraging some bit of AI for a number of years. We're also paying attention to how it could disintermediate us. I do think that given the businesses that we are in, we -- people need insurance, they need retirement planning. We see it as something that is a little bit less of a disintermediator, but we're paying attention to ways that it could disrupt us. But right now, we see a lot more opportunities than headwinds on AI. And a critical one goes back to something we've done for years, which is expense efficiency, being able to maintain and grow our margins, and we see AI as an important lever. But Matt? Matthew Toms: Yes, Alex, an important question for the broader investor universe here. You're 100% right. I think it's important to think about where there's risk and where there's volatility. And I'll start with an insurance sense about our general account and how we view this really not an issue within the core GA bond portfolio. A broad technology makes up for us a little over 1%. I think you'll see some stats a bit higher across our peers. But again, I think you're going to be generally in the single digits there. We're a little over 1%. And software is about 0.5% if you look at that directly. And in the investment-grade space, you're going to run in names like Alphabet, Microsoft, Salesforce and beyond. So you've got diversified business models that can actually do quite well with AI, if done correctly. So within a core GA sense, I don't view it as an issue within the private portfolio, less than 1% of our portfolio is in tech. And within high yield, we're not really exposed to below investment grade in a meaningful way as a balance sheet, and that's where you see more industry risk. We don't have anything notable there, nearly 0 in high-yield tech. Over time, we view technology to be a much better investment from an equity standpoint than a debt standpoint. You can have very disparate outcomes. That plays itself better in an equity sense. Across the equity portfolio, you really have to get into our alternative portfolio for Voya. That's about 3% of our balance sheet within PE, you'll tend to see 25%-ish, 20%, 25%, we're lower than the 25% number in software related. So it's still meaningful. But you get, again, down to a number that's less than 1% of the GA. And I think that's where you have both upside and downside. But in the debt markets, we prefer to lean away from tech and feel very well supported. But if you're going to look for volatility, look for those more the venture more the recent vintage PE, we don't feel meaningfully exposed there as far as even that alternative portion of our portfolio. Operator: Our next question is from Joel Hurwitz with Dowling & Partners. Joel Hurwitz: So just one on Stop Loss, Mike. I guess I'm just still trying to understand why you can't provide us with the paid claims experience, right? That's something that you guys provided as last year in the fourth quarter in your slide deck. And at the end of the day, I think we're all just trying to understand what does it actually mean that the book is performing modestly better year-over-year. Michael Katz: Yes. Look, I think that's again something we can think about taking forward, Joel. Like when I -- and I mentioned this just a moment ago from a reserving perspective and why we need to be cautious with this. The amount of reserves that we have up this year versus last year is meaningfully less. And part of that is because we've got a smaller block. A part of that's because of just timing of when reserves released versus incurred from the '24 to '25 block and then just the settlement part of it on paid claims. And so when we do the assessment of what we think the appropriate reserve level is, yes, we look at paid claims. We're looking at reported claims. There's more dimension to that than just, hey, how are paid claims developing. But we certainly can provide more color as we move down the road and particularly in the first quarter, I think would be an appropriate time to do that because you're going to have the right comparison year-over-year. But we'd just be reiterating the same messages that we shared earlier with respect to how we think about reserve levels. Joel Hurwitz: Okay. And then shifting, can you just provide some outlook on how the take-up of your new leave offering and short-term disability has gone, and how we should think about that from a revenue and earnings standpoint in '26? Heather Lavallee: Sure, Jay will start and Mike can address the revenue question. Jay Kaduson: Great. If you think about the leave investment, we did successfully launch the integrated leave and disability claims solution in January. We do expect that the offering is going to continue to contribute revenue throughout '26. While it's early, we are encouraged by the initial feedback from our clients and our intermediaries, and they are providing that feedback real time. The market demand for this is really strong. We did see that over 50% of the Group Life, disability and sub health RFPs for 1/1/26 were bundled with leave. It's a really positive sign given the in-source and the commitment we've made to the space. But we are consistently hearing right now from our clients and brokers that leave administration is the most important capability they're looking for from carriers today. So specifically, they focus on the claims experience for their employees. We'll report back progress throughout the year, but we're really happy with the 1/1 launch. Michael Katz: Yes. The only thing I would add, and I want to come back to the question from Joel just for a moment. But when we look at -- just as you're looking at in-force premium growth, I think we just would encourage you to look at the growth from '23 to' 24 to '25. So growth has been more modest year-over-year. But when you look at 2-year growth across Voluntary, Group Life, very, very good. We had a fantastic year in 2024. And just on paid claims too, I know that's come up a couple of times here at the end. Like we're not sharing a number. We're saying it's modestly better when you look at Jan '25 or Jan '24, you should be thinking low single digits better on a paid claim basis from where we were a year ago to today. More to come. We don't want people running with that number yet because we need to see how things play out for the balance of the year. But that -- just to size it a bit, that's kind of what I would have in your mind. Operator: Our next question comes from Kenneth Lee with RBC Capital Markets. Kenneth Lee: One on Investment Management. You saw nearly 5% organic growth in 2025. What were your expectations are for organic growth this year? And in particular, any specific products or offerings you see as driving most of that growth. Matthew Toms: Ken, yes. So as you referenced, very pleased with the overall momentum in 2025, the $14.6 billion net growth, really best in a market that still has headwinds. So very happy with that. The theme going into 2026 is, say, twofold. A, longer term, we continue to think about that 2-plus percent organic growth rate assumption. We entered '26 with momentum that has allowed us to grow above that. And we do expect the first quarter to be positive with good breadth across the domestic market. So that's good as we really come into the year on our front foot. That's driven by strong investment outcomes. If you think about the 1, 3, 5, 7, 10 years, we deliver for our clients, and we get rewarded by our clients with net cash flows. And that's still the basis. And I think the performance fees at the end of the year were a testament to that as well. As far as where we're seeing products and channels, not a big change, insurance with fixed income, public and private still a stall work for us, very strong competitive position. We think more broadly in the U.S. institutional space. In DC, our target date offerings and partnership and coordination with our Retirement business is a good forward look, new products coming there. and fixed income continues to resonate there. And then internationally, income and growth in thematic equities, again, driving that. So really, it's a continuation of a story of breadth while we're looking to continue to grow upon our strength. So we enter first quarter feeling quite good. Kenneth Lee: Great. Very helpful there. And just one quick follow-up, if I may. Just on the Voluntary benefits side, what's the outlook here for this year? Is still around 50% benefit ratios there? Michael Katz: Yes. Maybe I'll hit it from a loss ratio perspective margin. And then maybe, Jay, if you want to hit it from just a premium perspective. So we've talked about 50% throughout the course of 2025. We have been building up reserves to get in front of the fourth quarter when we see a lot of seasonality for that product line that worked exactly according to plan. So we saw the 50% come through. The outlook, we say modest increase with respect to loss ratios. That's totally part of the plan of us providing more customer value with these products. These are important complements to high deductible health care plans. But from a net margin perspective and Heather was alluding to this before, I think it's true not just within EB, but across the board. I mean we are constantly finding areas where we're looking for efficiencies to offset either investments for growth or protect margins where we want to deliver more customer value. And so I think when you look at the Voluntary line, I would think of slightly higher loss ratios, but net margins intact. Jay Kaduson: Ken, I'll address a little bit how we see the voluntary market heading into '26 and maybe a quick step back on EB. We do expect growth in '26. 1/1/26 sales showed that commercial momentum. Just as a reminder, we are a top 3 provider of Voluntary. We've got about 10% market share. I did reference the newly in-sourced integrated leave and disability claims solution that is going to be kind of contributing to some of the growth and retention of our Voluntary products. That did show itself in 1/1/26, as I referenced, that 50% RFP with bundle. With that said, our top priorities right now across all of EB really does remain focused on this margin expansion. We're doing it through pricing execution where it is driving stronger persistency in our customer base. That's important. And as Mike referenced, we're creating more efficiencies in the business through investments in claims automation and AI, which is starting to show itself into the efficiency line. And so really happy with where we are in the EB business. As it relates to Voluntary, 1/1/26 was a positive step. Operator: Our next question is from Wilma Burdis with Raymond James. Wilma Jackson Burdis: What's the best way for us to -- or could you give us some insight into how you're thinking about the loss pick for the January 2026 Stop Loss business? Maybe if you could just pull together the pieces on the 24% rate increases, 20% medical trend and any benefits from risk selection. Michael Katz: Yes. Not a ton to add here, Wilma, on just how to think about trend that part of it. We've talked about that being an approximately 20% high teens is where we see trend. And so the other part of it is risk selection where we continue to make improvements, particularly versus where we were with the Jan '24 block. Jan '26 will come back to that in the first quarter. I think it's the same story here where we're going to look at the experience that comes in Q1. We talked about getting improvements. So we'll be in a better place than we were for Jan '25, but where we ultimately set that, we'll make that judgment in April. Heather Lavallee: Yes. And Wilma, the only thing I'd add to Mike's point is just something he said earlier is, as we're pricing this business, we are pricing it to be back within our target loss ratio range. So I just think that's an important element. And as Mike mentioned, we'll give you more details on the first quarter call. Wilma Jackson Burdis: Okay. And cash generation exceeded Voya's target for '25, could you drill a little bit more into the factors were reserve releases on '24 Stop Loss business. Is that something that would have supported the figure? Or how should we think about that? Michael Katz: Yes. I mean certainly had an effect on the cash generation in 2025. I think net, if you think about what we did in the fourth quarter with the prior period reserve releases in Q1, Q2 were net favorable with respect to just Stop Loss, EB in totality was better. I talked about expenses. So it certainly played a role. And we -- the base case is that it plays a role in 2026 as well. Heather Lavallee: Yes. And I would add, Wilma, is, again, you think about the cash generation of our Retirement business, the largest business is successful integration of OneAmerica above our targets. That was also a significant contributor to cash generation in addition to what we delivered for in Investment Management. So really, it is a portfolio story and something that we are confident we're carrying into '26. Operator: Thank you. We have reached the end of our question-and-answer session. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Thank you for standing by. My name is [ Jay ], and I will be your conference operator today. At this time, I would like to welcome everyone to the Chubb Limited Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Susan Spivak, Senior Vice President, Investor Relations. You may begin. Susan Spivak Bernstein: Thank you, and welcome to our December 31, 2025 Fourth Quarter and Year-end Earnings Conference Call. Our report today will contain forward-looking statements, including statements relating to company performance, pricing and business mix, growth opportunities and economic and market conditions, which are subject to risks and uncertainties, and actual results may differ materially. See our recent SEC filings, earnings release and financial supplement, which are all available on our website at investors.chubb.com for more information on factors that could affect these matters. We will also refer today to non-GAAP financial measures, reconciliations of which to the most direct comparable GAAP measures and related details are provided in our earnings press release and financial supplement. Now I'd like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer; followed by Peter Enns, our Chief Financial Officer. Then we'll take your questions. Also with us today to assist with your questions are several members of our management team. And now it's my pleasure to turn the call over to Evan. Evan G. Greenberg: Good morning. We had an outstanding quarter, which contributed to another record year, demonstrating both the resilience on the broadly diversified nature of our company. We delivered excellent full year results with strong contributions from virtually all of our businesses. We achieved record earnings for both the quarter and the year. For the quarter, very strong double-digit increases in underwriting and life income along with record investment income, led to core operating income of nearly $3 billion or $7.52 per share up about 22% and 25%, respectively. Total company net premiums grew almost 9% with P&C up 7.7% and life up about 17%. In fact, our company's published growth this quarter was faster than the average for the full year. In the quarter, our underwriting performance was simply outstanding. P&C underwriting income was $2.2 billion, up 40% with a record low combined ratio of 81.2%. Our published underwriting results were supported, of course, by low cats and prior period reserve development, but importantly, very strong current accident year performance from our businesses across the board, including from our agriculture division, where we are the #1 crop insurer in America. Agriculture's outstanding results benefited the quarter's underlying current accident year combined ratio of 80.4% which was nearly 2 points better than prior year and a record low. Importantly, however, excluding agriculture, the global P&C current accident year combined ratio, reflecting the strength of our businesses from around the globe was 80.9% almost a full point better than prior year and again, a record result. And we had an outstanding quarter on the investment side of our business. We generated record adjustment net investment income of $1.8 billion, up 7.3%. Our fixed income portfolio yield is 5.1% and our current new money rate averages slightly above that. Our invested asset now stands at $169 billion, up from $151 billion a year ago. The more important time frame to me to discuss though is the full year, and what a year we had. We printed record operating income just shy of $10 billion or $24.79 per share, up about 9% and 11%, respectively, over prior. For perspective, over the past 3 and 5 years, core operating income has grown 55% and over 200%. All 3 major sources of income for our company produced record results last year. P&C underwriting income of $6.5 billion was up 11.6% with a record low combined ratio for the year of 85.7%. Adjusted net investment income rose 9% to almost $7 billion, and life insurance income of $1.2 billion was up over 13%. Our record underwriting results and earnings were achieved in spite of full year cat losses that were, in fact, higher than prior year, substantially driven by the California wildfires in the first quarter. Though U.S. and worldwide hurricane and typhoon seasons were unusually light this year. Annual industry cat losses still approached $129 billion. By its nature, cat exposure is volatile. Frequency and severity of losses are alive and well. Fire, flood, cyclonic and earthquake are all perils that contributed to industry cat losses. For the year, we grew total company premiums over 6.5%, with P&C up about 5.5% and life up over 15%. Per share tangible book value, our most important measure of wealth creation grew 25.7% last year. Peter is going to have more to say about financial items. Again, our results for both the quarter and the year, top and bottom line, put a point on the broad-based, diversified nature of the company, by geography, by product, by commercial and consumer customer segment and distribution channel, it speaks to how well we are positioned both relatively and in absolute terms. Turning to growth pricing in the rate environment. P&C premium revenue again grew over 7.5% in the quarter, with consumer up almost 12% and commercial up over 6%. Our international P&C and U.S. agriculture business had a particularly strong growth quarter, with premiums up nearly 11% and over 45%, respectively. But we also had strong growth from our U.S. personal lines business and our commercial U.S. middle market and E&S businesses. In terms of the commercial P&C underwriting environment in the fourth quarter, as I said in the last few quarters, the market globally is in transition and growing incrementally more competitive quarter-by-quarter, particularly large account property admitted in E&S and upper middle market. Casualty pricing, overall, large account, E&S and middle market continues to firm in the areas that require rate. And in those that don't, price increases have slowed. Financial lines remained soft with some signs of firming in discrete classes. Let me give you some more color on the fourth quarter by division, and I'm going to begin with our international P&C business. Premiums in overseas general were up 10.8% or over 8% in constant dollar, a very good result. Premiums in our global retail, which operates in 53 countries and which is 90% of our overseas general division were up 12.5%. With consumer premiums, both A&H and personal lines up 18.7%. And commercial lines, up almost 7.5%. Latin America grew 14.7% with consumer up almost 18% and commercial up 10.5%. Asia grew 13%, with consumer up 25% and commercial flat and Europe grew over 7%. In our international retail commercial business, P&C rates were down 3.6% and financial lines rates were down almost 9%. Loss costs remained steady. Premiums in our London wholesale business, which is 10% of our international P&C were down about 1%. Given more competitive London open market conditions basically across the board, property, marine, aviation and professional lines. Turning to North America. Total P&C premiums were up over 6.5%. Agriculture, again, was up over 45%, predominantly due to the profit sharing formula with the government. Excluding agriculture, premiums were up 4.7% including more than 6% in personal lines and 4.3% in commercial, which is made up of middle market, small E&S and large account divisions. Breaking U.S. commercial growth down further, premiums in middle market and small commercial grew over 6%, with P&C up 7.5% and financial lines up 1.5%. New business for middle market and small was strong, up more than 17% versus prior year. Premiums in major accounts and specialty grew 3%. With major or large account business, up 0.5% in Westchester, our E&S company, up over 7.5%. Major account and for that matter, Westchester growth, was impacted by property, obviously. And in major, we wrote fewer one-off LPT transactions than we did prior year. Commercial pricing for property and casualty, excluding fin lines and comp was up 4.3%, with rates up 2.5% and exposure change of 1.8%. Property pricing was down 1.5% with rates down 4.6%, partially offset by exposure of 3.3%. Going a step further, property pricing was down over 13.5% in large account business and E&S and it was up 3.7% in middle market and small commercial. Casualty pricing in North America was up 8.5%, with rates up 7.6% and exposure up 0.8%. Financial lines pricing was down 1.5%, and comp middle market pricing was down just under 1%. Large account risk management pricing was up 6.5%. In North America commercial, again, there was no change to our selected loss cost trends. Premiums in North America, high net worth personal lines grew over 6%, and homeowners pricing was up over 8.5%. In our international life insurance business, which is fundamentally Asia, premiums were up almost 18% in constant dollar. And in North America, premiums in Chubb worksite benefits business were up over 16.5%. Our Life division produced $322 million of pretax income in the quarter, up just shy of 20%. So in summary, we had a great quarter and a great year, which again speaks to the broadly diversified and global nature of our company. We have many sources of opportunity on both the liability and asset side of the balance sheet. At the same time, we are continuing to invest to improve our competitive profile. While early, we're off to a good start in '26, and we're confident in our ability to generate for the year strong growth in operating earnings and double-digit growth in EPS and tangible book value through the 3 sources of income, P&C underwriting, investment income and life though cats and FX aside. I'll turn the call over to Peter, and then we're going to come back and take your questions. Peter Enns: Good morning. As you heard from Evan, we concluded the year with an outstanding quarter that produce full year earnings records and all-time highs on our balance sheet, including cash and invested assets exceeding $171 billion and book value of nearly $74 billion. Our exceptional results were supported by $4.2 billion of adjusted operating cash flows in the quarter and $13.9 billion for the year. We returned $1.5 billion of capital to shareholders which contributed to a total of $4.9 billion for the year or about half of our core operating income, including $3.4 billion in share repurchases at an average price of $282.57 per share and $1.5 billion in dividends. Book and tangible book value per share, excluding AOCI, grew 3.4% and 4.8%, respectively, for the quarter and 11% and 15.5%, respectively, for the year. Our core operating return on tangible equity and core operating ROE in the quarter were 23.5% and 15.9%. Pretax catastrophe losses were $365 million for the quarter, principally from weather-related events split 55% U.S. and 45% international and $2.9 billion for the year versus $2.4 billion in the prior year. Pretax prior period development in the quarter in our active companies was favorable $430 million, split 64% short tail lines and 36% long tail lines. Our corporate runoff portfolio had adverse development of $162 million primarily related to our asbestos review, which is completed each fourth quarter. Our paid-to-incurred ratio for the quarter and year was 105% and 91%, respectively Excluding cats, PPD and agriculture, our paid-to-incurred ratio for the quarter and year was 94% and 88%. Turning to investments. Our A-rated portfolio increased about $2.7 billion from the prior quarter and $18.1 billion from the prior year. The increase for the quarter and full year reflects strong operating cash flow and positive marks to market while the year also includes favorable FX, partially offset by shareholder distributions. Adjusted net investment income of $1.81 billion was at the top end of our previously guided range, primarily due to strong growth in the invested asset base. For the year, adjusted net investment income grew 9% to $6.9 billion, which included approximately $6 billion or 9% growth from our public fixed income portfolio and $940 million or 8.5% growth from our private investments. We expect adjusted net investment income in the first quarter of 2026 to be between $1.81 billion to $1.84 billion. Our core operating effective tax rate was 18.7% for the quarter and 19.4% for the year, which was slightly below our previously guided range. We expect our annual core operating effective tax rate for 2026 to be in the range of 19.5% to 20%. I'll now turn the call back over to Susan. Susan Spivak Bernstein: Thank you, Peter. At this point, we're happy to take your questions. Operator, please queue up the questions. Operator: [Operator Instructions] Your first question comes from the line of Brian Meredith of UBS. Brian Meredith: Evan, first question, just looking at the U.S. commercial lines, North American commercial lines business. Your underlying margins have been incredibly consistent and excellent results over the last several years. I'm just wondering, given the current pricing environment, do you think you can sustain those here in 2026? Evan G. Greenberg: Brian. I don't give forward guidance, as you know. And on one hand, you have clearly, lines of business where price is not keeping pace with loss cost. And the math naturally works in one direction. On the other hand, we have a very broad business and mix of business changes, mitigate on the other side. I'm very comfortable with the combined ratios we are publishing, and I do not prognosticate the future, but I do have confidence and underwriting income for this company, growth in underwriting income contributing to that growth in EPS. Brian Meredith: And then maybe -- that's terrific. And then maybe pivot over to the personal lines business. Once again, terrific combined ratios, there's been some press and some regulators talking about excess profit laws and implementing them. I'm just curious your thoughts on that and potential implications for Chubb and this profitability in that business? Evan G. Greenberg: Yes. Look, if you measure our personal lines business in the United States over any reasonable period of time, 3, 5, 10 years, it classically runs in the high 80s to up into the low 90s combined ratios, given -- and it bounces around given the nature of catastrophe losses, in particular. I'm very mindful and more than mindful sympathetic about the issue of affordability in the United States and -- but I would be careful when politicians think about that issue of affordability pointing to insurance as a culprit. We intermediate money. We don't print money. For job loss costs in homeowners are rising around 7.5% to 8% at the moment. Liability on one hand is a strong contributor to that. And we know liability costs in the U.S. overall rising inflation for the liability is roughly 9% -- 7% to 9% and that's multiples of CPI. That's a problem with litigation. That's not an insurance company problem. Secondly, and I think more important to homeowners, a large part of pricing is catastrophes. And those are measured over an extended period. As you know, you could have a 2-year period where you have huge outsized cats, and you lose money in that state. On the other hand, you could have a quiet period. And it looks like you made money. You measure it over an extended period. And for homeowners, admitted homeowners in particular, prices are filed and they get approved based upon technical actuarial. So I would be careful of politicizing the affordability question as you point to homeowners insurance or it's going to create ultimately an availability problem and that will exacerbate affordability. Operator: Your next question comes from the line of Bob Huang of Morgan Stanley. Jian Huang: I'm a sucker for overseas business so I'd like to ask a question on that. Clearly, the growth in Latin America and in Asia are very strong. And In Latin America, Mexico has been consistently called out as very much a favorable environment. Maybe can you give us a little bit of color outside of Mexico in Latin America in terms of -- what is the opportunity there? And what is the growth momentum there? Evan G. Greenberg: Yes. It's more in our consumer than in our commercial businesses. We have -- as I'm sure you know, Banco de Chile, largest bank in Chile is our long-term partner for distribution of consumer-based insurances as an example. Nubank is our partner in Brazil for digitally distributed insurance, consumer insurance. In Ecuador, we are partners with Banco Guayaquil, one of the biggest banks in Ecuador for distribution of the consumer insurances, you get the picture. And in Argentina, we have actually a very good business growing in both consumer and commercial. While commercial is good in Mexico and Brazil, to a degree in Chile and Colombia, it's the consumer businesses with multiple distributions, A&H specialty personal lines and automobile on both a direct-to-consumer through bank and other distribution digitally based direct-to-consumer and broker and agent driven our Mexico business predominantly is agent-driven growth. Though we are the exclusive insurance partner long term of Banamex and with the sale of Banamex right now from -- by Citigroup to a local Mexican management, I expect that's going to be another growth opportunity. So it's very broad-based. It's across a variety of countries, and we've been at it for years. Jian Huang: Really appreciate that. It sounds like a lot of opportunities without us worrying about pricing. Maybe the second point, staying on overseas, Asia business, clearly, another area of excitement but can you maybe give us a little bit of the competitive dynamics there, right? You made an acquisition there this year. Just curious about how we should think about an area where everyone is excited about it. And clearly, everyone wants a piece of that pie, so to speak. Evan G. Greenberg: Yes. First, I want to just -- so we stay grounded in reality. When you think about Asia, when you think about Latin America, Asia dwarfs Latin America in its size and scale and the opportunity. Both regions though are developing market and mature market regions. And they have that signature about them. So a certain volatility to economic and political growth. It's many, many countries in Asia, small micro markets and large markets. But there is a certain volatility in any period, one period to another that can occur. The trend line for both regions is up and Asia in particular. Growth this quarter in Asia, as you saw, came fundamentally from consumer lines, commercial lines was flat. That's mostly the large account business, Australia, Singapore base, Hong Kong a little bit where the environment more competitive. Our growth is in small and middle market commercial and in consumer lines, both agency and digitally and direct-to-consumer-oriented. Market by market, it is very hard to compete in that business for anybody to just come in and want a piece of that pie. It's a lot of countries every culture is different. They're economically different. They're small markets, many of them like Southeast Asia, but they add up in aggregate to be a big region, it's hard work, and you have to establish yourself, not with 1 office and 2 or 3 underwriters, you've got to have broad capability distributed through the country to be able to mine the opportunity of small and mid-market commercial and consumer. So it's years of hard yards to build local franchises in those operations. And then on top of it, the ability to bring your technology and bring your data and your insights to bear from what you have and the scale around the globe to help your competitive profile in those markets, that is another dimension. And that's what we're hard at work at and it shows results and I'm bullish on the long-term opportunity. Any one period of time notwithstanding. Operator: Your next question comes from the line of David Motemaden of Evercore ISI. David Motemaden: Evan, maybe just a follow-up on just on the overseas general insurance business and the consumer lines growth there has been robust, and it looks like that's continued over the last 3 quarters. Sounds like you feel good about the opportunity and sustaining that. I guess -- could you help us think through how that manifests through margins? Because it feels like that's margin accretive, at least over the last few quarters. But I know there are some moving pieces there with the consumer business, higher expense ratio, lower loss ratios. I'm hoping you can help me think through that. Evan G. Greenberg: Yes. I can't help you too much that you're left to your own -- we each have our hell and you're left with that one. We don't break out the margin by business. We don't break out overseas general consumer versus commercial margins. What I'm going to help you with is simply this. Our A&H -- it breaks down between A&H and auto and homeowners and specialty personal lines. Each has their own signature. And by the way, depending on the distribution channel, whether I'm doing it digitally or in a bank direct response, telemarketing, we're doing it through agency brokerage they have their own signature of acquisition costs and loss ratio. They're reasonably steady businesses. Auto not as steady, obviously, as A&H is. Our A&H is a large business that is -- that a lot of the risk is on the direct marketing side, and we have built capability over many years. We're the #1 -- when we say we're the #1 direct marketer in Asia, that's predominantly A&H business over non-life and life. It produces a reasonably steady and decent underwriting margin. Beyond that, I'm confident in our mix of business overall between large accounts, middle and small and our consumer businesses internationally that our margins are, how do I want to say it, they are -- they are not predictable because it's the risk business but they are decent, as you see, and we feel confident in them. David Motemaden: Got it. I appreciate that. And then maybe just... Evan G. Greenberg: I know you wanted more, but we just don't break it down that way. David Motemaden: I had to try. But I guess just maybe a bigger picture question. The December presentation showed about 150 basis points of combined ratio improvement from the digital transformation over the next 3 to 4 years? And I'm not asking for formal guidance here. But could you just share how you're thinking about the key drivers and execution priorities to deliver on that improvement even as the competition in some of the markets you operate in intensifies? Evan G. Greenberg: Yes. Most of it is on the expense side. It is in both OpEx and in cost of claims. It is -- there is some that is but it is more -- much more minority that is projected in loss ratio, but we're fact-based people. And so as we see no more that we can measure mathematically, we gain more confidence in that portion in the insight. And it is business by business, division by division. It's predominantly North America, U.K., Europe, and our larger markets of Asia and in Latin America. It is covering right now we're focused, in particular, on 9 or 10 very discrete projects that all the businesses are lined up on the business leaders, our technical team, around technology, data, AI, analytics and our operations. And we work it with those who are fully dedicated along with the disciplines and the business leaders to transformation and bringing it all together in how we transform a business in the 9 discrete projects across a variety of geographies. Here you go, and it will continue to evolve. Operator: Your next question comes from the line of Greg Peters of Raymond James. Charles Peters: Good morning. So I'm going to have 2 follow-up questions. One to the overseas operations. I guess I'm going to ask a question around foreign exchange and I realize this is probably going to spill over into geopolitical considerations as it relates to the growth of your operations. But I'm looking -- I've been watching the last several weeks, the yen go down relative to the U.S. dollar. And I understand you're matching your assets and liabilities in the same currency. But running a global enterprise, I'm just curious how you look at foreign exchange volatility as it relates to what you're managing the enterprise risk? Evan G. Greenberg: Yes. We do not hedge revenue or income. The only time we really hedge is remittances -- around remittances when they're large. Our assets and liabilities are matched in currency so they move together. Foreign exchange, if the U.S. dollar weakens relatively, that's a tailwind to us in terms of growth, and it obviously helps income in any business generating income. And then if the dollar strengthens, which has been its longer-term trend over a long period, we pay that price. And you can see it because we're transparent about it of what are we in constant dollar in terms of growth versus published. And so Greg, that is what it is. Right now, the prognostication is more towards the dollar at the moment, the dollar weakening as you look forward. But you know what, that sentiment bounces around and changes based upon financial conditions, economic and as you said, geopolitical. Charles Peters: Okay. And then I wanted to follow up on... Evan G. Greenberg: And by the way, that's why that is why I say that when we talk about any projection about Chubb future income or EPS growth, I do say cats and FX aside. We're in the risk business. It's not like we can control anything, but we have better control over most things and can forecast -- I can't forecast cats. I can't forecast FX, and I don't have control over them. And it doesn't speak to the intrinsic strength of the business. Charles Peters: Got it. I think you said in your -- the quote was macro conditions notwithstanding, when you talked about your outlook for growth. Evan G. Greenberg: I said it broadly. Charles Peters: Correct. Can I go back to the other comments around Agentic AI and digital infrastructure. And I guess I want to come at it from a different angle. The large brokers are talking about the build-out of this infrastructure as being a big opportunity. I think Marsh used 2,000 to 3,000 data centers being built over the next couple of years. And so I guess I wanted to approach it from a couple of different angles. How do you see that evolving and Chubb's participation in that? And I guess there's also an investment opportunity, too, that Chubb might be looking at. So I'm just looking for how you're looking at the different touch points of this emerging trend and how it's going to impact your organization? Evan G. Greenberg: Yes. On the insurance side, we're all over it. We've been writing data centers, and we -- globally, this is a global opportunity. And we're -- our capabilities are extremely broad. We're in a rare group when it comes to capability. Builder's risk, operations in terms of property. And we write the primary property. We do the engineering. We have large capacity we put at it. And others take shares behind us generally. We can do that on a global basis. Marine and all of the related exposures around that, surety, liability, professional lines when it comes to design of data centers. We are one of the few that writes insurance around the broad variety of exposures globally that those who are constructing data centers confront. We have recently, obviously, with all of the investment that is going into this and by the way, on the utility and energy side, we are a major writer and no one is building a major data center without the energy and utility dimension of this, and we can seamlessly transition to that in coverage as well. With all the investment that is going in our -- inside our organization, we have doubled down on how we are structured to bring all of the coverages, the services and engineering, the teams together to approach this globally were an important factor when Aon and Marsh and other major brokers are engaged in the creation and putting together in placement of data centers. The one thing I would say about this right now, there's a lot of projects announced, how much of this actually gets built and over what period of time remains a question. There are headwinds. There's headwinds around availability and affordability of energy to power data centers. And that is a rising and growing problem. How fast does that get addressed? And for each data center, it's a different answer depending on where they're located. There's more pushback on where data centers will be built. There is the question of labor. And is labor available for the construction of data center, supply and the supply chains and the cost of supply are questions that hang out there. So there's a lot announced. We're all focused on it. But I'd be careful not to be overly breathless about this. On the question on the invested asset side, some of -- this is a great technology that we are creating for economic and mankind purposes in so many great ways. There is trillions of dollars being poured in. I have no doubt that some of it is going to produce good returns. Some is going to produce more anemic returns and some may not prove to be money good both on the technology development side and on the infrastructure to support the technology, i.e., data centers, et cetera. As an investor, we are thoughtful and very cautious around this. I think there'll be a second act down the road that may be a very interesting investment opportunity, and I'll leave it at that. Operator: Your next question comes from the line of Ryan Tunis of Cantor Fitzgerald. Ryan Tunis: So Evan, I guess just a follow-up on that question from Greg. GDP growth has been -- I'm just trying to think about how economic growth maps to growth if you're looking for insurance growth opportunities. And obviously, a lot of the GDP growth we've seen has sort of come from this AI infrastructure build-out. As someone looking for growth opportunities in P&C, are you agnostic as to where the growth comes from? Or is -- would you actually prefer the GDP growth to be coming from more traditional means such as growth in employment. Evan G. Greenberg: Ryan, when GDP growth, if it's overly concentrated, it is more vulnerable. It is more -- it is potentially more volatile. Broader-based growth by definition, is more stable. And it creates more broad-based prosperity. That impacts both commercial and consumer. So just as a businessman, as a citizen, I would say that to you. When it comes to Chubb growing, if we can earn an adequate risk-adjusted return on the growth, I'll take it wherever it's coming from. That's why we're -- we're pursuing opportunities in multiple directions. Ryan Tunis: Got you. And then just a follow-up, not looking for guidance, but the acquisition and expense ratio in North America commercial. It's kind of an upticking, I think, because of mix in middle market. Is that a trend that we should continue to see? Or do you feel like these levels are sort of steady state? Evan G. Greenberg: Be careful with it. In the quarter, a part of it is because -- and an important part is because we wrote less one-off transactions this year in the fourth quarter, LPT business, which type business loss portfolio transfer, which has a very low acquisition ratio to it. Classically a little higher loss ratio. And that impacts it, and that bounces around quarter-to-quarter. You also have in North America commercial. Yes, middle and small growing faster than major. So that mix shift impacts it on one hand, but the relative size of each varies a little bit quarter-to-quarter. So you got a -- it's not just a straight line that way. But that trend in that direction, yes, is clear. And then E&S has been growing faster than major. And that is, by its nature, it's wholesale business as a higher acquisition ratio. Operator: Your next question comes from the line of Matthew Heimermann of Citi Research. Matthew Heimermann: First question would be, you had this comment with respect to more favorable January 1 conditions relative to expectations. I just -- I was curious what you meant by that, whether that was from a growth standpoint, from a pricing standpoint, geopolitical factors, just like to better understand what you meant. Evan G. Greenberg: Yes. It wasn't geopolitical. January 1, and don't overread it. January 1 is an important date for certain businesses, particularly large account business. It's a very important date in Europe and the U.K. very large percentage of the business, particularly it's large account oriented is on the continent and in the U.K. January 1. And so between the U.S. and Europe and the U.K. in particular, the large account business, it did better than we, it had a relatively good start because it did better than we had imagined ourselves. That's all. So it said it was a statement of confidence for that business that we're off to a good start. Matthew Heimermann: I appreciate it. I guess, with respect to -- one, I appreciate that you actually gave some targets on the investments you're making on the digital side. So thank you for that. I would be curious, though, when you think about the pace at which you're moving on that, how constrained are you at all, if at all, by other stakeholders' constituents, whether they be distributors, customers or service or technology providers? Evan G. Greenberg: Yes. And by the way, when we did this just that I want everyone understand, when I came out in December at the investor dinner to talk about this and to put this up, it's because I'm talking more long term and about intrinsic value creation and competitive profile of the company. This is not going to become something that -- and it's a long term, and I put it out there on multiple years. So it's not something that is going to start working its way into worksheets or I'm going to start giving quarterly updates of this or this or this. It's missing the whole point. And from time to time, I will give updates that provide a broader insight when someone is thinking about investing in job who is long-term investing. And to answer your question, the only place where a distribution partner constrains our ability to implement or to grow is really in our digital business with digital partners, where how fast given all of their priorities for growing their basic business. Will they pay attention in connectivity, data, analytics, et cetera, and make available for us to be able to do what we do well and that is interest and distribute through their pipeline to customers. It's the only place of significance that comes to mind. Operator: Your next question comes from the line of Tracy Benguigui of Wolfe Research. Tracy Benguigui: On asset allocation, you're targeting to raise private from 12% of your investments to 15% over the medium term. I recognize that Schedule BA type of assets, at least for the private equity piece, consumes a lot of risk-based capital. Are you expecting to make that up with diversification credit like as you grow your life business, should I think about those 2 pieces moving together? Evan G. Greenberg: No. Go ahead, Peter. That's a worksheet question. I think we ought to take off-line, but I'm going to let Peter... Peter Enns: Not specific to life. There is an allocation of PE that goes into life and in particular, the Asian markets. But it's relatively modest to the overall footprint and what we intend to grow. Evan G. Greenberg: They're not -- we did not look at them together in diversification. And by the way, we're very mindful both on a statutory and an S&P basis, how much capital each class of alternative draws and we have made statements about how it will be and is accretive to our ROE now and will be as we go forward. Tracy Benguigui: Okay. I love seeing actual quantified metrics with respect to your AI digital agenda. So my question is actually more on the cultural side. I kind of think of insurance tends to be a tribal culture. What is the reception from your underwriting and claims folks with respect to reinventing how they do business like the transformation piece? Evan G. Greenberg: Yes. It's very interesting, Tracy. The comment tribal. I think of every business in any industry, every company that is a good company and is well run. A hallmark of it is its culture. And culture is norms of behavior that all hold in common that they consider important and that forms culture. And when I look at Chubb part of our culture is an ability and a willingness to adapt, change to be earnest -- it's a meritocracy where you're rewarded for what you achieve. We're a highly disciplined organization. The things we intend to do are measurable. It's an organization and behavior that is about accountability. And that we take individual accountability. It's not about some committee. And when I add all that together, and it's a respectful culture. We respect each other. It's not management respecting employees. We're all employees. We're all colleagues and so when we have plans, and they are understood and explained, and we work through them. The vast majority in this organization work hard towards achieving it with an open mind, and we support each other. It is for many employees, the transformation and we didn't invent this. The digital transformation society is going through and how it's going to impact businesses in economic, Chubb has a great opportunity to be a leader and to be highly relevant, but all of us have to adapt. All of us have to learn skills. All of us have to be flexible. And the majority, I have so much confidence in my colleagues. The vast majority around the globe will put themselves into this. And that is a large part of what gives me confidence. Operator: Your next question comes from the line of Andrew Kligerman of TD Cowen. Andrew Kligerman: Evan, your commentary around financial lines and workers' comp pricing trends didn't sound that compelling. So it was interesting to me that financial lines net written premium was up 5.4%, workers' comp was up 3.6%, an acceleration from the prior quarters. So I'm wondering what you might be seeing there? Do you think this trend can continue where Chubb is growing in those lines? Evan G. Greenberg: Well, first of all, it bounces around quarter-to-quarter. But I'm going to turn it over to John Keogh to answer that question. John Keogh: Andrew, why don't we talk about the financial lines number. This one that I observed, I think you understand is, one, that's a global number. So we're offering financial lines in a number of markets around the globe, some of which are growing, some of which are shrinking. Financial lines also includes everything from public D&O to D&O for private companies, not for profits. It includes all sorts of professional lines. for different trade groups and industries. It's employment practices, it's fiduciary coverages, it's fidelity coverages, it's cyber coverages. So in that number, you're seeing, I think, speaks to the diversity of our business and financial lines and the areas there where we were purposely growing that business because we think we're getting paid adequately for that particular product in that particular market. And there are other places, unfortunately, where we're shrinking where a product in a particular market around the globe does not meeting our requirement. So that number is an aggregation of the diversity of those businesses. To your question in terms of trend, the one thing we did see in the fourth quarter in the financial lines is some green shoots in terms of some areas that do need rate. And I'd call out, particularly in North America, we saw for the first time in many quarters, a slight rate increase on our public D&O book. We saw in transaction liability, pricing terms and conditions, a lot more rational in the fourth quarter than we've seen in the last couple of years. And then employment practices in the U.S., we're pushing rate across the board because it needs it in that book of business. Evan G. Greenberg: In workers' comp, it was predominantly in middle market and small commercial that had a very good quarter. I'm comfortable because we don't write -- we're not a broad-based writer of all industries, all classes and comp. We've been and our signature for many years is we're selective within the industries and the states within which we write. This quarter was, in particular, a strong quarter. I don't believe it's such a trend, it was a bit opportunistic, but it was very good. Andrew Kligerman: Got it. And then just shifting over to another outstanding prior period development favorable $268 million. Curious about the casualty piece, commercial auto excess liability. How did that develop? And maybe a little color on accident years, if you could. Evan G. Greenberg: Yes. We're not going to -- we don't break down that way, as you know. And the prior period reserve development in long-tail lines came from the portfolios that we studied in the quarter. Every quarter, we study a different cohort of portfolios for annual deep dive review. We look provisionally every quarter in all portfolios, but we, in particular, react to those and especially long tail business, where it's part of a quarterly review. And so long tail in the cohorts we reviewed this quarter, they produced a favorable outcome. That's as far as I'm going to go. Operator: And that's all the time we have for our Q&A session. I will now turn the conference back over to Susan Spivak for closing remarks. Susan Spivak Bernstein: Thank you, everyone, for joining us today. If you have any follow-up questions, we will be around to take your call. Enjoy the day, and thank you again. Operator: This concludes today's conference call. You may now disconnect.
Jim Friedland: Thank you for standing by for the Alphabet Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Jim Friedland, Head of Investor Relations. Please go ahead. Jim Friedland: Thank you. Good afternoon, everyone, and welcome to Alphabet Fourth Quarter 2025 Earnings Conference Call. Sundar Pichai: Thanks, Jim. Hi, everyone. Thanks for joining us. It was a tremendous quarter for Alphabet. The launch of Gemini 3 was a major milestone, and we have great momentum. Alphabet annual revenues exceeded $400 billion for the first time. This quarter, Search continued to accelerate with revenues growing 17%, YouTube's annual revenues surpassed $60 billion across ads and subscriptions. Cloud significantly accelerated with revenues growing 48% now on an annual run rate of over $70 billion. Backlog grew by 55% quarter over quarter to $240 billion representing a wide breadth of customers driven by demand for AI products. We have over 325 million paid subscriptions across consumer services, strong adoption for Google One and YouTube Premium. In addition, we have sold more than 8 million paid seats of Gemini Enterprise, we launched just four months ago. And our Gemini app now has over 750 million monthly active users. We are also seeing significantly higher engagement per user especially since the launch of Gemini 3 in December. Overall, we are seeing our AI investments and infrastructure drive revenue and growth across the board to meet customer demand and cap on the growing opportunities ahead of us, our 2026 CapEx investments are anticipated to be in the range of $175 to $185 billion. Today, I'll provide an update on our AI progress and then share highlights from Search, Cloud, YouTube, and Waymo. First, AI progress across the full stack. Our unrivaled infrastructure serves as the bedrock of our AI stack. We have the industry's widest variety of compute options. That includes GPUs from our partner NVIDIA, who announced at CES that we'll be among the first to offer their latest Vera Rubin GPU platform. Plus our own TPUs that we have been developing for a decade. In December, we announced our intent to acquire Intersect which provides data center and energy infrastructure solutions. As we scale, we are getting dramatically more efficient. We were able to lower Gemini serving unit costs by 78% over 2025 through model optimizations, efficiency, and utilization improvements. Next, world-class AI research including models and tooling. We offer the most extensive model portfolio in the world, and lead across text, vision, and image to video LM Arena leaderboards. Gemini 3 Pro drives the state of the art in reasoning and multimodal understanding. It has seen the fastest adoption of any model in our history. Since launch, Gemini 3 Pro has consistently processed three times as many daily tokens on average as 2.5 Pro. Our latest model powers Google Anti Gravity, our new development platform where agents can autonomously plan and execute complex software tasks. It already has more than 1.5 million weekly users after launching just over two months ago. Our first-party models like Gemini now process over 10 billion tokens per minute via direct API used by our customers, up from 7 billion last quarter. Third, bringing AI to our products and platforms. We are shipping innovation at scale to bring helpful AI features to people everywhere. In January alone, we have launched personal intelligence in AI mode in search and the Gemini app. Introduced new features to Gmail and updated Vio. Reimagine Chrome as an AI-first agentic browser through features like Chrome Autobrowse. Announced Project Genie, which lets users create and explore interact worlds generated in real-time using Genie 3, our general-purpose world model. And we laid the groundwork for shopping in the AI era by introducing a new open standard for agentic commerce. The Universal Commerce Protocol built alongside many retail industry leaders. Finally, from Android to Pixel, we are getting our best AI capabilities into People's hands. At CES, a range of partners, including Samsung, showcased how they are bringing Gemini to more devices from XR to the living room and beyond. And to confirm the rumors, we'll be introducing our Pixel 10a to our best-ever rated Pixel 10 series very soon. Turning now key highlights from the quarter, starting with Search. Search saw more usage in Q4 than ever before, as AI continues to drive an expansionary moment. We have executed with incredible speed, We shipped over 250 product launches, within AI mode and AI overviews just last quarter. We have integrated Gemini 3 directly into AI mode and search. Now Search can better understand your query, dive deeper on the web, and generate interactive UI experiences. And last week, we upgraded AI overviews to Gemini 3 giving users a best-in-class AI response at the top of the search results page. We have also made the search experience more cohesive ensuring the transition from an AI overview to a conversation in AI mode is completely seamless. These new experiences are proving to be more helpful and are driving greater usage. A few highlights. First, once people start using these new experiences, they use them more. In The US, we saw daily AI mode queries per user double since launch and AI overviews continue to perform very well. Second, people are engaging in longer, more complex sessions. Queries in AI mode are three times longer than traditional searches. We are also seeing sessions become more conversational, with a significant portion of queries in AI mode, now leading to a follow-up question. Third, people are searching in new ways beyond text. Nearly one in six AI mode queries are now non-text using voice or images. And Circle to Search is now available on over 580 million Android devices. Next, Google Cloud. Our growth in revenue, operating margin, and backlog highlights the strength of our entire portfolio. One, we are winning more new customers faster. We exited the year with double the new customer velocity compared to Q1. Two, we are also signing larger customer commitments. The number of deals in 2025 over $1 billion surpassed the previous three years combined. And three, we continue to deepen our relationships with existing customers who are outpacing their initial commitments by over 30%. Nearly 75% of Google Cloud customers have used our vertically optimized AI, from chips to models to AI platforms and enterprise AI agents, offer superior performance quality, security, and cost efficiency. These AI customers use 1.8 times as many products as those who do not enabling us to diversify our product portfolio. Deepen customer relationships and accelerate revenue growth. Our product line has multiple monetization levers spanning infrastructure, platform, and high-margin AI-powered products and services with 14 product lines each exceeding $1 billion in annual revenue. We offer leading infrastructure for AI training, and inference to our cloud customers. With the industry's widest variety of compute options, from our own seventh-generation Ironwood TPU to the latest NVIDIA GPUs. Our ten-year track record in building our own accelerators with expertise in chips, systems, networking, and software translates to leading power and performance efficiency for large-scale inference and training. Our Cloud AI accelerators serve the leading frontier AI labs. Capital markets firms like Citadel Securities, enterprises like Mercedes Benz, and governments for high-performance computing applications. We also offer our leading generative AI models including Gemini, Imagine, Vio, Chirp, and Liria to cloud customers. December alone, nearly 350 customers each process more than 100 billion tokens. In Q4, revenue from products built on our generative AI models grew nearly 400% year over year. Significantly accelerating from the prior quarter. Today, more than 120,000 enterprises use Gemini, including AI unicorns like Lovable and Open Evidence. And global enterprises like Airbus and Honeywell. 95% of the top 20 and over 80% of the top 100 SaaS companies use Gemini, including sales and Shopify. Gemini is becoming the AI engine for the world's most successful software companies. Leading enterprises are also driving strong demand for our enterprise AI agents. We have sold more than 8 million paid seats of Gemini Enterprise our enterprise AI platform, to more than 2,800 companies including BNY and Virgin Voyages. To streamline knowledge management and automate processes. Gemini Enterprise managed over 5 billion customer interactions in Q4, growing 65% year over year. For customers, including Wendy's, Kroger, and Woolworths Group. Our integration of Gemini and Google Works is driving wins with global brands like Schwartz Group and public sector organizations like the U. S. Department of Transportation. We are also seeing momentum with independent software vendors. Revenue from AI solutions built by our partners increased nearly 300% year over year, and commitments from our top 15 software partners grew more than 16x year over year. Before moving on, I'm pleased that we are collaborating with Apple as their preferred cloud provider and to develop the next generation of Apple Foundation models based on Gemini technology. Up next, YouTube. I want to highlight four points. First, streaming. In the living room, YouTube continues to be the number one streamer in The US. For nearly three years, according to Nielsen. From the NFL to Coachella, YouTube is where people watch today's biggest popular culture moments unfold. Second, subscriptions. We continue to see strong subscription revenue growth across YouTube. Particularly YouTube Music Premium. We'll soon launch new YouTube TV plans bringing more choice and flexibility to subscribers. With over 10 genre-specific packages. The NFL has seen strong NFL Sunday Ticket subscriber growth with YouTube. With the highest paid subscriber number ever in the history of the product. Third, podcast. To illustrate YouTube's popularity, in October 2025, viewers watched over 700 million hours of podcasts on living room devices, up 75% from just a year prior. And fourth, AI is transforming the YouTube experience for both creators and viewers. On average, every day in December, over 1 million channels used our new AI creation tools to supercharge their creativity. During that same month, more than 20 million viewers used our new tool powered by Gemini to learn more about the content they watched. And finally, Waymo, This week, Waymo raised its largest investment round to date and is well positioned to continue its momentum with safety at the core. In December, we surpassed 20 million fully autonomous trips and are now providing more than 400,000 rides every week. Waymo continues to expand its service territory. Its sixth market, Miami, launched two weeks ago and Waymo will soon expand its service to multiple cities across The U. S. And in The UK and Japan. The team has made incredible progress on important capabilities, including opening up public service to airports and freeways. In closing, 2025 was a fantastic year for the company a big thanks to our employees and partners worldwide. We are really well positioned going into 2026. Now, over to Philip. Thanks, Sundar, and hello, everyone. I'll cover performance for Google services for the quarter, then structure the rest of my remarks around the great progress we're delivering across search, YouTube, and partnerships. Google services revenues were $96 billion for the quarter, up 14% year on year, primarily driven by accelerated growth in search. Adding some further color to our results. The 17% increase in search and other was led by broad strength across all major verticals. With retail particularly strong. On YouTube, the 9% growth in advertising revenues was driven by direct response. Network advertising revenues were down 2% year on year this quarter. Starting with Search and Other revenues, which delivered over $63 billion in revenue for the quarter. Sundar mentioned the expansionary moment for Search. The same is true for ads. We're investing in AI to drive significant improvements across all areas of marketing. We're expanding the entire playing field that advertisers can compete on. AI gives businesses the ability to reach more customers in more places than ever before. Gemini uniquely positions us to bring the transformational benefits of AI to ads in three critical areas for our customers. Ads quality, advertiser tools, and new AI user experiences. First, ads quality. We've been deploying Gemini models to improve query understanding at a rate of almost a launch per month for the last two years. These improvements drive better query matching, ranking, and quality making search ads even more effective. With Gemini across our ads quality stack, we evaluate relevance with greater accuracy than with previous generations of models. This has significantly improved our ability to systematically deliver more helpful high-quality ads contributing to a meaningful reduction in irrelevant ads served. Gemini's understanding of intent has increased our ability to deliver ads on longer, more complex searches that were previously challenging to monetize. Gemini models also have a significant impact on query understanding in non-English languages, expanding opportunities for businesses to scale globally. Second, we're building more agentic actions into our advertiser tools. Business can now leverage Gemini in conversational experiences within ads and analytics Advisor to identify and run recommended such as generating new campaigns. Advertisers use Gemini as a real-time partner to assemble creatives. In Q4 alone, they use Gemini to create nearly 70 million creative assets via text customization in AI Max and PMax. For instance, Aritzia, Canada's premier fashion house, used AI Max to find new high-value customers that traditional strategies miss, delivering an 80% incremental uplift in conversion value for Q4. L'Oreal, one of the first alpha testers, used AI Max 2025 across 800 unique campaigns in 23 countries and 30 brands. AI Max enabled the L'Oreal Group to maximize its presence across the full consumer journey, fuel its consumer growth, and increase revenue for DTC brands like Nick's by 23%. Third area is how we monetize new AI user experiences in search. We have significantly increased our focus on AI mode and are in the early stages experimenting with AI mode monetization, like testing ads below the AI response, with more underway. For example, we announced direct offers in new Google Ads pilot which will allow advertisers to show exclusive offers for shoppers who are ready to buy directly in AI mode. This new type sponsored content uses AI to match the right offer provided by the retailer to the right user. As Sundar mentioned, we are building the era of agenda commerce and working with partners to introduce the universal commerce protocol in our consumer products and across the web. We've received tremendous feedback from the industry. Soon, people can use a new checkout experience to buy directly in AI mode in Gemini from select merchants. Turning now to YouTube, which remains the number one streamer in The US for nearly three years according to Nielsen. YouTube creators are providing an unmatched breadth of content. Our investment in AI innovation across creativity, viewing experience, and monetization continues to pay off. We're seeing strong traction in our subscription business, our innovating to meet consumers where they are. We added a new sports tier for YouTube TV at a lower price point. YouTube Premium Lite is proving to be a popular choice. And we continue to deliver strong year on year growth across YouTube subscriptions particularly YouTube Music and Premium. Looking at monetization across YouTube, momentum continues in Shorts and the living room. Shorts now averages over 200 billion daily views. And as we've shared before, in a number of countries, Shorts earns more revenue per watch hour than traditional in-stream on YouTube, including The US. The retail vertical continues to grow fueled by smaller advertisers increasingly adopting demand gen. Likewise, direct response continues to benefit from the momentum we're seeing with small and medium-sized advertisers. Viewers trust product and brand recommendations from YouTube creators, and we're focused on making YouTube a premier shopping destination. Innovations like shoppable ad formats are improving advertiser return on investment. During Cyber five, advertisers piloted shoppable mass eads, a new interactive ad format where viewers browse products and send links to their phones for an easy shopping experience. On brands, our creator partnership hub makes it easier for brands to find creators and develop campaigns. This holiday season, brands like JCPenney, Old Navy, and Target work with creators for their holiday campaigns. Mattel partnered with eight top YouTube creators to reach families during the peak holiday shopping season in a campaign that helped drive a 25% increase in search volume for UNO. As always, I wrap with the progress we're seeing across partnerships. Where customers tap into the strength and breadth of Google's products to accelerate their transformation. I would start by joining Sundar and saying hope pleased I am that we are collaborating with Apple as their preferred cloud provider and to develop the next generation of Apple foundation models based on Gemini technology. We partnered with Reliance Jio to provide over 500 million consumers with an eighteen-month free trial of our Gemini suite of products and two terabyte of cloud storage. Reliance Enterprise customers will also get access to Google Cloud Gemini Enterprise and TPUs, bringing the best of Google AI to every employee and workflow. The Home Depot is applying Google AI across the board from cloud tools to AI-powered ads and YouTube creator partnerships that connect with the next generation of Duos. Their investments in PMax and YouTube creator partnerships have resulted in double-digit increase in ad clicks and visits. In closing, I'd like to thank Googlers everywhere for their contributions to our success and, as always, to our customers and partners for their continued trust. Anat, over to you. Anat Ashkenazi: Thank you, Philip. My comments will focus on year-over-year comparisons for the fourth quarter unless they state otherwise. I will start with results at the Alphabet level and will then cover segment results. I'll end with some commentary on our outlook for the first quarter and full year 2026. 2025 was a strong year of innovation and execution for Alphabet. These efforts, combined with our investments in AI, drove meaningful results across the business. For the full year 2025, Alphabet consolidated revenues were $403 billion up 15% on a reported and constant currency basis. Moving to Q4 performance, we delivered strong growth in the fourth quarter. Consolidated revenues reached $113.8 billion up 818%, or 17% in constant currency and was driven by an acceleration in Search and Cloud revenues. Turning to costs and expenses. We reported $2.1 billion stock-based compensation charge due to increase in Waymo's valuation related to the investment round that was announced on Monday. The vast majority of the charge was reflected in R and D expenses. Total cost of revenue was $45.8 billion up 13%. Tech was $16.6 billion up 12%. Other cost of revenues was $29.2 billion up 13% with the increase primarily driven by depreciation associated with the deployment of our technical infrastructure content acquisition costs largely for YouTube and other technical infrastructure operations costs. Total operating expenses were up 29% to $32.1 billion R and D expense increased by 42% driven by compensation and depreciation. The increase in compensation was due to the Waymo charge and investment in AI talent. Sales and marketing expenses were up 12% primarily driven by marketing investments to support the Gemini app and search. And G and A expenses increased 21% primarily due to a shift in timing of our charitable contributions. Operating income increased 16% to $35.9 billion and operating margin was 31.6%. Both operating income and operating margin were negatively by the $2.1 billion Waymo charge in the quarter. Other income and expenses was $3.2 billion primarily due to unrealized gains in our non-marketable equity securities portfolio. Net income increased 30% to $34.5 billion and earnings per share increased 31% to $2.82. We generated record operating cash flow of $52.4 billion in the fourth quarter and $160.5 billion for the full year. This translated into $24.6 billion of free cash flow in the fourth quarter and $73.3 billion for the full year. We ended the quarter with $120.8 billion in cash and marketable securities and $46.5 billion in long-term debt. Turning to segment results. Google services revenues increased 14% to $95.9 billion reflecting strong growth in search and subscriptions. Google Search and other advertising revenues increased by 17% to $63.1 billion representing another strong quarter with continued growth across all major verticals with the largest contribution from retail. YouTube advertising revenues increased 9% to $11.4 billion driven by direct response advertising. Results were negatively affected from the lapping of the strong spend on U. S. Election in the 2024 that we've mentioned on previous earnings calls. Network advertising revenues of $7.8 billion were down 2%. Subscription, platforms, and devices revenues increased 17% this quarter to $13.6 billion due to strong growth in YouTube subscriptions, particularly YouTube Music and Premium and growth in Google One benefited from increased demand for AI plans. Google services operating income increased 22% to $40.1 billion and operating margin was 41.9%. The Google Cloud segment delivered outstanding results in the fourth quarter as the business continued to benefit from strong demand for enterprise AI products. Cloud revenue accelerated meaningfully and were up 48% to $17.7 billion. Revenues were driven by strong performance in GCP which continued to grow at a rate that was much higher than cloud's overall revenue growth rate. As Sundar noted, we're driving performance through strong growth in the win rate of new customers, signing larger customer commitments, and increasing spend with existing customers. GCP's performance was driven by accelerating growth in enterprise AI products which are generating billions in quarterly revenues. We had strong growth in both enterprise AI infrastructure driven by deployment of TPUs and GPUs and enterprise AI solutions which benefited from demand for industry-leading models. Including Gemini 3. Core GCP was also a meaningful contributor to growth due to strong demand for infrastructure and other services, such as cybersecurity and data analytics. We also had double-digit growth in Workspace, driven by an increase in average revenue per seats and the number of seats. Cloud operating income was $5.3 billion more than doubling year over year. And operating margin increased from 17.5% in the fourth quarter of last year to 30.1%. Google Cloud's backlog increased 55% sequentially and more than doubled year over year, reaching $240 billion at the end of the fourth quarter. The increase in backlog was driven by strong demand for our cloud products led by our enterprise AI offerings, from multiple customers. In Other Bets revenues were $370 million and operating loss was $3.6 billion reflecting the $2.1 billion Waymo charge I mentioned earlier. We allocate resources in Other Bets to businesses like Waymo where we see meaningful opportunities to create value. Alphabet funded a significant portion of the $16 billion investment round that Waymo announced on Monday, which will allow the business to accelerate its global expansion. CapEx was $27.9 billion for the fourth quarter, and $91.4 billion for the full year. In line with our expectation. The vast majority of our CapEx was invested in technical infrastructure approximately 60% of that investment in servers, and 40% in data centers and networking equipment. In Q4, we returned capital to shareholders through $5.5 billion share repurchase, and $2.5 billion of dividend payments. Turning to our outlook, I would like to provide some commentary on factors that will impact our business performance in the first quarter and full year 2026. First, in terms of revenues, we're pleased with the overall momentum of the business. At current spot rates, we would expect to see an FX tailwind to our consolidated revenues in Q1. However, the volatility in exchange rates could affect the impact of FX on Q1 revenues. In Google services, we expect growth to be driven by ongoing in the user experience as well as improved ROI for advertisers. Keeping in mind the normal seasonal pattern for advertising revenue. In Google Cloud, we're seeing significant demand for our products and services. Which we expect to continue to drive strong growth despite the tight supply environment we're operating in. Moving to investments. The investments we have been making in AI are already translating into strong performance across the business as you've seen in our financial results. Our successful execution coupled with strong performance reinforces our conviction to make the investments required to further capitalize on the AI opportunity. For the full year 2026, we expect CapEx to be in the range of $175 billion to $185 billion with investments ramping over the course of the year. We're investing in AI compute capacity to support frontier model development by Google DeepMind, ongoing efforts to improve the user experience and drive higher advertiser ROI in Google services significant cloud customer demand, as well as strategic investments in Other Bets. Keep in mind that the availability of supply, pricing of components, and timing of cash payments can cause some variability in the reported CapEx number. In terms of expenses, as we've discussed on previous calls, the significant increase in our investments in technical infrastructure will continue to put pressure on the P and L in the form of higher depreciation expense and related data centers operations costs such as energy. In 2025, depreciation increased by nearly billion dollars or 38% from $15.3 billion in 2024 to $21.1 billion in 2025. Given the increase in our CapEx investments in recent years, we expect the growth rate in 2026 depreciation to accelerate in Q1 and meaningfully increase for the full year. We're also planning to continue hiring in key investment areas such as AI and cloud. In 2025, our teams delivered amazing innovation, executing with a high level of discipline and velocity. These efforts provide great experiences for consumers and outstanding performance for creators, partners, and enterprise customers, driving strong revenue growth. I want to take this opportunity to thank our employees for their contribution to this impressive performance. Now Sundar, Philip and I will take your questions. Jim Friedland: Thank you. As a reminder, to ask a question, you will need to press And your first question comes from Brian Nowak with Morgan Stanley. Your line is now open. Brian Nowak: Thanks for taking my questions. I have two, one on AgenTeq. One on YouTube. The first one on AgenTek, Sundar, I'd be curious to hear about you look back at 2025, do you think you made the most progress on new types of agentic commerce products? And then looking into '26, you most optimistic to sort of have even more progress in utility for users and your advertisers? And the second one is on YouTube. You know, we've seen a lot of the new content creation models like Genie, etcetera. Walk us through sort of the the alphabet long term vision for how Genie and some of these content creation tools be integrated into YouTube over time? Sundar Pichai: Great. Thanks, Brian. First, maybe I'll take the agentic part first. I definitely think '25 was more about laying the foundation getting the models to start being more robust in agentic use cases. And obviously, coding is an area where progress was was the most felt in areas like commerce, think we spent the year working with the ecosystem to develop the underlying protocol that's going to be needed for this agentic world. So I think the launch of, universal Commerce protocol at NRF in January with a bunch of partners, founding partners, I think has been super well received. So I'm excited now that we've laid the foundation of interoperability on which agent e commerce can work. And now we are integrating those experiences into Gemini AI mode and so on. So I think think this is the year where you will see consumers actually being able to use all of this, and I'm excited that about the opportunity ahead. On YouTube, look, super excited by Jeannie and blown away by spent a lot of time creating these incredible worlds. I think it's going to have a wide level of applicability. I think an area where we shine in general is multimodality and representing the real world. And I think Genie is a further step in that direction in terms of building world models. All the innovation we are doing be it our Imagine Veo, Liria, Genie, all that work we bring in into our products and to our cloud customers. And YouTube is going to be a natural place for creators. We are going to keep incorporating these tools already creators are responding by adopting these, but we do want to put creators at the center of the experience and that's very, very important to us. And so it's for us making sure YouTube is a voice for creator expression is the foundation by which we will approach this. Brian Nowak: Great. Thanks, Sundar. Jim Friedland: Your next question comes from Eric Sheridan with Goldman Sachs. Your line is now open. Eric Sheridan: Thanks so much for taking the question. Two, if I could. Over the last couple of earnings calls, we've talked a lot about imbalances between demand and capacity for AI. Both internally and externally. With the step function change in app capital dollars you're projecting now in twenty six, Can you talk about the pathway to closing the gaps for the need for compute both internally and externally, and how to think about some of the outputs of closing that gap? As the year progresses. And again, the second part would be against that level of spend that you're now projecting for '26. How do you think about continuing to find operating efficiencies inside the business to fund those investment growth investments as well. Thank you. Sundar Pichai: Thanks, Eric. You are right. And we've been supply constrained even as we've been ramping up our capacity. Obviously, CapEx spend this year is an eye towards the future. And you have to keep in mind some of the time time horizons are increasing in the supply chain, etcetera. So we are constantly planning for the long term and working towards that. And obviously, how we close the gap this year is a function of what we have done in the prior years. And so there is that time delay to keep in mind. I expect the demand we are seeing across the board across our services, what we need to invest for future work for Google DeepMind, as well as for cloud, I think, is exceptionally strong. And so I do to go through the year in a supply constrained way. And maybe Anat can touch on the second part. Anat Ashkenazi: Sure. Thanks, Eric, for the question. Now I've mentioned on one of the previous earnings call our approach to how we look at efficiency and productivity. And we don't view this as an episodic one time project or but rather how we run the business on a regular basis and always seek additional opportunities to drive efficiency across the business And certainly, with the demand we're seeing, whether it's from external customers or across the organization, the more capital we can free up within the organization to invest the better we can turn this flywheel of making investments to drive future growth. And we're doing this across the organization. Whether it's within our technical infrastructure, certainly when we invest at these amounts, we look at how we can ensure that we are the most efficient with every dollars that goes towards our technical infrastructure, There are scientific innovations that are with our part of that process. Technical innovation, as you know and we've mentioned before, we primarily focus on construction of our own data centers. We do partner with some external parties on lease on occasion, but most of our data center, we can start ourselves, and we ensure that we do it in the most efficient way in a way that matches our workloads and our needs. We look at coding productivity that Sundar mentioned in the past, about 50% of our codes are written by agents, coding agents. Which are then reviewed by our own engineers. But certainly, it helps our engineers do more, move faster, with the current footprint. We look at how we run the business across the organization. So using AI within the business to to drive daily operations. It can be all the way from the engineering team to small teams within our back office, even with my finance team, for example, we deployed agents within our treasury organization. We're deploying agents within how we run how we pay and reconcile invoice So there are opportunities across the business that we evaluate evaluate on a regular basis to ensure we can free up more of that capacity to invest in our future. Jim Friedland: Your next question comes from Doug Anmuth with JPMorgan. Your line is now open. Doug Anmuth: Thanks for taking questions. I have two. Over the last couple of years, we've seen considerable large language model leapfrogging in many that to continue. What are the ways that Google can build and maintain its Gemini position around data and distribution and product integration And then how should we think about the potential for TPUs to move outside of Google Cloud and into external data centers and develop as an incremental revenue stream. Thank you. Sundar Pichai: Doug, look, I think you know, the the LLM frontier, you know, I mean, it's been an exciting trajectory, and I think 2026 will continue to show that progress. We're obviously improving these models across many paradigms, right? On pre-training, post-training, test time compute, so on. And we are bringing multimodal models into the picture. Are bringing agentic capabilities. The coding area is showing a lot of progress. And obviously, integrating all of this together and offering a great customer experience for our our products as well as through our APIs to our Cloud customers, to me, feels like there's a lot of headroom ahead. And as you've seen, our trajectory over the past two years in terms of how we've been making progress, I think we are in a very, very relentless innovation cadence, and I think we are confident about maintaining that momentum as we go through 'twenty six. In terms of TPUs, I would think about it as it's reflected in our overall part of what makes Google Cloud an attractive choice is the wide choice of accelerators we bring to bear here, and we meet customers in terms of what their needs are and the choice as well as other things we bring as part of Google Cloud, the end to end efficiencies in our data centers, all of that comes to bear. And that's what you see in the momentum in Google Cloud. And given the overall investment we are making, we expect to be able to drive momentum there. So that's how I would think about it. Doug Anmuth: Thank you, Sundar. Jim Friedland: Your next question comes from Mark Mahaney with Evercore. Your line is now open. Mark Mahaney: Thanks. Two questions. One, could you just comment a little bit on the YouTube ad revenue, that 9% year over year growth? It sounded like Direct Response was good and it sounded from search that retail came in relatively strong. It's little surprising that didn't kinda come through in the YouTube ads revenue growth. And then, Sundar, can I ask you to try to get ahead of a debate in the market, which is kind of maybe at a deep seek moment again? You talked earlier about Jim and I being the AI engine for the most for some of the most successful software SaaS companies out there in the world, and it just seems there's a market belief that these software companies are kinda losing seat power losing pricing power, it looks like it'd be a really terrible customer base. I can't imagine that that's actually gonna happen. But could you just talk about it? You're at the front forefront of AI and the impact that that's happening on software companies. Why wouldn't that be, or why would it be undermining the economics of your large software SaaS company base? Thanks. Philip Schindler: So, Mark, so first of all, thank you for the question. For the full year 2025, our YouTube's annual revenue surpassed $60 billion across ads and subscription. In In Q4, YouTube ads was driven indeed by strong growth in Dive Response. On the brand side, as Anat shared, the largest factor negatively impacting the year over year growth rate was lapping the strong spend on U. S. Elections. We also saw a slight impact in other brand related verticals. But taking a step back, I think it's important to think about YouTube ads and subs holistically. Because when a user shifts from being an ad supported user to a YouTube Music and Premium customer, it has a slightly negative impact on YouTube ads revenues, but a positive impact on our business. And we had strong revenue growth in YouTube subscriptions this quarter, particularly in the YouTube Music and premium category. Maybe the interesting part is what we're actually excited about, our roadmap and brand, the opportunity on connected TVs, more innovative ad formats, For example, the shoppable mastheads I spoke about earlier. That we piloted during Cyber five. We're working really, really hard to further connect brands and creators, scaling sponsorships, enabling enabling advertisers to showcase their products, their services during high visibility spotlight moments. We continue to expand the functionality of the creator partnership hub, making it a lot easier for brands to actually find creators and develop campaigns. We're heavily focusing on brand deals, on measurement efforts. So there's a lot of interesting work in the pipeline. And on top of that, we're actually see opportunity also for upside with performance There's a lot of momentum with demand gen adoption. Across small and medium advertisers. We're also excited about the opportunity for continued ads innovation and direct response, like, for example, shoppable formats, including in the living room. Which is then helping drive strength in retail, the continued momentum in shorts, and so on. So overall, we're we're quite excited. Yeah. Sundar Pichai: Great. And and, Mark, on on in terms of Gemini adoption and how what this moment means for etcetera. Look, at least from my my vantage point, you know, I definitely, see We have very, very good SaaS customers who are leaders in their respective categories. And what I see the successful companies doing is they are definitely incorporating Gemini deeply in critical workflows be it on improving their product experience and driving growth or using it drive efficiency within their organizations. And I think I think it is an enabling tool, just like it has been an enabling tool for us across our products and services, be it Search, YouTube, etcetera. I think the companies who are seizing the moment think, have the same opportunity ahead. And at least we are excited about the partnerships we have there and the momentum if I look at it in terms of their tokens usage, etcetera, the growth has been very robust. In Q4. Mark Mahaney: Thank you. Jim Friedland: Your next question comes from Mark Shmulik with AllianceBernstein. Your line is now open. Mark Shmulik: Yes. Thanks for taking the questions. Two, if I may. The first for Anat is, can you talk a little bit more the relationship between investment levels and how you kind of expect core performance to to trend? Is there, like, an operating income or a free cash flow objective that you solve towards, or or how do you think about greenlighting resources and projects? And then the second question for all of you, you know, a year ago, we probably could have guessed the answer to this question. Given where we are today, for each of you, what keeps you up at night here as you think about the Google story, and what's next? Thanks. Anat Ashkenazi: Thanks, Mark. Let me start with a question on the investment framework. And it's an important one and as you can imagine, an important one for us as well. We have a highly rigorous framework that we use internally, where we look at all the needs for investment, whether it's from own organization or from external customers, and have an estimate of what that investment could potentially yield, obviously not just near term but long term as well. So we take that into consideration when we make the following decisions. The first one is the total investment that we make across the company. This was, for example, in 2025, the $91 billion we invested in CapEx and our estimate for CapEx investment this year. So what's the total envelope that wanna invest to ensure that we can drive both near term and long term growth for the company? And then the second way we use that framework is to just allocate these funds across the organization, determine where we should make these investments. And throughout the year, as you can imagine, we always look to understand where things are moving, whether it's a external dynamics or internal dynamics. And I've mentioned some of the supply chain pressures we're seeing externally. So we look at this with a highly rigorous framework. To make sure that we're making the right decision. It was exciting to see the fact that we're already monetizing. And you saw it in the results that we've just issued this quarter, the investments that we've made in AI. It's already delivering results across the business. I know in cloud, it's very obvious external, but you've heard the comments on the success we're seeing in search, the comments from Sundar and from Philip, and then the frontier model development that really serves as the foundation for the organization. We then also look at just the cash flow, cash flow generation, the health of our financials and the balance sheet, that's important as well. So we take that into consideration when we make the decision about the overall level of investment. We wanna make sure we do it in a fiscally responsible way and that we invest appropriately, but we do it in a way that maintains a very healthy financial position for the organization. Sundar Pichai: And yeah, maybe I can answer on what keeps us up at night. Look. I think overall, we've been on this AI first trajectory for over a decade now, and it's it's it's what we've been methodically thinking our way through. It's the reason why we've been working on TPUs for over a decade, as an example. But I think specifically at this moment, maybe the top question is definitely around capacity, all constraints be it power, land, supply chain constraints, How do you ramp up to meet this extraordinary demand for this moment? Get our investments right for the long term, and do it all in a way that we are driving efficiencies and doing it in a world class way. So that's where I think we are meeting the moment well and it's definitely an area where I'm spending a lot of time on. Jim Friedland: Your next question comes from Michael Nathanson with MoffettNathanson. Your line is now open. Michael Nathanson: Thanks. I have one for Sundar and one for Anat. Sundar, you mentioned universal commerce protocol a bunch of times. I wonder if you could spend some time talking about the rationale for developing it. The opportunity that you see it solves for, what it means for the prop discovery funnel for consumers and for not any color you can provide on a CapEx guide between longer duration assets like buildings, and infrastructure and shorter cycle assets like technical equipment, that'd be helpful. Thanks. Sundar Pichai: Thanks, Michael. Obviously, people people go through a lot of commercial journeys across many of our surfaces, search, YouTube, Gemini app, and so on. So I think there's as well as we support through cloud and ads, our entire retail partners as well. And the opportunity to improve the experience, I think, can be a huge foundational uplift here. But it's important to be approaching it, keeping in mind that our users, as well as merchants here and figuring out that value part of what's been good in designing the Universal Commerce protocol is it makes it much easier for users to complete transactions but at the same time, it allows merchants to help showcase range of their offerings, if they want to make promotions, etcetera. So all of that is built into the protocol. And I think you have to get that value prop for the ecosystem right to make the experience better. And so it's foundational. More importantly, we are now implementing the protocols and are Gemini models are making progress in those agentic capabilities. I think so I'm excited about a future where as people are going through discovery, searching, finding new things, if they're interested in acting upon it, all of that is seamless. And so it overall creates an expansionary moment. Anat Ashkenazi: And the question with regards to the CapEx and the kind of what makes up the total that we've announced for this year and last year. Approximately 60% of our investment in 2025 and it's going to be fairly similar in 2026, went towards machines, so the servers. Then 40% is what you referred to as long duration assets, which is our data centers and networking equipment. And I think you're probably referring to the depreciation delta between them, those long term duration assets depreciate over the building could be forty years or longer. Other components may be may less than that. Another important component is how we allocate the CapEx. And we've commented in the past about the allocation of our ML compute across the business. And for 2026, just over half of our ML compute is expected to go towards the cloud business. Michael Nathanson: Thank you so much. Jim Friedland: Your next question comes from Ross Sandler with Barclays. Your line is now open. Ross Sandler: Great. Just a question on the native Gemini $750,000,000 So we added 100,000,000 MAUs in the fourth quarter. Could you just talk high level about usage and retention of native Gemini? And is this $7.50 the right way to measure your progress against companies like Chachi BT or is there another cohort of users that aren't in that $7.50 that maybe we should also consider Thanks a lot. Sundar Pichai: Ross, I think, you know, we definitely saw I would say, extraordinary period of growth in Q4 for Gemini App. It's not just the growth in monthly active users, but there is definitely there was a sharp increase in engagement per user on the app. All the metrics be it active usage, the intensity of usage, retention, all showed distinct progress across iOS web, Android, etcetera, and geographically, globally. Definitely all the product experience improvements, the work we did with Nano Banana, the progress with the Gemini models all translated into strong momentum. And that momentum is continuing. So we are excited about that, and we'll continue to invest. Obviously, there are many people who are getting a deeply AI native experience in the context of AI mode in Search as well, And and, you know, we are definitely seeing strong growth and progress. And the introduction of Gemini three in AI mode was a very positive driver as well. And obviously, we'll continue to evolve these experiences, and I'm excited about the opportunities there. Ross Sandler: Thank you. Jim Friedland: Your next question comes from Ken Gawrelski with Wells Fargo. Your line is now open. Ken Gawrelski: Thank you very much. Two, if I may, both on search. First, could you walk us through how you are evolving your views on the monetization of AI search activity, given the more conversational nature and longer periods of engagement per session, Consumer utility increasingly, is increasingly driven by the on platform results, not specifically the link outs and referrals. In that construct, how do you think about increasing the revenue opportunity to match the consumer utility? And is this increasingly where premium subscriptions play? And then question two, and it's related. As you think about partnerships such as the new Apple partnership on Siri. How do you think about the right way to align for success with those partners Previously, as disclosed in the DOJ documents, etcetera, It was a revenue share relationship, but now if you think about the utility that you're driving through AI search and through, you know, and through Gemini on those platforms, it may be less related to the actual search search revenue. Could you just talk a little bit about how you align with partners for success there? Thank you. Philip Schindler: First of it may be worthwhile to say that the acceleration we saw in the search was not due to a single driver, but was really the result of many different parts of our business showing strength and working well together. And maybe I quickly add the vertical perspective, retail finance, health drove actually the greatest contribution to search More specifically to your question, the ongoing innovation is Revenue, though nearly every major vertical actually accelerated in Q4. as you know, core to what we do and the enhancements to the user and the advertiser experience really continue to drive our performance. And we make hundreds of these changes every quarter We see AR overviews and AR mode continue to drive greater search usage and growth in overall queries, including important and commercial queries. Gemini based improvements in search ads help us better match queries and craft creatives for advertisers. I talked about the understanding of intent and how this has significantly expanded our ability to deliver ads on longer and more complex searches. That were frankly previously difficult to monetize. AI Max, for example, is already used by hundreds of of advertisers and continues to unlock billions of net new queries in that sense. We see strength with SMB advertisers expanding their budgets and the adopting automation tools leading to better ROI. On the creative side. We're using Gemini to generate millions of creative assets via text customization in AI Max and P Max. And so on. So we're we're very pleased with what we're seeing here. Jim Friedland: And our last question comes from Justin Post with Bank of America. Your line is now open. Justin Post: Great. Just want to follow-up on the Gemini app. Obviously, great growth there. Are you seeing any cannibalization of search as far as that activity as people start using that app more? And then second, on monetization, where are you on that? And and with AgenTic and other ads coming, could that be incremental to your growth over the next few years? Thank you. Sundar Pichai: Right now, overall, look, I I think we are giving people choice People are obviously using Search, experiencing AI overviews and AI more part of it, and Gemini app as well. And the combination of all of that, I think, creates an expansionary moment. I think it's expanding the type of queries people do with Google overall. And and so overall, you know, some of it all is what we see as a growth opportunity. And we haven't seen any evidence of cannibalization there. And maybe Philip can comment on the monetization. Yeah. Think Philip Schindler: Sundar previously commented on AgenTig and how we think about it. And look, in general, as with all of our products, we really focus first and foremost on creating a great user experience. And we have excited about where we are with the ads and AI overviews and early experiments in AI mode, including innovations like direct offer and our road map for the future. In terms of the Gemini app, today, we are focused on a free tier and subscriptions and seeing great growth, as Sundar discussed. But ads have always been part of scaling products to reach billions of people, and if done well, ads can be really valuable and helpful commercial information and the right moment, we'll share any plans. But as we've said, we're not rushing anything here. Jim Friedland: Thank you. Operator: And that concludes our question and answer session for today. I'd like to turn the conference back over to Jim Friedland for any further remarks. Jim Friedland: Thanks everyone for joining us today. Look forward to speaking with you again on our first quarter 2026 call. Thank you, and have a good evening. Operator: Thank you, everyone, This concludes today's conference call. Thank you for participating. You may now disconnect.
Casey Katten: Thank you for joining us today to discuss e.l.f. Beauty's Third Quarter Fiscal 2026 Results. I'm Casey Katten, Vice President of Corporate Development and Investor Relations. With me today are Tarang Amin, Chairman and Chief Executive Officer, and Mandy Fields, Senior Vice President and Chief Financial Officer. We encourage you to tune into our webcast presentation for the best viewing experience, which you can access on our website at investor.elfbeauty.com. Since many of our remarks today contain forward-looking statements, please refer to our earnings release and reports filed with the SEC where you will find factors that could cause actual results to differ materially from these forward-looking statements. In addition, the company's presentation today includes information presented on a non-GAAP basis. Our earnings release contains reconciliations of the differences between the non-GAAP presentation and the most directly comparable GAAP measure. With that, let me turn the webcast over to Tarang. Tarang Amin: Thank you, Casey, and good afternoon, everyone. Today, we will discuss our third quarter results and our raised outlook for fiscal 2026. I am proud of our incredible e.l.f. Beauty team for another quarter of consistent category-leading growth. In Q3, we grew net sales 38% and adjusted EBITDA 79%. Q3 marked our twenty-eighth consecutive quarter of net sales growth, putting e.l.f. Beauty in a rarefied group of high-growth companies. We are one of only six public consumer companies out of 546 that has grown for twenty-eight straight quarters and averaged at least 20% sales growth per quarter. We're excited by the consumer engagement we're seeing across the beauty category, and especially the momentum of our brands. On a consumption basis, our namesake e.l.f. Cosmetics brand grew 8% in the U.S. this quarter, two times the category. We increased our market share by 130 basis points, the largest share gain among over 700 cosmetics brands tracked by Nielsen. Nutarium, our clinically effective biocompatible skincare brand, which we acquired two years ago, continues to drive strong growth. Rhode, the high-growth beauty brand founded by Hailey Bieber, which was acquired in August, delivered an outstanding quarter achieving the number one brand ranking in Sephora North America and executing another record-breaking launch with Sephora in the UK. The strength of our brands is evident when viewed in the context of the overall beauty market. While beauty has comparatively low barriers of entry, very few brands have been able to scale. Of the nearly 1,800 cosmetics and skincare brands tracked by Nielsen, only 14 have surpassed $200 million in annual retail sales. We have four of these 14 brands. The combination of our value proposition, powerhouse innovation, and disruptive marketing engine continue to fuel our results and our outperformance relative to the category. Let me take a moment to discuss a few of the milestones we achieved in Q3. Starting with our value proposition. We believe in democratizing access to the best of beauty. Each of our brands offers accessible price points relative to the competitive set. For context, the average price for e.l.f. Cosmetics is $7.50 today, as compared to approximately $9.50 for legacy mass cosmetics brands and nearly $30 for prestige brands. 75% of e.l.f. Brand product portfolio sits at a phenomenal value of $10 or less. While there are other brands with low price points, our real advantage is our ability to also deliver exceptional quality. Our quality scores have gone up every year over the past ten years. Consumers love e.l.f. for delivering an incredible price point and quality that is often better than prestige. Looking to innovation. We have a unique community-led approach to innovation across our brands, focused on democratizing access to the best of beauty through our premium quality products at extraordinary prices. Our namesake e.l.f. Brand held four of the top 10 new products in all of mass cosmetics in 2025, on top of holding six of the top 10 new products in 2024. The consistency of our winning innovation is supporting our share gains across segments. We've more than doubled e.l.f. Cosmetics' market share over the last five years, and see significant opportunity ahead. As compared to the 22% share we have in face makeup, we have a 13% share in lip and a 9% share in eye. We have significant white space in these large segments and believe we have the innovation engine to conquest them. Spring 2026 is an exciting time for innovation. Building on the success of e.l.f. Glow Reviver Lip Oil in 2024, and Melting Lip Balm in 2025, we recently launched our Glow Reviver Slipstick at a $10 price point compared to a prestige item at $48. We're pleased with the initial reaction we're seeing from our community, with Slipstick already achieving the number one new lipstick on both Amazon and TikTok shop, where it debuted. We're also excited about e.l.f. Soft Glam Satin Concealer, our first concealer innovation in the last five years, at an incredible $5 price point compared to the prestige item at $32. We're answering our community's call for value. You can expect to see our spring innovation rolling out with our global retail partners over the coming weeks. We are leaning into our disruptive marketing engine to fuel brand awareness across our portfolio and deepen the connection we have with our community. We are also reaching new audiences through our unique brand-on-brand with like-minded disruptors. Two years ago, e.l.f. Cosmetics partnered with Liquid Death, one of the fastest-growing beverage brands, for a limited edition Corpse Paint collection that sold out in forty-five minutes. Our community was thirsty for more, so we reunited with Liquid Death to launch a sequel. The response from our community to this limited edition Lipenbaums was phenomenal. Our Lip Crip Vault sold out in nineteen minutes. Our campaign drove over 4 billion earned impressions, and our date with death stunt generated over 10 million views. We also saw over 25 million attempts at completing the Liquid Death Obstacle course in our ElfUp Roblox experience, with an average play time of over seventeen minutes per session. In another first-of-its-kind collaboration, e.l.f. recently joined forces with H&M to reimagine three e.l.f. Beauty icons. The collaboration marks a number of firsts: e.l.f.'s first global collaboration dropping in 27 countries, e.l.f.'s first fragrance launch, a category our community has been asking for, as well as H&M's first partnership with another beauty brand. The collection launches for a limited time only starting January 29 with a robust activation plan including outreach to H&M's 150 million loyalty members globally. The excitement on our marketing calendar doesn't just stop there. Make sure you tune in to Peacock this Sunday, where e.l.f. will be debuting a commercial at the big game. While the big game serves as our ignition point, we plan to run our commercial for an additional eight weeks across a variety of platforms with a total estimated campaign reach of nearly 300 million. The strength of our category-leading results and productivity continues to earn our brand space with our global retailers. The e.l.f. Brand remains the most productive cosmetics brand on a dollar per linear foot basis with our largest retail customers globally. We are looking forward to the expansion we have planned for e.l.f. in spring 2026, expanding our space within Ulta Beauty in the U.S., and launching with Diem in Germany. We're leaning the strength of our retail relationship to enhance the global distribution footprint for our brands. In September, Rhode launched in retail for the first time with Sephora, the world's leading global beauty retailer, achieving the biggest launch in Sephora North America history, two and a half times bigger than any other brand. In November, Rhode achieved another record-breaking launch as it expanded with Sephora in the UK. This was the largest launch in Sephora UK history, outperforming the previous record holder by five times. In terms of what's next, we are excited to launch Rhode in Australia and New Zealand with Mecca this month to further its global reach. We are seeing significant pent-up global appetite for Rhode. International drives approximately 20% of Rhode's DTC sales, while 74% of the brand's social followers are from outside the U.S. Turning to Notorium. When we acquired the brand two years ago, it was only available on Target, Amazon, SpaceNK, and its own website. Since then, we've launched Notorium with Ulta Beauty in the U.S., Shoppers Drug Mart in Canada, Boots in the UK, and Sephora in Australia and New Zealand. We're pleased by the strong growth in share gains we're seeing across retailers. We will be expanding Notorium's retail presence to Walmart for the first time this spring, where the brand will be launching in a subset of U.S. stores. With this launch, we are continuing to further Notorium's unwavering commitment to deliver the science of consistent skincare to everyone everywhere, every day. Looking across our brand portfolio, we're in the early days of our international opportunity we see. For context, international drives approximately 20% of our net sales, as compared to legacy peers having over 70% of their sales outside the U.S. In summary, we're excited by the broad-based momentum we are seeing across our brand portfolio and remain confident in our ability to continue to gain share and deliver best-in-class growth in beauty. I'll now turn the call over to Mandy to talk more about our third quarter results and our raised outlook for fiscal 2026. Mandy Fields: Thank you, Tarang. Net sales grew 38% year over year, on top of 31% growth in Q3 of last year. The acquisition of Rhode contributed $128 million or approximately 36 percentage points to our Q3 net sales growth. This better-than-expected performance was supported by strong retail sell-throughs in Sephora North America, a record-breaking launch in Sephora UK, and a strong holiday period on roadskin.com. Looking to our organic sales trends, excluding Rhode, our Q3 net sales were up approximately 2% year over year. This was lower than anticipated given some softer trends we've seen in the UK and Germany, our largest international markets. As we've talked before, we're seeing weaker consumption in the UK, and we're cycling our largest international launch to date with Rossmann Germany. Outside of those markets, international consumption remains strong. Looking to our geographic regions, our net sales in the U.S. grew 36% year over year while in Q3, international net sales grew 44%. Pricing and product mix added approximately 38 points to net sales growth, while unit volumes were relatively flat year over year. Q3 gross margin of 71% was down approximately 30 basis points compared to prior year and up 200 basis points sequentially versus Q2, in line with our expectations. The year-over-year decrease was largely driven by tariffs partially offset by pricing and mix. On an adjusted basis, SG&A as a percentage of sales was 51% in Q3 as compared to 54% in Q3 last year. While we continue to make ongoing investments in our team and infrastructure, this was offset by leverage in our marketing spend on a year-over-year basis and a timing shift of some of our SG&A expenses into the fourth quarter. Marketing and digital investment for the quarter was 21% of net sales, as compared to 27% in Q3 last year. Q3 adjusted EBITDA was $123 million, up 79% versus last year. Adjusted net income was $74 million or $1.24 per diluted share compared to $43 million or $0.74 per diluted share a year ago. Moving to the balance sheet and cash flow, our balance sheet remains strong, and we believe positions us well to execute our long-term growth plans. We ended the quarter with $197 million in cash on hand compared to a cash balance of $74 million a year ago. During the quarter, we repurchased approximately $50 million of our outstanding common stock given the disconnect we see between e.l.f. Beauty's market valuation and the strength of our business fundamentals. At quarter end, approximately $400 million remained available for repurchase under our previously authorized repurchase program. Our liquidity position remains strong, with less than 2x net debt to adjusted EBITDA even after our acquisition of Rhode. We expect our cash priorities for the year to remain on investing behind our growth initiatives and supporting strategic extensions. Now let's turn to our updated outlook for fiscal 2026. We are raising our fiscal '26 outlook on the top and bottom lines primarily driven by Rhode's outperformance. For the full year, we now expect net sales growth of approximately 22% to 23% year over year, up from 18% to 20% previously. We expect Rhode to contribute approximately $260 million to $265 million in net sales to fiscal 2026, versus our expectation for $200 million previously. On an annualized basis, our outlook assumes Rhode will achieve net sales growth of approximately 70% year over year. Looking to the second half, our guidance implies 31% to 33% net sales growth. On an organic basis, excluding Rhode, we expect net sales to be up approximately 2%. Let me walk through the building blocks of our organic sales outlook. We are assuming approximately 6% global consumption growth similar to what we saw in Q3, partially offset by a four percentage point headwind from pipeline, as we cycle significant retail expansion we had in the second half of the year, including the launch of e.l.f. in about eleven thousand Dollar General stores and a 50% space expansion for e.l.f. in Target. This dynamic is driving shipments below consumption in the second half of our fiscal year. Our consumption remains strong, and we believe consumption and market share gains are the best indicators of the underlying health of our business. Over a longer period, shipments tend to even out with consumption. The great news is consumers continue to choose our brands, driving our consistent outperformance relative to category trends. Turning to adjusted EBITDA, for the full year, we now expect $323 million to $326 million in adjusted EBITDA, as compared to our expectation for $302 million to $306 million previously, largely due to the outperformance we saw in Q3 partly offset by a timing shift of expenses into Q4. Our outlook implies adjusted EBITDA growing 9% to 10% year over year and adjusted EBITDA margins of approximately 20%, which we believe is quite strong considering the level of tariffs we faced this year. Looking to the second half, our outlook implies adjusted EBITDA margins of approximately 19%, down approximately 300 basis points versus last year. There are two key factors. First, marketing. We expect marketing spend to be about 27% of net sales in the second half, up about 200 basis points relative to the 25% of net sales we spent in the second half of last year, including a new commercial debuting at the big game that Tarang mentioned. We have a number of marketing campaigns planned in Q4, an activity we did not participate in last year. Second, within non-marketing SG&A, we have planned investments in two key areas. First, space expansion. The strength of our brands continues to earn us additional space and distribution, which comes with incremental costs related to fixturing and merchandising. Our second investment area is in our team. We continue to build our team to support the significant white space we see across categories, brands, and geographies. In summary, Q3 marked another quarter of industry-leading growth. Our business fundamentals remain strong, and we continue to make progress unlocking the full potential we see for our portfolio of disruptive brands. With that, operator, you may open the call to questions. Operator: In Press touch tone telephone, withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one. Join the question queue. Our first question today comes from Olivia Tong from Raymond James. Please go ahead with your question. Olivia Tong: Great. Thanks. So first question is just a better understanding about your approach to spending as well as guidance. Great quarter for December, but looks like you're expecting EBITDA margins in the low double-digit range for Q4. So obviously, there's a super lag. You talked about some of the other spending plans. But I would assume that Rhode and FX also provide tailwinds on margins. So just if you could unpack that first. Then second is just around your ability to expand Rhode at a faster pace. There's great momentum there. So, you know, you talked about Australia upcoming, but there's obviously a lot of world out there, and you already have exposure in Western Europe. So just thinking about the path forward for Rhode from here. Thank you. Mandy Fields: Hi, Olivia. I'll take the first question. We'll let Tarang take the second one. So on EBITDA margin, you really have to look at the second half in total. And so when you look at the second half, we're actually outlooking around a 19% adjusted EBITDA margin, and that's up from around 17% previous. And so we talked about seeing some costs shift from Q3 into Q4. That was inclusive of marketing, where we had some cost shift and where we've added additional spend. As we've talked about and you've seen, the marketing in action with the collaborations that we've done, just at the start of 2026 calendar year. And with the Super Bowl activation or the big game activation that we have coming this weekend. And so those are some of the areas in addition to team and infrastructure that we've talked about making those investments in. But overall, second half, outlook on adjusted EBITDA is better than previously expected. Tarang Amin: Hi, Olivia. This is Tarang. I'll take the second question on expanding Rhode at a faster pace. What I tell you is less about expanding Rhode at a faster pace, but continuing the excellence of launches that we've had. Rhode growth has been phenomenal, outweighing anyone's expectations. If you look at it, it's really the quality of execution that we've had. Sephora North America, the biggest launch ever, number one position there. Look at Sephora UK, five times bigger than the next biggest launch. We're tremendously excited. I think next week, we launch with Mecca in Australia and New Zealand. And so it's more about making sure we're being disciplined in the rollout. Now the great news, as you heard in the prepared remarks, is there's tremendous pent-up demand for Rhode. Only 20% of our DTC sales are outside the U.S. Yet 74% of our social followers are outside the U.S. So we have very high aspirations in terms of the globalization of Rhode over time, but we want to make sure we're doing it with the same level of quality and care. We've done so far in both North America and the UK and soon to be Australia and New Zealand. Olivia Tong: Great, thanks. And then in terms of the core e.l.f. Brand, can you talk about some of the things that you're planning to do in order to drive incremental growth there? Clearly, you've got some strong laps that you have to go against, but you talked about some of the additional shelf space. What about international launches further than the ones that you've already announced? Tarang Amin: Well, Olivia, I guess the first thing I'd tell you is we're using the same strategy driven twenty-eight consecutive quarters and not only net sales growth but market share gains. I sometimes feel that people don't fully appreciate just how phenomenal the market share gains have been and as consistent. We've gone back as far as we can look. We've not seen another cosmetics brand grow share for twenty-eight consecutive quarters and even in Q3. Building a 130 basis of market share is pretty phenomenal. So I'd say our core proposition, our value proposition, powerhouse innovation, and disruptive marketing engine. Many examples that you heard on this call will continue to fuel the brand. And in terms of continued growth on e.l.f., one of the real strengths that we have is every one of our major retailers their most productive brand on a dollar per linear foot basis. And that naturally leads to more space and more support. You're seeing that right now with the rollout that we have at Ulta Beauty in terms of more space. I'm particularly excited about the rollout coming up pretty soon with DM in Germany. It will bring, building on the phenomenal launch we had last year with Rossmann in Germany as well as with Amazon, it really will bring e.l.f. to the majority of German consumers. I'd say that's probably the last thing I'd say is our ability not only to seed the brand in different countries, but then really build out our presence in those countries like we did in Canada, UK, soon to be Germany. Really, I think there's a ton of potential both in the U.S. as well as internationally. Operator: Our next question comes from Dara Mohsenian from Morgan Stanley. Please go ahead with your question. Dara Mohsenian: Hey, guys. Tarang, I was hoping you could give us a bit of a state of the union on the e.l.f. cosmetic business in the U.S. just heading into the spring. You're obviously coming off a very large price increase. Maybe looking backwards, how do you think that's been received at the consumer level? Should we expect to see volume pick back up going forward as some of the sticker shock wears off? And then you have the huge spring innovation pipeline a couple years back, not quite as strong last year. You mentioned some exciting products today coming up. Just any perspective on the overall innovation pipeline for the spring this year relative to last year and any additional thoughts around the U.S. in terms of category growth here or other important dynamics? And then maybe just second, you spoke about international for Rhode, but can you just give us an update on innovation and portfolio plans around Rhode in the U.S. in fiscal 2027? Are there any plans to move into additional products, subcategories? And just as you think about the brand longer term, how do you look to extend the durability and sustain the momentum that you've seen this year? Thanks. Tarang Amin: Sure. Hi, Dara. So I'd say, first of all, on the state of the e.l.f. Brand in the U.S., it's never been healthier. Our consumption is the category. We continue to build share, as I talked earlier. And one of the things that I was really pleased by was the execution on our price increase. We took a 15% price increase and we saw single-digit unit declines, which is actually quite good in your seeing that in the dollars that you're as we go forward. Usually, spring is a time that many of our competitors usually take price increases. We're different than a lot of our competitors at historically we've grown through unit volumes, whereas a lot of our competitors have grown through price increases in AUR. So we do believe our value proposition will continue to get better as time goes on given that we've already taken our pricing and we live with pricing and the consumers have accepted that. Second, as I think about innovation, you're right. 2024 was the biggest year we ever had in innovation. 2025 was the second biggest year of innovation we had. So it was not as big as 2024, but it still was a good innovation year. So we do have that consistency we mentioned earlier 1,800 cosmetics and skincare brands. Yet we held in 2025 four of the top 10 positions from an innovation standpoint on top of six of the top 10 positions the year before. So really have proven strength in innovation and our ability to do so. I'm particularly excited about the innovation we have this spring. You know, we mentioned our slip stick at $10 versus a prestige item at 48. I look at our soft glam satin concealer at a jaw-dropping price of $5 versus a prestige item at 32. And we have a number of other innovation items that I feel really good about. Now we won't get a full read on those. Well, it's promising early days in terms of our own site and places we've launched them. Really over the next few weeks is when we'll get a much better sense on the spring innovation and how it compares to 2025 as we go forward. We also have very strong innovation plans across our brand. So you mentioned Rhode. Rhode, if you look right now, we just launched a face mask as well as a lip mask. There's major activation taking place in Montana right now on that. And what we see is just really great consumer acceptance on Rhode innovation because it is so curated and thoughtful. The one of everything really good works for Rhode. Notorium also has a very strong plan as does e.l.f. skin and well people. So innovation is definitely one of the key drivers of our business, and I feel great about that. Last, you asked about the category. I've long been bullish about the beauty category, particularly cosmetics and skincare. We're seeing some of the healthiest category growth rates we've seen in quite some time. So in this last quarter, the color cosmetics category is up 4%. The skincare category is up 8%. You know, I'm glad that e.l.f. was more than double both of those category growth rates, but that's always great to have a tailwind when it comes from a category standpoint. So not only is the category healthy, but we're particularly well positioned with our value proposition, innovation, and marketing within the category. Operator: Our next question comes from Andrea Teixeira from JPMorgan. Please go ahead with your question. Andrea Teixeira: Thank you, operator. Good afternoon, everyone. I just want to kind of like dig into Tarang what you just said in terms of innovation. But also from a perspective of cat or subcategories, I know you have, like, 50 to 60% in market share for primers. You basically created some of these items, right, in a way or basically brought these items to, from Prestige into a more affordable price point. I was wondering now your like, the two other very big subcategories, lip and mascaras, you have been pushing, particularly lip, as we think about the consumer being more stretched maybe she wants to make sure that she has more basic items like lipsticks and mascaras. I was wondering I haven't seen any you know, pardon if I missed anything major in So I was hoping to see if you have against the spring and thinking about innovation across where the low hanging fruit I'm assuming, are still there. Right? I mean, if you can kind of give us a perspective of how, both your innovation team and your retailers are pulling and asking you to bring affordable items within their aisle. Or electronic aisle, I should say. Tarang Amin: So hi, Andrea. So I'll answer that. I'd say first of all, we feel really great about our innovation plans as I just talked. And our strategy is really twofold. Number one is really building strength in those segments that we have very large share positions in. We now have 21 segments where we have the number one or two position, and those become really great competitive moats. Be my guest competing against us in primers or any of the other categories. We have very strong share positions. And we continue to innovate on those. The second is conquesting categories where we're undershared. So if I just look relatively within the category, in face we have a 22% share, clear leadership in face. In lip, we went from almost nowhere to a 13% share and a really strong position in lip. We continue to innovate in lip, building on the success we have with Glow Reviver, a couple years ago. With our slip stick. I mean, it's basically lipstick on a stick. Which is a phenomenal form. And then in eye, we now have, I mean, literally it was nowhere to 9% share in eye, and we continue to have innovation across all three of those segments and you'll continue to see more. I think some of our mascara innovation that's coming out is slated closer to the fall time frame that you'll see. So and we've been pretty consistent. We've been chipping away at kinda mass mascara share as well as overall eye share and lip share for a while. So I feel good about the innovation strategy, both leveraging the strengths that we have, continue to feed that, including our growing franchises and extending those franchises in other segments. Well as what we have on innovation pipeline, both in the spring as well as upcoming in the fall. And as I look at next spring. So you'll continue to see, that work. And then the last area, even though you're not aware, is, the progress we're making in skincare. We now have three of the fastest growing brands in skincare. I feel really good about the innovation we have on e.l.f. Skin. The round of innovation we have on Notorium and Rhode, as I just mentioned. We really have really stepped up our ability in skincare and also the momentum we're seeing there. Mandy Fields: And just to add to that, Andrea, I'll just add on that from because you asked about our value and bringing that to our retailers. No, 75% of our portfolio still sits at $10 or less overall. So we are very much focused on bringing that value to our consumers, and Tarang highlighted our soft glam satin concealer, which we're launching at a five-dollar price point, which is really incredible. And a very competitive price point in the category. And so that's always gonna continue to be our focus. How do we bring that value to life for our consumers? Operator: Last question comes from Peter Grom from UBS. Please go ahead with your question. Peter Grom: Great. Thank you and good afternoon, everybody. Can I just ask on the split of the $128 million of Rhode, just U.S. versus international? And I just asked this in the context of it would imply that for the base business in the U.S., it would be pretty challenged if the ED20 rule kind of apply. So just maybe help us understand that. And then just on the 6% consumption that you expect in the back half of the year, maybe could you outline specifically, is that what you expect for 4Q? And can you break that down U.S. versus international? Thanks. Mandy Fields: Hi, Peter. So for Rhode overall, the look. Very pleased with Rhode's performance, $128 million contribution to the quarter. We haven't broken that out across international and U.S., but the 20% is relatively close. Right? We talked about Rhode having 20% of their business outside of the U.S. We also talked on the call about seeing softness in some of our key markets on the organic business in the UK. As we've seen a highly promotional environment that has remained the case throughout the holiday. And then also in Germany where we're cycling the launch of Rossmann in Germany. And so when we think about our overall consumption that we're implying, the 6% is what we see for the second half of the year. And that is gonna be offset by that four-point headwind from the pipeline. As we talked on the call. So that's kind of how we get to our net sales outlook. For the second half overall. Operator: Our next question comes from Sydney Wagner from Jefferies. Sydney Wagner: Hi. Thanks for taking our question. Can you help contextualize where you see the largest buckets of share gain opportunity going forward for core e.l.f.? Just curious how you think about the level of contribution maybe from mass tiers, prestige players, or even adjacent non-color beauty categories? And then if you look across international markets, what are the near and long-term KPIs you're watching most closely to assess brand health and positioning? Along with innovation traction for Core Elf. Thank you. Tarang Amin: Hi, Sydney. So on your first question, on the share gains, let me back up a little bit and kind of provide. If you think nationally, we're about a 13% share. At Target, our longest-standing national retail customer, we're over 20% of their category. So we see major share gains including a target going forward. And it is that combination of leveraging where we have strengths. I don't think anyone thought we'd have a 20% share in face at some point, but we're not done there with the innovation we have. And we certainly have major opportunity in both lip and mascara and the innovation to help conquest those. The last piece, you know, I brought it up before, but skincare is a major growth factor for us, and we have three brands really to pursue. Our aspirations, in skincare. And then in terms of the key KPIs for international, I think they're very similar to the KPIs we use in the U.S. We really take a look from a consumer what's the penetration, what's our ranking amongst the key and most desirable consumer sets, so the strength we have in the U.S. amongst Gen Z, Gen Alpha, Millennial, we track that, and we're very pleased with what we're seeing. In the markets we enter. Second thing we look at is productivity. What is the productivity in terms of the sales per linear foot that we deliver in? And as I mentioned earlier, we're not only the most productive brand here in the U.S., but we are with our major U.S. major international retailers, Boots and Superdrug being the two biggest Shoppers Drug Mart, Walmart Canada. And so we look at that. Then I'd say the third are the sub-metrics by each of our core functional areas, and what I'll tell you in summary is we're really pleased overall with our international market. Mandy talked about, hey. Look. We're currently facing some challenges in the UK given the promotional environment, but we continue to see very strong build in terms of awareness, overall brand equity ratings. Heard that some of our competitors are gonna be taking pricing in the UK, so that should help aid the value proposition we have in the UK. And in Germany, the real strategy I talked about earlier is really building our presence in the countries that we've already seeded. So being able to have DM, Amazon, and Rossmann, Germany allows us to put our full marketing model on in that country once you have real presence. So I'm particularly excited about what we can do in Germany, the largest market in Europe. And we will continue to seed other markets. But all the consumer metrics we're seeing right now are healthy, relative to the time that we've entered. Each of these, each of these countries and each of these retailers. So really encouraged by what we can continue to do and not only on e.l.f., but as I mentioned before, across the portfolio, e.l.f. Skin, Notorium, and Rhode. All have major potential, and we're pleased with the results we're seeing behind them. Operator: Our next question comes from Anna Lizzul from Bank of America. Please go ahead with your question. Anna Lizzul: Hi, good afternoon. Thanks so much for the question. I wanted to follow-up on your marketing spend plans in the second half. Just curious what drove the decision this year to go back to a Super Bowl ad after not having one last year. Then if we look at fiscal Q4, of course, acknowledging that you have that Super Bowl ad and some distribution gains, this should be significantly higher marking in fiscal Q3. Wanted to better understand an allocation of what's driving that between these factors. I know you talked about your EBITDA margin in the second half overall now expected to be around 19%. Which is better than your expectation for the prior quarter. So I wanted to better understand what changed. You did mention that cost shift from fiscal Q3 into fiscal Q4, but it does look like it's overall lower in the second half than you originally expected, if you could elaborate on that. Thank you. Mandy Fields: Hi, Anna. Sorry about that. We have a little technical difficulty over here. So marketing spend in the second half, yes, we overall for the year, let me take a step back. Targeting 24 to 26% for our marketing spend. So that remains unchanged. How the quarters have come together, we did have some timing shifts. You saw the number of campaigns that we've already had as we started Q4. And so that is what's driving some of that marketing spend. Heavier in Q4, but really overall for the second half, largely the same. On the Super Bowl or the big game, as we have to call it, you know, we did participate in in a way last year. It just wasn't through an ad. And this year, we're gonna do it through streaming on Peacock. We'll also be on Univision. And so, again, it's not that big, broad national ad. And then we're also gonna continue to run that for an additional eight weeks as we go through. So we'll continue to get some additional hits and eyeballs from that activation as well. And so feeling really good about the marketing spend. And then on the SG&A or on the adjusted EBITDA for the second half, like I said, from an adjusted EBITDA margin standpoint, we are seeing that better than we previously outlooked. And, really, that's why I'm looking at things on a second half basis because we did have some timing shifts on the quarter. Operator: Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead with your question. Bonnie Herzog: Alright. Thank you. Hi, everyone. Actually, I had a question on your full-year guidance. You raised your net sales guidance at the midpoint by $46 million but you now expect Rhode sales will be about $60 million to $65 million higher, which does suggest e.l.f. Brand growth will now be lower. So could you talk to that and maybe what's changed? I guess, is this outlook conservative? Or is there something you're seeing, I don't know, with some of the innovation you've rolled out so far, which maybe gives you a little pause? Mandy Fields: Hi, Bonnie. So I'll take that. So overall, we did raise our guidance, so we're very pleased to be in a position to raise our guidance up to 22% to 23% on the full year. What's implied in that on the e.l.f. brand or on an organic basis, is around 2% for the second half, and I'll take you back to the math that we talked about on the call. We're seeing about a 6% global consumption rate right now. And so we're using that, and we're saying four points come off from a net sales standpoint given the pipeline that we have to cycle in the base. So what changed to your question, is that global consumption rate. We were seeing that consumption rate closer to 8% when we came out with our guidance in November and have since seen that come to around 6%. So I would say that would be the key change as we look at the organic business overall. Tarang Amin: And, of course, if that gets better, there's some upside. And so we're just using kind of what we're currently seeing right now, but we feel good about the fundamentals. Mandy Fields: That's right. As Tarang mentioned, for spring resets, are still taking place. Some haven't even started yet. And so that will allow us to get a real read on how spring innovation is performing. And so that could be a potential opportunity as we look forward. Operator: Our next question comes from Filippo Folorni from Citi. Please go ahead with your question. Filippo Folorni: So for Q3, can you help us bridge the gap in terms of the organic performance in the U.S.? Relative to the strong double-digit consumption growth that we see in track channel data. I thought that pipeline cycling was more Q2 to Q4. So maybe there a bigger impact in Q3, than previously expected? That drove that gap? And then looking forward, into Q4, can you give us a sense of what you expect in terms of U.S. consumption within that 6% global consumption? We expect U.S. to be above that? Given some of the international weakness, that you mentioned? And when do you think we should see more consumption data some of the benefits from the innovation and the shelf space gains that you mentioned earlier in the call. Thank you so much. Mandy Fields: Hi, Filippo. So for Q3, we talked about we're looking at things in the second half in aggregate. Which I think is a better way to look at things because in Q3, we did have some timing of shipment shift over into Q4, and so that's why I keep anchoring back to the second half. Originally, we had expected Q4 to be a negative quarter for us, but now we're outlooking that to be flat to up 2% would be implied by our guidance. So that's a good thing, but that does imply some shipments shifted from Q3 into Q4. And in addition, as I just spoke about, to Bonnie's question on the global consumption rate, we're seeing that at around 6% versus 8% previously. We haven't broken out what to expect from a U.S. versus international. In fact, we really wanna anchor back to the total level on some of these numbers because there are so many ins and outs with you looking at U.S. and at Rhode versus organic. We really wanna anchor back to what we're seeing overall as a total company, which is very strong momentum. We just reported 38% net sales growth quarter, and our outlook looking for the second half, 31 to 33% net sales growth, which is quite strong in this backdrop. Mandy Fields: And just to finish up with those questions on consumption and innovation, and when do you start to see those things marry up? Or see any benefit from those. And the spring innovation, like we were saying, resets are starting now. Some haven't started yet. So I think by the time you get to the March, you should start to see some of that out in consumption data as we go through. Operator: Our next question comes from Anna Andreeva from Piper Sandler. Please go ahead with your question. Anna Andreeva: Great. Thank you so much for taking our questions. We have a couple. You guys talked about softness in the UK for e.l.f. Organic. Can you talk about did that get worse this quarter? I think that's your biggest international market. So could you talk about some of the initiatives there to return back to growth? And then just to follow-up on the Rhode, congrats, I mean, really great results and understanding some of the investments is pretty necessary and the pipeline of innovation there is different than at core. But can you talk about where are you in the investment cycle at Rhode? Should we think that's something that's continuing into 2027? Until you've kind of lapped owning the business in the back half? Thank you. Tarang Amin: So hi, Anna. This is Tarang. So starting with softness in the UK, we have seen the UK have a higher promotional environment than has been normal. And so that certainly has impacted us. In terms of our strategy, I think it's threefold. One is reinforce our value proposition. As I mentioned earlier, a number of our competitors have announced they typically take pricing in the spring. So we'll see how that pricing plays out in terms of how that helps our overall value proposition. Second, we have a new leader for EMEA, a very experienced GM, and the focus really is building out depth in our existing markets. And so there's, you know, it's been quite a while since we've done awareness advertising in the UK, some other levers within our overall marketing engine that will apply. And, certainly, innovation always plays every single geography rep. So just as we see promising signs in our spring innovation in 2025, we believe that will play out in our international markets, including the UK. So there'll be, I'd say, the three things. You know, greater focus on the market, new leadership, and then, being able to really leverage both our innovation and marketing. We are confident of our position in the UK longer term. If I look at over the last, as I mentioned earlier, the last five-year CAGR for international, at 55%. 60% of that was driven by the UK and Canada. So we still have much further to go. In the UK, and in Canada where we continue to have momentum. Then on your second question in terms of Rhode, I would say where we are in the investment pipeline. First of all, the team has done a phenomenal job, being able to keep up with the tremendous demand that we're seeing for Rhode. Right? We're continuing to work with Sephora to make sure that in stocks are right. I mean, the brand is just so outsold anything anyone's expecting that the team has done really a herculean job really keeping up from a supply standpoint, making the right investment. And so we have good capacity to be able to continue to do that. It's more forecasting thing relative to the demand we saw, and we'll get better there. In terms of other investments we're making, you know, we mentioned when we acquired the brand, one of the early investments we made is field seal sales support. For Sephora and really making sure that that launch went off without a hitch, and that was one. Over time, we talked also during the time of acquisition. We would wanna invest more in marketing and the team. We continue to build out the team. Particularly given our global aspirations for the brand. And so I feel good in terms of where we are on the cadence of both the rollout as well as the investments we're making in some respects, it's very much pay as you go. I mean, the Rhode margins are pretty phenomenal, and we'll continue to invest in it. As we mentioned during acquisition. I don't know, Mandy, if you have anything else to add there. Mandy Fields: That's good. Operator: Our next question comes from Susan Anderson from Canaccord Genuity. Please go ahead with your question. Susan Anderson: Hi, good evening. Thanks for taking my questions here. I guess maybe can you give us an update just on tariffs when you'll start to cycle the impact there? And then just curious, have you been able to fully mitigate the tariff impact with the price increase and then other efforts? And then also, maybe if you could talk about I think on the last call, you talked about holding back some inventory to some retailers that haven't changed their pricing. I guess I assume that's been resolved, and you're shipping to them now. But I guess I was curious if there was any catch in the quarter there as well. Mandy Fields: Hi, Susan. So on the tariff front, it's been pretty quiet since the November 10 change in tariffs. So the tariff rate is now at 45%. As you know, it has been as high as 170% earlier in the fiscal year. And so we really haven't had any changes since that point in time. And if it remains at 45%, that becomes a little bit of a tailwind for us as we get into fiscal 2027 given that we were paying those higher rates as we started the year. And so that's the latest on the tariff front. On a shipment standpoint, yes, and pricing, that was fully resolved. That was fully resolved as we exited the second quarter, and so no further updates on that front. Operator: Our next question comes from Steve Powers from Deutsche Bank. Please go ahead with your question. Steve Powers: Hey, thanks so much. Good evening. Mandy, one of the areas you mentioned as a driver of higher SG&A spending in the fourth quarter is spending on that incremental space expansion. I just wanted to dig in there a little bit juxtaposed against the four-point top line shipment headwinds you framed for the back half and in the fourth quarter. I guess, as you step up that spending, on expanded space, is the implication that that's in that's you know, that four-point headwind is net of that. Incremental space expansion is the implication, alternatively, that you're gonna spend on organic space expansion, but you won't realize any revenue gains on that until we get into fiscal 2027 beyond the fourth quarter. Or are what you're saying as you're spending more on space expansion behind Rhode? Would be, you know, inorganic. You know, where is that spending and when is the return on that spending likely to manifest on the top line, I guess, is my ultimate question. Thank you. Mandy Fields: Yes. So maybe let me start with the four-point headwind. That is a net number. So that is net of any new space expansion, net four is the overall impact. The what we're not what we're cycling plus any new that we have. And so when we talk about space spend on space expansion, it really comes in in two varieties. One is on incremental space that we're currently getting. So that would include Rhode and like, the space expansion that we talked about with Ulta and different things that we noted on the call. And then there's also just refreshed spending that happens on space that you have on an existing visual merchandising, fixturing, display costs that happen with the spring resets. And so all of that is gonna kinda fall into that space spend that we're covering with that comment. Tarang Amin: And I'd add, historically, the payout has been really good. If you think of, you know, we're look. The target example of we started at four feet. We're now at 20 feet at target. Number one position with over 20% of their category. Those incremental expenses over the years from a retailer standpoint have paid out really well. I can point the same across each of our customers. Having said that, we do believe there's an opportunity to be more efficient. With some of that spend. I think particularly given how much expansion we've had a lot of times when you're kind of trying to meet an expansion goal and kind of sprinting towards it, that spend could be higher than, I think, what we could we could optimize in the U.S., particularly internationally. I think some of the international space expansion has come at a higher cost. And as we look at it, we believe that's somewhere we can get a little bit more efficient. As we go forward, regardless of kind of the overall brand. Operator: And with that, we'll be concluding today's question and answer session. I'd like to turn the floor over to Tarang Amin for any closing remarks. Tarang Amin: Well, thank you for joining us today. As I said, I'm really proud of the incredible team we have at e.l.f. Delivering another quarter of consistent category-leading growth. We look forward to seeing some of you at the CAGNY conference in a few weeks and speaking with you in May. When we'll discuss our fourth quarter and full-year results. Thank you, and be well. Operator: With that, ladies and gentlemen, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good morning, and thank you for attending Unifi's Second Quarter Fiscal 2026 Earnings Conference Call. During this call, management will be referencing a webcast presentation that can be found in the Investor Relations section of unifi.com. Please familiarize yourselves with Page 2 of the slide deck for cautionary statements and non-GAAP measures. Today's conference is being recorded [Operator Instructions]. Our speakers are listed on Page 3 of today's presentation and include Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; A.J. Eaker, Chief Financial Officer. I will now turn the call over to Al Carey. Please turn to Page 4 of the presentation. You may begin. Albert Carey: Thank you. Well, good morning, everyone, and thanks for joining our call this morning. I'm happy to report that we're beginning to see results in our business that are coming from a major effort that began one year ago, which is essentially resetting our cost base in North America business. The closing of the Madison facility and the reduction of costs across the board have created clear operating improvements that are going to allow us to make healthy profits on a much smaller sales level. Now a couple of highlights, and A.J. will go into more details on these later on. We're pleased to see improved profit margins improved free cash flow. We have dramatically improved our inventory turns and it's probably the best we've seen in recent history. We have 25% fewer people in North America, and our plant efficiencies have come way up from the summertime now that all the changes are behind us in our Yadkinville facility and also the closing of the Madison facility. A.J. will take you through the details of these business results in a moment. But we finally have actions behind us now after a year of hard work and some difficult decisions. So that was a necessary step one for us to build our profitable business back here at Unifi. Now step two is building a strong revenue growth, and it's clear from the results of Q1 and Q2, those revenue levels need to improve dramatically. But don't forget, Q1 and Q2 of this fiscal year were largely impacted by the tariff complexity that started in about April. We've seen improvements in orders from many customers in early January, and we're cautiously optimistic about the recent order trends that we're seeing into February. You may recall back in about April, May time frame last year, our revenues dropped precipitously. And that's when the reciprocal tariffs are placed in order that created turmoil in apparel and textile supply chains and most of the customers that we deal with place large orders before the tariffs went into place, understandably, but it led to record inventory levels and it slowed orders across the board in the industry for the entire balance of the calendar year, which was 7 full months. But here's what we're seeing in January, February. First of all, the holiday sales for apparel were what we would describe as solid plus 4%. I wouldn't say they were great. but they weren't bad and most of the retailers are satisfied with what they saw. Second, recently, we have seen customers come back in order to replace the inventories, especially those whose fiscal years ended on 12/31. Third, Central America demand has picked up, which is very important for us. It really does look like in the near future that this will be a good near-shoring opportunity for retailers and brands in North America. More on that later. And then finally, innovations. Our innovations of textile Takeback and on ThermaLoop are now gaining some traction. It's taken a long time to get there, but we're optimistic about what we're seeing and probably more to come in the summer. So in summary, we expect the sales to improve when you combine that with our lower cost base right now, it gives us quite a bit of optimism for what our profitability and our cash flow can be going forward. So to take a deeper look at all this, let me turn it over to Eddie Ingle, our CEO. Edmund Ingle: Thanks, Al. And as Al just noted, our results for the second quarter were in line with our expectations, actually with some of the metrics showing up better than expected. And while we are only a few weeks into the third quarter of our fiscal 2026, we are also starting to see some initial signs of an improved operating environment driven by increased customer engagement and many of them are beginning the post-holiday restocking. Importantly, the strategic initiatives that we have put into place to realign our cost structure and operations have put us in a much stronger position to take advantage of these positive trends as we move forward. I'm going to walk you through this in more detail in a few minutes. But first, we're going to change things up a little bit slightly this quarter. I'm going to turn the call over to A.J. now to walk us through the numbers for the quarter, and then I'm going to come back then to discuss our near-term strategic priorities and what lies ahead. With that, I'll turn it over to A.J. now to review our financial results. A.J? A.J. Eaker: Thank you, Eddie. I'll start off by discussing our consolidated financial highlights for the quarter on Slide 5. Net sales for the quarter were in line with our expectations, as Eddie said, but down 12.5% year-over-year, primarily driven by lower demand in the Asia segment and pricing pressure in the Brazil segment. Consolidated gross profit was $3.6 million and gross margin was 3% during the period compared to gross profit of $0.5 million and gross margin of 0.4% for the second quarter a year ago. SG&A was just $9.7 million during the quarter, a 25% improvement from the prior year period, and adjusted EBITDA was just a loss of $0.7 million which represents an improvement of $5.1 million compared to the year ago period. These favorable and improving results are the initial benefits of the hard work we have put into implementing our cost-saving initiatives which we anticipate will continue throughout the remainder of the fiscal year. On Slide 6. In the Americas, net sales were down 7.1% compared to the prior fiscal year due to a lower portion of fiber sales with which normally carry a higher selling price, along with the tariff uncertainty that Al mentioned. Gross profit in the Americas region increased by $6.1 million during the quarter, primarily due to the previously noted cost saving initiatives that included the consolidation of the yarn manufacturing operations in this region. While we were likely to continue to have some short-term challenges in the Americas, we do believe that the mid- and long-term outlook is improving giving the better customer engagement that we're seeing today. Slide 7 displays the Brazil segment, which saw net sales and gross profit decrease versus the prior year due to some pricing pressures associated with lower competitive prices and imports from Asia. That said, demand and growth opportunities continue to remain strong in Brazil, and we are anticipating that we will see an improved performance in the region during the second half of this fiscal year. On Slide 8, our Asia segment net sales and gross profit declined by 27% and 10%, respectively, primarily due to lower sales volumes and pricing dynamics in the region. Despite these headwinds, gross margin in the region improved, expanding by 260 basis points on a year-over-year basis, underscoring the effectiveness of our asset-light model and its flexibility. From a demand standpoint, we're beginning to see signs of improvement in that region with December outperforming both prior months, October and November. However, tariffs are continuing to create uncertainty and brands are still evaluating the most appropriate course of action for their businesses in Asia. As we've noted in the past, we continue to see immense opportunity in Asia once trade pressures begin to subside given that the majority of the world's polyester is still produced from China-based assets. Slide 9 outlines our balance sheet and capital structure. Our year-to-date free cash flow reached $13.3 million, reflecting a significant increase compared to the previous year's first half results. CapEx during the first half came in at just $3.1 million, around a 60% decline compared to the prior period as we prioritize our spending and cost savings. Our net debt was reduced to $75 million at the end of December, a stark improvement from recent levels and our working capital on a year-to-date basis came in at $149 million, which was 9% lower than levels seen during the prior fiscal period due to our leaner operations in the U.S. This significant improvement to our balance sheet and capital structure was directly attributable to our recent cost saving measures, footprint consolidation and reductions in working capital, which have helped us establish a more efficient manufacturing base in the U.S. We expect these efforts to minimize the drag on free cash flow through the remainder of fiscal '26. At the same time, as customers begin to rebuild their depleted inventory levels into calendar year 2026, we do anticipate a moderate increase in working capital spend to support disciplined inventory builds and accommodate higher sales activity. As a result, we expect the third quarter will exhibit lower operating cash flows compared to the second quarter to support these efforts. This concludes the financial review, and I will now pass the call back to Eddie. Edmund Ingle: Thank you, A.J. As you just heard from A.J., the hard work of our team is starting to pay off, and we're excited to see the solid start of a recovery in our core operating metrics. Today, I'd like to start with a broader perspective and talk to you through the cumulative results of two years of strategic initiatives and investments which we believe has positioned Unifi for long-term success. So let's turn to Slide 10 for an overview of our priorities for the second half of fiscal 2026. As we look ahead, our focus continues to remain on returning Unifi to long-term growth and profitability. In order to achieve this goal, we are concentrating our efforts on four key areas. First, we have dramatically improved our operating model through targeted cost decisions and manufacturing footprint consolidation. And we need to continue to better leverage the work we've done here. At the same time, we have and we'll continue to invest in ourselves to help strengthen and scale our leading brands. Next, we have a culture built around innovation and new product development. And we will continue to prioritize the customer adoption of our innovative solutions to support future growth. And finally, we must convert all this operational progress into a sustained financial momentum. The next few slides offer more details on each of these priorities. Let's start on Slide 11. As you can see from this slide, over the past three years, we've executed three strategic initiatives that have helped us better align our cost structures and operations. We began this process back in December of 2023, with the implementation of our profitability improvement plan, which streamlined our organization realigned leadership to enable a more efficient responsive go-to-market structure and initiated a sales transformation plan to improve operational efficiencies and gross margins. Then throughout calendar year 2025, we undertook a U.S. manufacturing transition, which entailed the sale of our Madison, North Carolina facility to a third-party buyer for the price of $45 million with the proceeds of the sale being used to pay down our debt. Additionally, this transition helps improve efficiency and utilization at our Yadkinville, North Carolina facility and created a more efficient operating footprint and with a higher productivity labor environment as we leverage the existing automation assets. And then most recently, during the end of calendar year 2025, we implemented an additional cost restructuring program, which reduced our head count and lowered labor hours, operating spend and CapEx. As a result of this program, we will see reduced operating spend and a $4 million in SG&A savings, all being reflected in fiscal year 2026. As A.J. just mentioned, we are already beginning to see the initial benefits of these initiatives. And we estimate that these efforts have reduced our annual revenue breakeven point by approximately $125 million to roughly $575 million today. Some of these initiatives were difficult to execute and I want to thank our teams in each of the business units for their help in turning ideas into actions and changing the underlying cost structure of our business. It's now up to us to further leverage this improved operating platform and drive long-term results. To do so would require top line growth. So on Slide 12, you'll see some of the continued efforts we are making to further scale our innovative brand. During the second quarter, we had several new co-branding placements of our latest product technologies and our REPREVE offering with key brand leaders. Save The Duck launched a collection highlighting ThermaLoop, showcasing our circular textile to textile insulation. Spanish brand, El Ganso, brought REPREVE into their stores with new signage and in-article branding about their usage of REPREVE. And on the U.S. front, co-branding efforts from winter wear outfitter Obermeyer, [ had a ] collaborative with Sealy and REI and furniture from Brentwood Home ran at a diverse showcase of REPREVE branding usage. Co-branding continues to play a key role in reinforcing REPREVE and our impact on global solutions for textile to textile recycling through our REPREVE Takeback and ThermaLoop brands. The interest in our recently launched products have integrated A.M.Y. Peppermint technologies have received very positive feedback. Conversations are growing around what we consider to be our circular textile to textile offerings, in particular, REPREVE Takeback and ThermaLoop. And we continue to leverage Instagram as a platform to collaborate with key brands and their usage of REPREVE and our technologies. Approach with Dario Mittmann highlighted the use of REPREVE on the runway at Sao Paulo Fashion Week. And we know this is not going to bring in a lot of sales but it does reinforce in our minds that designers are still thinking about sustainability and want to use it as a way to connect with the young influencers. And lastly, another company, Dovetail Workwear, a leading U.S. women's workwear company partner with our team to create a co-branded asset to announce the launch of their hot swap denim utilizing REPREVE and our Climate Control Technology, TruTemp365. Overall, we are pleased with how the continued efforts we are putting into promoting our innovative brands through partnerships, trade events and digital engagement are paying off. Now turning to Slide 13. You will see the output of the investments we have put into developing and launching our most important innovative products during fiscal '25 and '26. So far, the adoption of these new products has admittedly been slower than we anticipated due to the current environment, but we are ramping up efforts to increase customer adoption to help support future growth. We see great opportunities for these products globally, especially with some of our customers in Europe who are under increased legislative pressure to offer circular solutions by their governments and their consumers alike. Moving to Slide 14 for an overview of our outlook and how we anticipate sustaining our financial momentum. For the third quarter, we expect to realize the full benefits of our cost reduction initiatives and improved working capital efficiency. We are also anticipating that we will have greater clarity on the global trade environment, which should help support revenue improvement as we move through calendar year '26. Finally, we will remain focused on margin-accretive efforts with a continued emphasis on our REPREVE value-added products and the expansion of our Beyond Apparel initiatives. Regarding the second point around global trade, just last week, two countries in Central America, El Salvador and Guatemala just signed a reciprocal tariff deal with the U.S. government. This means that in the very near future, apparel made from regional yarns that are made in these two countries can once again receive [indiscernible] like duty-free treatments, where the final garments are shipped to the U.S. To wrap up, we recognize that there is still important work needed to sustain the recent successes as we move towards our long-term objectives. That said, we are encouraged by the progress we've made to date. We [ have won money ] into the second half of our fiscal 2026, and our focus remains on converting our operational improvements into sustained financial momentum and ultimately creating long-term value for our shareholders. With that, we would now like to open the line for questions. Thank you. Operator: [Operator Instructions] And our first question comes from the line of Anthony Lebiedzinski with Sidoti. Anthony Lebiedzinski: So by the way, it was a really good cash flow quarter, which is great to see. So I guess my first question, in terms of your comments about the pickup in demand that you've seen since the quarter end. Is that in all segments? Or is one segment particularly doing better than others? I just wanted to get more flavor, more color on what you're seeing thus far since the quarter ended? Edmund Ingle: Yes. Thanks, Anthony, for the question, for joining us today. We're seeing it -- really across the board. Brazil is coming out of the holiday season, so there's destocking taking place but also there's stimulation in the economy by the government, so there seems to be positive momentum in the orders that we're seeing down there. China, the new year there is happening in mid-February. So there was a lot of activity in January in our Asia business in particular. And so that seems to be actually continuing more positively than expected because we're closing that new year period now. And then the U.S. and Central America, that's where it's shining because we are seeing the impact of the restocking of the inventories post everybody year-end -- their year-end trying to get their inventories down, but also the news around the reciprocal tariff agreement with Guatemala and El Salvador is positive for us. And so we're seeing more brands taking orders to the mills and the mills are placing orders with us. So it's really across the board. Anthony Lebiedzinski: So that's encouraging to hear certainly. So when we look at your business, I mean you've talked about Beyond Apparel for a bit. Can you give us an update? And I guess as we talked about this, maybe just kind of give us an update where you are like as far as apparel or as footwear, what percent of revenue is that at the moment? And kind of how should we think about the Beyond Apparel initiatives kind of going forward? Edmund Ingle: Yes. Beyond Apparel is really centered around carpet, packaging, military/tactical and auto. And I can say that last quarter, we had a very, very strong quarter in the packaging sector. Carpet actually grew slightly also and our military and tactical, while we didn't get orders, we still continuing to do a lot of sampling. So in the Q3, we won't see as much impact as we're we expect to see in fiscal Q4 as the orders start to come through. But definitely, as we -- we're still seeing very positive signals from the market around all of those initiatives so we're excited about that. And as a percentage of our business, apparel is still, of course, a large part of that. But we are moving towards making that a lower percentage, still very, very important, of course, but we do think that we're still on the right track with these Beyond Apparel initiatives here in the U.S. Albert Carey: This is Al. Watch military in the next couple of quarters. It looks like it's bigger than expected, and we're making a lot of progress with it. It just takes a long time to test for durability and colors. But when you get the business, it's usually a good long-term one and with high margins. Anthony Lebiedzinski: That's good to hear certainly. And can you also give us an update on the pricing dynamics in each of your segments that you talked about. I think you really highlighted Brazil as dealing with pricing pressures. But maybe if you could just go over the pricing dynamics that you have seen and expect to see here going forward in each of the three segments. Edmund Ingle: Yes. We talked about the dumping from Asia into Brazil, that has still continued although in the last few weeks as expected as oil has gone up as the Brazilian Real strengthened and as -- it appears that some of the really inefficient assets in Asia are being shut down. So it has created an environment where in Asia, the pricing has gone up and the sale is set by that raw material supply chain. So we are seeing some positive pricing momentum going into the Q3 in Brazil. Not huge, but enough to where we're feeling positive about that. In Asia, it's a very reactionary market, and so there is some slight uptick, like I said, in the Asian market. But in particular, I wanted to circle back to the U.S. because -- and Central America. We've done a lot of bottom sizing in that business. We've tried to exit business that were very challenging from a pricing point of view and we've done targeted price increases. We've also try to make sure that for the complicated mix that we have, we've got the right price points in each of those different product lines that we serve. So we are seeing the benefit of that from a revenue point of view. And as we -- as our volumes increase, it will become more transparent. But we're all seeing that be part of our margin improvement. The margin improvement has been helped by, of course, all these restructuring we've done and the spend, the cost takeouts, but the pricing has been a big part of that. Anthony Lebiedzinski: Okay. That's -- yes, certainly good to hear. So -- and obviously, as you guys have talked about, you've done a lot of work as far as the restructuring and manufacturing transitions and so on. So as we think about the $575 million revenue that's needed to breakeven. How do you guys think about the mix between the three segments? What do you guys need to get there? I mean if I look back historically, the Asia and Brazil segment, gross margins have done better than what we've seen last couple of years or so. So just broadly speaking, how do we think about the mix that -- between the three segments that's needed to get back to breakeven? A.J. Eaker: Yes. Good question, Anthony. Thanks for bringing the breakeven topic, certainly proud of the actions we've been able to get through the system and get to this point. When we look at how that's distributed across the segments you're looking at mid- to high 300s generally for the Americas and then the other two segments filling in the gap really from some of their historical run rates similar to those historical run rates. So that's how we would see the distribution that would get you to a high single-digit gross margin for the consolidated entity and therefore, breakeven on an operating income zero basis. Operator: Ladies and gentlemen, that concludes the question-and-answer session. Thank you all for joining in. You may now disconnect. Everyone, have a great day.
Operator: Ladies and gentlemen, thank you for your continued patience. Your meeting will begin shortly. Star zero and a member of our team will be happy to help you. Thanks again. Again, ladies and gentlemen, thank you for your continued patience. Your meeting will begin shortly a member of our team will be happy to help you. Good afternoon. Welcome to Ares Capital Corporation's Fourth Quarter and Year Ended December 31, 2025. John Stilmar: Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. On Wednesday, February 4, 2026. I will now turn the call over to Mr. John Stilmar, Partner of Ares Public Markets Investor Relations. Operator: Thank you, and good afternoon, everybody. Let me start with some important reminders. Comments made during the course of this conference call and webcast John Stilmar: well as the accompanying documents contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. Ares Capital Corporation assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company may discuss certain non-GAAP measures as defined by SEC Regulation G, such as core earnings per share. Core EPS. The company believes that core EPS provide useful information to investors regarding the financial performance. Because it's one method the company uses to measure its financial condition and results of operation. A reconciliation of GAAP net income per share to the most directly comparable GAAP financial measure to core EPS be found in the accompanying slide presentation for this call. In addition, reconciliation of these measures may also be found in our earnings filed this morning with the SEC on Form 8. Certain information discussed in this conference call as well as the accompanying slide presentation. Including credit ratings and information related to portfolio companies, was derived from or obtained from third-party sources. That have not been independently verified and, accordingly, the company makes no representation or warranty with respect to this information. The company's fourth quarter and year-end 2025 earnings presentation can be found on the company's website at www.arescapitalcorp.com by clicking on the fourth quarter 2025 earnings presentation link on the homepage of the Investor Resources section. Ares Capital Corporation earnings release and Form 10-Ks are also available on the company's website. And now I'd like to turn it over to Kort Schnabel, Ares Capital Corporation's chief executive officer. Kort? Kort Schnabel: Thanks, John, and hello, everyone. Thank you for joining our earnings call. I'm joined today by Jim Miller, our President Jana Markowitz, our Chief Operating Officer Scott Lem, our Chief Financial Officer and other members of the management team who will be available during our Q and A session. Let me start by providing a few thoughts on ARCC's performance current market conditions and our outlook for the year ahead. 2025 was another good year for our company. We generated strong financial results supported by our stable credit quality and growing portfolio. Our core earnings per share of $0.50 for the fourth quarter and $2.01 for the full year fully covered our dividends. And drove an ROE in excess of 10% for both the fourth quarter and the full year. Reinforcing our long-term track record of generating NAV growth with attractive dividends, ended 2025 with modestly higher NAV per share and have now paid a consistent or growing level of regular quarterly dividends for over sixteen years. The drivers of these results are embedded in what we believe are our long-term competitive advantages, which include the experience of our team our long-standing market relationships, the scale of our capital base, and our rigorous credit standards. We remain confident that these enduring competitive advantages will continue to support compelling performance for the company in the future. Looking back on 2025, as uncertainty around macroeconomic policies from the early months of the year subsided, and pressure on private equity firms to return capital to investors mounted we saw a rebound in transaction activity during the second half of the year. This in turn led to a meaningful acceleration new investment commitments for us over the same period. Despite a relatively tepid M and A market, in the 2025, remained busy with the majority of our originations coming from incumbent borrowers as we sought to support the growth objectives of our portfolio companies. We believe that our ability to be a steady capital provider at scale through periods of economic and capital markets volatility is especially valuable to our portfolio companies. And continues to lead to further market share gains as our existing borrowers consolidate their lending relationships with us. Specifically, across our top 10 incumbent transactions during 2025, we more than doubled our share of the overall financing. These incumbent transactions can offer attractive opportunities to increase our exposure to some of our best performing portfolio companies. Therefore, our portfolio of more than 600 borrowers is yet another factor that we believe can drive future incumbent lending opportunities and in turn the long-term performance of our company. While we continue to see opportunities with incumbent borrowers into the 2025, the M and A and LBO markets also gained momentum. This accelerated transaction activity and new borrowers comprised the majority of our new lending activity in the 2025. Reflecting the breadth of our market reach and further expanding future incumbent opportunities, ARCC added more than 100 new borrowers to the portfolio during the year. A new record for the company. While the broader tailwinds of increasing market activity levels helped drive higher originations to new borrowers in the second half of the year, much of this growth also came from the continued expansion of our specialized industry verticals. The deep knowledge and specialized skill set we have developed in industries such as sports media and entertainment, specialty healthcare, energy, software, consumer, and financial services ultimately results in access to differentiated deal flow. Particularly in the non-sponsored channel. Building on the momentum we have in these verticals, our non-sponsored originations grew by more than 50% during 2025. Collectively, these factors supported a record year of gross originations at ARCC with $15.8 billion of new commitments in 2025. Importantly, we are maintaining our highly selective approach supported by a widening set of sourced opportunities. In 2025, our investment team reviewed nearly $1 trillion of potential investments, representing a 24% increase the number of opportunities we reviewed relative to the prior year. We also see the merits of origination scale in our ability to garner attractive terms and pricing. Against a competitive market backdrop, market spreads declined before stabilizing over the course of the year, we were able to drive a modest year over year increase in spreads. For our first lien commitments while also maintaining LTVs in the high 30% to low 40% range and upholding our stringent underwriting and documentation standards. The quality of our portfolio remains in excellent shape as our borrowers continue to demonstrate healthy overall performance. On average, our portfolio companies are growing faster than the economy and the comparable broadly syndicated loan market. In 2025, the weighted average organic EBITDA growth rate of our borrowers was more than three times that of GDP and more than double the growth rate of borrowers the broadly syndicated loan market. The continued growth and stability of our borrowers also contributed to improvement in portfolio fundamentals. For example, average portfolio leverage decreased approximately a quarter turn of EBITDA from the prior year, while our portfolio's average interest coverage ratio improved to 2.2 times driven primarily by lower market interest rates and earnings growth. Our credit quality showed stability throughout the year. As our non-accruals at cost ended 2025 in line with both the prior quarter and year-end 2024 levels and our weighted average portfolio grade remained consistent throughout the year at 3.1. We also generated pretax net realized gains on investments more than $100 million during 2025. These results extend our long track record of generating realized gains by successfully investing across the capital structure with the support of our industry-leading portfolio management team. During 2025, we realized over $470 million of gross gains from our equity co-investment portfolio and our successful portfolio management and restructuring efforts. The exits on our equity co-investments over the course of 2025 generated an average IRR in excess of 25% returning more than three times our initial investment on average. These results further support our track record of generating an average gross IRR on our equity co-investment portfolio that was more than double the S and P 500 total return over the last ten years. Collectively, these results underscore the strength of our team and the merit of our differentiated investing strategy. Even as our overall portfolio continues to perform well, we remain steadfast in our approach to risk management and diversification. With a 0.2% average position size at ARCC, we believe we are well positioned to minimize single name risk and thus lower portfolio risk overall. We believe this level of diversification stands apart from many others in the industry and in our view, contribute to further differentiation in performance between ARCC and industry averages. Against this backdrop of strong originations and stable credit performance, let me make some comments on our dividend outlook. We believe ARCC is in a good position to maintain its dividend despite market expectations for further declines in short-term interest rates. We generally set our dividend level based on our view of the earnings power of our company. While lower short-term rates present an earnings headwind, we believe there are multiple factors that can support our earnings and thus our current dividend level for the foreseeable future. First, we believe our dividend level was set in an achievable benchmark for today's interest rate and competitive environment. Second, our balance sheet leverage remains low below 1.1 times net debt to equity, leaving meaningful capacity relative to the upper end of our 1.25 times target range. Importantly, as we prudently grow the portfolio above one times, earnings will also benefit from the lower management fee rate on the marginal portfolio. Third, we see incremental growth opportunities from two of our most strategic investments, the senior direct lending program and IDL Asset Management. And as market activity increases, our ability to invest across the capital structure has historically provided us with higher returning opportunities. Fourth, we expect continued healthy credit performance considering the current economic outlook, the strength and stability of the current portfolio and the team's track record, over more than twenty years. Finally, which provides an additional cushion have more than two quarters of spillover income help support dividend stability in the event that our quarterly core earnings temporarily dip below the dividend. In closing, 2025 was a great year for ARCC. We believe our results for the fourth quarter and full year will continue to show differentiation in a market where there is already increasing dispersion in financial results. With this momentum, I believe we are well positioned for a successful 2026 and beyond. I will now turn the call over to Scott to take us through more details on our financial results and balance sheet. Scott Lem: Thanks, Kort. This morning, we reported GAAP net income per share of $0.41 for the 2025 compared to $0.57 in the prior quarter and $0.55 in the 2024. For the year, we reported GAAP net income per share of $1.86 compared to $2.44 for 2024. We also reported core earnings per share of $0.50 for the 2025, compared to $0.50 in the prior quarter and $0.55 for the same period a year ago. For the year, our core earnings per share of $2.01 compared to $2.33 for 2024. The decrease in core earnings year over year was driven in large part by the decline in base rates. Importantly, in 2025, our core EPS remain in excess of our dividend in all four quarters, and we generated 10% core ROE for the year. Which was in line with our historical average since inception. Looking forward, as mentioned in previous it's important to consider the timing of contractual rate resets in our floating rate loan portfolio on our core earnings. Changes in base rates typically take about a quarter to be fully reflected in earnings. Therefore, assuming all else equal, the decline in base rates during the fourth quarter will create about $0.1 per share of earnings headwind for us in the 2026. As a reminder, there typically is seasonality in our business. As origination volumes generally tend to be slower in the first quarter than in the fourth quarter. Capital structuring service fees which are tied to origination volumes typically follow the seasonal pattern as well. Now turning to the balance sheet. Our total portfolio at fair value at the end of the fourth quarter was $29.5 billion which increased from $28.7 billion at the end of the third quarter and $26.7 billion a year ago. Our net asset value ended at $14.3 billion or $19.94 per share down 0.35% from a quarter ago and up 0.25% from a year ago. Shifting to our debt capital. We're proud of what we accomplished in the past year. By continuing to grow and strengthen our best in class balance sheet. In total, we added new gross debt commitments of $4.5 billion in 2025. A new record for the company. That progress was driven by consistent and leading execution across multiple funding channels, starting with our unsecured notes. We were active in the unsecured notes market during the year, issuing $2.4 billion of investment grade bonds marking our second most active issuance year since our inception. Notably, we remain the highest rated BDC by all three of the major rating agencies. Consistent with our long-term strategy of being a regular issuer and investment grade, notes market, we began 2026 by issuing $750 million of long five-year debt at an industry leading spread of 180 basis points over treasuries. Which we swapped to SOFR plus 172 basis points. We have also been a beneficiary of broader investor support as more than 75 new investors have participated in our bond offerings over the past twelve months through this transaction. We were also active with our diverse bank capital providers expanding our credit facilities by $1.4 billion over the course of 2025 while also reducing borrowing spreads by approximately 20 basis points on average. We are proud of the relationships we have with over 40 banks many of whom have been long-term and growing supporters of ARCC. And finally, we continue to benefit from Ares' long-standing reputation as a top-tier manager and one of the largest CLO issuers in the market. That positioning helped us execute our largest on-balance sheet CLO in our history. With $700 million of debt price in December at a blended cost of SOFR plus 147 basis points. Beyond the efficiency of this transaction, our execution further broadened our funding mix by accessing the strong demand for rated asset-backed financing secured by a significantly diverse high-quality portfolio of assets. Collectively, our floating rate financings help company capture the benefits of lower borrowing costs, should market rates decline further. Nearly 70% of ARCC's borrowing today are floating rate compared to approximately 50% at year-end 2024. Overall, our liquidity position remains strong. Totaling over $6 billion including available cash, on a pro forma basis for the post year-end activity that I just mentioned. In terms of our leverage, we ended the fourth quarter with a debt to equity ratio net of available cash of 1.08 times. Versus 1.02 times a quarter ago. Which still leaves us with meaningful headroom relative to the upper end of our target leverage ratio of 1.25 times. We continue to believe our significant amount of dry powder positions us well to actively support both our existing and new portfolio companies. Furthermore, we appreciate the continued support of all of our debt investors and lenders and we look forward to building on these partnerships in the year ahead. Finally, our first quarter 2026 dividend of $0.48 per share is payable on March 31 to stockholders of record on March 13. ARCC has been paying stable or increasing regular quarterly dividends for sixty-six consecutive quarters. In terms of our taxable income spillover, currently estimate that we will carry forward $988 million or $1.38 per share available for distribution to stockholders in 2026. I will now turn the call over to Jim to walk through our investment activities. Jim Miller: Thank you, Scott. I'll provide some additional details on our fourth quarter investment activity our portfolio performance and our positioning at year-end and then conclude with an update on our post quarter end activity and backlog. In the fourth quarter, our team originated over $5.8 billion of new investment commitments which is up more than 50% from the 2024. This brought our total new commitments for the year to $15.8 billion marking a new annual record for ARCC. About half of our new originations in the fourth quarter supported M and A driven transactions, such as LBOs and add-on acquisitions. Which builds on the momentum we saw last quarter and highlights our ability to benefit from the early signs of a more active and M and A driven market environment. Reflecting on our broad market coverage across the lower core and upper parts of the middle market, Our fourth quarter originations included companies with EBITDA ranging from under $20 million to over $800 million. Additionally, we made commitments to companies across 21 industries and 58 sub-industries. Demonstrating the benefit of our vertical focused origination team and identifying specialized opportunities. Which Kort touched upon earlier. We ended the year with a record $29.5 billion portfolio at fair value. A 3% increase from the prior quarter and 10% increase from the prior year. As of year-end 2025, our strong and growing portfolio remains well diversified across 603 different borrowers. The number of companies in our portfolio has also increased nearly 10% over the past year and 72% over the past five years. Further enhancing our diversification. The granularity of our portfolio can also be seen in our small position sizes. Each of our investments represents less than 0.2% of the overall portfolio on average. And our top 10 investments, excluding our investments in IAM and the STLP comprise approximately 11% of the overall portfolio. Which is less than half the average concentration of our relevant peers. The scale of capital available at Ares and ARCC supports our ability to execute our origination strategy invest across the middle market while also mitigating the impact of negative credit events in any one borrower on the credit performance of the company. The financial position of our portfolio companies remains strong. Our portfolios average interest coverage ratio of 2.2 times increased 10% quarter over quarter. And 15% year over year. The portfolio's average leverage level also showed strength. Declining about a quarter turn of debt to EBITDA from year-end 2024 and remaining stable with Q3 levels. Additionally, healthy enterprise values continue to underpin our loan positions. As loan to value ratios remain low, and stable at approximately 44%. Our portfolio companies continue to demonstrate growth their profitability. The weighted average EBITDA of our underlying portfolio companies demonstrated organic growth over the last twelve months expanding 9% year over year. This organic growth rate remains in line with our ten-year average and was more than double the EBITDA growth of the borrowers in the leveraged loan market of approximately 4%. When looking across the different segments of our portfolio, we continue to see healthy performance. We are observing positive EBITDA growth in excess of the broader economy across both senior and junior capital investments. As well in both large and small companies. We are also seeing outperformance through our industry selection as the top five largest industries in our portfolio including software, are experiencing faster EBITDA growth than the aggregate portfolio. The organic growth rate of our borrowers underscores what we believe is one of the many merits of not being a benchmark style investor. As we are able to be selective not only with the companies we are financing, but also with the industries we target more generally. Supported by these underlying portfolio trends, the credit performance of our portfolio remains strong. Our non-accruals at cost ended the quarter at 1.8%. In line with prior quarter and prior year levels. This level remains well below our 2.8% historical average since the global financial crisis. And the BDC historical average of 3.8% over the same timeframe. Our non-accrual rate at fair value also remained low at 1.2% of the portfolio and well below our historical levers. Our overall risk ratings remain stable throughout 2025. And the share of our portfolio companies in our lowest risk category Grades one and two, totaled 3.8% at fair value. Remaining 180 basis points below our five-year average. While our overall portfolio continues to perform well, we remain vigilant in monitoring our portfolio for underlying credit issues and seek to be proactive in addressing any issues as they arise. Shifting to 2026, we've had a strong start to the new year. Our total commitments through January 29, 2026 were nearly $1.4 billion an 11% increase as compared to commitments closed in January. Additionally, our backlog as of January 29, 2026 stood at $2.2 billion which is more than 17% greater than the reported backlog at January 28. As a reminder, our backlog contains investments that are subject to approvals and documentation and may not close, or we may sell a portion of these investments post closing. Furthermore, we are closely watching current market conditions to see if the choppiness in retail capital flows impacts the competitive landscape in our favor. In contrast to managers that have a have concentrated their fundraising in retail oriented products, We believe managers such as Ares, with both significant institutional and retail sources of capital possess a more stable base of committed dry powder. This allows Ares and in turn ARCC to be a consistent capital provider with the scale, in the market through changing periods. As we look to the future, we believe we are well positioned to capitalize on an expanding market opportunity supported by the collective expertise of our team and our differentiated approach. These advantages have underpinned both our leading investment performance and stock based returns. Since our inception in 2004, our stock based total returns have outperformed the KBW Bank Index BDC peer averages and the S and P 500 by approximately 40% or more. Most recently in 2025, ARCC generated more than 600 basis points of additional total return versus the BDC average as measured by the VanEck BDC ETF. As always, we appreciate you joining us today. And we look forward to speaking with you again next quarter. On behalf of the executive team, I'd like to thank our team for the hard work and dedication that led to another strong year for ARCC. With that operator, please open the line for questions. Operator: If you would like to withdraw your Please note, as a courtesy to those who may wish to ask a question, The Investor Relations team will be available to address any further questions at the conclusion of today's call. We'll take our first question from John Hecht with Jefferies. Your line is open. John Hecht: Good morning, guys. Thanks for taking my or I guess good afternoon. Thanks for taking my questions. You guys did mentioned the position you have in software. You also mentioned that software continues to grow faster than the pretty strong rates of growth elsewhere in the portfolio. But there's a big emerging fear in the market about the impact of AI on that type of business performance. I'm wondering, do you guys are you eyeing that emerging subject? And do you have any points to make on how you think it's positioned in that regard? Hey, John. For the question. Very glad that this is the first question of the day. Because obviously, there's a lot of noise going on out there. And I think we really want to make sure that we hit this hard and address anyone's questions and spend real time making sure that people understand our thesis in the space and how we built our portfolio. And our strategy going forward. So look, I think the first thing I want to say is we feel very good about our software book. And we don't feel any differently this quarter than we did last quarter despite all the noise in the market. The fundamental and the underpinnings of our portfolio and our underwriting haven't changed. And we did make a lot of comments last quarter in our prepared remarks on earnings call about AI and our software book. People could certainly refer back to that as well. But I think, you know, I'll spend a little bit time and sorry if it's a little long winded but I I wanna really make sure we frame up our strategy for people today. So the first thing to just sort of remind people is we started an in the software space about fifteen years ago or so. Here at Ares Capital. And from the beginning, the number one risk that we identified in the software space was technology risk, and obsolescence risk. And so we said to ourselves, if we're going down have a thesis in the space and build a book, really want to make sure is highly resistant that every single software company we put in the portfolio to technology risk. And obviously AI is probably the most disruptive technology risk that we could have imagined. And it absolutely is going to disrupt a lot of software companies, and I don't want to sugarcoat it. But we still believe strongly that we've constructed a portfolio that will remain highly resistant to this risk. So think maybe I'll just outline a few characteristics that we've always looked for in our software companies. And that we obviously continue to raise the bar on and look for even more in our new investments. So look, the first thing is that we primarily look to invest in foundational infrastructure software for complex businesses. Right? This is software that sits at the center the technology stack. And powers all core business systems. Right? It's the last type of software in our opinion, that a company would look to switch out because that all of your downstream systems that feed off this software might also be at risk. So we like this kind of software where the entire business and operations of the customers are dependent on the accurate functioning of this system. So that's that's kind of the most important point number one. We're also looking software companies that a lot of our software companies do this. We're looking for these companies that collect and own proprietary data. And they collect this data and build this data over many years of their customers and then they use the data as a core part of their value proposition when they deliver the software. Right? So we call this a data moat. And it's important to mention that AI is not a database. AI doesn't house data. It can't replicate proprietary data. So we really believe that these data enabled software companies will prove resistant. And these types of companies, you'll find a lot of these types of companies in our portfolio. We also are looking for software companies that serve regulated end markets like Where healthcare, financial services as a couple of examples. There's lots of these regulated end markets. the need for accuracy and auditing of information is really high. And the penalties for lack of compliance can be severe. Right. So John, you think about like Jeffrey's is not going to rip out its core infrastructure software and replace it with an AI based solution anytime soon in our opinion. We think it's gonna take a really long time for companies are in these types of industries to gain enough trust in any kind of new product if ever. So that's a really important point as well. Obviously, we always talk about diversification in our strategy in so many different ways and that applies to our software companies as well in terms of their customer base, right. So we're looking for software companies that have very diverse customer bases. So even if some customers do switch to maybe an AI generated software solution, Others will remain and they create sort of this long tail of cash flow. That will hopefully survive and we really do not see quick and binary outcomes that occur when you have this kind of diversified customer base. Right. And it's, it sort of leads into the next point to remind people about which is we are lenders. To these companies with maturity dates. We're sitting at the top of the capital structure We have all the assets as collateral, including intellectual property. Lots of ways that we can look to recover our principal if things do start to get disrupted. And this is just a very different place to be sitting in the capital structure. Than sitting down in the equity. Right? So if you look at some of the metrics on our software book, they're extremely healthy. The book itself is also highly diversified. With lots and lots and lots of different position sizes none of which is outsized in any way. These software companies are very large. Established businesses, right? The average EBITDA on our software book is $350 million that's above the average in our portfolio. You mentioned John in your question the growth rate of our software businesses remains really strong. The The software book, the LTM EBITDA growth in the software book is growing at a faster rate than the overall average EBITDA on our book. Even through the the recent quarter. The loan to values and this is maybe of the most important points below the values on our software book our software loan book is 37% on average. That's below the loan to values on our overall book there is just an enormous amount of equity cushion below these loans that sit in the first loss position beneath us. So there really would have to be a whole lot of value destruction that would occur before we as a lender lose a dollar. Right? So I I I again, sorry for being a long winded. I really wanna make sure we're getting clarity out on this topic. And maybe the last point I'll just say is we've got an incredible team of resources here at Ares. We've got a software vertical within our credit business that consists of a bunch of investment professionals that only do software credit investing. We've got an in house AI team at a company called Bootstrap Labs which we acquired a few years ago, which is a venture capital firm. It's been investing in AI for more than a decade And we use all of these resources to help us evaluate every new deal we do as well as during our quarterly evaluation process. To assess the risks and the marks that we're taking on all of these names. Don't think everybody does that. So that's something that's pretty unique to Ares and hopefully gives people confidence in the marks and the risk in the portfolio. So look, as we sit here today, we're obviously watching everything going on out there playing close attention want to sugarcoat it, but we really see minimal near term risk to our software portfolio and I'd say very manageable medium to longer term risk in the bond. That is very helpful, and I appreciate the color because I do think it's a an important topic. Follow-up question is you guys have an active pipeline strong growth year over year. You mentioned, I think, about half of them were buyout sponsor related stuff. Anything to the other half? And how that paints the picture for how you think market's firming up for the duration of 2026? Yes. I mean there's still a lot of add on activity on existing portfolio right? So that makes up usually the bulk of the remainder of the deal flow. Us just putting capital into support continued acquiring of added EBITDA. So those are good uses of capital. We have not seen a real big resurgence of dividend transactions. There have been a few obviously, private equity firms looking to return capital are going to test the market on dividends. But I wouldn't say that that's a huge driver of our deal flow right now. It's really the the add ons. Obviously, there are refinancings still going on. But most of the sort of refinancings in spread sort of reductions have worked their way through the system and spreads have been really stable now for better part of a year or so. That's not been a huge driver. There also have been some refinancings out of the broadly syndicated market. Where obviously the broadly syndicated market can be a little bit volatile at times or maybe a sponsor just wants values having certainty of capital in all environments that has come to us take out a deal that currently is in the broad syndicated market. So probably the preponderance of the other activity. Great. I really appreciate all the color. Thanks very much. Of course. Operator: We'll take our next question from Finian O'Shea with Wells Fargo. And actually, we'll move next to Doug Harter with UBS. Line is open. Douglas Harter: Thanks. I guess as you guys look at this current environment, clearly, Ares as a platform has a lot of advantages relative valuation gap versus your peers. How do you think about potentially playing offense and taking advantage of market weakness? In this type of environment? Yeah. Great question. We certainly get excited about those types of opportunities. Historically, there have been any kind of periods of dislocation, or volatility that's been a strength. For our industry in private credit and certainly for us at Ares, especially since our capital base is much more diversified than a lot of our peers. So the stability of our capital and the ability for us to sort of fill gaps in the market is a big advantage. So I think we'll see what unfolds from here. But to the extent that there are any pockets of changes in supply of capital, I think we stand to benefit. I mean, we just talked about software at length. I certainly might expect that the broadly syndicated market will have a hard time providing financing for some software businesses and if there's very high quality software companies that meet the standards I described earlier, I would venture a guess that the cost of capital for those companies probably has gone up a bit. And I think we might be excited to provide that type of financing to the very best of those companies. So we'll see again, we'll see what unfolds. Obviously, there's been some changes in the environment for some of the retail flows. And that could also create some changes in competitive behavior that we're watching closely, as Jim said in the his prepared remarks. And feel like we're in a great position capital wise to step in. Thank you. Operator: And now we'll move to Finian O'Shea with Wells Fargo. Your line is open. Finian O'Shea: Hey, everyone. Good morning. Thanks for keeping my place in line. So a follow-up on John's question on software. Just to push back on a couple of those points for the spirit of argument. The risk, I think, is presented pretty widely as still a few years out. You have a good a good feel of resistance in the book as you outlined but what sort of developments are you looking out for that would threaten even the more, say, foundational enterprise SaaS plays And do you see any progress toward those risks from AI in real time Or if not, why so confident that that will take a very long time? Thanks. Yeah. Yeah. Thanks, Fin. And I would love to offline sit down and debate it at length. I I think it's really hard, though, for for me to see a scenario where we would find any kind of real dramatic risk or change in our view toward those core kind of enterprise software businesses or those regulated industries just talked at length about all the reasons why think for us what we're focused on is the businesses that can be disrupted or I'm not going to say our portfolio is entirely clean. We have a very small amount of portfolio companies that could be disrupted. And that's where we're spending a lot of our time and focus and working with the financial sponsors and getting ahead of any kind of potential situation. It's not in those core enterprise software businesses. So I'm challenged right now to come up with you know, scenarios where would really see that get disrupted. Look, I think the areas that we do think can get disrupted and where we're trying to be really disciplined on new transactions are kind of more single function software apps that sit on the edge of the tech stack. Certainly any kind of software that creates or delivers content because AI is fantastic at creating content. So we'd be extremely careful about those, you know, data analysis or visual type companies. AI is exceptional at summarizing data and spitting out all different types of reports and synthesizing those. So know, the I think I just think those are the areas that are more at risk And again, very, very small exposure our portfolio for those. So sorry, not a great answer. Just can't come up with risks to those core enterprise businesses. Appreciate that. Hard to envision. Follow on the dividend, appreciate the color there. It feels like there'd be like a pretty good tailwind even though the structuring fees are lighter in today's environment. Has been the volume The deployment has obviously been fantastic. Does that sort of need to continue in your outlook or guidance or does that maybe moderate and something else offsets that impact? Yes. Yeah. I mean, there's so many variables and things that change all at once. Right? So it's hard to sort of look at one variable or one driver and just say if that changes, what happens? One thing I do want to say on the foot structuring fee point is the fees were actually consistent during the quarter. We had a actually quarter. Another quarter where we had some transactions that we fronted for and sold. Right after closing. And so that dilutes the fee percentage, the sort of stated fee percentage, but actually the fee percentage on a constant basis, if you just look at the dollars that we're holding in the book was constant. Quarter over quarter. So just want to hit that one. But look, I think if if the spread environment stays where it is now, which is obviously tight. And we see, you know, rates potentially continue to fall a little bit like the curve shows. Then we're gonna wanna have a lot of volume like we did this quarter in order to produce results. And I don't see any reason why that wouldn't be the case. That we'd see that kind of volume. kinda stays where it is. If the spread environment and the economic environment If volume falls off, I would think there would be other things that are happening in conjunction with that. Which maybe is less supply of capital our space. Therefore, maybe spreads widen, maybe fees widen, Certainly what we saw in 2022 and 2023 coming off a super high volume here in 2021 and everything was getting tight. Spreads widened 150 basis points, volume fell off, but we obviously had a fantastic period of performance. At Ares Capital through 2022, 2023 despite the lower volume. So I just think it's really hard to pick one variable. So hopefully that helps answer the the question. Yes, helpful. Thanks a lot. Operator: We'll take our next question from Casey Alexander with Compass Point. Your line is open. Casey Alexander: Hi, good morning, Court, and thank you for taking my questions. I do want to expand on that. I mean, you did give a little bit of color on broadly syndicated market and what that could cause to happen with spreads in software But I'm curious in that we've had some at least psychological market dislocation going on since before you guys reported your third quarter results. As a result of the Diamond comments and whatever and this has continued to be you know, picked up a lot from the media, on the minds of investors left and right, And so I'm curious why haven't we or are we about to see a widening of spreads in general Normally, in a period of of dislocation, such as this, we usually see that happen fairly quickly. And in this event, it hasn't happened. And and I would add, you know, I think inflows into the non traded market are slowing down. So I'm just curious on some comments as to why we haven't seen spreads widen or if you think they're about to. Yeah. Great question, Casey. Probably two points I'd make on the events you mentioned. So when we saw some of that volatility a quarter or two ago and First Brands and Tricolor and there was concerns about credit quality and potential blowups the BSL market wind out for a pretty short period of time. And it actually did recover pretty quickly and the fourth quarter became active again for the BSL market and spread kind of tied back in that side of the market. So I just it was too short lived is what I would say. To drive real impact on the private market and then know, I'm sure there's a lag our market. We often see the broadly syndicated market will move up and down. And our market takes a little bit of time to react to that, which is by the way, one of our value propositions in our market is we don't gyrate as much and our capital is more stable for our borrowers. And we take our time to make sure that any spread movement in the syndicated market is going to be more sustained. So I think that's just what we saw for the first event you mentioned last year. We were thinking there would be a maybe a more sustained period, but it just didn't really prove out. On the non traded flows, absolutely something we're watching really closely. Again, what I would say on that one is that pretty new. So it's really in the last month or two max that we've seen those flows change. It's not like they are on a net basis, moving wildly negative. They're really on the whole just kind of moving. You're seeing redemptions but you're still seeing inflows So they're kind of the money is not flying into those funds like it was before, but it's still remaining pretty stable in terms of the funds that are there. I do think if it stays like that, It will impact competitive behavior for our peers that are more concentrated to that channel. And at Ares Capital and at Ares Management I should say, we've been purposeful about not becoming too concentrated into that channel so that we can take advantage of maybe those kinds of changes in competitive behavior. So yeah, if it stays like that, I expect it to change things and that could absolutely be a catalyst for spread widening. But it's just too soon and we're really anecdotally not Hopefully that helps. we haven't seen enough volume come through the system. It's January seasonally the slowest month of the year, but we're watching it closely. Yes, it does. Thank you. My follow-up is, it's been a while since the stock has traded below NAV. And certainly recent market turmoil is been a catalyst for that. I'm sure investors would love to hear, our view has always been that if you're willing to take capital from the market when you're trading at a premium DNAV, you should be willing to give capital back to the when you trade at a discount. You guys do have $1 billion share repurchase program. I think investors would like to hear your willingness to deploy the share repurchase program depending upon how volatile the markets get. Yeah. Good question. I I guess the only thing I'd say on that Casey, is just we have heard we have purchased shares back in the past. So it's not something that we're not unwilling to do. And it's always on the table. And something that we're looking at and discussing with our board based on where the stock is trading. So other than that, I'd probably don't wanna speak too much or give much, you know, any kind of forward looking statements about what we might or might not do on that front. Other than to say that we have done it and we're always open to it. Okay, thank you. Operator: We'll take our next question from Arren Cyganovich with Truist. Your line is open. Arren Cyganovich: Thank you. This will probably show my lack of knowledge in the tech sector, but going to give it a shot anyways. You mentioned that average EBITDA for the soft port portfolio companies is over $350 million and they've been growing. When I look at public software companies that have been facing a lot of pressure, EBITDA is not really a metric that they use in terms of valuation because I guess, they're in a higher growth phase. I was wondering if you could just describe some of the differentiation between the software that you own versus you know, what we might be looking at in the in the public markets? Yeah. I don't know that it's all that different. I just think you're it's a difference between equity and debt. Thesis, right, when we're thinking about the investments strategy. So we, as lenders, are looking at the underlying cash flow of these businesses. We're our loan and get us paid our money back. So, you know, we're we're very focused on EBITDA. The equity markets and publicly traded companies are focused on forward growth to justify their valuations. And there have been you know, extremely high expectations of future growth. And I think as you start to see some of that growth temper, that is driving a lot of the fall off in values in the public market. And that's why those public companies are always pointing to revenue metrics and growth metrics, because I just think those investors are more focused on that. But I don't think they're necessarily different types of companies. We have seen obviously in the lending space over the last five or six years the development of recurring revenue loans where there are lenders that will lend against the revenue and the forward growth, not necessarily the EBITDA or the forward achievement of EBITDA. We have been very conservative on that. And I didn't even really mention that as part of the overall, you know, the intro I did on the software topic. But another data point to even point out around our strategy which is we've been much more conservative around recurring revenue lending than I think a lot of our peers. And it's less than it's like less than 2%, one to 2% of our book right now. Is recurring revenue loans and that's also extremely diversified. We've had a strategy of building that book with a bunch of very small positions. That we can watch that space develop and see how it would perform By the way, it's actually performed quite well. And those loans have actually converted into EBITDA loans. So it's actually been a good space. But we've been very conservative on that. So hopefully that helps answer the question. It does. I still need to do some some reading on on the sector since I'm not my area of expertise. As a follow-up, we've been waiting for the M and A markets to really open back up and the IPO markets to kind of open back up to free up some of the investments that the private equity have been holding on for longer periods. You feel like the software pressure is going to weigh on that timeline for 2026 in you know, maybe what other areas outside of you know, in this kind of story, other sectors, do you see within your pipeline that might be able to take up some of that slack? Yeah. I mean, I I think it it it obviously might impact in the software space. Right? So and especially for the your prior question around valuations in the public market and when you're private equity firm looking to buy a software company, you're obviously gonna rethink value. And a lot of it private equity firms that own the existing companies pay pretty high prices So I certainly do expect there could be a bit of a widening of the gap on bid ask spreads on new buyouts in the software space. That being said, still think there's going to be really attractive add on opportunities for existing portfolio companies. To potentially take advantage of lower valuations. I think that'll be a good opportunity for us to deploy into the space And certainly take private opportunities on in the software space given lower valuations will probably tick up if I had to venture a guess. So there's some offsetting factors I think within that industry. I mean, in terms of the rest of the economy, again, fundamentals feel strong, growth rates are good. And I don't necessarily see that spilling over into other areas of the economy. I think the ingredients are in place. Given the sort of long in the tooth nature of the whole periods on a lot of private equity funds that just continues to extend. And given the apparent confidence in the overall economy for on the part of buyers to step up and buy new companies. So I think we still feel optimistic on the rest of the year. Great. Thank you. Appreciate it. Operator: We'll move next to Brian McKenna with Citizens. Your line is open. Brian McKenna: Okay, great. Thanks for squeezing me in here. So maybe one more on the theme of software. I think all the focus recently is clearly been around the negatives from AI, and and no one has really talking about maybe the potential upside for your portfolio companies from AI and leveraging AI, specifically those companies away from software. So I'm curious, when you look across your portfolio today, there any way to think about what percent of your portfolio companies could actually see more talents from AI than headwinds over time And then is there actually a scenario where your portfolio collectively is experiencing more net benefits longer term? Yes. Thanks so much for asking, Brian. I you know, we're lenders, so we're always focused on downside risks. But 100% there is upside. And I think that is being that is missing from the discourse here in the public, which is it sort of almost feels like people think big software companies are sitting their heads in the sand asleep at the switch while AI is creating competitive threats and they're not doing anything. It couldn't be further from the truth. We we have great dialogue with our software companies. They are all working on augmenting their products with know, using AI solutions or just using AI to create additional software modules and tools to add on to their core infrastructure software. And that's actually going to help some of these core infrastructure software businesses create new products to on and upsell faster than they might otherwise have been able to do. And they already have that leg into the customer via the core enterprise. So I 100% think it's going to be a boon to some of our companies. Obviously as lenders you know, help us get our money back. Maybe faster, but is not a ton of upside as a lender. But back to our equity co investment strategy, which we talked a lot about in the prepared remarks. So certainly could be really helpful on those equity co investments that we have made selectively into some of those software companies. And then just one more for me. Just taking a step back and looking at the industry, it's clearly getting larger and larger, more competitive. And there's really a long list of firms that can write large checks. In the market. So I think having intellectual capital and really a full suite of value added capabilities are becoming that much more important. So you guys clearly have this you noted, you know, some of the strong expertise that exists across your your deal teams and just the platform more broadly. But when you look at some of the differentiated deals you're winning in the market today, how much of these how much of those are a function of kind of these, full suite of capabilities, if you will, and really the capabilities away from just being a provider of capital and just trying to think through that a little bit more? Yeah. It's all about those capabilities. And and not just about being a provider of capital. So you know, it's a combination of so many different things. I think first and are the amount of people and the talent that we have on our origination and investment team We do believe we still have the largest investment team in the direct lending industry and means we have a lot of people out there calling on companies trying to source opportunities. And that deal flow takes longer to germinate and result in an actual transaction We could be out talking to, you know, CEO or management team or a board of a of a non-sponsored company for years building a relationship and there might not be any transaction to do and then all of a sudden they want to do something and they pick up the phone and call us. Because we've been building that relationship. So this is something that not happen overnight, takes a really long time to build those and lead to this kind of deal flow. And, you know, so it starts with the team, starts with those touch points, but then it also combines with the fact that that team is out there offering a huge amount of flexibility of products. Right? We're not out just saying we can be your senior lender, your bank. We're saying we can be your junior capital provider, We can you equity co investments. We can start as a mezzanine lender and then down the line if you want a senior lender, we can become that lender. So we're we're really trying to explain to these companies that we can be their capital provider for the next ten to twenty years, not just the next three to five years. And I think that really resonates. So it's all those things combined. It's not really just one thing. And I do think we're ahead of our of our peers in that respect. Operator: We'll take our next question from Robert Dodd with Raymond James. Your line is open. Robert Dodd: Hi, guys. A quick one from me maybe. Obviously feel very comfortable with the underwriting process you're doing on software and you got a well thought out thesis there. You seem also optimistic that maybe spreads will widen that market if BSL market becomes less inclined to finance new software? LBOs, etcetera. I mean, so looking at that, would that make software even more attractive to you from a risk return perspective? And would you be looking to potentially increase your allocation to software over the next you know, call it twelve to twenty four months? Yeah. Good question, Robert. Look, we will have to see what unfolds, I think is what I would say. I don't it can go in so many directions in terms of yeah, how how widespread gets. Right? What types companies are looking to raise capital? So there's just so many different things that can go into that, but I don't know that I wanna necessarily speculate. We we are big on diversification. As we said, over and over in so many different ways, And software is our largest industry category. We're very comfortable with it. But at the same time, we like diversification. So maybe I'll just leave it at that and we'll see what the market gives us. Operator: We'll move next to Kenneth Lee with RBC Capital Markets. Your line is open. Kenneth Lee: Hey, good afternoon and thanks for taking my question. Just one on the broader industry. The recent OCC FDIC changes to the leverage loan guidance for for banks. You expect to see any kind of potential for meaningful change in over the competitive landscape over time based on the change of guidance there? Thanks. Yeah. Ken, definitely something we're watching closely. I you know, I I don't think so. The reality is the leveraged lending guidance that was put in place a while ago hasn't really been enforced. And so I think the relaxing of that guidance is not necessarily gonna change behavior. I think the the larger driver of you know, regulatory behavior on banks is the the regulatory capital requirements and the capital capital charges. That banks see if they make a loan into our market. And that's still remains punitive and is not changing. So I just don't think the leverage lending guidance change is gonna make sense. Got you. Very helpful there. And just one quick for me. On some of the recent deals you've been seeing or some of the new investments in terms of the terms and documentation that you're seeing there, any changes more recently and more specifically, have you been seeing any loose loosening of example, like EBITDA add backs or any other terms there? Thanks. Not really, no. If anything, would say there's probably a heightened focus on documentation terms just given some of the headlines around LME transactions in the broadly syndicated market. And the looser documentation that exists in that market. There's been a little bit more a spotlight that's been put on that. And so I think it's actually been a good thing for our space. It's woken up more of our peers to the importance of focusing on documentation. We've made that a priority here for years now. And it's a critical part of our committee process. We will walk away from transactions based on documentation terms. Not really seeing a big change to that, if anything, getting better. Got you. Very helpful there. Thanks again. Operator: We'll take our next question from Paul Johnson with KBW. Your line is open. Paul Johnson: Yes, good afternoon. Thanks for taking my questions. I know you have been fairly conservative with the ARR structures in the past, as you said. But is there any sense of like the number or the percent of your software book that is below profitability today? Below profitability, you mean negative EBITDA? Yeah. Correct. I don't have the numbers in front of me, but I I can't imagine that there would be another software company in our portfolio outside of those ARR loans. That would be negative EBITDA. And in fact, I would also venture a guess that many of those ARR loans have positive EBITDA as well. For two reasons. Number one, when we do a new ARR loan, a lot of cases, they still have positive EBITDA, but it's not necessarily enough EBITDA to maybe justify the amount of debt. You look at it on a revenue basis, and they're growing 50% a year and it's going to be a lot of EBITDA in a year or two. But it's not like everyone is negative EBITDA. Some of those are actually EBITDA at the outset. But then secondly, others ARR loans in our portfolio have been in there for a number of years and have achieved the growth, that they were expecting. And so now they are positive EBITDA. So, I mean, very, very, very small almost de minimis amount, I would say, of our software book. Has negative EBITDA. Got it. That's very helpful. And then last, I would just ask, on the PIK portfolio, which has been a good portfolio for you guys historically, I'm just curious though within the debt side of some of the pick assets, is there a tilt toward software within that portfolio? Or has that generally been just as diversified as the broader portfolio? Yeah. It's it's around the same. We did take a look at that, and the I'll say two things. Number one, the percentage of the software book had a slightly higher percentage of PIC in it. But the pick in that software book is I wanna say, 99% maybe even 100%. Structured at the upfront at the outset of the investment, not amendment pick. Right? And that's an important thing on the overall pick book that we talk about all the time and try to disclose, which on a consistent basis, which again this quarter on our overall pick book, it's roughly 90% of the pick interest and dividends was structured at the outset of the investment. And purposely done Only 10% is amended PIC. And then so again, in the software book, it's almost a 100% is structured. So again, back to the point that we're just not seeing weakness in the software book at all. We don't have the need to provide any amended PIC there. Got it. Appreciate it. That's all for me. Thank you very much. Operator: We'll move next to Derek Hewitt with Bank of America. Your line is open. Derek Hewitt: Good afternoon, Court. So how large are you willing to grow both the SDLP and Ivy Hill over the next year or so kind of given the more favorable economics versus the core portfolio? And then are there assets on the balance sheet today that could potentially be sold down to those entities? Yes. Thanks, So, I'd say, if you look historically, we've had an investment in Ivy Hill go as high as 11% and I think STLP as high as 7%. So those are probably good you know, guardrails for now. So we truly value those two assets quite a bit and agree with they're very strategic to us and you're right, are pretty high yielding particularly in a low yield environment. So I could certainly see you saw us grow this quarter. So, I think there's a it's really in our playbook to continue focusing on those two investments over the course of this year. And yes, we did see in the fourth quarter, did sell assets in Ivy Hill. And so that is certainly there's certainly more assets on the balance sheet we could move to look to move down to IVL over time. Yeah. And I don't think we wanna I there's not really a, a stated cap or a target that we manage business toward? Again, I think we wanna see the market develops, what kind of transaction activity there is, where spreads go, all of those factors. Work into it. The only real cap would be the 30% non-qualifying asset cap. So that would be the sort of governor on the top end. Okay. Great. Thank you. Operator: This concludes our question and answer session. I'd like to turn the conference back over to Kort Schnabel for any closing remarks. Kort Schnabel: Great. Well, you all for joining us today. And for your continued support and engagement. And we look forward to reconnecting with you on our next quarterly call. So till then, stay well, everyone, and have a great day. Operator: Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of the call will be available approximately one hour after the end of the call through March 4, 2026 at 5PM Eastern. To domestic callers by dialing toll free +1 808394018. And to international callers by dialing +1 (402) 220-2985. An archived replay will also be available on a webcast link located on the homepage of the Investor section of Ares Capital's website. Goodbye.
Operator: Ladies and gentlemen, welcome to the Lundbeck Financial Statement for the Full Year 2025 Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Charl van Zyl, President and CEO. Please go ahead. Charl van Zyl: So good morning, everyone. Welcome to our full year 2025 earnings call. Of course, it's my pleasure to really present to you our outstanding results. It's been again another record year for Lundbeck in 2025, and it's really underpinned by very strong fundamentals, very much underpinned by our focused innovator strategic path. You'll hear me say a lot about the results very much in the sense of it's not by chance, but by clear intent that we are delivering these outstanding results. If we can go to the next slide, please. So of course, our discussions today are containing forward-looking statements, which, of course, are subject to change. So, let's go to the next slide, please. And here, I would like to take a moment just to pause and reflect on the last 2 years of our focused innovative strategy. And there's so much to say about this transformation that Lundbeck has gone through. But I have to say, I'm really proud of the progress that we have made. Again, it is not by chance, but by clear strategic intent that we see these very strong results. If you recall, our focused innovator strategy is very much about growth, innovation and funding. And when I speak about growth, you would have seen over '24, '25 that we've had double-digit growth across our strategic portfolio, which allows us in a way to extend our growth also into 2026. Secondly, when you think about innovation, we made the acquisition of Longboard that bolstered our late-stage pipeline, but we have truly seen a transformation of this pipeline over the last 2 years with the position we're in now with 5 to 6 mid- to late-stage assets that are really the growth engine of the future of Lundbeck. And it's a pipeline that is characterized by first-in-class or best-in-class molecules. And the third foundation of our strategy is really the funding, the largest capital reallocation that the company has undertaken, and it has allowed us to fund the growth and the pipeline and keep us in a flexible financial position to continue that journey into 2026. If we go to the next slide, I'd like to focus a little bit more on 2025. And truly, it was an outstanding and a record year for Lundbeck. Again, our intent was to focus on investing in our strategic brands, but also in our pipeline. And on the growth level, we have seen that continuation of the double-digit growth on the strategic brands being at 19% in 2025, underpinned by a stellar growth in Vyepti of 59% and also stellar growth for Rexulti at 23%. As you recall, we also made very clear moves in 2025 around sharpening our commercial model to focus on 12 key markets and allowing us to work with partners across 27 markets, again, allowing us to focus our efforts on where we can play to win and grow very strongly as we go also into 2026. When you think about the pipeline, keep thinking about the fact that we're building strong diversification of this pipeline, building a strong position in neurospecialty and also in neuro-rare. When you think about neurospecialty, of course, Vyepti, a growth engine in the U.S. and in Europe, but also soon to become a growth engine with the filings that we've done in China, Japan and Korea to truly make this a global launch for Lundbeck. You will also, in the first quarter, receive results on our anti-PACAP proceed trial that will further enhance our position in the space of severe preventative migraine. When we think about neuro-rare, we think clearly about bexicaserin, of course, the Longboard acquisition that is very much in this Phase III and in execution of the clinical program and so is Amlenetug in its fast enrollment also in MSA. Both of these really high unmet need areas where we can see the opportunity very strongly in the Phase III results. Then we will talk a bit more today about further elements of the pipeline in the mid-stage, our anti-ACTH in congenital adrenal hyperplasia as well as Cushing's disease, and you'll hear more about that from the pipeline discussion later today. Fundamentally, the funding that you see is a continuation of the first 2 years of our focused innovative strategy, where we will continue to be disciplined around our capital reallocation in this range of $1.3 billion to $1.5 billion that we are freeing up to create that flexibility for us to invest in growth and also in innovation. And therefore, we are guiding today very much in a position of strength from '24 to '25 going into '26, with revenue growth of 5% to 8% and adjusted EBITDA between 4% to 12% with that spread also taking into account the strategy of investing in the pipeline as we see the triggers unfold in 2026. So with that, let me just introduce the other speakers for today on our agenda, and you'll hear a business update from the team as well as a portfolio update and, of course, the financial results in more detail. So with that, it's my pleasure to, first of all, start with a business update and hand over to Tom Gibbs, our Head of the U.S. Thank you, Tom. Thomas Gibbs: Great. Thank you, Charl. As Charl just mentioned, we are pleased with our commercial performance for 2025, which is headlined by a strong growth of Vyepti and accelerated growth of Rexulti. Please turn to the next slide, and I'll first review the performance details for Vyepti. Vyepti delivered strong and sustained growth for the full year 2025, and we expect this to continue in 2026. This performance has been powered by continued strong growth in the U.S. and supported by robust adoption of Vyepti in prioritized ex U.S. markets, including Canada, Italy, France, Spain and Germany. Vyepti global net revenue for 2025 was DKK 4.476 billion, and this represents 59% growth over the same period last year. Net revenue for Vyepti in the U.S. was DKK 3.908 billion, growing 58% over prior year. In the U.S., our focus has been to make purposeful investments in our patient-centric model supporting Vyepti through our disciplined capital allocation program that Joerg will speak to later. We will continue to make incremental investments in 2026 to elevate the impact of our execution informed by our advanced analytics capability, and this includes a sales force expansion as well as optimize direct-to-consumer advertising. We expect to sustain market-leading demand growth by driving depth and breadth of prescribing and continued positive momentum in new patient starts supported by high written-to-infusion conversion ratio and best-in-class patient persistency. In Europe and international operations, significant work is being done preparing for the launch of Vyepti in Asia. And if approved, we see this region as a significant opportunity to drive further growth for Vyepti. Next slide, please. Now moving on to Rexulti. Rexulti continues to perform well and deliver consistent growth propelled by continued strong progress within the AADAD segment in the U.S. Reported revenue was DKK 5.745 billion, increasing 23% for the full year 2025 versus prior year. Importantly, revenue growth in the U.S. was driven by strong underlying TRx demand, delivering 24.2% growth in 2025 compared to 2024. Rexulti AADAD volume is becoming increasingly important to overall Rexulti brand growth, and we expect this to continue through 2026 and beyond. AADAD monthly TRx volume has increased 725% versus pre-indication baseline and the AADAD contribution to overall Rexulti demand has grown to 24.4%. Importantly, the 65-plus segment now contributes 34.8% or more than 1 out of every 3 Rexulti TRx claims based upon the most recently available claims data. The team in the U.S. is continuing to focus on the levers to drive continued growth for Rexulti, informed by our margin return on investment analysis. As you may recall, we reallocated a portion of our DTC advertising for AADAD to expand our sales footprint, and this is mainly in the primary care segment. The first wave of the expansion of our multi-specialty sales force team was deployed during 3Q 2025, and we're encouraged by the early results. The second wave is ongoing, and we expect to be fully deployed during first quarter 2026. Overall, we're pleased with the momentum of Rexulti demand exiting 2025 despite an increasingly competitive market and evolving policy landscape. TRx demand in fourth quarter 2025 grew 24.2% versus fourth quarter 2024. Precision execution across the marketing mix, including our expanded sales team in primary care is expected to reinforce the long-term growth for Rexulti and help address increased competition. Michala, over to you. Michala Fischer-Hansen: Thank you, Tom. Let's turn our head to the Abilify franchise performance, where 2025 was another year of solid growth momentum for the franchise, growing at 10% versus last year overall, now at DKK 3.776 billion. If we look at the U.S. first, the Abilify franchise delivered a 9% growth compared to the year before, and that was also resulting in a gain of 1.1 percentage point market share. Importantly, as the U.S. is transitioning from franchise maximization to conversion maximization, ASIMTUFII continues to be a key growth driver with an encouraging 22% NBRx weekly conversion rate. If we turn to Europe and International operations, the franchise delivered 10% growth versus last year. This was driven by continued launches of Abilify 960 milligram, which is now launched in a total of 27 markets across Europe and international operations. We continue to see strong conversion rates across our key markets with several markets surpassing 20%. Across the markets, we also continue to see encouraging conversion rates from other oral atypicals and LAIs that are outside of our Abilify Maintena franchise. Looking ahead, conversion maximization remains a critical strategic focus. And with regards to generic competition for Abilify 1M in Europe and international operations, we expect to see generics in the market in Q2 of 2026. Next slide, please. If we turn to the 2026 outlook, as Charl said, we are pleased to see that despite the pressures from generics that we expect, the strong performance of our strategic brands reinforces our confidence in updating our 2026 growth outlook, where we're pleased to guide a 5% to 8% revenue growth in constant exchange rates. Let me unpack that for you. In 2026, we expect to see headwinds from increased generic pressures on Abilify Maintena and Brintellix, the reprioritized resources with the Takeda agreement in the U.S. as well as emerging competition on Rexulti. This is outweighed by a continued strong performance of Vyepti, Abilify, Asimtufii and Rexulti. 2026 will also reflect in-year commercial adjustments that impact on our reported revenue and growth. As mentioned by Charl, in December 2025, we implemented a sharpened commercial model where we introduced 27 partner-driven markets. These partners will receive a commission fee of 25% to 30% of our revenue, which will reduce our net revenue compared to 2025. In addition, as part of the transition to the partner model, the partners are building up inventory in the market, which is expected to amount to approximately DKK 500 million positive revenue impact in '26, which will be a onetime effect for this year. When adjusting for the partner model impacts, we're encouraged that our underlying performance is expected to be at 6% to 9% underlying growth, reflecting strong fundamentals as a result of the strategic decisions we have taken in 2024 and 2025. Specifically for our guidance for '26, as stated, we're pleased to guide a 5% to 8% constant exchange rate revenue growth for 2026, which is driven by our continued strong brand execution and our accelerated capital reallocation towards high-value opportunities globally. Joerg will come back to this in his section. With this, I conclude the performance section and hand over to my esteem colleagues, Maria and Johan for a portfolio update. Johan Luthman: Thank you, Michala and Tom. It's great to see the continued very strong commercial performance throughout the full year '25. Maria and I will take you through the portfolio update. Overall, during '23 and '24, we paved the way for the pipeline to go through critical value inflection points in 2025 with positive data emerging from several early-stage projects. Thus, this means, as you heard from Charl, that we can with confidence say that we will have 5 to 6 mid- to late-stage assets in the pipeline by end of 2026 for 6 to 8 indications. So, from an R&D perspective, 2025 has been a solid year of execution and progression. We have continued to advance our research pipeline with innovative assets with highly innovative and strong programs entering into development. I'd like to highlight that we initiated a strategic partnership with Contera, marking Lundbeck's first entry into oligonucleotide-based medicines. As I mentioned, maturing the Phase I portfolio has triggered several programs to progress towards Phase II starts during 2026. At the same time, we have executed well on our late-stage development programs as well as continue with critical brand support, primarily for Vyepti. In early-stage development, we have made extensive use of focused Phase Ib exploratory proof-of-concept studies, allowing us to generate patient data and progress programs with strong biological and clinical validation. As you have seen in the last 2 quarters, this has led to data supporting progression of our D1/D2 agonist 996 in Parkinson's disease and our CD40 blocker 515 in thyroid eye disease to Phase II initiation. Next is our anti-ACTH mAb909, now with the INA name Asedebart. Maria and I will return to Asedebart in a few minutes. For late-stage programs, 2025 marked the year executing on our 2 Phase III programs, Bexicaserin and Amlenetug with progressing recruitment and continued health authority interactions. In Q4, Bexicaserin was granted breakthrough designation in China for DEE, and Amlenetug received Fast Track designation with the FDA as well as orphan drug designation in Japan. Also, during 2025, we completed enrollment in the PROCEED Phase IIb trial. Finally, turning to our strategic brands Vyepti, we have now completed the Asia filings based on the Sun programs in 2025 with submissions in China and Japan in Q4, completing the global rollout of the program. On Vyepti, we also continue to generate strong data on efficacy and effectiveness in severe migraines. Overall, this reflects a year of discipline and generally very successful pipeline progression. Next slide, please. Our pipeline progression is underpinned by strong scientific momentum. During 2025, Lundbeck maintained broad engagement across the scientific and medical community with many medical conference attendance and with 114 scientific presentations and several high-impact publications in peer-reviewed journals. This level of activity is not just about visibility. It enables continuous external dialogue and validation of our science with clinical and academic experts. Importantly, this momentum continues in 2026 with strong presence planned at several medical conferences. Let me showcase some of those. For ADPD here in Copenhagen, we'll present Phase I data for our D1/D2 agonist 996 with further data being presented at the MDS meeting. Also, at AD/PD, we'll present the design of the innovative approach in the Amlenetug pivotal program. For AAN, we have 4 programs presenting data, Vyepti, including new data from the INFUSE real-world evidence study in prior anti-CGRP treatment failures. Bexicaserin data from its Phase II PACIFIC trial and Amlenetug expert input in what would constitute a clinical meaningful effect. Finally, for 202, our Anti-PACAP mAb will present data from 2 Phase I trials. However, much more importantly, for 222, we will present the PROCEED IIb headline results at the American Headache Society Meeting as well later in June at the European Academy of Neurology. Since Lundbeck in recent period has obtained very encouraging data in neuroendocrinology for the CD40 blocker 515 and Asedebart, we will showcase our emerging presence in this space at the ENDO conference in June. As promised, we will now turn over to speaking more about Asedebart. So Maria? Maria Alfaiate: Thank you. And as Johan just outlined and Charles mentioned in his opening remarks, our pipeline is progressing with increasing clarity, focus and value inflection, and Asedebart is a strong illustration of that strategy in action. Asedebart represents one of our most differentiated first-in-class programs moving forward with a clear scientific rationale and a well-defined development path. Asedebart is an anti-ACTH monoclonal antibody designed to address the root cause of cortisol and androgen excess. This mechanism directly differentiates it from existing therapies that focus on downstream hormone control rather than disease modification. We are advancing Asedebart in 2 rare endocrine indications, ACTH-driven Cushing's syndrome and congenital adrenal hyperplasia. Together, these indications represent more than 80,000 patients globally, currently underserved and share a common prescriber base, enabling efficient development, regulatory alignment and future commercial leverage. Importantly, we have already secured orphan drug designation in CAH in both the U.S. and EU, reinforcing the regulatory attractiveness of the program. From an unmet need perspective, the rationale is clear. In ACS, patients lack targeted disease-modifying options and are often exposed to complex polypharmacy with significant safety limitations. In CAH, currently approved treatments provide suboptimal disease control and rely on chronic glucocorticoid exposure with well-known long-term risks. Asedebart's differentiated profile positions it to create value across different stakeholders. For patients, it offers the potential for improved tolerability in ACS and superior efficacy in CAH. For payers and reimbursement authorities, meaningful differentiation on key outcomes supports reduced total cost of care. For health care professionals, it enables a simpler, more predictable approach to long-term disease management for Lundbeck, solidifying our ambition in neuro-rare diseases, supporting long-term pipeline and value growth. In summary, consistent with the pipeline progression Johan described, Asedebart perfectly exemplifies how we are advancing focused, high-impact assets with clear differentiation, regulatory momentum and significant upside potential. And for a more detailed look into one of these indications, I will hand back to Johan. Johan Luthman: Yes. Thank you, Maria. Next slide, please. Yes. So, with that unclear medical need defined by Maria, let me show an example of the strong data we obtained for Asedebart, in this case, for congenital adrenal hyperplasia. In CAH, chronic ACTH elevation drives adrenal overstimulation, leading to excess production of androgens and the precursors. Current treatments primarily rely on glucocortoids, cortisol replacement, which suppresses ACTH indirectly. But as you heard from Maria often with the cost of long-term overexposure and associated complications. By directly targeting ACTH, Asedebart is designed to intervene upstream in the disease pathway, reducing adrenal overstimulation and downstream hormone excess at its source. This provides a clear strong biological rationale. 17-hydroxyprogesterone, 17-OHP is a precursor in the production of cortisol. When cortisol production is hindered by CAH, the body produces excess of 17-OHP in the adrenal glands and donuts and thus elevated 17-OHP is a diagnostic biomarker for the indication. In an ongoing multisite open-label multiple dose trial in patients, we could demonstrate effective engagement of the ACTH pathway. As you can see, following effusion Asedebart, at 24 hours, there is a 90% to 98% reduction of 17-OHP from baseline. We also looked at androstenedione or A4, a key marker used to monitor treatment efficacy and disease control. Like 17-OHP, we see a reduction in A4 following Asedebart infusion ranging from 65% to 90% compared to baseline. These pharmacodynamic effects provide a strong reason to believe in the potential of Asedebart to address core disease drivers in CAH. From a safety perspective, Asedebart was well tolerated with no serious or severe adverse events reported. With this data set, we can now conclude the Phase Ib part of the ongoing Phase I/II study and move into the Phase II part of the study. Next slide, please. Finally, let me place this in the broader pipeline context. In addition to CAH, we also have data for Asedebart in a similar Phase I/II open-label study in Cushing's disease. Cushing's a condition caused by ACTH secreting pituitary adenomas, leading to excess cortisol production by the adrenal glands. We have now very encouraging Phase Ib data to be presented at ENDO, supporting progressing Asedebart to Phase II for this indication. Together with our CD40 blocker 515 and Thyroid Eye Disease and our D1/D2 agonist 996 in Parkinson's disease, we have 3 assets across 4 indications progressing towards larger Phase II trials. As mentioned already, 222 headline results from PROCEED Phase IIb is near-term catalyst. And if positive, the program holds potential to expand our migraine efforts into franchise with the addition of a novel mechanism of action product. In conclusion, while progressing our current Phase III programs, we are progressing several additional first-in-class and sometimes first-in-indication programs supported by clinically validated biology, building a solid mid- to late-stage pipeline. With this, I'd like to hand over to Joerg. Joerg Hornstein: Thank you, Johan and Maria. And please allow me a few opening remarks before we turn to our key figures. Over the past 2 years, we have executed within a very clear financial framework, prioritizing growth behind our strategic brands, accelerating innovation and funding this through disciplined capital reallocation. This focus is clearly reflected in our results. From a growth perspective, we delivered strong double-digit revenue growth in '24 and '25, exceeding expectations and underpinned by exceptional performance from Vyepti and Rexulti. This has translated into a strong gross profit growth, providing operational leverage, allowing us to both expand margins and step up investments where it matters most. This is why we enter 2026 with confidence and a clear strategic intent. We have strong commercial momentum, a sharpened operating model and a significantly strengthened mid- to late-stage pipeline with several key milestones ahead, including PACAP. From a financial standpoint, this supports both our growth outlook and the guidance ranges we have provided. With that, I will now turn to the financial performance for '25 and our guidance for 2026. Next slide, please. Revenue reached DKK 24.6 billion, growing 13% at constant exchange rates, driven by strong momentum across our strategic brands grew 19% predominantly reflecting accelerated growth in Rexulti and Vyepti. The adjusted gross margin was 87.5%, impacted by a reservation fee related to a manufacturing contract for Amlenetug. Sales and distribution costs decreased slightly by minus 2% to DKK 7.7 billion, reflecting the execution of the focused innovator strategy alongside disciplined resource allocation and capital reallocation. Administrative expenses reached DKK 1.5 billion, corresponding to a slight increase of 4% at constant exchange rates, in line with expectations. R&D costs increased by 10%, reaching DKK 4.9 billion, mainly driven by the continued progression of our Phase III programs for Bexicaserin and Amlenetug and a maturing mid-stage pipeline. The increase was partially offset by the Marly impairment loss recognized in '24. Other operating expenses reached DKK 969 million, primarily reflecting an impairment loss of a nonstrategic production site in Italy of around DKK 600 million and commercial restructuring costs of around DKK 400 million related to the transition of 27 markets to a partnership-led model. Adjusted EBITDA grew 24% at constant exchange rates, mainly driven by the strong performance of our strategic brands. Adjusted EBITDA margin expanded to 32% up 3.2 percentage points, reflecting our strong performance in '25, continued disciplined capital reallocation, more than offsetting the R&D cost increase from the acquisition of Longboard Pharmaceuticals and the shift to a more mid- and late-stage R&D pipeline. Next slide, please. EBIT rose 59% to DKK 5.3 billion, driven by higher gross profit and lower sales and distribution costs. This performance was partially offset by higher R&D costs and other operating expenses associated with our commercial restructuring and an impairment loss of a nonstrategic production site, as earlier mentioned. Net financials reached an expense of DKK 788 million, mainly due to higher interest costs related to the new debt obtained in connection with the acquisition of Longboard and unfavorable currency effects, especially from the U.S. dollars. Our effective tax rate was 28.9% compared to 15.5% in '24. '24 was positively impacted by the reversal of a provision related to the U.K. tax audit that was closed with no adjustments. The increase in '25 in the effective tax rate to 28.9% is driven by 2 nonrecurring items in Q4. The primary driver was a nondeductible impairment related to the planned divestment of our manufacturing site in Italy, combined with the finalized outcome of a U.S. advanced pricing agreement adjustment that had a larger tax impact than previously expected. Looking ahead, we are guiding an effective tax rate of 20% to 23% for '26, reflecting the absence of these one-off items and a more stable tax position following the APA finalization. Net profit increased by 2% to DKK 3.2 billion and adjusted net profit increased by 5%, reaching DKK 5.2 billion, again, reflecting strong performance and capital reallocation, partially offset by higher financial expenses and income expenses. In line with our dividend policy, it is proposed to pay out a dividend of DKK 1.15 per share per share, which is an increase of 21% compared to '24. The proposed dividend corresponds to approximately 36% of Lundbeck's net profit and 30% of net profit adjusted for the impairment loss for our manufacturing site in Italy. Next slide, please. Cash flow from operating activities was in line with EBIT performance, reaching DKK 5.5 billion, reflecting strong EBIT growth and a significant working capital improvement. Keep in mind that the change in working capital in '24 was highly impacted by around DKK 2.8 billion of acquisition-related transaction and settlement costs. Cash flow from investing activities was an outflow of DKK 611 million, reflecting the purchase of intangible assets and property, plant and equipment, whereas '24, again, was highly impacted by the acquisition of Longboard. Cash flow from financing activities was an outflow of DKK 6 billion, mainly driven by the repayment of the loan facility used for the acquisition of Longboard, partially offset by a EUR 500 million bond issued in Q2 to refinance the loan facility. Next slide, please. An essential part of Lundbeck's focused innovator strategy is our capital reallocation program through which we have taken a number of deliberate decisions to support funding for growth and innovation. During '25, we increased our level of ambition and continue to operate with a high degree of discipline, maintaining our target of freeing up approximately DKK 1.3 billion to DKK 1.5 billion by 2027, as communicated last year. Importantly, we have been able to absorb the Longboard costs while still expanding margins in 2025. The capital reallocation program is built around several strategic pillars, spanning both value creation and efficiency initiatives. These have been successfully executed across '24 and '25, providing strong financial flexibility and a solid foundation as we enter 2026. One key pillar we acted on in the fourth quarter is our production model optimization. As part of this, we have initiated a planned divestment of a noncore production site, which will further reduce complexity and streamline our manufacturing footprint. In summary, we have more than delivered on the commitments we made 2 years ago during our Capital Markets event and remain firmly on track to achieve our midterm targets. Next slide, please. Let me now turn the focus on the outlook for 2026, where we expect to deliver another year of profitable growth, building on the strong momentum we achieved in '25. For 2026, we are guiding a revenue growth of 5% to 8% at constant exchange rates. This guidance is underpinned by continued strong underlying growth across our core portfolio, particularly our key brands, which remain the primary drivers of value creation. As explained by Michala, there are a couple of onetime effects impacting our '26 revenue. While the sales from the new partner markets are reduced by the partner commission fee, this decline is partially offset by a onetime inventory impact of approximately DKK 500 million in Q1 2026. This impact is specific to '26 and relates to inventory buildup within the partner channel and is not expected to be a recurring driver of revenue growth. Excluding these onetime effects and restating '25 on a comparable basis, our underlying revenue growth would be in the range of 6% to 9%. Turning to profitability. We're guiding adjusted EBITDA growth of 4% to 12% at constant exchange rates in 2026. This range is driven by strong gross profit growth, reflecting again, continued momentum in Vyepti and Rexulti. At the same time, we are increasing investments in R&D to support long-term growth. With several critical clinical trial initiations and readouts plans during '26, especially PACAP, our guidance, therefore, assumes a wider adjusted EBITDA margin range. The wider range still points towards margins within our midterm guidance. And with that, I would like to hand over back to Charl. Charl van Zyl: Thank you, Joerg, and thank you to the entire executive leadership team for these outstanding results. I will make a few closing remarks on the next slide, please. So, you've seen clearly from us the 2-year window of where we've put some of the fundamentals in place that allow us to now extend our growth very clearly into 2026 with very clear priorities. We are extending our growth, as we said, with clear focus on our strategic assets. But fundamentally, you've also seen a transformation in the pipeline that allows us to really bring those 5 to 6 mid- to late-stage assets further into their cycle of development, allowing us to continue our strategic path of developing them for the long-term success of Lundbeck. So, we enter into 2026 really from a position of strength with a very clear strategic path. And as I said, these results are not by chance, but really by clear strategic intent and choices we've made that allow us now to enter '26 in this very strong position. So, we want to open it now for your questions, and I'll hand it back to the operator. Operator: [Operator Instructions] The first question comes from Charles Pitman-King from Barclays. Charles Pitman: Two from me, please. A first question just on Rexulti growth dynamics. I was just wondering if you could provide a little bit more detail on how you're thinking about the potential impact of the IRA listing Rexulti from '28 ahead of the '29 LOE. And coupled with that, just I know it's super early, but if you're able to comment at all on the initial impact from J&J's CAPLYTA on Rexulti's growth trajectory. I'm just wondering kind of can MDD and schizophrenia keep growing into that '28 kind of erosion timeline now? And then just secondly, on M&A. Back in November, Lund pursued a potential acquisition of Avadel. So just wondering if you could provide some thoughts more on the potential commercial opportunity within the narcolepsy space that you saw what the rationale behind your approach was for that asset? And just thinking about kind of the future BD and the rise of M&A activity at the end of last year, how you're kind of viewing the market today and what therapeutic areas you're most interested in pursuing? Charl van Zyl: Thank you, Charles. And I just -- I will -- before I hand to Tom to speak more about Rexulti, just one word to say on Rexulti is that what you've seen and what we're guiding is very much as expected and also planned in our strategic outlook for the brand. But I think Tom can talk more to that. And then I will come back and speak about M&A. But Tom? Thomas Gibbs: So, thanks for the question, Charles. Just first off on the IRA, based upon the established role of Rexulti as a treatment option for many Medicare patients with MDD, schizophrenia and AADAD, Rexulti did meet the criteria for selection of the IRA price setting in 2028. And I think it's important to note that this was aligned with our expectations. I think it's also important to note that since approval in 2015, Rexulti has treated over 1 million patients across all these indications. Lundbeck and Otsuka are committed to ensuring as many patients as possible have access to Rexulti and will formally enter into the CMS process. Because the negotiation process is just the beginning, it is too early to really comment about our expectations related to the impact of the IRA. But what I will say is that, we believe Rexulti is and remains a key growth driver for Lundbeck and our focus remains on driving growth of this brand. And I think this is evident, as you said, in the fourth quarter. Overall TRx demand growth, and this is in the fourth quarter of 2025. So, it's really important as we think about the exit momentum was 24.2% versus the same period last year. That's 16.6% growth in MDD and 63.8% growth in AADAD. So overall demand in fourth quarter 2025 is similar to what we saw throughout the year. As it relates to CAPLYTA, I think it's also important to note that there's so much unmet need when we think about mental illness, additional products is welcome for patients. And again, it's very early to look at the impact of CAPLYTA, but I think CAPLYTA from their perspective is probably doing a pretty good job. But I think it's important for us to understand where their source of business is coming from. If you look at their source of business for MDD, 26% are coming from anxiolytic, 25% from SSRIs and SNRIs, 12% for mood stabilizers and 10% from generic atypicals. If we look at Rexulti specifically, it's 1.5%. So even within the context of a new competitor, as you can see, Rexulti is still growing strongly within MDD, but most importantly, across the overall franchise. Charl van Zyl: Charles, to talk about M&A, again, I think the example you raised of Avadel is a normal process that we go through in bolstering our innovation. We keep looking externally. in our M&A BD strategy in this notion of a string of pearls like we've spoken before, where we look at opportunities that can either strengthen our positions we have. So, we often look at them through the lens of the neuro-rare space or neurospecialty where we can have synergies with our existing pipeline or our sales organization to build sufficient scale. In the case of the space of sleep disorder, I mean, this is, of course, one of the spaces that we keep looking at. We also have some early programs that we will speak more about later in the year that would be in this space of sleep disorder, but it's not the only space that we are looking at. So, thank you for your question. Operator: The next question comes from the line of Xian Deng from UBS. Xian Deng: Also 2, please, from my side. First one, maybe just to follow up on Charles' previous question regarding M&A. So just wondering, you also have this year moving 4 of your programs into Phase II. But in the meantime, you also made the bid for Avadel last November, but then in the end, didn't increase a bit further, so you didn't have the deal in the end. So just wondering if you could maybe help us to reconcile your strategy in terms of R&D, considering both internal and external opportunities, please? So, is that kind of -- do you mainly look at external for the late stage while developing prioritizing internal for early stage? Or any color on that, that would be great. So that's the first question. The second one is on Rexulti, please. So, understanding the underlying trends on TRx, everything looks great. But still this quarter, you have a 9% miss versus consensus. So just wondering, is there any stocking patterns that we should be aware of? If yes, I wonder if you could quantify that, please. Charl van Zyl: Good. So let me start with the M&A topic. So, first of all, I think to just emphasize further what I mentioned, it is an ongoing process of how we build a sustainable pipeline. So, we look at this through the phases of Phase I, II and III and of course, how do we create more optionality long term. So, we have a full pipeline, which is a great thing. We are investing in that pipeline. But we will not be agnostic to looking at other innovations that are coming from outside. If they are more interesting, have more potential than what we have, we will make some of those choices and trade-offs in the pipeline. So, from that perspective, yes, we really look across the range, and we feel that it's very much part of how we will build the long-term sustainability of Lundbeck by looking both at the external environment that supplements exactly what we are doing also internally to build a compelling pipeline. Good. Then the second question, we go to Tom. Thomas Gibbs: Thanks for the question, Xian, and I'm glad we can clarify this for you. I said overall, as we talked about, TRx demand growth exiting the year was 24.2%, and we saw strong growth across both of our key indications. I think some of the mechanics to help close the gap between what was reported for revenue and the underlying demand, I think, are twofold. One is there's one less shipping day this year. And I think it's important to note that we only ship to the 3 big wholesalers on Mondays and Tuesdays. So basically, one, when you have 1 day missing, in 1 day, we'll ship 1/3 of the orders for the day and then 2 for the week. And then the second day, we'll ship 2/3 of the orders for the week. So, I think that's a dynamic that's worth noting. And then secondly, as we look at inventories, we exited the year for inventories at the low end of our normal range. And I think it's those 2 dynamics that will help bridge the gap for you. Xian Deng: So just wondering, the last part, you mentioned the inventory low end of normal range. This is relating to the wholesalers, right, not your inventory? Thomas Gibbs: Yes. It's the wholesalers. We're just quoting the days on hand for wholesalers. Operator: The next question comes from the line of Kirsty Ross-Stewart from BNP Paribas. Kirsty Ross-Stewart: Kirsty Ross-Stewart from BNP. Two questions from me. So, on the broad R&D expense range, I understand that PACAP progression is kind of a key swing factor. So, can you talk to your thoughts on kind of probability of success here, especially in light of the positive HOPE data that we've already seen? And outside of that progression decision, are there any other kind of moving parts that we need to be aware of? You mentioned the Phase II starts, but I think we already knew that they were moving to Phase II. So, can we assume that those are incorporated into the bottom end of the guidance? And if there's anything else just contributing to that broad range? And then a second question on Asedebart, the anti-ACTH. Interested on your perspectives on the Phase II data that we saw from Kinetics in CAH in January this year, which showed kind of good reduction of ACTH production and how you see this asset from a competitive perspective and how your antibody approach is differentiated versus the kinetics molecule at Amlenetug. Charl van Zyl: First, just a very quick question before I hand to Johan on the views on PACAP. I mean, overall, from an R&D perspective, yes, it is one of the important investment triggers. But of course, you know that we also have Bexicaserin and Amlenetug in Phase III. So these are also sizable investments that we are making to complete these studies. And so, from that perspective, we have sort of a healthy pipeline to fund, which is reflected also then in the range of R&D spend that we see. But I think, Johan, do you want to make comments on your views of what you think you can say at this point on PACAP and then maybe on your thoughts on kinetics. Johan Luthman: I mean obviously, you'd like to know some PRS, how we view this, but we'll get the data soon and we take a look at it. There are, of course, prior information. And if you believe in prior, there is, of course, the HOPE trial. And then recently in June, I believe, last year, Lilly presented data from their very early terminated program in 38 patients that showed also an effect. So, there is, of course, overall, encouraging data in the field. And now we just need to expand this with a much wider dose finding range. And we'll see what the data will get. So, you can draw your own conclusions based on that basically. For kinetics, yes, we were happy to see that data. It's a good validation that the pathway is really to be addressed and you can see effects. I'd like to remind you that Kinetics working with the ACTH receptor blocker, MC melanocorticin receptor 2 blocker. So, it's at the adrenal gland stage. So, it's further down in the biology, which means that you don't cover all the different aspects of the overproduction in the system. So here, we have the ability with this mechanism to have a broader symptomatic effect across different adrenal hormones that are hyperactive in this condition. So great data, but we believe it can have even broader effect with this molecule. Charl van Zyl: Then going forward, I think what we again guided for was the range of DKK 5.5 billion to DKK 5.9 billion for '26, and that principally encompasses Bexicaserin and Amlenetug and also the advancement of anti-PACAP and anti-ACTH. I think on the rest of investments, that's always dependent on, you can say, milestone outcomes. Operator: The next question comes from the line of Tobias Berg Nissen from Danske Bank. Tobias Nissen: I have a question on Vyepti here. It's been a very solid '25 with accelerating growth here over the last 3 quarters. I'm just wondering if you can quantify some of the growth drivers here for '26. You have lifted the persistency ratio quite significantly over the last few years. Are you hitting the ceiling here? And also, if you can give some insight into like the dosing mix and what you expect here in exit '26 and also perhaps on expected approval and first-time sales timing here for the APAC region, both Japan, China, South Korea. Charl van Zyl: Thank you, Tobias. So let me ask Tom to comment more on the growth drivers for the U.S. But just to emphasize that this is, of course, a key asset of investment for us, both in U.S. and in Europe. And then we have filed in Asia and so expect to see more of the sales impact on Vyepti in Asia more in '27. But I think, Tom, you want to just talk quickly about how you see your insights on '25, how it carries forward to '26? Thomas Gibbs: Yes. So, thanks for the question. And as you stated, we're pleased with the progress that we're making on Vyepti. As we think about the key drivers for growth, it all starts with new patient starts. That's where our focus is and new patient starts by being able to drive Vyepti further up the treatment paradigm to be used earlier in treatment. And then within that context, also to make sure that we're maximizing the written-to-infusion ratio as part of our patient-centric model. As it relates to the 100 milligrams versus 300 milligrams, for the most part, we saw that allocation between 100 and 300 milligrams pretty stable over the course of 2025. We expect that to continue. But we will also say that the majority of patients are on 300 milligrams because we -- the observation from clinicians is that you see improved efficacy for the -- at the 300 milligrams for most patients. Operator: The next question comes from the line of Alyssa Larios from Leerink. Alyssa Larios: This is Alyssa on for Marc Goodman. I was wondering if you can give us a little bit more color on how the partnership model is expected to impact total revenue for Vyepti and Rexulti. And also related to the onetime inventory build, should we think about the impact of being more front-loaded in the year? Or will there be some inventory stocking spread across the quarters as some of the international partners kind of come online? Charl van Zyl: Alyssa, could I just clarify your last question? We didn't quite get a clear line there. Alyssa Larios: Yes. So related to the onetime inventory build, is that going to primarily be seen in Q1? Or will there be some stocking across the quarters as well? Charl van Zyl: Very clear. Michala, do you want to comment on your thoughts on how that's going? Michala Fischer-Hansen: Yes. So, first of all, with the partnership model, as you know, we have, of course, the provision we need to or the commission we pay the partners, as I explained. And then we have the one-off effect of inventory, which we expect to be a Q1, and it relates specifically to partners needing to build up safety stock in the market. So, it's, you can say, a technicality, so to speak, of them taking over the distribution of our assets or our products in these markets. In terms of our expectations, I think you asked about our expectations for Rexulti and Vyepti in the partnership markets, and we don't guide specifically at brand level. But generally, of course, our expectation is that the partners will be able to continue to deliver with the momentum we've seen when we have the business in our own hands. So, we expect to see that, that will continue. Operator: The next question comes from the line of Alexander Moore from Bank of America. Alexander Moore: Two from me. One on Abilify Maintena. Slide 8 shows conversion to 2 monthly continuing to increase in Europe and IO. I just wondered if you could give any color on what your conversion rate assumptions are factored into the full year guidance? And then secondly, just one on pipeline. Slide 36 highlights potential benefit of limit -- little to no monitoring requirements for Bexicaserin. I wondered if you could just give any color on what monitoring is currently included in the Phase III DEEp SEA and DEEp OCEAN trials. Charl van Zyl: Thank you, Alexander. So Abilify conversion ratio, do you want to start, Michala, with that? Michala Fischer-Hansen: Yes. So generally, as I stated for EIO or European International, we see an average of 19%. And of course, what you have to bear in mind is that we're launching at different times. So not all markets have launched at the same time. And that, of course, also impacts the conversion rate as it progresses. But when we look to '26, we expect this to continue. And as I also mentioned, we expect to see generics in Q2, where we previously expected to see them earlier. So of course, that also gives us a chance to convert more patients. So, we continue to focus on that. Charl van Zyl: Tom, on your views on the U.S.? Thomas Gibbs: Yes. Well, I think if we look back over the course of the last 2 years with Abilify Asimtufii, our focus has really been on franchise maximization, and we've been able to grow our market share over the past year for the franchise 1.1 share points to 24.9%. I think as we look into 2026, our focus is really going to be moved from maximizing conversions. And we have seen some good momentum in NBRxs. With the latest week, we saw a 22% conversion ratio. And our expectation is -- and ambition continues to be to exceed the conversion rates of the other benchmarks in the LAI marketplace. Charl van Zyl: I think the question from Alexander, Johan, is on Bexicaserin Phase III, what are we -- what are the endpoints? What are we monitoring? Johan Luthman: Yes. First of all, it's a trial in what we call DEE, which is the broad indication here across all developmental enphalopathies. -- we have 2 trials, as you know, DEEp SEA and DEEp OCEAN. What we're monitoring is, of course, how we are progressing with the trials. In terms of progressing with the global rollout, we are doing well. We have now activated all sites across the world. But remember, we started the trial during early 2025, and it's been a gradual rollout of the trial. What in monitoring in terms of blinded data in the trial, we're very careful with that. We have some monitoring of data acquisition, and we know that we get the right kind of populations in at the front door that we have a good balance between various parts of the spectrum, and we're doing well on that. There are little differences in enrollment between the 2 trials in Dravet syndrome is more challenged, but that is a stand-alone trial, and the balance is good across the whole system. In terms of medical monitoring, we have good views on what's going on so far with the patients and no concerns there, what we've seen so far. And as you know, we are out of the box having to have a cardiovascular monitoring with this mechanism. So that is the big benefit for trial sight. But how much I can say, and we're looking forward to try to wrap up the randomization during the year. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Charl van Zyl for any closing remarks. Charl van Zyl: Yes. So, thank you again for joining today. And again, I want to reiterate very strong position we are in from the last 2 years of focused innovative strategy. And we are, of course, very confident as we enter into '26 with another strong year of performance ahead of us. So, thank you again for joining today.
Operator: Ladies and gentlemen, welcome to the Lundbeck Financial Statement for the Full Year 2025 Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Charl van Zyl, President and CEO. Please go ahead. Charl van Zyl: So good morning, everyone. Welcome to our full year 2025 earnings call. Of course, it's my pleasure to really present to you our outstanding results. It's been again another record year for Lundbeck in 2025, and it's really underpinned by very strong fundamentals, very much underpinned by our focused innovator strategic path. You'll hear me say a lot about the results very much in the sense of it's not by chance, but by clear intent that we are delivering these outstanding results. If we can go to the next slide, please. So of course, our discussions today are containing forward-looking statements, which, of course, are subject to change. So, let's go to the next slide, please. And here, I would like to take a moment just to pause and reflect on the last 2 years of our focused innovative strategy. And there's so much to say about this transformation that Lundbeck has gone through. But I have to say, I'm really proud of the progress that we have made. Again, it is not by chance, but by clear strategic intent that we see these very strong results. If you recall, our focused innovator strategy is very much about growth, innovation and funding. And when I speak about growth, you would have seen over '24, '25 that we've had double-digit growth across our strategic portfolio, which allows us in a way to extend our growth also into 2026. Secondly, when you think about innovation, we made the acquisition of Longboard that bolstered our late-stage pipeline, but we have truly seen a transformation of this pipeline over the last 2 years with the position we're in now with 5 to 6 mid- to late-stage assets that are really the growth engine of the future of Lundbeck. And it's a pipeline that is characterized by first-in-class or best-in-class molecules. And the third foundation of our strategy is really the funding, the largest capital reallocation that the company has undertaken, and it has allowed us to fund the growth and the pipeline and keep us in a flexible financial position to continue that journey into 2026. If we go to the next slide, I'd like to focus a little bit more on 2025. And truly, it was an outstanding and a record year for Lundbeck. Again, our intent was to focus on investing in our strategic brands, but also in our pipeline. And on the growth level, we have seen that continuation of the double-digit growth on the strategic brands being at 19% in 2025, underpinned by a stellar growth in Vyepti of 59% and also stellar growth for Rexulti at 23%. As you recall, we also made very clear moves in 2025 around sharpening our commercial model to focus on 12 key markets and allowing us to work with partners across 27 markets, again, allowing us to focus our efforts on where we can play to win and grow very strongly as we go also into 2026. When you think about the pipeline, keep thinking about the fact that we're building strong diversification of this pipeline, building a strong position in neurospecialty and also in neuro-rare. When you think about neurospecialty, of course, Vyepti, a growth engine in the U.S. and in Europe, but also soon to become a growth engine with the filings that we've done in China, Japan and Korea to truly make this a global launch for Lundbeck. You will also, in the first quarter, receive results on our anti-PACAP proceed trial that will further enhance our position in the space of severe preventative migraine. When we think about neuro-rare, we think clearly about bexicaserin, of course, the Longboard acquisition that is very much in this Phase III and in execution of the clinical program and so is Amlenetug in its fast enrollment also in MSA. Both of these really high unmet need areas where we can see the opportunity very strongly in the Phase III results. Then we will talk a bit more today about further elements of the pipeline in the mid-stage, our anti-ACTH in congenital adrenal hyperplasia as well as Cushing's disease, and you'll hear more about that from the pipeline discussion later today. Fundamentally, the funding that you see is a continuation of the first 2 years of our focused innovative strategy, where we will continue to be disciplined around our capital reallocation in this range of $1.3 billion to $1.5 billion that we are freeing up to create that flexibility for us to invest in growth and also in innovation. And therefore, we are guiding today very much in a position of strength from '24 to '25 going into '26, with revenue growth of 5% to 8% and adjusted EBITDA between 4% to 12% with that spread also taking into account the strategy of investing in the pipeline as we see the triggers unfold in 2026. So with that, let me just introduce the other speakers for today on our agenda, and you'll hear a business update from the team as well as a portfolio update and, of course, the financial results in more detail. So with that, it's my pleasure to, first of all, start with a business update and hand over to Tom Gibbs, our Head of the U.S. Thank you, Tom. Thomas Gibbs: Great. Thank you, Charl. As Charl just mentioned, we are pleased with our commercial performance for 2025, which is headlined by a strong growth of Vyepti and accelerated growth of Rexulti. Please turn to the next slide, and I'll first review the performance details for Vyepti. Vyepti delivered strong and sustained growth for the full year 2025, and we expect this to continue in 2026. This performance has been powered by continued strong growth in the U.S. and supported by robust adoption of Vyepti in prioritized ex U.S. markets, including Canada, Italy, France, Spain and Germany. Vyepti global net revenue for 2025 was DKK 4.476 billion, and this represents 59% growth over the same period last year. Net revenue for Vyepti in the U.S. was DKK 3.908 billion, growing 58% over prior year. In the U.S., our focus has been to make purposeful investments in our patient-centric model supporting Vyepti through our disciplined capital allocation program that Joerg will speak to later. We will continue to make incremental investments in 2026 to elevate the impact of our execution informed by our advanced analytics capability, and this includes a sales force expansion as well as optimize direct-to-consumer advertising. We expect to sustain market-leading demand growth by driving depth and breadth of prescribing and continued positive momentum in new patient starts supported by high written-to-infusion conversion ratio and best-in-class patient persistency. In Europe and international operations, significant work is being done preparing for the launch of Vyepti in Asia. And if approved, we see this region as a significant opportunity to drive further growth for Vyepti. Next slide, please. Now moving on to Rexulti. Rexulti continues to perform well and deliver consistent growth propelled by continued strong progress within the AADAD segment in the U.S. Reported revenue was DKK 5.745 billion, increasing 23% for the full year 2025 versus prior year. Importantly, revenue growth in the U.S. was driven by strong underlying TRx demand, delivering 24.2% growth in 2025 compared to 2024. Rexulti AADAD volume is becoming increasingly important to overall Rexulti brand growth, and we expect this to continue through 2026 and beyond. AADAD monthly TRx volume has increased 725% versus pre-indication baseline and the AADAD contribution to overall Rexulti demand has grown to 24.4%. Importantly, the 65-plus segment now contributes 34.8% or more than 1 out of every 3 Rexulti TRx claims based upon the most recently available claims data. The team in the U.S. is continuing to focus on the levers to drive continued growth for Rexulti, informed by our margin return on investment analysis. As you may recall, we reallocated a portion of our DTC advertising for AADAD to expand our sales footprint, and this is mainly in the primary care segment. The first wave of the expansion of our multi-specialty sales force team was deployed during 3Q 2025, and we're encouraged by the early results. The second wave is ongoing, and we expect to be fully deployed during first quarter 2026. Overall, we're pleased with the momentum of Rexulti demand exiting 2025 despite an increasingly competitive market and evolving policy landscape. TRx demand in fourth quarter 2025 grew 24.2% versus fourth quarter 2024. Precision execution across the marketing mix, including our expanded sales team in primary care is expected to reinforce the long-term growth for Rexulti and help address increased competition. Michala, over to you. Michala Fischer-Hansen: Thank you, Tom. Let's turn our head to the Abilify franchise performance, where 2025 was another year of solid growth momentum for the franchise, growing at 10% versus last year overall, now at DKK 3.776 billion. If we look at the U.S. first, the Abilify franchise delivered a 9% growth compared to the year before, and that was also resulting in a gain of 1.1 percentage point market share. Importantly, as the U.S. is transitioning from franchise maximization to conversion maximization, ASIMTUFII continues to be a key growth driver with an encouraging 22% NBRx weekly conversion rate. If we turn to Europe and International operations, the franchise delivered 10% growth versus last year. This was driven by continued launches of Abilify 960 milligram, which is now launched in a total of 27 markets across Europe and international operations. We continue to see strong conversion rates across our key markets with several markets surpassing 20%. Across the markets, we also continue to see encouraging conversion rates from other oral atypicals and LAIs that are outside of our Abilify Maintena franchise. Looking ahead, conversion maximization remains a critical strategic focus. And with regards to generic competition for Abilify 1M in Europe and international operations, we expect to see generics in the market in Q2 of 2026. Next slide, please. If we turn to the 2026 outlook, as Charl said, we are pleased to see that despite the pressures from generics that we expect, the strong performance of our strategic brands reinforces our confidence in updating our 2026 growth outlook, where we're pleased to guide a 5% to 8% revenue growth in constant exchange rates. Let me unpack that for you. In 2026, we expect to see headwinds from increased generic pressures on Abilify Maintena and Brintellix, the reprioritized resources with the Takeda agreement in the U.S. as well as emerging competition on Rexulti. This is outweighed by a continued strong performance of Vyepti, Abilify, Asimtufii and Rexulti. 2026 will also reflect in-year commercial adjustments that impact on our reported revenue and growth. As mentioned by Charl, in December 2025, we implemented a sharpened commercial model where we introduced 27 partner-driven markets. These partners will receive a commission fee of 25% to 30% of our revenue, which will reduce our net revenue compared to 2025. In addition, as part of the transition to the partner model, the partners are building up inventory in the market, which is expected to amount to approximately DKK 500 million positive revenue impact in '26, which will be a onetime effect for this year. When adjusting for the partner model impacts, we're encouraged that our underlying performance is expected to be at 6% to 9% underlying growth, reflecting strong fundamentals as a result of the strategic decisions we have taken in 2024 and 2025. Specifically for our guidance for '26, as stated, we're pleased to guide a 5% to 8% constant exchange rate revenue growth for 2026, which is driven by our continued strong brand execution and our accelerated capital reallocation towards high-value opportunities globally. Joerg will come back to this in his section. With this, I conclude the performance section and hand over to my esteem colleagues, Maria and Johan for a portfolio update. Johan Luthman: Thank you, Michala and Tom. It's great to see the continued very strong commercial performance throughout the full year '25. Maria and I will take you through the portfolio update. Overall, during '23 and '24, we paved the way for the pipeline to go through critical value inflection points in 2025 with positive data emerging from several early-stage projects. Thus, this means, as you heard from Charl, that we can with confidence say that we will have 5 to 6 mid- to late-stage assets in the pipeline by end of 2026 for 6 to 8 indications. So, from an R&D perspective, 2025 has been a solid year of execution and progression. We have continued to advance our research pipeline with innovative assets with highly innovative and strong programs entering into development. I'd like to highlight that we initiated a strategic partnership with Contera, marking Lundbeck's first entry into oligonucleotide-based medicines. As I mentioned, maturing the Phase I portfolio has triggered several programs to progress towards Phase II starts during 2026. At the same time, we have executed well on our late-stage development programs as well as continue with critical brand support, primarily for Vyepti. In early-stage development, we have made extensive use of focused Phase Ib exploratory proof-of-concept studies, allowing us to generate patient data and progress programs with strong biological and clinical validation. As you have seen in the last 2 quarters, this has led to data supporting progression of our D1/D2 agonist 996 in Parkinson's disease and our CD40 blocker 515 in thyroid eye disease to Phase II initiation. Next is our anti-ACTH mAb909, now with the INA name Asedebart. Maria and I will return to Asedebart in a few minutes. For late-stage programs, 2025 marked the year executing on our 2 Phase III programs, Bexicaserin and Amlenetug with progressing recruitment and continued health authority interactions. In Q4, Bexicaserin was granted breakthrough designation in China for DEE, and Amlenetug received Fast Track designation with the FDA as well as orphan drug designation in Japan. Also, during 2025, we completed enrollment in the PROCEED Phase IIb trial. Finally, turning to our strategic brands Vyepti, we have now completed the Asia filings based on the Sun programs in 2025 with submissions in China and Japan in Q4, completing the global rollout of the program. On Vyepti, we also continue to generate strong data on efficacy and effectiveness in severe migraines. Overall, this reflects a year of discipline and generally very successful pipeline progression. Next slide, please. Our pipeline progression is underpinned by strong scientific momentum. During 2025, Lundbeck maintained broad engagement across the scientific and medical community with many medical conference attendance and with 114 scientific presentations and several high-impact publications in peer-reviewed journals. This level of activity is not just about visibility. It enables continuous external dialogue and validation of our science with clinical and academic experts. Importantly, this momentum continues in 2026 with strong presence planned at several medical conferences. Let me showcase some of those. For ADPD here in Copenhagen, we'll present Phase I data for our D1/D2 agonist 996 with further data being presented at the MDS meeting. Also, at AD/PD, we'll present the design of the innovative approach in the Amlenetug pivotal program. For AAN, we have 4 programs presenting data, Vyepti, including new data from the INFUSE real-world evidence study in prior anti-CGRP treatment failures. Bexicaserin data from its Phase II PACIFIC trial and Amlenetug expert input in what would constitute a clinical meaningful effect. Finally, for 202, our Anti-PACAP mAb will present data from 2 Phase I trials. However, much more importantly, for 222, we will present the PROCEED IIb headline results at the American Headache Society Meeting as well later in June at the European Academy of Neurology. Since Lundbeck in recent period has obtained very encouraging data in neuroendocrinology for the CD40 blocker 515 and Asedebart, we will showcase our emerging presence in this space at the ENDO conference in June. As promised, we will now turn over to speaking more about Asedebart. So Maria? Maria Alfaiate: Thank you. And as Johan just outlined and Charles mentioned in his opening remarks, our pipeline is progressing with increasing clarity, focus and value inflection, and Asedebart is a strong illustration of that strategy in action. Asedebart represents one of our most differentiated first-in-class programs moving forward with a clear scientific rationale and a well-defined development path. Asedebart is an anti-ACTH monoclonal antibody designed to address the root cause of cortisol and androgen excess. This mechanism directly differentiates it from existing therapies that focus on downstream hormone control rather than disease modification. We are advancing Asedebart in 2 rare endocrine indications, ACTH-driven Cushing's syndrome and congenital adrenal hyperplasia. Together, these indications represent more than 80,000 patients globally, currently underserved and share a common prescriber base, enabling efficient development, regulatory alignment and future commercial leverage. Importantly, we have already secured orphan drug designation in CAH in both the U.S. and EU, reinforcing the regulatory attractiveness of the program. From an unmet need perspective, the rationale is clear. In ACS, patients lack targeted disease-modifying options and are often exposed to complex polypharmacy with significant safety limitations. In CAH, currently approved treatments provide suboptimal disease control and rely on chronic glucocorticoid exposure with well-known long-term risks. Asedebart's differentiated profile positions it to create value across different stakeholders. For patients, it offers the potential for improved tolerability in ACS and superior efficacy in CAH. For payers and reimbursement authorities, meaningful differentiation on key outcomes supports reduced total cost of care. For health care professionals, it enables a simpler, more predictable approach to long-term disease management for Lundbeck, solidifying our ambition in neuro-rare diseases, supporting long-term pipeline and value growth. In summary, consistent with the pipeline progression Johan described, Asedebart perfectly exemplifies how we are advancing focused, high-impact assets with clear differentiation, regulatory momentum and significant upside potential. And for a more detailed look into one of these indications, I will hand back to Johan. Johan Luthman: Yes. Thank you, Maria. Next slide, please. Yes. So, with that unclear medical need defined by Maria, let me show an example of the strong data we obtained for Asedebart, in this case, for congenital adrenal hyperplasia. In CAH, chronic ACTH elevation drives adrenal overstimulation, leading to excess production of androgens and the precursors. Current treatments primarily rely on glucocortoids, cortisol replacement, which suppresses ACTH indirectly. But as you heard from Maria often with the cost of long-term overexposure and associated complications. By directly targeting ACTH, Asedebart is designed to intervene upstream in the disease pathway, reducing adrenal overstimulation and downstream hormone excess at its source. This provides a clear strong biological rationale. 17-hydroxyprogesterone, 17-OHP is a precursor in the production of cortisol. When cortisol production is hindered by CAH, the body produces excess of 17-OHP in the adrenal glands and donuts and thus elevated 17-OHP is a diagnostic biomarker for the indication. In an ongoing multisite open-label multiple dose trial in patients, we could demonstrate effective engagement of the ACTH pathway. As you can see, following effusion Asedebart, at 24 hours, there is a 90% to 98% reduction of 17-OHP from baseline. We also looked at androstenedione or A4, a key marker used to monitor treatment efficacy and disease control. Like 17-OHP, we see a reduction in A4 following Asedebart infusion ranging from 65% to 90% compared to baseline. These pharmacodynamic effects provide a strong reason to believe in the potential of Asedebart to address core disease drivers in CAH. From a safety perspective, Asedebart was well tolerated with no serious or severe adverse events reported. With this data set, we can now conclude the Phase Ib part of the ongoing Phase I/II study and move into the Phase II part of the study. Next slide, please. Finally, let me place this in the broader pipeline context. In addition to CAH, we also have data for Asedebart in a similar Phase I/II open-label study in Cushing's disease. Cushing's a condition caused by ACTH secreting pituitary adenomas, leading to excess cortisol production by the adrenal glands. We have now very encouraging Phase Ib data to be presented at ENDO, supporting progressing Asedebart to Phase II for this indication. Together with our CD40 blocker 515 and Thyroid Eye Disease and our D1/D2 agonist 996 in Parkinson's disease, we have 3 assets across 4 indications progressing towards larger Phase II trials. As mentioned already, 222 headline results from PROCEED Phase IIb is near-term catalyst. And if positive, the program holds potential to expand our migraine efforts into franchise with the addition of a novel mechanism of action product. In conclusion, while progressing our current Phase III programs, we are progressing several additional first-in-class and sometimes first-in-indication programs supported by clinically validated biology, building a solid mid- to late-stage pipeline. With this, I'd like to hand over to Joerg. Joerg Hornstein: Thank you, Johan and Maria. And please allow me a few opening remarks before we turn to our key figures. Over the past 2 years, we have executed within a very clear financial framework, prioritizing growth behind our strategic brands, accelerating innovation and funding this through disciplined capital reallocation. This focus is clearly reflected in our results. From a growth perspective, we delivered strong double-digit revenue growth in '24 and '25, exceeding expectations and underpinned by exceptional performance from Vyepti and Rexulti. This has translated into a strong gross profit growth, providing operational leverage, allowing us to both expand margins and step up investments where it matters most. This is why we enter 2026 with confidence and a clear strategic intent. We have strong commercial momentum, a sharpened operating model and a significantly strengthened mid- to late-stage pipeline with several key milestones ahead, including PACAP. From a financial standpoint, this supports both our growth outlook and the guidance ranges we have provided. With that, I will now turn to the financial performance for '25 and our guidance for 2026. Next slide, please. Revenue reached DKK 24.6 billion, growing 13% at constant exchange rates, driven by strong momentum across our strategic brands grew 19% predominantly reflecting accelerated growth in Rexulti and Vyepti. The adjusted gross margin was 87.5%, impacted by a reservation fee related to a manufacturing contract for Amlenetug. Sales and distribution costs decreased slightly by minus 2% to DKK 7.7 billion, reflecting the execution of the focused innovator strategy alongside disciplined resource allocation and capital reallocation. Administrative expenses reached DKK 1.5 billion, corresponding to a slight increase of 4% at constant exchange rates, in line with expectations. R&D costs increased by 10%, reaching DKK 4.9 billion, mainly driven by the continued progression of our Phase III programs for Bexicaserin and Amlenetug and a maturing mid-stage pipeline. The increase was partially offset by the Marly impairment loss recognized in '24. Other operating expenses reached DKK 969 million, primarily reflecting an impairment loss of a nonstrategic production site in Italy of around DKK 600 million and commercial restructuring costs of around DKK 400 million related to the transition of 27 markets to a partnership-led model. Adjusted EBITDA grew 24% at constant exchange rates, mainly driven by the strong performance of our strategic brands. Adjusted EBITDA margin expanded to 32% up 3.2 percentage points, reflecting our strong performance in '25, continued disciplined capital reallocation, more than offsetting the R&D cost increase from the acquisition of Longboard Pharmaceuticals and the shift to a more mid- and late-stage R&D pipeline. Next slide, please. EBIT rose 59% to DKK 5.3 billion, driven by higher gross profit and lower sales and distribution costs. This performance was partially offset by higher R&D costs and other operating expenses associated with our commercial restructuring and an impairment loss of a nonstrategic production site, as earlier mentioned. Net financials reached an expense of DKK 788 million, mainly due to higher interest costs related to the new debt obtained in connection with the acquisition of Longboard and unfavorable currency effects, especially from the U.S. dollars. Our effective tax rate was 28.9% compared to 15.5% in '24. '24 was positively impacted by the reversal of a provision related to the U.K. tax audit that was closed with no adjustments. The increase in '25 in the effective tax rate to 28.9% is driven by 2 nonrecurring items in Q4. The primary driver was a nondeductible impairment related to the planned divestment of our manufacturing site in Italy, combined with the finalized outcome of a U.S. advanced pricing agreement adjustment that had a larger tax impact than previously expected. Looking ahead, we are guiding an effective tax rate of 20% to 23% for '26, reflecting the absence of these one-off items and a more stable tax position following the APA finalization. Net profit increased by 2% to DKK 3.2 billion and adjusted net profit increased by 5%, reaching DKK 5.2 billion, again, reflecting strong performance and capital reallocation, partially offset by higher financial expenses and income expenses. In line with our dividend policy, it is proposed to pay out a dividend of DKK 1.15 per share per share, which is an increase of 21% compared to '24. The proposed dividend corresponds to approximately 36% of Lundbeck's net profit and 30% of net profit adjusted for the impairment loss for our manufacturing site in Italy. Next slide, please. Cash flow from operating activities was in line with EBIT performance, reaching DKK 5.5 billion, reflecting strong EBIT growth and a significant working capital improvement. Keep in mind that the change in working capital in '24 was highly impacted by around DKK 2.8 billion of acquisition-related transaction and settlement costs. Cash flow from investing activities was an outflow of DKK 611 million, reflecting the purchase of intangible assets and property, plant and equipment, whereas '24, again, was highly impacted by the acquisition of Longboard. Cash flow from financing activities was an outflow of DKK 6 billion, mainly driven by the repayment of the loan facility used for the acquisition of Longboard, partially offset by a EUR 500 million bond issued in Q2 to refinance the loan facility. Next slide, please. An essential part of Lundbeck's focused innovator strategy is our capital reallocation program through which we have taken a number of deliberate decisions to support funding for growth and innovation. During '25, we increased our level of ambition and continue to operate with a high degree of discipline, maintaining our target of freeing up approximately DKK 1.3 billion to DKK 1.5 billion by 2027, as communicated last year. Importantly, we have been able to absorb the Longboard costs while still expanding margins in 2025. The capital reallocation program is built around several strategic pillars, spanning both value creation and efficiency initiatives. These have been successfully executed across '24 and '25, providing strong financial flexibility and a solid foundation as we enter 2026. One key pillar we acted on in the fourth quarter is our production model optimization. As part of this, we have initiated a planned divestment of a noncore production site, which will further reduce complexity and streamline our manufacturing footprint. In summary, we have more than delivered on the commitments we made 2 years ago during our Capital Markets event and remain firmly on track to achieve our midterm targets. Next slide, please. Let me now turn the focus on the outlook for 2026, where we expect to deliver another year of profitable growth, building on the strong momentum we achieved in '25. For 2026, we are guiding a revenue growth of 5% to 8% at constant exchange rates. This guidance is underpinned by continued strong underlying growth across our core portfolio, particularly our key brands, which remain the primary drivers of value creation. As explained by Michala, there are a couple of onetime effects impacting our '26 revenue. While the sales from the new partner markets are reduced by the partner commission fee, this decline is partially offset by a onetime inventory impact of approximately DKK 500 million in Q1 2026. This impact is specific to '26 and relates to inventory buildup within the partner channel and is not expected to be a recurring driver of revenue growth. Excluding these onetime effects and restating '25 on a comparable basis, our underlying revenue growth would be in the range of 6% to 9%. Turning to profitability. We're guiding adjusted EBITDA growth of 4% to 12% at constant exchange rates in 2026. This range is driven by strong gross profit growth, reflecting again, continued momentum in Vyepti and Rexulti. At the same time, we are increasing investments in R&D to support long-term growth. With several critical clinical trial initiations and readouts plans during '26, especially PACAP, our guidance, therefore, assumes a wider adjusted EBITDA margin range. The wider range still points towards margins within our midterm guidance. And with that, I would like to hand over back to Charl. Charl van Zyl: Thank you, Joerg, and thank you to the entire executive leadership team for these outstanding results. I will make a few closing remarks on the next slide, please. So, you've seen clearly from us the 2-year window of where we've put some of the fundamentals in place that allow us to now extend our growth very clearly into 2026 with very clear priorities. We are extending our growth, as we said, with clear focus on our strategic assets. But fundamentally, you've also seen a transformation in the pipeline that allows us to really bring those 5 to 6 mid- to late-stage assets further into their cycle of development, allowing us to continue our strategic path of developing them for the long-term success of Lundbeck. So, we enter into 2026 really from a position of strength with a very clear strategic path. And as I said, these results are not by chance, but really by clear strategic intent and choices we've made that allow us now to enter '26 in this very strong position. So, we want to open it now for your questions, and I'll hand it back to the operator. Operator: [Operator Instructions] The first question comes from Charles Pitman-King from Barclays. Charles Pitman: Two from me, please. A first question just on Rexulti growth dynamics. I was just wondering if you could provide a little bit more detail on how you're thinking about the potential impact of the IRA listing Rexulti from '28 ahead of the '29 LOE. And coupled with that, just I know it's super early, but if you're able to comment at all on the initial impact from J&J's CAPLYTA on Rexulti's growth trajectory. I'm just wondering kind of can MDD and schizophrenia keep growing into that '28 kind of erosion timeline now? And then just secondly, on M&A. Back in November, Lund pursued a potential acquisition of Avadel. So just wondering if you could provide some thoughts more on the potential commercial opportunity within the narcolepsy space that you saw what the rationale behind your approach was for that asset? And just thinking about kind of the future BD and the rise of M&A activity at the end of last year, how you're kind of viewing the market today and what therapeutic areas you're most interested in pursuing? Charl van Zyl: Thank you, Charles. And I just -- I will -- before I hand to Tom to speak more about Rexulti, just one word to say on Rexulti is that what you've seen and what we're guiding is very much as expected and also planned in our strategic outlook for the brand. But I think Tom can talk more to that. And then I will come back and speak about M&A. But Tom? Thomas Gibbs: So, thanks for the question, Charles. Just first off on the IRA, based upon the established role of Rexulti as a treatment option for many Medicare patients with MDD, schizophrenia and AADAD, Rexulti did meet the criteria for selection of the IRA price setting in 2028. And I think it's important to note that this was aligned with our expectations. I think it's also important to note that since approval in 2015, Rexulti has treated over 1 million patients across all these indications. Lundbeck and Otsuka are committed to ensuring as many patients as possible have access to Rexulti and will formally enter into the CMS process. Because the negotiation process is just the beginning, it is too early to really comment about our expectations related to the impact of the IRA. But what I will say is that, we believe Rexulti is and remains a key growth driver for Lundbeck and our focus remains on driving growth of this brand. And I think this is evident, as you said, in the fourth quarter. Overall TRx demand growth, and this is in the fourth quarter of 2025. So, it's really important as we think about the exit momentum was 24.2% versus the same period last year. That's 16.6% growth in MDD and 63.8% growth in AADAD. So overall demand in fourth quarter 2025 is similar to what we saw throughout the year. As it relates to CAPLYTA, I think it's also important to note that there's so much unmet need when we think about mental illness, additional products is welcome for patients. And again, it's very early to look at the impact of CAPLYTA, but I think CAPLYTA from their perspective is probably doing a pretty good job. But I think it's important for us to understand where their source of business is coming from. If you look at their source of business for MDD, 26% are coming from anxiolytic, 25% from SSRIs and SNRIs, 12% for mood stabilizers and 10% from generic atypicals. If we look at Rexulti specifically, it's 1.5%. So even within the context of a new competitor, as you can see, Rexulti is still growing strongly within MDD, but most importantly, across the overall franchise. Charl van Zyl: Charles, to talk about M&A, again, I think the example you raised of Avadel is a normal process that we go through in bolstering our innovation. We keep looking externally. in our M&A BD strategy in this notion of a string of pearls like we've spoken before, where we look at opportunities that can either strengthen our positions we have. So, we often look at them through the lens of the neuro-rare space or neurospecialty where we can have synergies with our existing pipeline or our sales organization to build sufficient scale. In the case of the space of sleep disorder, I mean, this is, of course, one of the spaces that we keep looking at. We also have some early programs that we will speak more about later in the year that would be in this space of sleep disorder, but it's not the only space that we are looking at. So, thank you for your question. Operator: The next question comes from the line of Xian Deng from UBS. Xian Deng: Also 2, please, from my side. First one, maybe just to follow up on Charles' previous question regarding M&A. So just wondering, you also have this year moving 4 of your programs into Phase II. But in the meantime, you also made the bid for Avadel last November, but then in the end, didn't increase a bit further, so you didn't have the deal in the end. So just wondering if you could maybe help us to reconcile your strategy in terms of R&D, considering both internal and external opportunities, please? So, is that kind of -- do you mainly look at external for the late stage while developing prioritizing internal for early stage? Or any color on that, that would be great. So that's the first question. The second one is on Rexulti, please. So, understanding the underlying trends on TRx, everything looks great. But still this quarter, you have a 9% miss versus consensus. So just wondering, is there any stocking patterns that we should be aware of? If yes, I wonder if you could quantify that, please. Charl van Zyl: Good. So let me start with the M&A topic. So, first of all, I think to just emphasize further what I mentioned, it is an ongoing process of how we build a sustainable pipeline. So, we look at this through the phases of Phase I, II and III and of course, how do we create more optionality long term. So, we have a full pipeline, which is a great thing. We are investing in that pipeline. But we will not be agnostic to looking at other innovations that are coming from outside. If they are more interesting, have more potential than what we have, we will make some of those choices and trade-offs in the pipeline. So, from that perspective, yes, we really look across the range, and we feel that it's very much part of how we will build the long-term sustainability of Lundbeck by looking both at the external environment that supplements exactly what we are doing also internally to build a compelling pipeline. Good. Then the second question, we go to Tom. Thomas Gibbs: Thanks for the question, Xian, and I'm glad we can clarify this for you. I said overall, as we talked about, TRx demand growth exiting the year was 24.2%, and we saw strong growth across both of our key indications. I think some of the mechanics to help close the gap between what was reported for revenue and the underlying demand, I think, are twofold. One is there's one less shipping day this year. And I think it's important to note that we only ship to the 3 big wholesalers on Mondays and Tuesdays. So basically, one, when you have 1 day missing, in 1 day, we'll ship 1/3 of the orders for the day and then 2 for the week. And then the second day, we'll ship 2/3 of the orders for the week. So, I think that's a dynamic that's worth noting. And then secondly, as we look at inventories, we exited the year for inventories at the low end of our normal range. And I think it's those 2 dynamics that will help bridge the gap for you. Xian Deng: So just wondering, the last part, you mentioned the inventory low end of normal range. This is relating to the wholesalers, right, not your inventory? Thomas Gibbs: Yes. It's the wholesalers. We're just quoting the days on hand for wholesalers. Operator: The next question comes from the line of Kirsty Ross-Stewart from BNP Paribas. Kirsty Ross-Stewart: Kirsty Ross-Stewart from BNP. Two questions from me. So, on the broad R&D expense range, I understand that PACAP progression is kind of a key swing factor. So, can you talk to your thoughts on kind of probability of success here, especially in light of the positive HOPE data that we've already seen? And outside of that progression decision, are there any other kind of moving parts that we need to be aware of? You mentioned the Phase II starts, but I think we already knew that they were moving to Phase II. So, can we assume that those are incorporated into the bottom end of the guidance? And if there's anything else just contributing to that broad range? And then a second question on Asedebart, the anti-ACTH. Interested on your perspectives on the Phase II data that we saw from Kinetics in CAH in January this year, which showed kind of good reduction of ACTH production and how you see this asset from a competitive perspective and how your antibody approach is differentiated versus the kinetics molecule at Amlenetug. Charl van Zyl: First, just a very quick question before I hand to Johan on the views on PACAP. I mean, overall, from an R&D perspective, yes, it is one of the important investment triggers. But of course, you know that we also have Bexicaserin and Amlenetug in Phase III. So these are also sizable investments that we are making to complete these studies. And so, from that perspective, we have sort of a healthy pipeline to fund, which is reflected also then in the range of R&D spend that we see. But I think, Johan, do you want to make comments on your views of what you think you can say at this point on PACAP and then maybe on your thoughts on kinetics. Johan Luthman: I mean obviously, you'd like to know some PRS, how we view this, but we'll get the data soon and we take a look at it. There are, of course, prior information. And if you believe in prior, there is, of course, the HOPE trial. And then recently in June, I believe, last year, Lilly presented data from their very early terminated program in 38 patients that showed also an effect. So, there is, of course, overall, encouraging data in the field. And now we just need to expand this with a much wider dose finding range. And we'll see what the data will get. So, you can draw your own conclusions based on that basically. For kinetics, yes, we were happy to see that data. It's a good validation that the pathway is really to be addressed and you can see effects. I'd like to remind you that Kinetics working with the ACTH receptor blocker, MC melanocorticin receptor 2 blocker. So, it's at the adrenal gland stage. So, it's further down in the biology, which means that you don't cover all the different aspects of the overproduction in the system. So here, we have the ability with this mechanism to have a broader symptomatic effect across different adrenal hormones that are hyperactive in this condition. So great data, but we believe it can have even broader effect with this molecule. Charl van Zyl: Then going forward, I think what we again guided for was the range of DKK 5.5 billion to DKK 5.9 billion for '26, and that principally encompasses Bexicaserin and Amlenetug and also the advancement of anti-PACAP and anti-ACTH. I think on the rest of investments, that's always dependent on, you can say, milestone outcomes. Operator: The next question comes from the line of Tobias Berg Nissen from Danske Bank. Tobias Nissen: I have a question on Vyepti here. It's been a very solid '25 with accelerating growth here over the last 3 quarters. I'm just wondering if you can quantify some of the growth drivers here for '26. You have lifted the persistency ratio quite significantly over the last few years. Are you hitting the ceiling here? And also, if you can give some insight into like the dosing mix and what you expect here in exit '26 and also perhaps on expected approval and first-time sales timing here for the APAC region, both Japan, China, South Korea. Charl van Zyl: Thank you, Tobias. So let me ask Tom to comment more on the growth drivers for the U.S. But just to emphasize that this is, of course, a key asset of investment for us, both in U.S. and in Europe. And then we have filed in Asia and so expect to see more of the sales impact on Vyepti in Asia more in '27. But I think, Tom, you want to just talk quickly about how you see your insights on '25, how it carries forward to '26? Thomas Gibbs: Yes. So, thanks for the question. And as you stated, we're pleased with the progress that we're making on Vyepti. As we think about the key drivers for growth, it all starts with new patient starts. That's where our focus is and new patient starts by being able to drive Vyepti further up the treatment paradigm to be used earlier in treatment. And then within that context, also to make sure that we're maximizing the written-to-infusion ratio as part of our patient-centric model. As it relates to the 100 milligrams versus 300 milligrams, for the most part, we saw that allocation between 100 and 300 milligrams pretty stable over the course of 2025. We expect that to continue. But we will also say that the majority of patients are on 300 milligrams because we -- the observation from clinicians is that you see improved efficacy for the -- at the 300 milligrams for most patients. Operator: The next question comes from the line of Alyssa Larios from Leerink. Alyssa Larios: This is Alyssa on for Marc Goodman. I was wondering if you can give us a little bit more color on how the partnership model is expected to impact total revenue for Vyepti and Rexulti. And also related to the onetime inventory build, should we think about the impact of being more front-loaded in the year? Or will there be some inventory stocking spread across the quarters as some of the international partners kind of come online? Charl van Zyl: Alyssa, could I just clarify your last question? We didn't quite get a clear line there. Alyssa Larios: Yes. So related to the onetime inventory build, is that going to primarily be seen in Q1? Or will there be some stocking across the quarters as well? Charl van Zyl: Very clear. Michala, do you want to comment on your thoughts on how that's going? Michala Fischer-Hansen: Yes. So, first of all, with the partnership model, as you know, we have, of course, the provision we need to or the commission we pay the partners, as I explained. And then we have the one-off effect of inventory, which we expect to be a Q1, and it relates specifically to partners needing to build up safety stock in the market. So, it's, you can say, a technicality, so to speak, of them taking over the distribution of our assets or our products in these markets. In terms of our expectations, I think you asked about our expectations for Rexulti and Vyepti in the partnership markets, and we don't guide specifically at brand level. But generally, of course, our expectation is that the partners will be able to continue to deliver with the momentum we've seen when we have the business in our own hands. So, we expect to see that, that will continue. Operator: The next question comes from the line of Alexander Moore from Bank of America. Alexander Moore: Two from me. One on Abilify Maintena. Slide 8 shows conversion to 2 monthly continuing to increase in Europe and IO. I just wondered if you could give any color on what your conversion rate assumptions are factored into the full year guidance? And then secondly, just one on pipeline. Slide 36 highlights potential benefit of limit -- little to no monitoring requirements for Bexicaserin. I wondered if you could just give any color on what monitoring is currently included in the Phase III DEEp SEA and DEEp OCEAN trials. Charl van Zyl: Thank you, Alexander. So Abilify conversion ratio, do you want to start, Michala, with that? Michala Fischer-Hansen: Yes. So generally, as I stated for EIO or European International, we see an average of 19%. And of course, what you have to bear in mind is that we're launching at different times. So not all markets have launched at the same time. And that, of course, also impacts the conversion rate as it progresses. But when we look to '26, we expect this to continue. And as I also mentioned, we expect to see generics in Q2, where we previously expected to see them earlier. So of course, that also gives us a chance to convert more patients. So, we continue to focus on that. Charl van Zyl: Tom, on your views on the U.S.? Thomas Gibbs: Yes. Well, I think if we look back over the course of the last 2 years with Abilify Asimtufii, our focus has really been on franchise maximization, and we've been able to grow our market share over the past year for the franchise 1.1 share points to 24.9%. I think as we look into 2026, our focus is really going to be moved from maximizing conversions. And we have seen some good momentum in NBRxs. With the latest week, we saw a 22% conversion ratio. And our expectation is -- and ambition continues to be to exceed the conversion rates of the other benchmarks in the LAI marketplace. Charl van Zyl: I think the question from Alexander, Johan, is on Bexicaserin Phase III, what are we -- what are the endpoints? What are we monitoring? Johan Luthman: Yes. First of all, it's a trial in what we call DEE, which is the broad indication here across all developmental enphalopathies. -- we have 2 trials, as you know, DEEp SEA and DEEp OCEAN. What we're monitoring is, of course, how we are progressing with the trials. In terms of progressing with the global rollout, we are doing well. We have now activated all sites across the world. But remember, we started the trial during early 2025, and it's been a gradual rollout of the trial. What in monitoring in terms of blinded data in the trial, we're very careful with that. We have some monitoring of data acquisition, and we know that we get the right kind of populations in at the front door that we have a good balance between various parts of the spectrum, and we're doing well on that. There are little differences in enrollment between the 2 trials in Dravet syndrome is more challenged, but that is a stand-alone trial, and the balance is good across the whole system. In terms of medical monitoring, we have good views on what's going on so far with the patients and no concerns there, what we've seen so far. And as you know, we are out of the box having to have a cardiovascular monitoring with this mechanism. So that is the big benefit for trial sight. But how much I can say, and we're looking forward to try to wrap up the randomization during the year. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Charl van Zyl for any closing remarks. Charl van Zyl: Yes. So, thank you again for joining today. And again, I want to reiterate very strong position we are in from the last 2 years of focused innovative strategy. And we are, of course, very confident as we enter into '26 with another strong year of performance ahead of us. So, thank you again for joining today.
Operator: Hello, and welcome, everyone, to the 4Q 2025 LATAM Airlines Group Earnings Conference Call. My name is Becky, and I will be your operator today. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance or guidance are forward-looking statements. These statements are based on a range of assumptions that LATAM believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in the published 20-F, 2026 guidance, earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested and any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. If there are any members of the press on the call, please note that this call for the media is listen only. I will now hand over to your host, Ricardo Bottas, to begin. Please go ahead. Ricardo Dourado: Hello, everyone, and good morning. Welcome to our fourth quarter 2025 conference call, and thank you all for joining us today. My name is Ricardo Bottas, and I am the CFO of LATAM Airlines Group. Here with me is Roberto Alvo, our CEO; Andres Valle, Corporate Finance Director; and Tori Creighton, Head of Investor Relations, and we will present the highlights and results for the fourth quarter and full year 2025. I will hand it over to Roberto to share his opening remarks about the quarter and year's highlights. Roberto Alvo Milosawlewitsch: Good morning, and thank you, Ricardo. 2025 marked a year of continuous consolidation and delivery. The strong results we're presenting today are the product of a model that LATAM Group has been building over the last 6 years, anchored first in the people and the customers, focused on impeccable execution and in the design of a superior experience. All of this in the context of an ever stronger passenger cargo networks, frequent flyer program, a very strong balance sheet and cash generation, a disciplined cost delivery and a highly diversified business model, all of which make our results resilient and less much subject to external factors and industry cycles. At the heart of this performance and more than 41,000 employees working at the different affilities of the group, their daily commitment, whether at customer touch points or behind the scenes, continues to be LATAM's Group most powerful asset. The culture of passionate, engaged people translated directly into the customer experience. In 2025, the group achieved a record Net Promoter Score of 54 points, which is a 3-point increase versus 2024, the highest full year results in our history. When our people thrive, customers feel the difference. Internally, the Organizational Health Index reached 83 points, placing LATAM Group in the top decile of the global benchmark for the first time. In terms of the operations, the group transported more than 87 million passengers during the year, including 23 million passengers in the fourth quarter alone. This was boosted by a capacity increase of 8.2% for the full year and 7.7% in the quarter, demonstrating the group's ability to grow efficiently while maintaining a healthy load factor of 84.4%. This ability to connect passengers to, from and within South America was enabled by the modern and efficient fleet that the group operates. In 2025, LATAM received a total of 26 aircrafts, 7 of which were incorporated in the fourth quarter. This includes the first Boeing Dreamliner with GE engines and brought the total fleet to 371 aircraft as of the end of the year, a 7% increase versus 2024, enabling the group to launch 22 new routes, of which 15 were international. On the financial side, adjusted operating margin reached 16.2% for the year, while adjusted EBITDAR came at almost $4.1 billion. Net income totaled approximately $1.5 billion, resulting in earnings per ADS of $4.95, highlighting the group's ability to translate operational performance into bottom line results. This bottom line grew by 50% versus the income generated in 2024. With this, in December, LATAM was able to distribute $400 million in interim dividends aligned with its capital allocation strategy determined by the financial policy. 2025 was just not a strong year. It was a reaffirmation of LATAM's structural strengths translated into consecutive years of margin expansion in the context of high capacity growth and driven by a strategy that combines a focus on people, a differentiated customer experience, an unmatchable footprint, disciplined cost control and a resilient balance sheet. This is what defines this new LATAM. This performance and design set the base for expected 2026 strong performance highlighted in our yearly guidance, of which we feel very confident at the moment despite fuel and currency volatility. I'm very proud to be here leading a group of 41,000 souls and to highlight and discuss our performance. With that, I'll hand it over to Ricardo, who will walk us through the achievements of this fourth quarter and full year 2025. Ricardo Dourado: Thank you, Roberto. Let's move to Slide 4. LATAM delivered a solid financial performance during the fourth quarter with improvements across all key metrics. Total revenues reached almost $4 billion, increasing 16.3% year-over-year. This growth was driven by the passenger segment, which rose 20.3%, supported by the strong demand and capacity growth. Cargo revenues declined 9.6% in the period, explained by a particular high comparison base as the fourth quarter of 2024 had delivered an exceptionally strong performance. Despite the full year cargo revenues increased year-over-year. As a result, the group delivered an adjusted EBITDAR of $1.1 billion, representing a 30.4% increase versus 4Q 2024. Adjusted operating income came in $661 million, up 42.7% year-over-year, and net income totaled $484 million, increasing 78.1% compared to the fourth quarter of last year. Margins also improved with adjusted operating margin standing out at 16.7%. This quarter, we saw an increase in unit cost ex fuel with passenger CASK ex-fuel reaching $0.047. About $0.02 of this can be explained by the appreciation of the local currencies during this period, along with another $0.02 related to the other nonrecurring costs in wages and benefits, which include a special onetime bonus approved on this last quarter. While quarterly unit costs were elevated, it's worth highlighting that full year passenger CASK ex-fuel came in at $0.044, fully within the updated guidance range for 2025 provided on last November. Importantly, this 7.9% increase in unit cost was more than offset by an even stronger improvement in unit revenue. Passenger RASK increased by 11.7%, reflecting LATAM's ability to sustain its value proposition and capture customer preference in an environment of healthy demand. Please join me on this next Slide 5 to take a deeper dive on the drivers for revenue performance across the different affiliates and business units. Overall, the fourth quarter showcased a well-balanced dynamic between capacity deployment and demand across our network, supported by healthy load factors and target commercial actions. On a consolidated level, capacity grew by nearly 8%, while maintaining a solid load factor of 85%, showcasing our ability to grow efficiently. Looking at the LATAM Airlines Brazil's domestic capacity expanded by 12% and demand kept pace with load factors increasing by 0.7 percentage points. This balance supported by a solid passenger RASK performance with growth of 14% in U.S. dollars and 10% in local currency, highlighting the strength of LATAM's value proposition in this market together with the resilience of demand. In domestic Spanish-speaking affiliate markets, passenger RASK grew by 23% in dollars and nearly 20% in local currency, driven by a disciplined capacity allocation that resulted in an increase in the load factor to 1.7 percentage point higher than before. Turning to the International segment. Capacity and passenger volumes both grew at a high single-digit pace. While load factor declined slightly year-over-year, it remained at a very healthy 85% levels. In parallel, unit revenues increased by 6%, supported by a well-diversified network, both in the regional and long-haul international operations and a strong execution. Altogether, these results reflect the robustness of LATAM Group's commercial model and its ability to grow profitable. The fourth quarter confirms that the network strategies and the disciplined capacity deployment continue to deliver strong outcomes across the board. Turning now to our value proposition and customer experience on Slide 6. During 2025, LATAM Group continued advancing initiatives focused on enhancing services across key touch points with a particular emphasis on consistency, reliability and design. At the center of this improvement is our continued focus on the premium segment, where LATAM has made significant upgrades to its value proposition. During the year, we introduced a renewed business class experience, launched the signature check-in and our new signature launch in Lima and announced the future enhancements like the investments in Wi-Fi on wide-body fleet beginning in 2026 and the new premium comfort cabin coming in 2027 as well as the investments on the new and the brand-new launch in Guarulhos. As part of this ongoing focus, LATAM was once again recognized internationally. In the fourth quarter, the group received the most improved brand award globally by the Design Air, a recognition that adds to early achievements such as Skytrax' Best Airline in South America, the APAC 5-star Global Airline Award and the Air Cargo Airline of the Year award by Air Cargo News, all serving as third-party endorsements that we are on the right path. The customer experience enhancement initiatives demonstrate the group's commitment to delivering a consistent and differentiated travel experience across the region and further strengthen the customer preference for LATAM, and the results are validating these investment decisions. For the full year, premium revenues accounted for 23% of passenger revenues and continue to grow faster than the passenger revenues overall. While passenger revenues grew 12% year-over-year, premium revenues increased by 14%, highlighting the continued momentum of this segment, which provides LATAM with access to a customer base that is structurally more stable throughout the year, less exposed to seasonality and more resilient to potential macroeconomic headwinds. Coupled with this, the LATAM PASS program plays a critical role in accessing this segment, fostering loyalty among customers who travel more frequently and generate higher expense through the wide range of benefits the program offers. LATAM PASS is by far the largest airline loyalty program in the region with almost 54 million members, accounting for nearly 60% of LATAM's passengers revenues. This combination of a resilient customer segment and a highly effective loyalty program reinforces the sustainability of LATAM's revenue base and equips the group with the tools to continue driving profitable growth. Jump to Slide 7. You see on this slide that the way that we are translating this into tangible results. Customer satisfaction reached record levels. Net Promoter Score rose to 54 points, as Roberto mentioned, for passenger operations, while among premium travelers each reached 58 points, the highest ever recorded by the group. This is a clear indication that our customers are recognizing and valuing the improvements. At the same time, premium revenues continue to show an upward trend, supporting by growth, customers' preference and a more differentiated onboard experience. And importantly, we have managed to achieve these results while maintaining costs stable since 2019, confirming that LATAM can deliver a differentiated experience, all while keeping its cost base stable. Let's move to Slide 8. We have spoken a lot about structural improvements and the sustainability of the profitability stemming from the unique ecosystem of LATAM Group. Passionate people, a financial foundation, an exceptional product, premium revenues and a focus on cost containment, all of that supports a virtual cycle that results in these numbers year after year. This year, LATAM expanded its revenues in 11.2% and its adjusted operating margin to 16.2%, reflecting the profitable growth strategy and the continued disciplined capacity execution. Over the course of the year, the group received 26 aircraft, launched 22 new routes and grew capacity by 8.2%, making the 3.5% margin expansion, a clear reflection of LATAM's ability to grow strategically, not just in volume but in the profitability targets. It's also a testament to the group's deep knowledge of its markets and disciplined execution over time. Adjusted EBITDAR grew by over 30% year-over-year to $4.1 billion, supported by revenue growth and efficiency across the operation, all within the guidance range. At the bottom line, net income increased significantly by 50% versus last year, further reinforcing the group ability to deliver sustainability financial results. These results are part of a broader trend, one of continuous improvements and reliable execution. LATAM enters 2026 on solid footing with a strong foundation to continue creating long-term value. Please join me on Slide 9. As you can see on this slide, LATAM's strong performance is not only reflected in earnings generation, but also in its ability to consistently translate those results into cash generation. During 2025, adjusted operating cash flow reached $3.3 billion, supported by strong operational and financial performance. This cash generation enabled the group to fully fund its core business needs, including maintenance and growth investments with $1.5 billion invested in CapEx net of financing while also covering interest payments. As we highlighted earlier, our CapEx investments have been directed towards enhancing the customer experience, but they have also been focused on accelerating LATAM's digital transformation across the business. With that, LATAM generated close to $1.4 billion in cash after covering all business-related commitments. Over the course of the year, the group executed 2 share repurchase programs totaling $585 million. Also, LATAM Group distributed $400 million in interim dividends in the fourth quarter, bringing total dividends for the year close to $605 million. Even after all of these, LATAM still delivered almost $200 million in positive cash generation in 2025, demonstrating its ability to invest in the business, meet its key obligations and also allocate capital towards additional initiatives, all while considering defined financial policy range. Let's move to Slide 10 and see how this is reflected in our balance sheet metrics. Balance sheet strength has been one of LATAM's key priorities over the past few years, and liquidity is one of the clearest expression of that focus. The group has consistently grown its nominal liquidity, reaching $3.7 billion by the end of 2025. As we just reviewed on the previous slide, it was through the additional capital allocation initiatives carried out in 2025 that LATAM was able to bring liquidity as a percentage of last 12 months revenues closer to the top of the policy range at 25.7%, demonstrating the flexibility the group has to allocate capital across multiple fronts while aiming at the final financial framework. At the same time, on the debt side, adjusted net leverage reached 1.5x below the last year and the maximum policy level of 2x, placing LATAM in a strong position heading into 2026 with the flexibility to continue investing while also preserving financial strength. Moving to the next slide. Let's take a look on the continuous optimization of the cost of capital and debt tenure. LATAM has taken important steps over the past 2 years to improve its cost of debt. Through refinancing exercises carried out in '24 and '25, the group successfully reduced the weighted average cost of debt from 10.7% in 2023 to 6.6% as of the end of 2025. In parallel, LATAM debt amortization profile is well balanced with no short and midterm relevant maturities. And furthermore, LATAM holds call options in '26 and '27 that offer potential opportunities to reprofile these maturities and also reevaluate the potential tender split to improve even more this debt profile. Let's move now to the Slide 12. As reflected in 2026 guidance published back in December, we expect it to be another year of continued profitable growth. Capacity is projected to grow between 8% and 10% and to deliver an adjusted operating margin between 15% and 17%, reflecting LATAM's focus on efficiency and disciplined execution. In terms of cash, adjusted levered free cash flow is expected to exceed $1.7 billion from $1.5 billion this last year, reinforcing the group's ability to consistently translate earnings into liquidity. We also expected liquidity above $5 billion for the end of 2026. And as we have mentioned in Investor Day held in December, given our financial policy range, we would have between $1 billion and $1.6 billion after CapEx investments and minimum dividend payments available for additional capital allocation initiatives in 2026. This year, LATAM will continue investing in key strategic areas, including the customer experience, the renewal of the fleet, efficient focused innovations and the continued reinforcement of balance sheet discipline. Again, to remind you of the main figures that were disclosed in the Investor Day, the CapEx plan for this year, net of finance -- the fleet of financing is about $1.7 billion. For the year, the group is expecting to receive 41 aircraft, of which 3 are wide-bodies and 12 correspond to the first Embraer E2s. The last slide, Slide 13. And before we move to the Q&A, let me briefly highlight the key message from 2025 performance. 2025 was another year of strong and consistent performance for LATAM, both operationally and financially. Operational excellence was matched by record levels of customer and employee satisfaction with NPS and Organizational health index reaching all-time highs. The group transported a record number of passengers, expanded the network with discipline and delivered a significant improvement in profitability with adjusted operating margin increasing 3.5 percentage points year-over-year to 16.2%. This profitability was translated all the way to the bottom line with annual net income closing at $1.5 billion. These results reflect the group's ability to grow efficiently while maintaining a focus on margins and operational excellence. During 2025, we fully funded investments in the business and met all financial commitments while generating cash. LATAM generated $1.4 billion in cash before executing 2 share repurchases and separately distributing dividends while still holding a strong liquidity level and low leverage. At the same time, we strengthened our balance sheet, aiming at the financial policy targets and focus on reducing the cost of debt, which now stands below 7%. Looking ahead, we are entering 2026 with solid momentum. Our guidance reflects continued profitable growth, supported by healthy demand, commercial discipline and a clear focus on the strategic priorities. With that, we will now open the line for your questions. Operator: [Operator Instructions] Our first question comes from Julia Orsi from JPMorgan. Julia Orsi: So we have 2 questions on our side. The first one is on yields. So we saw a strong pricing performance this quarter. Congratulations on that. Can you provide additional details on how yields are tracking across the regions? And the second one, based on recent trends, how is the booking curve and demand environment evolving? Is there any particular region that has been outperforming or underperforming? Roberto Alvo Milosawlewitsch: Julia, this is Roberto. Thanks for the questions. We saw, in general, strong and stable demand over all of the business areas where we operate. In the last couple of months of the year, domestic Chile was a little bit slower as compared to particularly 2024, but at an industrial level, and you can see that on the public figures. But we have seen already a recovery in the first months of the year. So I would say that all the business performed on a relatively good basis in 2025 last quarter in the passenger segment. Cargo, it was also good. Again, as Ricardo said, a very strong basis of comparison the last quarter in 2024. It still was robust and the current appreciation of the currencies will probably increase import demand into the region in the upcoming months. Booking curve for early 2026 looks healthy. We see no issues that concern us today. And in general, all the segments are performing well. As it has happened in the past 2 or 3 years, the segment that has been growing the most is international, and this is also reflected in our capacity during 2025 and also the guidance that we provided for [indiscernible]. But in general, we see no concerns on the demand side going forward, at least for the first quarter. Operator: Our next question comes from Michael Linenberg from Deutsche Bank. Michael Linenberg: A couple of questions here. Great way to end 2025. These are fantastic results. The when you talked about the CASK impact of 0.2% from the impact of the weak dollar. As we think about LATAM and how you have evolved your structure and the seasonality and the geography of your network, where do you come out with respect to the dollar? Is a weaker dollar overall better, even though I realize there's a cost headwind, is it just better overall for the performance of the company? And I'm just sort of in the context of the last 12 months, we've seen about a 10% depreciation of the dollar. How should we think about that on your business? Roberto Alvo Milosawlewitsch: Michael, thanks for the question. A great question. So let me give you -- at the end of the day, for us, a stronger local currency is more positive than a weaker local currency. And this derives from, a, on the domestic markets, basically, most of our revenue is expressed in local currency or happens in local currency and a significant portion of the cost is in dollar. So domestic markets work like import industries, if you want. And in the case of international, for us, it's also beneficial because even though the countries become more expensive for traveling into the region, if you want, purchasing power for traveling abroad is higher and our point-of-sale balance is higher on our South American side than our long-haul side. So the balance that we see is that a stronger currency vis-a-vis the dollar, net of higher cost because of the same effect are net positive. Michael Linenberg: Great. That's super helpful. And then I just -- I want to talk about CapEx for 2026. Last year, you took 26 airplanes. I believe this year is going to be a heavy delivery year. I know that the Embraers coming in are a big component of that. I think you're taking delivery of over 40 airplanes, 40, 41 airplanes. Can you just refresh us and how we should think about CapEx in 2026? Ricardo Dourado: Michael, it's Ricardo. And you are right. We are expecting to receive 41 aircraft and the CapEx is $1.7 billion net of financing. Remember that a relevant part of the CapEx delivers is going to be financed through [indiscernible] and also finance lease. And we are holding the increase in the investments that we have. And remember, we have a lot of investments in the retrofit of the cabins, still the renovation and the starting of the process to implement the new premium content and so on and so far. So that's the overall picture that we have. And remember, from these 41 deliveries that we are expecting, we expect to receive 3 additional 787s and also the first 12 Embraers on the last quarter, the last quarter. Roberto Alvo Milosawlewitsch: So the balance is [indiscernible], Michael. Neil Glynn: Okay. Great. And the balance is... Ricardo Dourado: 26 from the A320 family. Operator: Our next question comes from Jens Spiess from Morgan Stanley. Jens Spiess: Congrats on the results. I have a question on the net debt coming in at $5.9 billion, which was around 8% above your guidance. So if you could just elaborate on what turned out to be different versus your initial expectations. I would appreciate that. Ricardo Dourado: Sure. Actually, when we provide that guidance was before the announcement and the decision to distribute the $400 million dividend. So that was the main difference from the guidance that we disclosed before, Jens. Jens Spiess: Makes sense. Makes sense. So going forward, you will be updating your net debt guidance, right, for the potential dividends you will be paying. Is that correct? And just a follow-up question, if I may. On the E2s, when do you expect to deploy them? And what is your thought process on allocating that capacity? Will it be mostly targeting new routes and destinations? Or what's the plan there? Ricardo Dourado: Okay. So only for that reason in terms of the debt update, we don't need to update the guidance for that because we disclose all information related with that. And if and when we need to update other specific situation from the guidance, we will update everything. Roberto Alvo Milosawlewitsch: Jens, this is Roberto. Just complementing and clarify one thing on what Ricardo said. So our guidance doesn't provide any distributions on top of the minimum statutory dividends that we have to pay by law here in Chile, which is 30%, okay? So that's why you see $5 billion of liquidity going forward. But as Ricardo explained as well, over and above our finance policy, we have around $1 billion to $1.6 billion, and the Board will further decide on opportunities for capital allocation. If we end up doing something and if we will inform the market at the right time, and we will update the figures related to that with those potential things happening, okay? With respect to the A2s, so this will be deployed in Brazil domestic, the first 12 that we will receive this year. The strategy is that they will based out of our hubs. So we expect to see them flying out of Guarulhos, out of Brasilia, out of Fortaleza. And you can think about this in 2 ways. They allow us to fly new cities where the 319s, even though at the same time, their economics don't allow us to operate those cities. So you will see new destinations. You will also see probably increased frequencies on certain routes where we currently operate A320 related fleet and some combinations of these that we have never flown when you combine these 2 things. So you will see domestic Brasilia routes, both in opening new routes and increasing frequency in certain routes. Jens Spiess: Okay. Very clear. And just one quick follow-up, sorry, on the dividend distribution and the net debt guidance. So looking at 2026, everything that will be forward-looking is only the regulatory or mandated dividends that you're factoring in there. Anything in excess basically would only be updated on like looking backwards basically on what you already paid or what you already announced, right? Just to make sure we'll be modeling this correctly. Ricardo Dourado: Yes, you are correct. So as Roberto mentioned, the range that we disclosed as a calculation under the financial policy to have between $1 billion and $1.6 billion available, it's the consideration regarding the 21% and 25% range of the guidance in terms of liquidity. And that amount is not considering the guidance that we provide. So we only consider the CapEx that is expected and also the minimum dividends. Operator: [Operator Instructions] Our next question comes from Filipe Nielsen from Citigroup. Filipe Ferreira Nielsen: So I have 2 on my side. One is related to the costs that we saw this quarter. Just trying to break it between potential one-offs or costs that you think it could be something more structural during 2026. We know that there are effects from a weaker dollar, stronger local currency. So if you could like clarify which impacts were more like one-offs in the quarter and which ones were -- could remain for longer during 2026? And my second question is regarding the cargo operations. Just wanted to check your sense on how cargo yields should evolve in 2026. We have the guidance for volumes, but I just wanted to make sure how the top line on cargo should evolve. Ricardo Dourado: Okay, Filipe. Just to give you, I think, the more color in terms of the impact that we have in the fourth quarter, we disclosed that from this 4.7, we have 2 different impacts. 0.2 coming from the weaknesses of the U.S. dollar in the fourth quarter, 0.2, and the other 0.2 as what we call one-offs from this quarter. But remember, I would like just to emphasize the guidance that we provided for 2026. There is nothing structural. So we are confident that the level of investments that we have in all initiatives. Remember from the Investor Day, we disclosed that we have more than 700 initiatives internally in the company to provide more efficiency. We have this cost containment structural behavior in the company. And the guidance that we provide for this year is well aligned with the same trend between $0.043 and $0.045. So there is nothing material, nothing structural to be considered that could represent any risks from our perspective. But yes, we also have -- remember, in our guidance, the assumption to have, for instance, the BRL at 5.5. The BRL is now at 5.2, and then we have to reflect. But on the other hand, as Roberto explained in another question, we also have another positive impact in terms of RASK. So I also emphasize on the slide in terms of the results from the fourth quarter. The CASK have increased to 7.9%, but the RASK have increased even more to 11.7%. Roberto Alvo Milosawlewitsch: And the cargo question, Filipe, we don't disclose our unit revenues on cargo, but let me give you a couple of data points that are important. Northbound traffic is export traffic. Southbound traffic is import traffic. Import traffic normally has higher yields than export traffic just because of the nature of what is exported. It's basically raw materials going north and it's, if you want, perishables -- technological perishables coming south. So there may be a potential change in the mix just because of the currency appreciation that we will see if it happens during the year. But we don't see today significant issues in the demand side to believe that our -- that the unit revenues in cargo are going to be materially different. The start of the year is always low because people send inventories to close the prior year, and now we have the Chinese New Year, which is very relevant on the cargo side because basically China shuts off for a week. But the basis of growth and the stability of the market is [indiscernible]. We have no -- nothing to concern us at this point in time. Operator: Our next question comes from Gabriel Rezende from Itau BBA. Gabriel Rezende: Congratulations on the set of very strong results. Two questions here on our side. Correct me if I'm wrong, but you mentioned that around 23% out of your passenger revenue came from those more premium-related revenue. Just trying to understand where the company is targeting to land this number along 2026. So how much can this 23% increase along the year, what is the company's target at this point? And also, we talked a lot during the call about this positive FX environment, especially here in Brazil. And also, we are seeing a favorable oil price environment as well. Just trying to understand whether you see the sector at some point in time, perhaps this year, accommodating yields into a slightly lower base versus where we are at this point. Roberto Alvo Milosawlewitsch: Thank you. So second question first. We see -- I mean, Brazil was out of the 10 largest domestic markets in the world, the one that grew the most in 2025 which is quite impressive, I think. And we see momentum from that perspective. And at this point in time, I think that the capacity outlook for the industry in Brazil, together with the demand perception leads us to believe that it's going to be a stable year as compared to what it was in 2025. So we see potential for development of our strategy and our network over there as we have done it in the last 2 or 3 years. So I don't think at this point in time that we will see a significant change in dynamic of the market, at least for 2026. We don't see the elements of that. And more generally, I think that the capacity situation in the industry as a whole with the engine situation and the manufacturers still trying to catch up to replace older aircraft and to meet their commitments in deliveries is going to mean that 2026 is going to be similar to 2025 in terms of global capacity. I forgot the first question. Can you remind me, sorry, please? Unknown Attendee: What percentage -- with regard to our premium revenues, how we see that target going forward given the fact that we reached 23% of premium revenues. Roberto Alvo Milosawlewitsch: We don't disclose the target for premium revenue, but we believe that premium revenue will still grow faster than our total revenue and our capacity during 2026 as it has happened in the last few years. Operator: Our next question comes from Savanthi Syth from Raymond James. Savanthi Syth: Just a couple of questions from me. First one, just on the corporate side. I know you mentioned demand strong widely across the regions. But I was curious what you're seeing on the corporate side, if there's any acceleration there or any trends to call out? And then just secondly, I'm wondering there's one of your competitors that have kind of refocused on premium offering. And just wondering what you're seeing in the region and if there's still kind of maybe premium growth in offering is still outstripping or actually maybe demand is outstripping the supply. Roberto Alvo Milosawlewitsch: So corporate recovered probably 1.5 years ago from before 2020 already. Growth in corporate demand looks stable. I think what's most relevant is that we have been gaining consistently market share in corporate segments. And that you can see very clearly on public information provided by travel agency in Brazil, for example, where you can see that public information figure. And the set of what we have created, the network, the execution, the frequent flyer leads us to believe that this position we have is going to be maintained or even be increased in the upcoming future. So no concerns with respect to corporate demand at this point in time. And I think that LATAM has put itself in a very strong position to serve corporate customers, whether it's because of our network, because of our FFP, because of our delivery. And the second question, it's interesting. You mentioned premium offer. I think I said it in my speech, and it all starts with people. you are not going to be able to attract customers that want to fly again with you and particularly demanding customers as customers -- as premium customers only with hardware. You need software. And in that sense, I think that LATAM stands out completely with respect to not only its direct competition in the region, but also in many regions across. And this is one, I think, of the learnings of the last few years and what has started the cycle where now you see profitable growth that we have. At the same time, we believe that we can improve on execution, and I believe that we can still improve significantly on hardware, on the physical delivery of our product. As Ricardo mentioned, we just inaugurated a launch in Lima. We're going to reinaugurate a bigger launch in Guarulhos next year. We'll have premium economy on wide-bodies, we'll install WiFi and wide-bodies, which I think is an important lag. And at the end of the day, even though maybe our competitors are trying to catch up to us, we continue improving. But the DNA of this organization and the people, I think, is unmatchable at this point in time. Operator: [Operator Instructions] Our next question comes from Felipe Ballevona from Santander. Felipe Ballevona: I have a follow-up on Jens question about net debt. You stated that you ended up missing the guidance due to the $400 million dividend announcement. However, you said that the minimum dividend is considered in the guidance. And if I'm not mistaken, those $400 million wouldn't be extraordinary dividends, but minimum ones. So how can I put this 2 together? And also on a separate note, what's the currency breakdown of your debt? Roberto Alvo Milosawlewitsch: Yes. I'll pass to Ricardo on the second one. But I mean, just maybe it's good to clarify, minimum dividends 30%, but they are paid the following year, normally after the shareholders' meeting, and that happens in Chile normally in April, okay? What we did is that we advanced a significant portion of minimum dividend in December, and we paid $400 million in December. So as what you are seeing is net debt as of 31 of December, and that was not in the previous guidance, you have to adjust for those $400 million, okay, which means that in April, the company would have already counted those $400 million for the calculation of the final dividend that it would. So that's probably the clarification on this, okay? With respect to currency... Ricardo Dourado: Is that clear, no, the question regarding -- okay. And in terms of currency, I think almost 100% of our debt are in U.S. dollar. We only have one local bond that close to $160 million in local currency. So it's almost everything in U.S. dollars. Roberto Alvo Milosawlewitsch: And that's local currency... Operator: We currently have no further questions. So I'll hand back to Ricardo for closing remarks. Ricardo Dourado: Again, thank you all for connecting this morning. Please note that our Investor Relations team is available for any further questions. Have a great day, and thank you again. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Good morning, and welcome to the Champion Homes Third Quarter Fiscal 2026 Earnings Call. Here to review the results are Tim Larson, Champion Homes President and Chief Executive Officer; Dave McKinstray, Champion Homes Executive Vice President, Chief Financial Officer and Treasurer; and Laurie Hough, Champion's former Executive Vice President, Chief Financial Officer and Treasurer, who announced her retirement in December. Yesterday, after the market closed, Champion Homes issued its earnings release. As a reminder, the earnings release and statements made today -- during today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations. Such risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission. Please note that today's remarks contain non-GAAP financial measures, which we believe can be useful in evaluating performance. Definitions and reconciliations of these measures can be found in the earnings release. I will now turn the call over to Champion Homes CEO, Tim Larson. Unknown Executive: Good morning, and welcome to the Champion Homes Third Quarter Fiscal 2026 Earnings Call. Here to review the results are Tim Larson, Champion Homes' President and Chief Executive Officer; Dave McKinstray, Champion Homes Executive Vice President, Chief Financial Officer and Treasurer; and Laurie Hough, Champion's former Executive Vice President, Chief Financial Officer and Treasurer, who announced her retirement in December. Yesterday, after the market closed, Champion Homes issued its earnings release. As a reminder, the earnings release and statements made during today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations. Such risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission. Please note that today's remarks contain non-GAAP financial measures, which we believe can be useful in evaluating performance. Definitions and reconciliations of these measures can be found in the earnings release. I will now turn the call over to Champion Homes CEO, Tim Larson. Timothy Larson: Thank you, and good morning, everyone. I'd like to begin by welcoming Dave McKinstray. Dave officially joined Champion on January 12 as CFO. He has a record of delivering results in complex environments and driving growth and execution of operational initiatives across consumer products and manufacturing businesses. We look forward to the benefits of Dave's experience and leadership and are excited to have him on the Champion Homes team. On behalf of the Board and management team, I'd like to recognize and thank Laurie Hough for her 2 decades of dedicated service to Champion Homes. During her tenure, she has helped build us into the industry leader we are today. We hope that she will enjoy her well-earned retirement and wish her all the very best. Before we turn to our results, I'd like to acknowledge our Chair of the Board, Tawn Kelley. Tawn has been a valued Board member since 2023 and became Chair of our Nominating & Governance Committee in August of 2024. We are thrilled that Tawn was elected as Chair of the Champion Board of Directors last November. Her leadership and expertise will be instrumental in guiding us on our next phase of growth. Now I'll cover our fiscal third quarter highlights and progress on our strategic priorities that are advancing across Champion Homes. As I've shared previously, increasing awareness and demand for our products and brands is one of our strategic priorities. Building trust with consumers is one of the most impactful ways to build awareness and referral. We are proud to share that our Skyline Homes brand was named America's most trusted manufactured homebuilder by Lifestory Research. This marks the sixth year in a row that our Skyline Homes brand has earned this recognition, and it's based on an independent survey of over 47,000 consumers. It is also exciting to see the top 3 brands from the industry study are from the Champion Homes family of brands. Skyline Homes and the Champion Homes brands are 1, 2 and completing the podium is Genesis Homes, our builder developer brand. This recognition underscores the strength of the Champion portfolio and our relentless drive to deliver a great experience for the families that purchase and live in our homes we design and build. Product innovation is one of our strategic priorities, and our team continues to launch new home plans at varying price points, including homes targeted for a broader segment of new buyers and expanding the addressable market for off-site built homes. This strategy is reflected in the Emerald Sky home we launched at the recent Louisville show. A stunning 1,600 square foot, 3-bedroom, 2-bath home at a consumer retail price of approximately $185,000. When combined with land cost in each market, that places the total price for our home well below the new home ASP in the United States that's hovering around $500,000. We are pleased with the feedback in response to a range of new products featured at the Louisville show. We will continue to bring homes to market that provide our channel partners with the ability to offer buyers a great monthly payment and with all the benefits of a new home. On the legislative and regulatory front, there has been considerable activity recently, and I want to spend a few moments on the latest developments as each are at different stages of the legislative process. We previously shared updates on the ROAD to Housing Act. In December, the act was not included in the final National Defense Authorization Act as was originally anticipated by most in the industry. However, the House of Representatives has been drafting their package called the Housing for the 21st Century Act and we are following it closely as it includes elements that support the expansion of offsite-built homes. There remains a strong bipartisan focus on solving the housing crisis and we believe that is the foundation for the Senate and the house to work together to enact meaningful legislation. We were also encouraged to see the house pass the Affordable HOMES Act, which reaffirms HUD as the final authority and manufactured housing standards. This legislation eliminates duplicative federal rules and ensures that energy efficiency improvements are made in a way that preserves affordability. We continue to monitor legislation and zoning reform at both the local and national level and remain encouraged to see policymakers working to address affordability issues in the broader housing market. In late January, I was able to spend time with HUD Secretary, Scott Turner's team in Dallas. We had the opportunity to tour a Burleson, Texas plant with his team and regional HUD leadership. These efforts demonstrate HUD's commitment to helping to provide affordable housing Americans and we look forward to continuing to spend time with them in anticipation of the HUD Code evolving from the legislation I just mentioned. Now I'll review our third quarter's performance, which was in line with our expectations as we navigate a challenging macro in the consumer environment. Our strong performance relative to the broader housing market was a result of our team's execution of our strategic initiatives, reflected in higher ASPs from a shift to more multi-section homes and increased prices on new home sold through company-owned retail stores as well as the contributions from the Iseman transaction. Our teams continue to thoughtfully pace production with demand in each market. Manufacturing backlogs at the end of December decreased sequentially by 15% to $266 million. The average backlog lead time ended the quarter at 7 weeks compared to 8 weeks at the end of the prior quarter and 10 weeks at the end of December last year. Manufacturer orders were up in the quarter compared to the same period last year. Third quarter net sales increased 2% year-over-year to $657 million, and total homes sold during the period decreased by 2% to a total of 6,485 homes. As a reminder and consistent with what we shared on our last earnings call, we anticipated the year-over-year volume contraction due to the prior year period benefiting from deliveries impacted by weather shifting into Q3 from Q2 and fiscal year '25. From a channel perspective, sales to our independent retail channel decreased year-over-year and were flat sequentially as a result of the prior year comp dynamic I just mentioned. We continue to receive positive feedback and adoption of our dealer portal that is a one-stop digital experience that brings together lead management, order information, inventory and valuable sales resources for our dealers. It's a key capability that leverages our investments to generate leads for our independent retailers through our direct-to-consumer strategy. At captive retail, sales increased year-over-year benefiting from the execution by our combined sales teams with the acquisition of Iseman Homes and from an increase to our average selling price. Captive retail sales represented 38% of consolidated sales in 3Q and versus 35% last year. The retail team continues to provide timely new products and home features at the right price value for today's buyers. Moving to the community channel. As anticipated, our community sales were down in the third quarter versus the same period last year as we paced inventory levels with moderating order rates and softer consumer confidence in the period. We received encouraging responses to our new products from our community customers at the Louisville Home Show, which is a positive leading indicator for us as we move into the spring selling season. I particularly enjoyed connecting with our community customers in Louisville. We believe in the great price value that our community customers offer and the critical role they play in solving the affordable housing crisis. Sales through builder developer channel grew in the third quarter versus the same period last year. We were pleased to be part of the launch with our customer, TCM Capital at the Blythe Village project in Fresno, California this week. This build-to-rent community with 67 units was designed with our HUD product. It is a great proof point as to what's possible through our build developer team, products and partners. In addition, we are excited to showcase our builder developer capabilities in a new home at the International Builders' Show in Orlando this month. Both initiatives reflect our continued commitment to the expansion of this channel in our portfolio. Champion financing continues to produce strong results and allows us to provide diverse financing options for our retailers and consumers. Triad's Capital Partners had a chance to join us in Louisville, where they shared positive responses to our homes and our strategic initiatives. Their interest in offsite homebuilding is a testament to our opportunities ahead and the broader engagement in the sector. We are also pleased that the sale of Triad's parent company, ECN Capital to Warburg Pincus is progressing well and received shareholder approval in January. The transaction is expected to close in the first half of the year. The transaction will extinguish our 19.7% ownership in ECN Capital with ECN shares valued at $3.10 per share delivering proceeds to Champion of approximately CAD 189 million. In connection with our support of this transaction, we agreed to extend our Champion financing joint venture for additional 3 years. We look forward to the continued collaboration with the ECN and the Warburg team. I will now turn the call over to Dave and Laurie to talk further about our financial performance. David McKinstray: Thanks, Tim, and good morning, everyone. I'd like to begin by expressing how excited I am to be joining Tim and the rest of the Champion Homes team. Champion has an impressive legacy of delivering innovation, affordable housing solutions, and I'm energized to contribute to our next chapter. In my first few weeks, I've been impressed by the team and by the opportunities ahead of us. I'm grateful to Tim for his vision and leadership, and we've had time to deep dive into the strategic initiatives that he has established for the company. I look forward to driving these initiatives with Tim and the rest of the team. I'm going to turn the call over to Laurie to review the quarter, and then I will come back to share my view of Q4. Laurie Hough: Thanks, Dave, and good morning, everyone. I'll begin by reviewing our financial results for the third quarter, followed by a discussion of our balance sheet and cash flows. During the third quarter, net sales increased 2% to $657 million compared to the prior year period, with U.S. factory-built housing revenue also increasing 2% year-over-year. The number of U.S. homes sold in the third quarter of fiscal 2026 decreased 3% to 6,270 homes due to a decrease in sales to the community REIT channel as well as a function of the prior year period, having an outsized benefit of homes sold as a result of weather that shifted sales from the fiscal second quarter to the fiscal third quarter of last year. These decreases were partially offset by the inclusion of the acquisition of Iseman Homes in the current year period. The average selling price per U.S. homes sold increased 5% to $99,300 due to changes in product mix and increased prices on new homes sold through our company-owned retail sales centers. On a sequential basis, U.S. factory-built housing revenue decreased 4% in the third quarter compared to the second fiscal quarter due to normal seasonality and as anticipated, a decrease in sales to the community REIT channel. Manufacturing capacity utilization was 59% compared to 60% in the second quarter. On a sequential basis, the average selling price per U.S. home sold remained relatively flat. Canadian revenue during the quarter was $26 million, representing a 3% increase in the number of homes sold versus the prior year. The average home selling price in Canada decreased 2% to $120,000 compared to the prior year period, primarily due to a change in product mix. Consolidated gross profit decreased 5% to $172 million in the third quarter. Our gross margin of 26.2% came in slightly better than our expectations but decreased 190 basis points compared to the prior year period. The year-over-year gross margin compression was primarily due to higher manufacturing material costs relative to price and less absorption of fixed costs due to lower sales volumes, partially offset by higher ASPs and new homes sold through our company-owned retail sales centers and a higher percentage of total sales through our company-owned retail sales centers. SG&A in the third quarter increased to $110 million from $108 million in the same period last year primarily due to the inclusion of the Iseman Homes acquisition. SG&A as a percent of sales was 16.7%, which is relatively flat compared to the prior year period. The company's effective tax rate for the quarter was 18.3% versus an effective tax rate of 21.1% for the year ago period. The effective tax rate was positively impacted by an increase in recognition of tax credits related to the sale of energy-efficient homes in the current year period. Net income attributable to Champion Homes for the third quarter decreased by 12% year-over-year to $54 million or earnings of $0.97 per diluted share. The decrease was primarily driven by lower gross margin. Adjusted EBITDA for the quarter was $75 million, a decrease of 10% compared to the prior year. Adjusted EBITDA margin decreased by 150 basis points to 11.4% compared to the prior year period. As of December 27, 2025, we had $660 million of cash and cash equivalents, and we generated $100 million of operating cash flows during the third quarter. In the quarter, we once again leveraged our strong cash position and returned capital to our shareholders through $50 million in share repurchases. Additionally, our Board recently refreshed our $150 million share repurchase authority, reflecting confidence in our continued strong cash generation. Before I conclude my earnings call remarks, I want to express my appreciation for my time with Champion Homes. I've been fortunate to meet and work with incredibly talented individuals across my tenure and while I look forward to my retirement, I will miss the team that made working for Champion so rewarding. It has also been a great pleasure to work with our sell-side analysts and investors over the years. Thank you for the interactions and the relationships that have been fostered as a result. I look forward to watching Champion Homes continue to execute on its strategy. And with that, I'll turn the call over to Dave for some remarks on the company's near-term expectations. David McKinstray: Thank you, Laurie. Looking ahead to the fourth quarter, we expect revenue to be up low single digits versus the prior year with gross margin anticipated to be in the 25% to 26% range. These expectations reflect cautious consumer sentiment, the seasonally lower winter selling period and softer demand in certain markets and customer channels. Additionally, weather-related disruptions, including recent extreme weather events, have the potential to create additional variability in delivery timing and quarterly results. As a reminder, consolidated gross margin can vary quarter-to-quarter due to changes in product mix, channel mix between independent dealers and company-owned retail locations. While continuing to manage SG&A prudently, we remain focused on advancing our strategic growth priorities. Additionally, it's important to remember, in Q4 in advance of the spring selling season, participation in several fourth quarter trade shows is expected to drive a modest increase in fixed SG&A versus other quarters. Lastly, as we go forward, we expect to continue to drive strong operating cash flow, and I'm excited by the many opportunities we have to utilize our balance sheet. We will be assessing our capital allocation strategy to ensure we're investing in long-term sustainable growth and maximizing shareholder returns. With that, I'll turn the call back to Tim. Timothy Larson: Thank you, Dave. We appreciate the time to share our third quarter results and how it reflects the Champion team's unwavering focus on our customers and executing on our strategic priorities. We look forward to finishing the fiscal year strong and continue to expand demand for our products and deliver attainable housing solutions to our customers. And now let's open the line for questions. Operator: [Operator Instructions] The first question comes from Greg Palm with Craig-Hallum. Greg Palm: Maybe just a little bit more color on kind of the environment, what you saw in the quarter geographically. And then just as it relates to the current quarter, how we should sort of think about some of these weather-related impacts? And what -- are you taking into account any of that in the guidance specifically? Timothy Larson: Greg, thanks for the questions. In terms of the geography, nothing unusual that happens between quarter-to-quarter movement. You're always going to see that in the HUD data. And a lot of those things happen based on mixed factors and local factors. We're encouraged in our buyer data that we're seeing new consumers to offsite-build homes, and that really impacted our quarter. Additionally, in terms of your question on the weather. Really, there were some delays that impacted production days. Our goal is to be able to make that up within the remaining part of the quarter. So it comes down to how many of those days are we going to make up. And then the delivery side, how is deliveries impacted if there were local areas where the ability to get the home ready for set. So ultimately, we're going to work through those in the quarter and I know the team is driving to do that in a thoughtful way. And then I think in terms of the overall trends that we saw, we're encouraged by the team's ability with new products and in the marketplace to attract more consumers. And that's really the strategy that we've been focusing on in this environment. So all in all, it was a solid quarter and also, we're focused on executing the fourth quarter with those things in mind. Greg Palm: Okay. Makes sense. And I think you mentioned higher ASPs in captive. And I guess I just wanted to clarify something. Was that a byproduct of mix? Or are you saying specifically that pricing on a like-for-like basis was higher? I guess what I'm kind of getting at is, you aren't seeing any change or deterioration in the pricing environment? I just wanted to confirm that. Timothy Larson: Yes, it was both. And it's year-over-year. We saw both some price and then also mix, as we mentioned, some more of the multi-section homes. Greg Palm: Okay. And then I guess, just broadly, in light of some of these more recent comments on housing, whether it's affordability or ramping up supply, maybe this is just a good opportunity for you to kind of remind us all of what sort of role that you think factory built could sort of play in this? Timothy Larson: Yes. I think it plays an important role and frankly, a critical role when it comes to the price point. As I talked about in my remarks, we've got products now that really zero in on that -- expanding addressable market for off-site built. And when you combine that with the legislation that's being discussed that's really focused on affordability, it's a great time to be in this business. And I think part of what we've spoken to is how we're preparing with our channels, with our products, our go-to-market to be able to engage a broader set of consumers, and that's really the strategy that we're executing. So there's going to be ebbs and flow in the legislative process. You see that. But ultimately, it's clear there's bipartisan support. And so we're eager to see those items pass so that we continue to build and grow the industry. Operator: The next question comes from Matthew Bouley with Barclays. Matthew Bouley: I guess, first, I wanted to just touch on the volumes relative to the industry. I think obviously, we've all seen the industry data that was down kind of, what, low double digits, low teens through the first 2 months of the quarter. And I don't know if December was really different, but given you guys and your peer were kind of only down at a single-digit rate. I'm just curious and kind of comment on your own volumes versus the industry. And obviously, what I'm trying to get at is, what that implies about the go forward in terms of what your own out-the-door sales might look like? Timothy Larson: Yes. In terms of the team, they did a really good job executing with our channel partners, and that included leveraging the digital investments I mentioned. And we've also been evolving our product and being very agile product in each market and that certainly helped us in the quarter over some of the dynamics you mentioned. The other thing is that includes our captive retail stores. And as a reminder, when we report our units that includes both our retail and manufactured, and so each quarter, channel mix is a driver of that. And certainly, there was positive from a retail in the quarter. And as we think about going forward, as Dave mentioned, we signaled growth quarter-over-quarter in the fourth quarter for us and it builds on some of those drivers that we just talked about. So I think it's encouraging, as I mentioned, that we're seeing consumers come in from the broader housing market, and that helps us in an environment within our own industry. So I would say those are the drivers that really we're focused on as we execute through this quarter as well. Matthew Bouley: Okay. Got it. Got it. And then secondly, the community channel. I mean -- I think what you said was it was down year-over-year, which was in line, which you had said, of course, last quarter. But it sounded like maybe there was some encouraging commentary coming out of Louisville. So yes, with your community channel partners. So just any color on kind of what -- maybe what they're waiting for and sort of what their own inventories are looking like and if there is an outlook at some point in calendar '26 to maybe see a kind of recovery in the community channel? Timothy Larson: Yes. We certainly have worked closely with our community channel partners on their demand plans for the upcoming season, and they did give us positive feedback about our new products and as we worked with them on their execution. What we're seeing is in each market, depending on where their consumer is at, what their demand levels are, they're pacing, obviously, their product and inventory, and we work very close with them on that. So as we head into the spring selling season, we'll be working with them in terms of those demand plans and volume in terms of the execution. What I would say is there's similar macro environment trends that they're seeing. So if we see a stronger consumer as the spring selling season grows, there's the benefit of that. At the same time, it can be choppy. And so we're working very close with our community channel, and I'm proud of the team, how they've created products release that focused on that community segments, and we're prepared as their businesses grow and they need to grow. But we're really balanced about the community channel given those factors. Matthew Bouley: Congratulations to Laurie and Dave as well. And good luck. Operator: The next question comes from Mike Dahl with RBC Capital Markets. Michael Dahl: First one, I just wanted to dig in a little bit on the margin commentary for the following quarter. And if we look at it kind of sequentially, can you help us understand what are your assumptions and the puts and takes around kind of price cost? So if you could break that down in both pricing and costs. What your mix assumptions are and what role shifts in utilization rates and fixed cost absorption may play in just the sequential decline in gross margin that you're projecting? And if you could be specific, that would be great, but ballpark or directional would help as well. David McKinstray: Yes. I appreciate the question. I think if you start at the top, and we said in the prepared remarks, we'll have variability in our gross margin. We've seen that over time, and there are shifts. You mentioned some of them, right, the product mix, channel mix, all those different drivers. As we mentioned to Q3 was in line with our expectations of gross margin. As we look out to Q4, one dynamic that we're watching, I think is something that's important as we continue to shift more towards captive retail, that will increase the amount of potential swings we see. And one of the things that we're seeing in Q4 is, we're actually seeing an inventory build in captive retail, which is a timing thing really from a gross margin perspective, but is a headwind on the Q4 period sequentially versus Q3. So that's one nuance that will be specific to Q4. Again, over the long term, it will work itself out. The other factors that you mentioned, I would suggest that they're going to be roughly in line with what we saw in Q3. The dynamics underpinning the market will continue from Q3 to Q4. We don't expect any wild variables between ASPs, between input costs or mix from what we saw in Q3. Michael Dahl: Okay. That's very helpful. And then in terms of, I guess, just to pick up on that last comment about the inventory build in captive retail. Can you broaden that out and talk a little bit more about what those sell-in versus sell-through dynamics have been and whether you think they're -- there's some -- either -- because I didn't know if there was actually some destocking. And in some ways, it sounds like you're actually putting more inventory into your channel. So just help us understand that a bit. David McKinstray: Yes. Thanks for the follow-up. So I think, first, my comment was forward-looking. If you look back, and I think the company spoke about this -- we spoke about this on prior calls was, as we went forward over the last 2, 3 quarters, we actually drove down or drew down on inventory within our captive retail. As we go forward, there's the spring selling season. So it's really in preparation of the spring selling season that we're going to see that uptick in inventory. So it's more of a seasonal dynamic than an underlying dynamic within the business. Timothy Larson: Yes, that's right, Dave. The only thing I would add is, it's planned to be able to be ready for the spring selling season rather than a slowdown in sales in that channel. It's really preparing for the product lines as we go to market. And it also relates to our strategy with margin. As we come out with new products, we're always thoughtful about how to make sure we have a strong margin with each of those products depending on their various price points. And so it really comes together in terms of the strategy to make sure we're prepared at our captive retail for the spring selling season and driving our goals that we talked about. Michael Dahl: And congrats again, Laurie, on an amazing career and Dave on the new appointment. And as Matt said, good luck and talk to you soon. Operator: The next question comes from Phil Ng with Jefferies. Philip Ng: Congratulations, Laurie. It's been a pleasure working with you and looking forward to partnering with you, Dave, going forward. I guess to kind of kick things off, Tim, what's the early read on spring selling season? I mean backlog did dip sequentially, but that feels more seasonal in nature. So just give us a pulse in terms of what you're hearing, what you're seeing, whether it's traffic, orders from your customers and how the different channels effectively are managing inventory, particularly. I'm most curious on the inventory side for REITs. Timothy Larson: Yes. I appreciate that, Phil. In terms of the trends, what we've been seeing and we carried in some order growth, we mentioned in Q3, we had orders growing, and that's going to benefit us in Q4, and we signaled a year-over-year growth to the start of the calendar year in our fourth quarter. We certainly anticipate, hopefully, as consumers have some tax relief and other elements with rate trends that those can be in our favor, balanced with the macro and consumer drivers and choppiness that we've seen in the market of late. And I think as we think about our strategy, we've put ourselves in positions with our key channels with the right product in this environment. And in terms of your question of the community channel inventory, if you remember years ago, there was quite a bit of buildup and then it took a while to have that come back. What I'm encouraged by is, we've been very calibrated with our community channel partners. So if they see an opportunity, we're going to be able to move quickly versus having that kind of languished in terms of the timing of their inventory. So our approach there is to stay in sync with them and make sure we're flexible as we go through the spring selling season in our community channel specifically. But I think our outlook as we think of this year going forward is how we continue to earn more of those consumers from the broader housing market and the product strategy we have laid out is to drive that. Philip Ng: But just everything I'm hearing -- I'm not hearing anything noticeable shift in terms of how you kind of view the consumer and your REIT partners. Certainly, there was some inventory management last quarter, but it feels reasonably steady as we kind of go into the spring selling season. Is that a correct interpretation? Timothy Larson: Yes. I think to be specific, what we've signaled is we're working with them closely in certain markets, it may be a little bit more pace given the environment in that market, where other projects that are starting up, they're looking to do more new demands and builds. And so at the community channel, we're really watching closely in terms of moderating our inventory with them. So we've seen it year-over-year, quarter-over-quarter, we saw some abatement there. It's more of a balanced approach with our community customers as we go through the spring selling season. And given seasonality, we need to get more into that spring selling season, and we'll be updating you in Q4 about the community channel trends within the quarter. Philip Ng: Okay. Super. On the legislation front, Tim, can you expand on some of the nuances between the bills from the House versus the Senate as it relates to manufacture homes, certain elements like the steel chassis it was something that was highlighted, perhaps on the zoning. But any more color to kind of nuances between the 2 bills, I'm sure you spent a little more time unpacking it. And then next steps from here? And any color on a timing perspective? Timothy Larson: So yes, specifically, the Senate bill that we've been talking about that included the chassis was not included in the defense bill. However, the House bill does also include the HUD homes without a chassis that was in the Senate bill. And so that's just beginning the process with the House. So we're encouraged that, that ability to have a HUD code home without a chassis, is still part of the legislative process. Clearly, it's got to move through the House and then into the Senate, and we believe it will, based on bipartisan support, but there's going to be ebb and flow of part of the legislative process. Obviously, you're seeing out of Washington, a lot of focus on housing, affordability, increasing the supply of affordable homes. All that certainly are the right things that we're hearing in terms of that. So we'll see how the legislative process plays out. It appears that there's a lot of bipartisan support to drive that and we're preparing accordingly. But at the same time, we got to focus on what we can control as the legislative process takes its place, and that's what we're doing every day in anticipation of it, but also doing projects, like I mentioned in build a developer with local municipalities that can prove out how affordable housing can be delivered in each city. So I think it's the combination of the federal and the local, and we're driving execution with whatever those bills are coming out, we'll be ready for. But at the same time, it's going to take time within that process. So our goal is, hopefully, it happens sometime this year, but we'll see how the legislative process plays out in the upcoming months. Operator: The next question comes from Daniel Moore with CJS Securities. Dan Moore: Dave, welcome. And just quickly echo Laurie, thank you for all the help over the last several years and best of luck and enjoy it. Maybe jumping -- just expanding on a couple of the questions. I appreciate the color and the look into fiscal Q4, both from revenue and a gross margin perspective. In terms of the revenue guide, what are your expectations for backlog on a sequential basis, assuming we're kind of in that revenue guidance as we get to the end of fiscal Q4? And from a gross margin perspective, slight incremental pressure from here. Would you expect that to start to level off? What are your expectations kind of looking out over the next 2 to 4 quarters from a gross margin perspective based on the visibility we have today? David McKinstray: Yes. Thanks. I think first, from the revenue standpoint, Tim just talked about some of the dynamics that we're seeing in the order flow, which as you think about what that means from a backlog perspective, then it's going to be kind of a continuation of what we saw in Q3, where the sequential improvement, if you will, quarter-on-quarter continues. So I feel good about the orders that we got in Q3 and the orders that we're seeing here early in Q4. Your question on margin, as I mentioned in the previous question, is most of the dynamics are going to be the same from Q3 to Q4. We're not seeing any significant variables within that. There is that one seasonal variable that I talked about on the, call it, readiness inventory for spring selling season at captive retail, but those underlying dynamics are expected to continue. Over the long term, our goal is to continue to drive gross margin, and we're doing that through driving value to the consumer. So we don't see any huge variables beyond Q4. We're managing it within this range, and we feel good about where we're setting up for Q4 from a margin perspective. Dan Moore: Very helpful. Appreciate it, Dave. Just as I think back, I know the trade show SG&A issue certainly cropped up in the past. I think, as I recall, a few million dollars, maybe $3 million to $5 million, something like that. Is that overly aggressive? Just any quantification there on the incremental SG&A for the quarter? David McKinstray: Yes. You hit the seasonality of SG&A for us. The show season, if you will, in Q4 hits us. I would say just as a road map, if you look at last year as a percent of sales, Q3, we were basically in line from SG&A as a percent of sales. I think that's a good road map for how you can think of Q4. Dan Moore: Very helpful. And then just capital allocation, bought back $50 million of stock in the last 3 quarters. Obviously, the Board re-upped the authorization. Is that a run rate you expect to continue given the incremental capital coming in from ECN? Or might you be even more aggressive considering the kind of the recent pullback in share price? Just how are we thinking about balancing that? David McKinstray: Yes. In the near term, I don't foresee any changes. As we think about it over the long term, we're going to continue to assess our capital allocation. And as I mentioned in the prepared remarks, our goal is to make sure that we're driving those investments towards the highest return items that are going to drive the highest return for our shareowners in line with our strategic priorities. So near term, don't expect any changes. And then over the long term, that's a continued assessment that we're going to make to make sure we're driving the most potential value. Operator: The next question comes from Jesse Lederman with Zelman & Associates. Jesse Lederman: Congrats again to Laurie and look forward to working with you, Dave. I'd like to follow up on the policy front. It was recently announced a program called Trump Homes with several large public site-built homebuilders potentially building roughly 1 million homes over an undefined period of time with investment from private investors. I'm just curious if -- amidst the focus from the administration on housing affordability, is Champion Homes or even to your knowledge, industry advocacy groups getting involved in that conversation to try and provide or fill the administration's in for and the nation's in for affordable homes as incremental to what you're already doing operating the business as it stands? Timothy Larson: Jesse, yes, I certainly read about that from yesterday's remarks. And I would say from a strategic perspective, it's definitely in line with the execution that we're driving with our products, our channel strategy, our builder developer capability. As I mentioned, a few weeks ago, I was with the HUD team, and they got to see firsthand the capabilities we have. And if you think about the messages that are coming out, a lot of the policymakers in Washington, they've been talking about how off-site built homes, manufactured housing industry is a core part of that solution because when you think about the price points that we need to get to in our country, those $150,000, $200,000, $300,000 homes that's really made possible in an off-site model, which is what we've been delivering. So we're encouraged by, obviously, the policy, but also the messaging, and we're going to stay tuned into what those specifics are to make sure we're positioned well to realize the opportunity that comes from that. Jesse Lederman: Okay. Great. Last quarter on gross margin, Laurie, you kind of pegged the tariff impact at about 0.5 percentage of material costs and noted that you expected it to rise kind of towards 1%. So I was curious, where did that shake out relative to your expectations in the third quarter? And maybe, Dave, going forward, what's the assumption incrementally for fiscal fourth quarter? Is that going to be an incremental headwind that's driving the margin a bit lower sequentially as well? Or where do you see that tariff impact shaking out? David McKinstray: Yes. Thanks for the question. I think, first, the team has done a great job managing our tariff impact and working with our various suppliers to do that. So really applaud and appreciate that effort. And what we saw in Q3 was it came in pretty significantly below the 1% that we've talked about in the past. And so as we look forward to Q4, again, similar to some of the other commentary I had on gross margin, we're assuming those same dynamics into Q4. Now, of course, on tariffs, it's an evolving situation. So that can change based on the next potential news on it, but it's something we're always watching and we'll continue to react as that news comes, and we'll manage it accordingly. Jesse Lederman: Great. Good to hear. And if I may sneak in one more. Tim, since quarter end, as far into the quarter as you're willing to share, maybe even December as well, what are you seeing from a retail perspective in terms of maybe key leading indicators for the spring selling season, whether that's dealer traffic or quote activity or anything along those lines you can share? Because I know you mentioned that you're a little bit cautious on the consumer. So any intel from that perspective would be helpful. Timothy Larson: Yes. To be specific, the consumer caution was is more of the trends that we've seen over the last year, some of the ebbs and flows by market, particularly on the community side. But from a broader consumer, certainly, the demand is there for affordable housing. And we see that in our leads, our engagement in terms of our digital platforms, and we saw it at retail. Obviously, some of the weather pockets affected some of that for a bit, but we're planning for a continued strong spring selling season, and that's how we're approaching the business. Obviously, our ability to share that we're going to be up quarter-over-quarter in Q4 is based on some of those indicators. But we know what our backlog is, and we're managing through that, but also thinking through how we continue to drive demand through the quarter. So it's going to come down to that execution, but also do we get the consumer support through the quarter. So Jesse, I'd say we're balanced about it and focusing on the things that we control and driving the business and engaging our customers digitally and obviously, with the new products that were coming out at our retail stores and with our community partners. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tim Larson for any closing remarks. Timothy Larson: Thank you, everybody, for joining today, and we'll just reiterate our congratulations to Laurie and welcoming to Dave, and we appreciate today's call and everybody joining us and your continued interest in Champion Homes. We look forward to updating you on our fourth quarter and full year end here in a few months. Thanks, everybody. Have a great day and rest of your week. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Philip Ludwig: Welcome, everyone, joining us today for the Melexis Fourth Quarter and Full Year 2025 Earnings Call. I'm Philip Ludwig, Investor Relations Director at Melexis, and I'm joined today by our CEO, Marc Biron; and CFO, Karen Van Griensven. Earlier today, we published our press release and presentation, which can be found on our website. We will start with some brief remarks on the business and financials before taking your questions, starting with Marc Biron. Marc, the floor is yours. Marc Biron: Thank you, Philip. Hello, everyone, and welcome to this earnings call. Let me start by sharing some perspective on the full year of 2025 and how we see 2026 as of today. Then we will discuss the last quarter of 2025. Looking back at 2025, at the beginning of the year, we had entered a phase of customer inventory correction later than our peers. We are now in a period with more geopolitical uncertainties and more short-term volatility in demand. The period of customer inventory correction was largely completed by the summer. As a result, our sales were stable or grew sequentially as the year has progressed. High in-quarter ordering has started in Q2, which we could serve from our strategic inventory. Still in 2025, sales in our largest region, APAC, has increased as a percentage of group sales. China has followed an alternating pattern of very strong sales in one quarter, lower the next quarter and strong again in the following quarter as it was in Q4 when we recorded our highest ever sales in China. Now looking ahead to 2026, we remain in the recovery phase of the automotive demand cycle. We expect that these sales will not be linear given all the uncertainties and the late ordering behavior of our customers. Following the very strong Q4, sales in China continued their alternating pattern in Q1, also influenced by Chinese New Year mid-February. We are also facing the expected volatility in our nonautomotive business such as digital health application. Finally, we have to factor in the impact of the annual pricing agreement that we have closed at the end of 2025. Those effects translate to a similar level of sales in the first half of '26 in comparison to '25. We expect growth in the second half of '26 with a similar dynamic as in '25. Now turning to the last quarter of '25. Sales of EUR 214.5 million means that we returned to a year-on-year growth of 9%. China posted its highest ever sales and the rest of Asia was also strong. Total APAC sales were up double digit year-on-year and sequentially, while Europe and the Americas were lower sequentially. On the innovation front, we leverage our technology leadership with strong design wins and an expanded pipeline of opportunities across China, Europe and South Korea. This trend is also valid in robotics with the pipe of opportunities up by a factor of 5 in Q4 versus the previous year. We have launched 19 new products targeting structural growth trends in automotive and robotics. In the last quarter, this included a game-changing inductive sensor for steer-by-wire application that simplifies design and reduces cost, paving the way for the next generation of electrified and autonomous vehicle. We have launched also a code-free driver for automotive ambient lighting, which streamlines the development cycle and reduce the cost of our customer. We also see the high potential in power electronics, and we are extremely proud to offer a world premier protective device called snubber. This unique solution protects and enhance power density of silicon carbide power module. All major power electronic manufacturers have shown interest in our product. A great example is Leapers Semiconductor, a Chinese manufacturer of advanced power module incorporating our snubber in their next generation of module. Our new protective device family will continue to expand to meet the evolving needs of power modules and emerging power applications. We have been growing faster than many peers in China over the past 5 years with our broad offering on high-performance and high-quality product and our strong local team to support customers. From my side, I came back from China 2 weeks ago. I'm really impressed how hybrid is gaining traction and how content reach -- are reaching mid-range car much more heavily than in Europe. To continue our trajectory in China, we are accelerating the implementation of our China strategy, including localization of our supply chain. A key step is to have local wafer supply, and we are fully on track to start shipping product this summer based on the 12-inch wafers from our local partner. We also established a dedicated robotics team in China to respond to the stronger interest with more than 60 projects currently underway. As part of our strategy to win in faster-growing markets, we are increasing our effort in India, where we enjoy strong double-digit growth. India presents great opportunities in automotive as well as in alternative mobility, playing to our strengths. We are finalizing the setup of a Melexis entity in India to show our commitment to serve customers locally and further develop in this attractive and growing market. I will now hand it over to our CFO, Karen Van Griensven, to provide more detail on our financial results and outlook. Karen Van Griensven: Thank you, Marc. So sales for the full year 2025 were EUR 839.6 million, a decrease of 10% compared to the previous year. The euro-U.S. dollar exchange rate evolution had a negative impact of 2% on sales compared to 2024. The gross result was EUR 324 million or 38.6% of sales, a decrease of 19% compared to the last year. R&D expenses were 13.8% of sales, Q&A (sic) [ G&A ] was at 6.5% of sales and selling was at 2.4% of sales. The operating result was EUR 134 million or 16% of sales, a decrease of 39% compared to EUR 219.9 million in '24. The net result was EUR 112.5 million or EUR 2.78 per share, a decrease of 34% compared to EUR 171.4 million or EUR 4.24 per share in 2024. Sales for the fourth quarter of 2024 were EUR 214.5 million, an increase of 9% compared to the same quarter of the previous year and stable compared to the previous quarter. The euro-U.S. dollar exchange rate evolution had a negative impact of 3% on sales compared to the same quarter of last year and no impact on sales compared to the previous quarter. The gross result was EUR 82.3 million or 38.4% of sales, an increase of 6% compared to the same quarter of last year and a decrease of 1% compared to the previous quarter. R&D expenses were 14.5% of sales. G&A was at 6.7% of sales and selling was at 2.5% of sales. The operating result was EUR 31.5 million or 14.7% of sales, an increase of 14% compared to the same quarter of last year and a decrease of 17% compared to the previous quarter. The net result was EUR 22.6 million or EUR 0.56 per share, an increase of 24% compared to EUR 18.3 million or EUR 0.45 per share in the fourth quarter of '24 and a decrease of 18% compared to the previous quarter. Now turning to the dividend. The Melexis Board of Directors approved on February 2 '26 to propose to the Annual Shareholders' Meeting to pay out over the result of '25, a final dividend of EUR 2.4 per share, which will be payable after approval of the Annual Shareholders' Meeting. This brings the total dividend to EUR 3.7 per share, including the interim dividend of EUR 1.3 per share, which was paid in October 2025. Now for our outlook. here, Melexis expects sales in the first quarter and first half of 2026 to be around the same levels as the previous year. Sales in the second half of 2026 are expected to grow compared to the first half of 2023. For the first half of 2026, Melexis expects a gross profit margin around 40% and an operating margin around 17%, all taking into account a euro-U.S. dollar exchange rate of EUR 1.17. And for the full year 2026, Melexis expects CapEx to be around EUR 40 million. Our outlook includes the first benefits of our cost actions taken in 2025, such as improvement in the cost of yield. We remain disciplined in executing our cost improvement road map, for example, a shift in some operations to be closer to customers in Asia, and this to keep moving towards our long-term margin objectives. This concludes our remarks. We can now take your questions. Philip Ludwig: Thank you, Marc and Karen. [Operator Instructions] Operator, can you now give instructions and open up for Q&A? Operator: [Operator Instructions] The first question is coming from Aleksander Peterc from Bernstein. Aleksander Peterc: I think the first one was pertaining to your guidance. So as in last year, this year, you also refrained from a full year guidance, could you give us a bit more color. So just help me understand if I got this right. So H1 flat. And then I think, Marc, you said in your introductory remarks that second half should be higher than the first half in a similar manner to what we've seen in '25. So is it then right to assume we're looking at a ballpark something about flattish for the full year? I'm not trying to extract the full year guidance for you. I'm just asking if the math is correct here. And then I have a quick follow-up. Marc Biron: Yes, I confirm your understanding. In my introduction speech, I have indeed mentioned that H2 will grow in a similar manner than H2 last year. Karen Van Griensven: But we can indeed -- yes, that volatility remains -- it's very low. So the -- if you look purely at Q1, we see that mostly Asia is staying behind. So Asia was very strong at the end of last year. We see it -- the order intake there is much lower than, for instance, for Europe. Europe is actually increasing. So it's all attributable to Asia and particularly also China. And we know that in China, there is a lot of volatility in order behavior and also very late ordering. So I want to put that also in that perspective. Aleksander Peterc: Very useful. And then secondly, on China versus Europe, we have a lot of debate going on about Chinese vendors, automotive brands gaining share in Western markets. What does this imply for your market share? Do you have your market share with local Chinese players that is similar to what you have in Europe? Or is there a discrepancy there? Marc Biron: Looking at the past 5 years, the CAGR of Melexis grew by 10% -- a bit more than 10% over the last 5 years. And in China, the CAGR grew 14%, which is higher than the majority of the peers in China. And I do believe we are gaining market share in China if we compare to the CAGR of Melexis with the competition. And there is nothing structural that would tell me that this will change in short term. And I would say, in the longer term, when we consider our design win, our pipe of opportunities, we see also that those design wins and the opportunity pipe is increasing faster in China or in Asia than in Europe. Operator: The next question is coming from Amelia Banks from Bank of America. Amelia Banks: Yes. My first question is just on gross margin. You sort of said last quarter that you saw around cumulative sort of 4 percentage points of temporary headwind stemming from yield issues and wafer inventory revaluation. I'm just wondering if you could maybe break down what you were seeing in Q4 and then also in terms of bridging sort of how you're seeing that guide to get to 40% in H1? Karen Van Griensven: Yes, we still had that same headwind in Q4 indeed because of inventory revaluation. We also still had high cost of yield. But this we -- this cost of yield, both effects -- well, particularly cost of yield is what will drive margin improvement in 2026. It will be a major contributor, and that is the reason why we expect around 40% gross margin in the first half of the year. Amelia Banks: Okay. And is that largely just reliant on sort of revenues picking up and demand picking up to get sort of through the sort of yield issues, the wafers that you're seeing in your inventory. Is that the main sort of driver of that? Karen Van Griensven: No, it's that we get more material out of one wafer. So it's not volume related. Amelia Banks: Okay. I just remember last quarter, you were saying about how you have sort of yield issues in one of your fabs, and that's led to sort of impacted wafers in your inventory that you're still having to work through. Is that still relevant? Karen Van Griensven: Most of that material has now been -- is now out of the inventory. So we now have in inventory wafers with higher yields, and that is helping us to improve the margin. Amelia Banks: Okay. Perfect. And then just my quick follow-up. Just on the sort of annual price resets. So just wondering if you could maybe guide on what sort of ASP change you've been seeing in '26 sort of versus 2025. Karen Van Griensven: I believe the average selling price in '26 will be close to the '25 average selling price. That is the expectation today. Operator: The next question is coming from Janardan Menon from Jefferies. Janardan Menon: I'm just looking for your second half guidance. I'm just wondering what is giving you the confidence that you will see the kind of increase in the second half like you saw last year, especially given your commentary on quite a lot of volatility in the China market. Are you expecting that market to stabilize over the next couple of quarters and therefore, give you some upside there? And just associated with that question is we just came off the Infineon call, and they said that perhaps because some of the customers, including in automotive and other areas is concerned about strong AI demand getting to -- giving rise to supply tightness even in areas outside of customers are willing to put more longer-term lead time orders now just to avoid any future capacity tightness. So is that something that you're seeing, which is also giving you some confidence on the second half of the year? Marc Biron: I think there is indeed multiple reasons for this statement on the second half of the year. First, we know that the inventory at our [indiscernible] in Asia, in particular in China is very low. And we know that they will reorder later in Q1 or in Q2 because the inventory is really low, especially in China and especially for the magnetic products, I would say. The second reason is we are -- in many big customers, we are changing the version of the products. And this change of version will happen in Q2, Q3. And it's why our customers are now busy to reduce their inventory of the previous version before they order the new version, let's say, the more modern version. This is clearly visible for drivers product, but also for some ASIC. Yes, in our price negotiation that has been finished in December, we have also received the forecast from our customers. And clearly, the forecasts are stronger in H2 versus H1. Those are the different reasons, let's say, that bring this comment. To follow up on your question about the, let's say, the supply problem, we have some sign, let's say, for example, of assembly house, where indeed those assembly house are moving, let's say, their capacity to different kind of package, more complex package in order to incorporate those complex AI chips. Yes, we have this view, let's say, from the assembly house, no really yet consequence on Melexis, no real consequence on any allocation, but there is indeed this trend, which is a bit more than the noise, I would say. Operator: The next question is coming from Craig McDowell from JPMorgan. Craig Mcdowell: The first one, I'll just go back to the gross margin. And just can you help us understand the step-up from Q4 into Q1? On the face of it, the sequential improvement, I think, around 150 basis points. It looks quite difficult given volumes, annual price inflation kicking in, currency likely worse. Just trying to understand what's going to get us to that sort of 150 basis point step-up in the face of those headwinds. I've got a follow-up as well. Karen Van Griensven: Yes. I can only repeat the biggest reason why that will happen is indeed that we have gone in inventory through most of the products with high cost of yield loss. So we will -- and as you remember, that was a high contribution of reduction in gross margin in '26, close to 2%. So -- but as we are now leaving that mostly behind, we will see improvement as of Q1 already. Price erosion that we also see in Q1, of course. We still expect a step-up because of this big improvement in cost of yield. Craig Mcdowell: And then just a follow-up. I realize it's early, but I appreciate your thoughts on the acquisition announced with MSO around sensor portfolio by Infineon. Just wondering your reaction of how that might change competitive dynamics in that segment of the market where obviously you're strong. Marc Biron: Yes. In our, let's say, product scope or application scope, yes, OSRAM is not a real competitor of Melexis, meaning that I think this acquisition will not change a lot for us. Operator: The next question is coming from Francois Bouvignies from UBS. Francois-Xavier Bouvignies: I have actually really one question. I mean when I look at your revenues, so you mentioned flat year-on-year in Q1 and Q2. Now when I look at your competitors like Allegro, for example, which I think is the closest, I mean, they are growing their auto revenues by more than 20% year-on-year in December quarter and March, by the look of it, is still 19%, 20% year-on-year. So they are really growing significantly. You mentioned China growing 14% in the last 5 years, but I would imagine that the growth in China was actually higher than 14%. I mean, given all the EV growth that you have seen, the car sales as well in there. So the content and the growth in China was clearly higher than that. So what I'm trying to understand is, is there anything structural here? I mean, a bit more because it feels a bit more than an inventory correction, especially when you compare the growth with some other peers. Even NXP is growing 11% in autos. TI is growing low teens. STM is growing mid-teens in March quarter. So you seem to be well below the others. So I'm just wondering why is that? Marc Biron: I think there is for sure, nothing structural. I repeat that I was in China last -- 2 weeks ago. Yes, my conclusion from the trip, which was the same when I was in China in November, I think that the Chinese customers, they like the Melexis product. They have a lot of trust on our quality. Yes, they like our support, technical support is very important in China. I confirm there is no structural -- there are no structural problem in China, also not in Europe. Yes, we are facing this volatility. The order in China was very high in Q4. In Q1, it is lower because of this Chinese New Year, also because the incentive scheme for EV in China have changed from '25 to '26. But from my perspective, we still have the same traction. And we -- when we refer to the design win or when we refer to all the pipe of opportunity, the discussion with customers, I don't feel any problem there. Karen Van Griensven: Yes. And I also want to add that Melexis went -- started the cycle much later than all the other players in the market. Usually, we started later, but we also come out later. In general... Francois-Xavier Bouvignies: I understand that. Yes. But versus Allegro, I mean, I would say why they would see differently than you. I mean they do similar things, not only the same. But what is your revenue in China? I mean, in Q1, was it -- how much down it is China, you would expect to be? Karen Van Griensven: China, it will be down quite a bit compared to -- well, based on the order intake we have now because January was still strong. February, March is still obviously still order intake. February looks quite weak, but that's probably a lot to do with China New Year. And March, yes, orders are still coming in. So it's also -- even in Q1, it is difficult to predict where exactly we will be landing because of, yes, the very late order intake, certainly also in China. But it's particularly low compared to Q4. But as I mentioned, we don't -- yes, there is no reason to believe why that wouldn't throughout the year pick up again. Q1 tends to be always a lower quarter -- well, not always, but usually a lower quarter in China anyway. Francois-Xavier Bouvignies: So on the year-on-year China, what do you expect your guidance? Karen Van Griensven: On a year-on-year, yes, it will be probably close to what we had a year ago. It might be slowly lower. But like we said, order intake is coming in quite late. Philip Ludwig: Francois, maybe just to come back to some of your comparisons, it's Philip here. Allegro, I think the 5-year CAGR is 2% to '24, okay? We can update for '25 as well, whereas ours is 14%. In China, we outgrow Allegro as well over a 5 years period. So I know we look ahead. Of course, we also look ahead. But I think if we look over time, as Karen mentioned, the quarters are not always in sync. I think the long-term growth track record of Melexis stacks up well versus many, if not the majority of our peers. Operator: The next question is coming from Robert Sanders from Deutsche Bank. Robert Sanders: Yes. Sorry, the line just went bad. I didn't hear the answer to the last question. Did you say the year-on-year decline in U.S. dollars or euros for Q1 China alone? Did you answer that? Karen Van Griensven: Well, like I said, order intake is very late. There could be a decline in the first quarter, although in January, we haven't seen it yet. And this is what -- that's the reality. February and March is still in orders. So very difficult to predict even in 1 quarter where we will land, particularly for China. Robert Sanders: Got it. My question was more around in the medium term. So you've seen a lot of the BEVs being canceled by Western OEMs, more than 30% of launches have been canceled. It looks like EV demand is just not flying without big fingers on the scale. And now that they're taking away subsidies in the U.S. and China, it just doesn't seem to be as strong. So you're going to see a lot of people moving back to plug-in hybrids and zonal architectures as a kind of bigger source of differentiation. So does that affect your TAM growth? Because if I remember rightly, you brought it down at the CMD, your long-term growth. Does it affect how you think about that? Or are you kind of agnostic still to that trend? Marc Biron: I share your view indeed that hybrid, let's say, seems to be the preferred option for many of the customers and many of the manufacturers. And I would say hybrid is great for Melexis because there is -- and an electric engine and a combustion engine. Then we -- let's say, we win 2x because we contribute to the electric engine and we contribute to the ICE. Then for us, it's the best of both worlds, the hybrid motorization. And what I said during the introduction speech, in China, I was really impressed how much those hybrids were taking over because initially, let's say, the hybrid had a battery with, let's say, 50 kilometer range, but now it's 100, 150 and 100 to 150 kilometers. In Shanghai, for example, it's more than enough to move in the city during 1 day. And it's the reason why this hybrid is gaining traction. Robert Sanders: And what you see at the Western OEMs, obviously, they're restarting their development. I mean, a lot of their combustion engine R&D was shut down. Now they're restarting those teams. Is that a good thing for you because they will get more involved in the engine management side? Or is it there's a short-term issue because of cancellations and then a long-term gain because of plug-in hybrid ramps? Marc Biron: Yes, discussing with our customer, the Tier 1, the Tier 1 have faced indeed in '25, a lot of or some cancellation of platform. I think it's also one of the reasons of the current situation. They all told me that '27 will be different. And in '27, they forecast a lot of new platform, which is one aspect. And to answer your question, for Melexis, what is important is that either the electric engine or the combustion engine come with a new platform because the new platform is usually much more electronic rich with much more comfort, much more safety features, then those new platforms are always a benefit for Melexis. But it could be combustion engine or electric engine, it doesn't make a lot of difference for us because we are -- we have the same kind of contribution in both type of motorization. I repeat my previous answer, but hybrid is the best of both worlds for us. Operator: The next question is coming from Guy Sips from KBC Securities. Guy Sips: My question is on the inventory level of EUR 300 million plus. We see it increasing quarter-over-quarter. How comfortable are you with this inventory level? And do you expect that we are now on the peak? Karen Van Griensven: Yes, it is our -- it's indeed a peak level. As we progress in '26, we will probably keep it around that level, maybe a bit lower. But we don't have the intention to further increase it. Marc Biron: And I think this inventory is a strategic asset for Melexis because we have a lot of in-quarter order, and we can respond positively to those in-quarter order because we have the inventory with the right product. And when the business will pick up anytime soon, we'll be ready to ship to our customers, thanks to these inventories, and we really see this as an asset. And I think it's much more expensive to lose business in the future than to keep this inventory as it is today. Guy Sips: And a follow-up question on your sales in Europe, which is just above EUR 50 million in the fourth quarter of '25. And I think you have to go back to COVID times to see this kind of level. What is actually -- what could be a point for your European sales? Is it -- yes, can you elaborate a little bit on that? Marc Biron: Yes, the center of gravity of the business is indeed for the time being, at least moving from Europe to China or to Asia. That being said, yes, Europe remains very important. Also U.S. remains important. But this move from Europe to China is indeed the trigger for us to focus our organization on China. We have -- at the end of '25, we have updated our organization in China in order to give to this organization in China more autonomy, more autonomy in the business aspect to give them the opportunity to answer very quickly to our customers because we do realize that in China, speed is really a essence, and we should avoid the communication flow between China and Europe, then the autonomy has been given to the China team to be on top of the business discussion. And I think this is a very important asset for the future to strengthen our China team because indeed, for the time being, and I repeat for the time being, the business is moving to China. But we also see that in the expectation of the OEM, the European OEM in '26, but even more on '27, they will launch more and more new car with new platform, EV, cheaper, and it's not impossible that a kind of rebalance will happen later this year or later next year. Karen Van Griensven: And I just want to repeat that Europe had a strong start. Q1 is higher than Q4. Marc Biron: Yes. Operator: The next question is coming from Marc Hesselink from ING. Marc Hesselink: Yes. First, I would like to come back a little bit on the volatility that you call out on the revenue because I think the fourth quarter was a bit below what you initially expected, then another step down in the first quarter and a quite significant step-up in the second quarter sequentially. Just trying to understand that a bit better. What changed there? Because I think earlier, we talked more about small sequential improvements quarter-over-quarter. And now you certainly see this volatility. I think you discussed it, but just to really square what is really happening causing this volatility? Karen Van Griensven: Yes. So like we mentioned, what we -- the drop is fully for Asia and then also particularly for China. And China from one quarter to the other also last year can really move up EUR 10 million in one -- easily move up close to even EUR 10 million from one quarter to the other. So we don't have really snubber reason than there is huge volatility in China in general and that it is obviously also impacted seasonally by China New Year. Marc Biron: Yes. And it has been also amplified, sorry. It has been amplified by the change of incentive scheme in China at the end of '25. Marc Hesselink: Okay. Okay. And then the second one is a clarification on what you said on the pricing because I think you said that the ASP will be very close to '26 level to the '25. But you do call it out as one of the reasons for maybe a bit slower revenue in the beginning of the year or less -- no growth in the first half of the year. So just wanted to understand if you -- like product for product, are the ASPs stable? I think that would be probably a bit better than what you initially guided, which was the normal decline of 3%, 4%, I guess. Karen Van Griensven: No, we need to make that -- we need to clarify that. Stable ASP doesn't mean that we don't have price erosion. The price erosion is mid-single-digit expectation for '26, but the product mix has a positive effect in '26. This can vary from 1 year to the other, the product mix effect. Operator: The next question is coming from Michael Roeg from Degroof Petercam. Michael Roeg: I have a question about the China business, which was very strong in Q4. Do you have a sort of a crude estimate how much of your products end up with the top 5 Chinese carmakers and how much ends up with all the other names? Marc Biron: On the top 5 carmaker, I cannot answer. What we know is that, let's say, half of the Chinese business is for Chinese OEM and the other half is for the European OEM. Michael Roeg: And within those Chinese OEMs, you do not really have a good view on how much ends up with sort of the big companies, the familiar names and how much ends up with that very long tail? Marc Biron: No. Michael Roeg: Okay. Do you see a risk that if there eventually will be a shakeout of all those smaller players that eventually their car volumes will move to the big players, the big domestic players, which have much better pricing power than those smaller players? Have you done scenario analysis for that? How much that could impact your business? Marc Biron: Yes, the consolidation will indeed happen. There are a lot of OEM in China then for sure, consolidation will happen. But we don't have an accurate answer to your question. I think indeed, innovation will also help at the end, it's all about new products that we bring on the market to compensate this price erosion. Yes, we have -- in the product that we have launched recently, we have products with much more ASP, much more margin. I don't see any reason why this consolidation will be negative because on the other hand, having a lot of small customers, it's also -- it requires a lot of effort to support all those customers, especially in China, we have a lot of application engineers working with all those small customers, then there is also a very negative effect to have so many small customers. And I could also add that it's the case in Europe. In Europe, we have a lot of big customer and a very limited number of small customers, then it will probably indeed move in this direction in China, but we are able to manage it in Europe, then we will manage it in the same way in China. Michael Roeg: Okay. Well, my impression was that the bigger OEMs in China have much more favorable purchasing conditions so that if the volumes were to move to them, that it could affect your overall ASP in China. But you will be -- you think there will be some compensation in being able to lower your OpEx. Marc Biron: I think it's the same in Europe. The big customers in Europe. Our big customers in Europe have also a better pricing than the small customer. And it's why also we like this long tail for the reason you mentioned. But yes, it will be the same in China, and we will manage the situation in the same way. I think it's -- the price metric is always high volume, lower price. Karen Van Griensven: But overall, we expect high price erosion in China than in the rest of the world. That is calculated in our model. Operator: We go on now to the last question, and it's from Nigel van Putten from Morgan Stanley. Nigel van Putten: I just wanted to talk about the growth or the guidance for the full year, which is flat, maybe not comparing it to others, which have indeed sort of implied some growth you guys aren't able to. So how do I sort of get from -- I think in the past, you would say on sort of 0 SAAR growth still penetration would add, what, high single digits. Let's say that's mid-single digits today. You said pricing in the mix is kind of flat. There's no real inventory digestion going on. So how do I get from, let's say, mid- to high single-digit volume growth to 0 on the euro side? Is that the dollar? Is that sort of headwinds from the nonautomotive business? Is there a mix? Could you just give us some more color on the pieces -- the building blocks how to get down from a volume number to revenue number in euro? That's my first question. Marc Biron: It's a mix, as you mentioned, we did not discuss in the Q&A about the nonautomotive business. I mentioned it in the introduction speech. But yes, one of our big nonautomotive customer has decided to alternate their supplier. And I think it's quite normal. We had the chance to be during 3 years in a row in the application. In '26, they have decided to make the alternate, which affects our revenue. Yes, again, it's not abnormal. We are -- we have good hope that we will come back in the next years. We have good technical features. But this is indeed in the midst of answer. This is one of the reasons that we did not mention in the past. Nigel van Putten: It's great to receive one of the reasons. Can you quantify the impact and also give us just a bridge from -- because it's -- yes, I mean, I've covered companies for quite a while. It's always been volume growth. It used to be teens and high single digit. I think it's now mid-single digit, but still this is a material step down. And I don't have any ways to calculate that, then it would be super helpful, very helpful for you to guys to give a little bit more disclosure and color on how to model the business into '26 and what are the moving parts? Marc Biron: And our customer and probably also OEM are navigating to cautious recovery in auto, and it's why this volatility in sales order is coming. I think it's difficult to give more color and really to give the building block for your answer because of this high volatility. Nigel van Putten: But the whole volatility in the near term, and then I'll move on after this one. But I do want to try again. It's for the full year. So it shouldn't be -- it's not exactly normalized, but it's not the month-to-month volatility that you point out. I fully comprehend that. But it's just compared to peers and also compared to your -- the financial model, the growth model that I'm used to, this is very different. I mean I could have understand it. It used to be the bullwhip inventory effects, that is a big impact, but that doesn't seem to be driving it. So I'm just -- I need to update my understanding about how I model your top line, I think, and it would just be helpful if we can get a little bit more color on that. Marc Biron: In the longer term, we confirm our high single-digit growth. What we have mentioned to the CMD is still fully valid. We have the design win, we have the opportunity pipe. We have in our development, the relevant product to reach this growth. And in long term, I think the model did not reach. In short term, we have this volatility that we mentioned. We have the price erosion that we have mentioned, mid-single digit, low to mid-single digit. This is the reason of the change. But I repeat in long term, we are fully confident that what we have said to the CMD is still valid. We need now to face the short-term headwind. Nigel van Putten: Okay. More math now on the gross margin. I think, Karen, you've talked about the potential of sort of 4 percentage points worth of idiosyncratic or self-help or specific items. I think 2 percentage points related to the yield improvement. I think that's probably what we're seeing in the first half, if I'm not mistaken. And then on top of that, there was potential further improvement or the dollar, I think some normalization would have helped. You've mentioned the restructuring impact of about 1 percentage point before. So I'm just trying to get to the full year gross margin. It seems like given there's no growth either, we probably should assume like 40% for the full year. Yes, can you maybe elaborate a little bit if that's the correct way of thinking? Or is there an element missing? Karen Van Griensven: That is correct. Indeed. We need more operating leverage to push it beyond that 40%. Nigel van Putten: Okay. And maybe then just a quick follow-up. You've guided first half gross margin, not first quarter. I think it's just how you usually talk to the market. But should we assume that improvement towards 40% in the first quarter? Or is it more towards the second? So we step up from I don't know, 39.5% and then... Karen Van Griensven: From Q1, we expect. Operator: This was the last question in the queue. There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Marc Biron: Thank you, operator. To summarize, 2025 was a year of navigating through cautious and choppy demand while maintaining our cost discipline. In parallel, we have introduced many innovations for automotive applications, grew business opportunities, accelerated our China strategy and took action to improve margins. These efforts will start to deliver in '26, and we will continue to build on them to further strengthen our business and to move towards our long-term objective. Thank you for joining the call, and goodbye. Operator: Thank you for joining today's call. You may now disconnect.
Operator: Good day, and welcome to the American Assets Trust, Inc. Fourth Quarter and Year-End 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Meleana Leaverton, Associate General Counsel of American Assets Trust. Please go ahead. Meleana Leaverton: Thank you, and good morning. The statements made on this earnings call include forward-looking statements based on current expectations, which statements are subject to risks and uncertainties discussed in the company's filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements as actual events could cause the company's results to differ materially from these forward-looking statements. Yesterday afternoon, American Assets Trust's earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the Investors section of its website, americanassetstrust.com. It is now my pleasure to turn the call over to Adam Wyll, President and CEO of American Assets Trust. Adam Wyll: Good morning, everyone, and thank you for joining us to review our fourth quarter and full year 2025 results, as well as our outlook for 2026. For the full year, we earned $2 of FFO per share, about 3% above our initial expectations. As we discussed coming into the year, we positioned 2025 as a reset, reflecting several known offsets versus 2024, including the roll-off of onetime revenue items and the end of capitalized interest on certain projects. At the same time, we continue to invest in office leasing at our development and redevelopment projects, and recycled capital into a high-quality San Diego multifamily acquisition that has performed in line with our underwriting. Against that backdrop, delivering above our initial guidance speaks to the quality of our assets and the teams executing across our markets. In fact, portfolio-wide same-store NOI ended slightly positive for the year, supported by strong collections and disciplined expense management, with our office and retail segments offsetting mixed performance from our multifamily and mixed-use segments. Importantly, our 2025 results reflected the themes we highlighted throughout the year. Office made continued progress leasing newer and redeveloped space with tenant engagement improving in the second half and increasingly concentrated in well-located Class A product. Retail, again stood out, supported by low vacancy, limited near-term expirations and a smaller watch list than a year ago. Multifamily worked through elevated new supply in our markets, which constrained near-term rent growth and our teams focused on occupancy, revenue management and expense discipline. And in Waikiki, we operated through a softer tourism year than expected, and our hotel results reflected that. But we believe that asset remains well positioned within its competitive set as conditions improve. While macro uncertainty persists, we believe our coastal infill locations and high-quality real estate position us to capture demand as it materializes. With that context, I'll walk through each segment and then conclude with our priorities for 2026. Across our West Coast office markets, we are seeing continued signs of stabilization and gradual improvement in leasing activity with tenant engagement increasingly concentrated in the best assets. Conversations are becoming more active, decision time lines are improving and demand is extending beyond renewals. In markets like San Diego and San Francisco, vacancy trends are showing early signs of stabilization, supported by declining sublease availability and a more active leasing environment. In Bellevue, while overall vacancy remains relatively elevated, conditions have been comparatively much stronger than in Seattle with improving demand dynamics, reduced sublease pressure, and increased interest from technology and innovation-driven tenants, particularly in the CBD, which we expect over time to spill over into the surrounding suburbs. In Portland, our scale and long-standing presence continue to be an advantage in a market with relatively few institutional owners, which helps us compete effectively and win more than our fair share of leasing opportunities. Overall, while office market conditions continue to normalize at different paces, we are encouraged by the direction of travel and believe our portfolio is well positioned to benefit as leasing momentum continues to build. Our office portfolio ended the quarter 83% leased, and our same-store office portfolio was 86% leased, up about 150 basis points from Q3. In addition, we have approximately 140,000 square feet of signed office leases that have not yet commenced paying cash rents. Same-store office NOI increased just over 1% for the quarter, and nearly 2.5% for the full year. Looking ahead, roughly 8% of our total office square footage is scheduled to expire this year, which is consistent with the typical level of expirations we see each year. We are actively engaged on that rollover, and that figure includes known move-outs of about 4% of our office square footage, which we anticipated and are managing as part of our leasing strategy. During the fourth quarter, we executed 23 leases totaling over 193,000 square feet, with positive cash leasing spreads of 6.6% and GAAP leasing spreads of 11.5% for the quarter, and achieved our highest ever average base rents in our office portfolio. For the full year, total office leasing volume increased 55% over 2024, and leasing spreads increased 6.4% for cash and 14% for GAAP. We continue to see the strongest interest for well-located space that is move-in ready and amenity supported, and that is where our development and redevelopment efforts have been concentrated. At La Jolla Commons Tower III, we ended the quarter at 35% leased with another 15% in lease documentation currently and our active prospect pipeline is growing. At One Beach Street, we ended the quarter at 15% leased and subsequently executed leases for an additional 21%, bringing the property to 36% leased today, with proposals for another 46% currently in negotiation. In response to increased demand for move-in ready space, we are advancing spec suite development at One Beach Street with permitting complete and work underway. As we move into 2026, we started the first quarter with momentum, having already executed approximately 68,000 square feet of leases with an additional 214,000 square feet in lease documentation. We have meaningful prospects engaged across the portfolio and remain focused on converting activity into signed leases and commenced rent. While larger blocks still require thoughtful execution, velocity has improved and the path from engagement to execution is shortening. At this point, we are targeting to end the year between 86% to 88% leased across our entire office portfolio, an increase of about 400 basis points at the midpoint from the end of 2025. We will do our best. Turning to retail, which remains a cornerstone of stability and represents 26% of portfolio NOI, we ended the year at 98% leased. Fourth quarter leasing totaled 43,000 square feet with positive cash and GAAP leasing spreads for the quarter. In fact, for the year, leasing spreads were 7% on a cash basis and 22% on a GAAP basis, all supported by healthy sales and steady traffic across our centers. While a moderating labor market is impacting the broader consumer, higher income households continue to drive a disproportionate share of spending. Given the quality, location and demographics of our retail assets, that backdrop remains supportive of demand across our centers. As we've said in prior quarters, we really like the setup for our retail platform. Nationally, retail availability is expected to remain near record lows given limited new supply, which should continue to support asking rents. Our portfolio benefits from high barrier supply-constrained submarkets, strong occupancy and a well-laddered expiration profile, which includes just 4% of our retail square footage expiring this year. Looking to 2026, we expect continued favorable performance and we will stay disciplined on renewals, tenant quality and CapEx prioritization. In multifamily, we ended the year 95.5% leased, excluding the RV Park, and achieved approximately 1% net effective rent growth year-over-year versus the fourth quarter of 2024, a steady result in a competitive leasing environment. At the same time, operating conditions remain influenced by new supply across markets such as San Diego and Portland, which continues to weigh on near-term rent growth. Occupancy held stable through 2025, while pricing remained competitive as deliveries were absorbed and concessions persisted in certain submarkets. Consistent with the broader industry backdrop, we are not assuming a rapid improvement in 2026, which we view as more a period of stabilization and recovery, and we remain focused on execution, optimizing pricing and concessions by submarket, maximizing occupancy, enhancing the resident experience and tightly managing controllable expenses. In San Diego, our communities ended the fourth quarter 96% leased, excluding the RV park. Renewal rents increased while new lease pricing was more competitive as we prioritized occupancy, including more meaningful use of concessions late in the year. Genesee Park continues to perform in line with our underwriting, ending the year 97% occupied, and we continue to see attractive long-term mark-to-market opportunity as we execute the value-add plan. In Portland, Hassalo on Eighth ended the year 91.5% leased. Blended net effective rents were approximately flat between new leases and renewals. At Waikiki Beach Walk, 2025 reflected softer tourism trends, which pressured both rate and occupancy at different points during the year. While overall visitation moderated, spending per visitor was steadier, supported by longer stays and higher daily spend. Industry data reflected this mix with RevPAR down year-over-year despite relatively steadier demand among higher spending guests. Bob will provide more details on the strength of our balance sheet and capital allocation, but I want to address a point of significant frustration for our management team and Board, which is our current share price. It is clear that many listed real estate companies have remained largely out of favor with the broader investment community throughout much of 2025, often trading at a substantial discount to the intrinsic value and quality of the underlying assets. AAT is no exception. The public market valuation, in our view, fails to reflect the trophy nature of our primarily coastal portfolio and our long-term growth prospects. While we cannot control macro sentiment, it is our job to close that disconnect to the best of our abilities by delivering consistent operational execution, demonstrating the cash flow durability of our new developments and redevelopments, continuing to execute our strategy with discipline to create long-term value for our shareholders and position AAT to capture opportunities, whether or not the environment is volatile or stable. Note that our Board has declared a quarterly dividend of $0.34 per share for the first quarter, payable on March 19 to stockholders of record on March 5. At this point in time, we expect to maintain the dividend at current levels with the outlook for our dividend coverage ratio improving as our office developments stabilize and begin to contribute more meaningfully to cash flow. That said, our approach remains measured, and we will continue to allocate capital prudently and reevaluate as conditions evolve. Looking ahead, we view 2026 as an opportunity to build upon the progress we made in our reset year. Our priorities are straightforward. One, continue to drive office leasing with a focus on converting improving prospect activity into signed leases and commence revenue at our newer and repositioned assets. Two, maintain retail momentum by keeping our centers full, proactively managing expirations and staying focused on tenant quality. Three, manage through the multifamily supply cycle with disciplined revenue management and cost control, positioning the portfolio for better growth as supply moderates. Four, operate our hotel prudently, while staying responsive to market demand and focused on managing costs and driving performance. And five, continue to be thoughtful with our capital and strengthen the balance sheet, all with the obvious goal of improving our valuation over time. You'll note that our FFO guidance in 2026 at the midpoint is 1.5% above 2025, and portfolio-wide same-store NOI growth, excluding reserves, is over 2%, which Bob will provide more details on in just a minute. Note that these estimates reflect our current view of leasing velocity, market rent growth and operating costs across the portfolio, as well as the timing of lease commitments and the cadence of operating expenses across the year. As always, we take a realistic, yet conservative, approach to guidance with the goal of executing ahead of our midpoint over time. In closing, I want to thank our employees for their dedication and our tenants, partners and shareholders for their continued confidence and support. With that, I'll turn the call over to Bob to discuss our financial results and initial guidance in more detail. Bob? Robert Barton: Thanks, Adam, and good morning, everyone. Last evening, we reported fourth quarter and full year 2025 FFO per share of $0.47 and $2, respectively. Net income attributable to common shareholders for the fourth quarter and full year 2025 was $0.05 per share and $0.92 per share, respectively. Fourth quarter FFO decreased by approximately $0.02, to $0.47 per share compared to Q3 '25. This decline was primarily attributable to termination fees recognized in Q3 that did not reoccur in Q4. Let's talk about same-store cash NOI. For the full year ended 2025, same-store cash NOI increased by 0.5% compared with 2024. The key drivers of same-store NOI were: Number one, office increased 2.3% for the year, driven primarily by higher base rent and improved expense recoveries, including contributions from the Databricks expansion and new leasing at City Center Bellevue, partially offset by known move-outs at First & Main, Torrey Reserve and Eastgate. Secondly, retail increased 1.2% for the year, reflecting strong first half growth of 5.4% in Q1 and 4.5% in Q2, '25, partially offset by the impact of 4 tenant move-outs in Q3 and Q4, two at Waikele Center and two at Gateway Marketplace. Of note, the Gateway spaces have since been backfilled through an expansion by Hobby Lobby, and new lease with Wingstop, both scheduled to commence rent on July 1, 2026. Thirdly, multifamily declined 3.2% for the year, driven by flat to modestly lower rents, elevated concessions amid new supply in our two markets, and higher operating expenses, trends we've seen across the multifamily industry in our markets as well. And fourth, our mixed-use declined as well by 6.7% in 2025 versus 2024. As softer Waikiki hotel demand, continued pressure from Japan-related travel and higher operating expenses weighed on results. Occupancy averaged roughly 82%, about 360 basis points lower year-over-year, while ADR was essentially flat at about $370, driving RevPAR down approximately 7% to about $296. Despite the soft year, we continue to outperform our comp set in Waikiki, and we believe the fundamentals of Waikiki remain attractive over the longer term as this cycle normalizes. Meanwhile, the retail portion of Waikiki Beach Walk increased 8% year-over-year, driven by higher base and percentage rents and lower bad debt expense. As it relates to liquidity, at the end of the fourth quarter, we had liquidity of approximately $529 million, comprised of approximately $129 million in cash and cash equivalents, and $400 million of availability on our revolving line of credit. We are currently in the process of renewing our credit facility, which now matures in early July. As a reminder, we previously extended the maturity to move the renewal cycle away from the first week of the year, which created timing challenges for all parties. We expect to close on our recast in Q2. Additionally, as of the end of the fourth quarter, our leverage, which we measure in terms of net debt to EBITDA, was 6.9x on a trailing 12-month basis and 7.1x on a quarter annualized basis. Our objective is to achieve and maintain long-term net debt to EBITDA of 5.5x or below. Our interest coverage and fixed charge coverage ratio ended the quarter at 3x on a trailing 12-month basis. Let's talk for a moment regarding the dividend payout ratio. For a REIT, we look at it as total dividends divided by funds available for distribution, also known as FAD or AFFO. As Adam mentioned, we continue to expect our dividend to remain at current levels. While our 2025 payout ratio is just under 100% due primarily to elevated CapEx spending, our 2026 outlook implies a payout ratio of approximately 89%. Assuming continued progress in leasing and a stable operating environment, we would expect the payout ratio to trend lower beyond 2026 towards our goal of 85%, and we will continue to monitor coverage closely. Let's talk about 2026 guidance. We are introducing our 2026 FFO per share guidance range of $1.96 to $2.10 per FFO share, with a midpoint of $2.03, which is approximately 1.5% increase over 2025 actual FFO of $2 per share. Starting with 2025 FFO of $2 per share, there are 9 items in aggregate that drive the change to our 2026 midpoint. They are, number one, same-store cash NOI for all segments combined, excluding reserves, which I will discuss in more detail in a few minutes, is expected to increase by 2.2% in 2026. By segment, and on the same-store NOI basis versus 2025, the expected contribution to FFO per share is as follows. Office is expected to increase approximately 3.3% or $0.06 per share. Retail is expected to increase approximately 1.7%, or $0.02 per share. Multifamily is expected to increase approximately 2.2%, or $0.01 per FFO share. And mixed-use is expected to decrease approximately 3.3%, or $0.01 per FFO share. For Embassy Suites in Waikiki, our 2026 outlook prepared in collaboration with our partners at Outrigger assumes approximately 2.5% revenue growth and 4% expense growth, reflecting inflationary pressures in Hawaii, including food, labor and overhead. Within that, we assume average occupancy is expected to increase by approximately 1%. Average ADR is expected to be flat and increase approximately 0.5% from $360 in 2025, to $362 in 2026. Average RevPAR is expected to increase approximately 2% from $296 in '25 to $302 in 2026. Number two, let's talk about non-same-store cash NOI. It's driven primarily by two assets. La Jolla Commons III, which was completed in the second quarter of 2024 and Genesee Park, our multifamily acquisition that closed in the first quarter of 2025. Together, these non-same-store assets are expected to contribute approximately $0.03 per share to FFO in 2026. Number three, credit reserves that we are budgeting are expected to reduce 2026 FFO by approximately $0.04 per share. Of that amount, roughly $0.02 per share is allocated to office and $0.02 per share to retail. In total, these reserves represent about 64 basis points of our expected 2026 revenue, which we believe is a reasonable level. As we did last year, we are taking a conservative approach given the uncertainty in the macro environment, and our goal is to reduce these amounts over the course of the year as performance and collections materialize. Number four, G&A is budgeted to decline in 2026, which we expect will contribute approximately $0.04 per share to FFO. This is primarily due to meaningfully lower professional fees and other nonrecurring costs that were incurred in 2025 and are not expected to repeat at the same level in 2026. Number five, interest expense is expected to increase in 2026, primarily due to the end of the capitalized interest related to La Jolla Commons III, which we expect will reduce FFO by approximately $0.02 per share. Number six, other income is expected to be lower in 2026, primarily due to lower budgeted interest income, which we expect will reduce FFO by approximately $0.02 per share. Number seven, nonrecurring termination fees recognized in 2025 will not be included in our 2026 guidance, which will reduce FFO by approximately $0.025 per share. Number eight, 2026 GAAP adjustments are expected to increase FFO by approximately $0.01 per share. The majority of the variance relates to the related impact of straight-line rents. Number nine, we have no contribution from Del Monte Center in 2026 following its sale in 2025. Because the asset contributed for roughly 2 months in 2025 prior to the sale, the year-over impact is expected to be a reduction of approximately $0.01 per share. These items in aggregate represent approximately $0.03 per share, which bridges 2025 FFO of $2 per share to the midpoint of 2026 guidance of $2.03 per FFO share. While we believe the 2026 guidance is our best estimate as of the date of this earnings call, we do believe that it is possible that we could perform towards the upper end of this guidance range. Key factors that would support that include, number one, converting a meaningful portion of our speculative office leasing activity earlier in the year. Number two, continued rent collections from the tenants for which we have reserved. And three, better-than-budgeted performance in both multifamily and mixed-use through improved occupancy and pricing, and/or lowering operating expenses. As always, our guidance, our NOI bridge and these prepared remarks exclude any impact from future acquisitions, dispositions, equity issuances or repurchases, future debt refinancings or repayments other than what we have already discussed. We will continue our best to be as transparent as possible and share with you our analysis and interpretations of our quarterly numbers. I also want to briefly note that any non-GAAP financial measures that we discussed like NOI are reconciled to our GAAP financial results in our earnings release and supplemental information. I'll now turn the call back over to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Haendel St. Juste with Mizuho. Haendel St. Juste: Appreciate all the detail. Maybe I wanted to start with the office portfolio. I noticed that TIs, especially for renewals were elevated. I guess I'm curious if that's the strategic decision you're making there, more reflective of a weak demand environment, concerns about AI? And what can you tell us about the conversations for your upcoming expirations? The rents on some of those, I think, are pretty elevated. Curious kind of how that compares to current market. Adam Wyll: Let me kick that off, and I'll hand it over to Steve real quick. And hello, Haendel, nice to have you on the call today. As you know, it's true that office leasing today obviously carries a higher capital burden than pre-pandemic, mainly from whether that's amenities or TIs, commissions and the investment needed to deliver space that's move-in ready. And we expect that to moderate over time as occupancy improves and availability tightens, particularly in our better buildings and submarkets. The pricing power and the concession levels will tend to normalize. But Steve's got some more specific information in particular to our portfolio that he can share on that front. Steve Center: Haendel, good question. And there's a really positive answer to it. Really, it skewed high because of Autodesk going as long as they could on the second floor, which is a critical space for them. They approached us to add term early. So their lease wasn't up for a couple of years, but that second floor is critical to them. So they came to us and said, would you extend? And we did that at almost -- well, a very positive rate, and we gave them $35 a foot TIs to do so. And that's a big -- that's 45,000 feet. So added to that Smartsheet did the same thing. They extended their second floor space, which is where the company gathers. They extended it by 6 years. They came to us early, said, this is a critical space for us. We want to rejigger it. And so we need some money to do that, and we want to go 6 years longer. So when you strip those two renewals out of the metric on the TIs, the remainder is at $6.41, versus $31. So I would agree... Adam Wyll: Yes, those two don't create a trend. Those are an anomaly. Haendel St. Juste: Got it. Got it. No, I appreciate that, Steve. I wanted to also ask about the balance sheet, Bob. I know you've got some pretty good liquidity on hand. The leverage is still sitting here at kind of 7x plus EBITDA. You mentioned the 5.5x target. I guess I'm curious if there's any sense of time line to get there? I'm presuming that's going to come from kind of internal cash flow. But just curious kind of what the steps and potential time line to get to that target. Any thoughts there would be appreciated. Robert Barton: Haendel, good question. The time line is really -- as soon as we lease up La Jolla Commons III and One Beach, and Steve will have more information on that in a few minutes. But the sooner we can get those properties leased up, we will be at the very low end of 6x. And then from there, we'll work down to the 5.5x. We were at 5.5x before COVID. So a lot of things have happened. But anyway, that's the time line. Haendel St. Juste: Got it. I appreciate that, Bob. And then last one, if I could. Adam, just going back to some of the comments you made in your initial remarks, I understand the frustration with the stock. And obviously, it seems front and center for you guys. I guess just curious on kind of what some of the steps you might be willing to take there beyond the kind of the execution as you laid out? Are you open to any strategic asset sales to capture that arbitrage between where the private market is, where your stock is trading? Any asset sales? I mean, anything that perhaps you see that you can -- from an action perspective, steps you could take to really reinvigorate the stock, the multiple? Adam Wyll: Yes, that's a good question. It's a billion-dollar question. Look, Haendel, we continue to be pragmatic on asset sales. If we can sell an asset at a price we think reflects long-term value and redeploy those proceeds to improve the balance sheet, or fund higher return opportunities, we'll do that. But we're not going to sell assets at a discount just to check a box either. So the main messaging for us is more so discipline. And as retail continues to perform well and office really seems to be improving from what we're seeing, we feel like we have time on our side to be selective. So to kind of force that issue is not something we're going to do. But we'll continue to look at opportunities. The bar is high for us to find something to buy. We would certainly need a compelling basis, durable cash flows, a clear path to value creation. And at today's pricing and financing levels, that's a much narrower set for us. So we're just trying to be smart with what we've got and not chase external growth for the sake of activity. Operator: The next question comes from Todd Thomas with KeyBanc Capital Markets. Todd Thomas: First, I just wanted to ask about the guidance assumptions in the office segment first related to the 86% to 88% year-end lease rate. Relative to where you ended the year, 83.1% for the total portfolio. Where are you today pro forma what's been leased already year-to-date, including One Beach Street where it sounds like there's been some good progress and all of the known move-outs that you discussed? I'm just trying to get a sense for how much of that target is speculative in nature as you move through the year. Steve Center: So right now, I think Adam mentioned it, we've got -- we signed 68,000 feet in 11 deals already this year. And we have another 13 deals in lease documentation for a total of 214,000 feet. And then behind that, we've got another 235,000 feet of proposals that I'd put better than 50-50. So the pipeline is significant. They're in that 86% to 88%. There is speculative leasing. But we've had some really interesting positive surprises lately. For instance, we had a full floor tenant in Portland that was a known move-out that came back and said, we're no longer interested in moving to the suburbs. We're back to being committed to the downtown market. And so we have RFPs to renew them, and downsize them, slightly in the existing space that they're in. And also our First & Main property is a candidate for them as well. But candidly, we think we're going to get a letter of intent today that makes First & Main not a viable alternative anymore. So that's one example. We've had tenants come out of nowhere that turn into leases, looking at a spec suite, touring it 1 week and then we're in leases the next. That happened at Torrey Reserve. That happened -- we had a tenant that thought they were going to be purchased. This is City Center Bellevue, a 7,000-foot space. They thought they were going to be purchased. They turned it down, took additional VC money. And now they signed a lease for 7,000 feet there. And we had another one do the same thing at City Center. So we're seeing a lot of positive surprises, and we're fortunate we've been making the investment to make these spaces ready to move into because we're reaping the benefits of that now. So to that end, at La Jolla Commons III, for example, we spec-ed out the fourth floor and with a lease that we have out for Signature, we have one space left on that floor. We're delivering the fifth floor spaces later this year, end of summer, early fall. We've already leased one of them, and we're in play on a handful of others. So the spec suite development and delivery leads to very quick lease -- we can convert to leases and cash flow. And so I think we're speccing about 44% of our vacancy right now. And so with these experiences I'm telling you about and the pipeline we've got ahead of us, we're feeling pretty good. Todd Thomas: Okay. All right. That's helpful. And then is there additional leasing assumed in the non-same-store portfolio, I guess, primarily La Jolla Phase III as it pertains to the guidance? I guess I would have thought that the contribution from lease-up could be potentially more meaningful. What's assumed in the guidance for lease-up at La Jolla Phase III? Robert Barton: Yes. Well, what we said -- I mean, is driven primarily by the two assets, La Jolla Commons III and Genesee Park. So La Jolla Commons III, I think Steve touched on that just a minute ago. So -- yes, we've put approximately -- the two assets together was approximately $0.03 per share of FFO that's contributing on the non-same-store cash NOI. Adam Wyll: And Todd, as we -- this is first-generation space at La Jolla Commons III. So we're not reflecting those rents until they commence and those are later in the year. Todd Thomas: Okay. Got it. Right. So there's concessions initially. I guess, Bob, yes, you've talked about $0.30 of FFO from the combination of La Jolla, One Beach, and I think the Bellevue redevelopments. Can you sort of provide an update as to how much of that is expected to be online in '26, versus how much more there is to come beyond '26 from that -- from those assets and the lease-up and stabilization? Robert Barton: Yes, we can put something together, but I don't -- kind of put those numbers together with the activity that Steve has just recently seen at One Beach. I think it's going to be positive, significantly positive. But Steve, do you want to mention anything on that? Steve Center: Well, sure. The first lease signed at One Beach, 13,000 feet roughly on -- that's going to commence April 2. That's when we move them in. And then that same tenant is taking the rest of the floor. That lease commences February 1 of next year. And there's 2 months of free rent on that one. So you're going to get a bunch of cash flow next year from that one. The spec suites are -- at La Jolla Commons III are going to produce revenue this year. We've got a larger tenant for 25,000 feet that we're in lease documentation with that will take us to -- and one spec suite in play that will take us to 50% leased. The small spec suite 4,000 feet, that rent will commence immediately as soon as we sign the lease. And then the larger deal will take some time to build out. That's going to be a tenant build that will start paying rent next year. And then let's talk about 14Acres or Eastgate. We've got a spec suite program in place there, but we've got several deals that are signed already, or in the process of being signed that will kick in. So we've made really good progress there. That's one where we have known move-outs that are offsetting that progress, but we're leasing the spaces that we're delivering in spec conditions. So that's another big contributor. Robert Barton: Yes. So Todd, just to get back to your question on that $0.30 that we had talked about on one of our presentations, and we'll update that in the next month or so. But basically, I stick to that $0.30. It's just a question of timing. Steve Center: 14Acres in Q4, we signed two deals totaling 19,000 feet. At La Jolla Commons III, we signed three deals totaling 17,500 feet. One Beach, we signed the 13,000 footer, and we just signed yesterday the remainder of that third floor. So that's just some color on Q4 and where we are right now. Todd Thomas: Got it. That's helpful. So it seems like some of the leasing progress will be better reflected when cash rent commences later in '26, and really more meaningfully in '27 at the rate and pace that activity is picking up here. And then I just wanted to ask one more question, just back on the balance sheet and Bob, your comments around the revolver. Any expectations on changes in pricing as you look to, sort of, amend the facility? And do you plan to maintain the $400 million of capacity? Robert Barton: Well, we -- our banking syndicate supports us whether we go $400 million or $500 million. So we're just talking internally, trying to make the best decision, what's the best outcome for us on that. Right now, we're leaning towards the $500 million. But if we go $400 million, that's okay, too. So we have a very supportive bank syndicate. It's just an absolute -- it's a great team to work with, and they're open to whatever we want to do on that. So -- but pushing it out to a July -- early July maturity will be better for all people. I mean we used to have the cadence where everybody, both the banking syndicate and AAT were running in circles trying to get that closed every 4 years. And so now it's a lot easier for the banking syndicate and our team just to push it out a little bit further. Adam Wyll: And Todd, we expect the pricing grid to stay the same. Operator: The next question comes from Ronald Kamdem with Morgan Stanley. Unknown Analyst: This is Matt on for Ron. You guys mentioned in your prepared remarks, there's a lot of leasing activity going on with One Beach and La Jolla Commons. Could you guys talk to any of the tenant types driving the demand? How you guys are feeling about the stabilization of the assets compared to the past few quarters? Just any additional color there would be helpful. Adam Wyll: Steve, you want to start? Steve Center: One, we're feeling very positive. We're feeling much better about the pipeline. The quality of the tenants at La Jolla Commons III, it's diverse. We have a legal Software as a Service. We have a really prominent insurance company that we just signed up. So it's -- and then we had an international bank, and it's a wealth management arm of an international bank. So we're seeing these really high-quality tenants that -- they're looking to take advantage of that A+ environment. And so we're just seeing more and more of that. We just signed a letter of intent. We're in leases, as I alluded to earlier, with another -- it's a consulting firm. It's an engineering firm -- an international engineering firm that this is their headquarters in San Diego. So we're going to -- we expect to see more of the same and diversity, but really high-end tenants at La Jolla Commons III. At One Beach, the first tenant is AI, and several of the tenants we're seeing in Bellevue are AI as well. The other proposal we're entertaining right now is not AI. It's not -- well, it's technology related, but it's not part of the AI wave. So it's good. That would be a long-term lease and take the entire second floor. So we'll see how that plays out. Unknown Analyst: Okay. Great. And then I also noticed in the quarter that 92% of the office leasing was from renewals versus 70 -- I want to say 73% in 3Q. Was that just largely due to the large renewals that you guys did in the quarter with Autodesk, some of the other top tenants? And if we could expect kind of more of the same going forward? Or is that just like a lumpiness factor? Steve Center: No, it's a great question. I'm glad you asked it because I think there's a gap in what we exhibit. So what I'm getting at is, we did 193,000 feet in the quarter of leasing. What you're talking about the 135,000 feet is comparable leasing, new and renewal. We did 60,000 feet of new leases on top of that. So all of the Tower III, One Beach and all of the leases we're doing at 14Acres or Eastgate are all noncomparable leases. And so if you look at the year, we did 246,000 feet of those noncomparable leases in 2025. That's 5.8% of the portfolio that if you just look at same-store or comparable leasing, you're going to miss that. And so we need to do a better job of articulating that going forward. And then in terms of the overall year, over 53% of the leases were new or expansion. Operator: The next question comes from Dylan Burzinski with Green Street. Dylan Burzinski: Most of my questions have already been asked. But I guess just going -- maybe speaking a little bit to the credit reserves of $0.04 that you guys have baked in the guidance. Can you kind of just talk about that? I know you mentioned half office, half retail, but are these sort of tenants that are -- have a looming bankruptcy? Or are you guys, just sort of, baking in some sort of conservatism as we get into 2026 here? Adam Wyll: Yes, Dylan. So on the retail side, which we mentioned is a steadier part of the portfolio. We're not really seeing much of a broad-based deterioration in tenant health right now. And so our watch list is manageable. We're keeping an eye on a theater in one of our projects and maybe a few on the fringe like pet supply companies. But other than potentially mom-and-pops, there's nothing on the radar that we're expecting. So we're just kind of taking a kind of a generalized reserve on retail. And then on the office side, it's kind of a hybrid of credit reserve and speculative leasing reserve. Like we're ambitious in our office leasing expectations and the credit quality, of course, but we want to be measured, too. So there's no specific office tenant that we have kind of acute concerns about. But we're just going to take a reserve because things fall out throughout the year every so often, and we just want to model appropriately. Dylan Burzinski: That's helpful. And then maybe just touching on the office side of things. You guys mentioned expectations for a big jump in office lease percentage this year. I guess, how do you guys sort of envision the path back to sort of 90% plus occupancy? Do you guys view that as sort of being able to do that in the next sort of 2 years? Or is that sort of more a longer-term goal in your guys' mind? Robert Barton: I would say 2 years is reasonable. Adam Wyll: I mean it's within the realm of reason for sure, but we don't want to overpromise that. That's our goal to get back to the 90% threshold, but we're going to take it a year at a time or quarter-to-quarter and get there. But we're really poised to do it. Now we've made the investment in the spec suites. There'll be -- everything we're doing is completed this year. So we've got really -- a lot of great inventory that's not going to take a bunch of time to deliver. So we're anticipating some good results. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Adam Wyll for any closing remarks. Adam Wyll: Thanks, everybody, for joining us on the call today. We appreciate your time and continued support, and hope you have a great first quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Horace Mann Educators Fourth Quarter and Full Year 2025 Investors Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rachael Luber, Vice President, Investor Relations. Please go ahead. Rachael Luber: Thank you. Welcome to Horace Mann's discussion of our fourth quarter and full year 2025 results. Yesterday, we issued our earnings release, investor supplement and investor presentation. Copies are available on the Investors page of our website. Our speakers today are Marita Zuraitis, President and Chief Executive Officer; and Ryan Greenier, Executive Vice President and Chief Financial Officer. Before turning it over to Marita, I want to note that our presentation today includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The company cautions investors that any forward-looking statements include risks and uncertainties and are not guarantees of future performance. These forward-looking statements are based on management's current expectations, and we assume no obligation to update them. Actual results may differ materially due to a variety of factors, which are described in our news release and SEC filings. In our prepared remarks, we use some non-GAAP measures. Reconciliations of these measures to the most comparable GAAP measures are available in our investor supplement. I'll now turn the call over to Marita. Marita Zuraitis: Thanks, Rachael and hello, everyone. Yesterday, Horace Mann reported record 2025 full year core earnings per share of $4.71 and shareholder return on equity of 12.4%. These are the highest earnings. Horace Mann has ever reported and a powerful confirmation of the strength of our business strategy and execution. All segments are in line with or exceeding our profitability targets and top line momentum continues across the board. Total revenues were up 7% over prior year with net premiums and contract deposits earned up more than 7%. Individual supplemental sales increased nearly 40% over prior year, while Group Benefits recorded a 33% increase. I'm proud of all of our Horace Mann's team members for their contributions in exceeding our 2025 goals. We delivered record core earnings while providing our deserving educator customers with distinctive service. Today, I want to review the highlights of our 2025 performance as well as add some detail to our financial targets for the next 3 years. We delivered record earnings in 2025 on the strength of solid underlying business performance and continued growth momentum. Results also reflected unusually light severe weather activity with pretax catastrophe losses of $62 million, contributing approximately $28 million or about $0.55 per share to core earnings relative to our original assumptions. Let me walk through performance by segment. In Property and Casualty, the underlying combined ratio was 84.3%, a 5-point improvement year-over-year reflecting rate and non-rate actions we've taken to reduce segment earnings volatility. P&C sales increased 6% year-over-year policyholder retention in both auto and property remains stable and continues to compare favorably with industry peers. In auto, the reported combined ratio of 96.5% and improved nearly 2 points over prior year. Given we are in line with our mid-90s profitability target with solid retention, we are well positioned to navigate a competitive auto environment in 2026. In Life and Retirement, top line momentum continued with record life sales in the fourth quarter, up 21% over prior year. These results build on the success we saw last quarter and reflect the continued improvement in our marketing campaigns, growing brand awareness, higher agent productivity and stronger engagement with educators. Retirement deposits increased 4% in the quarter and for the full year, net written premiums and contract deposits for the segment rose 7%. Supplemental and Group Benefits delivered record sales results in 2025, this high-margin, capital-efficient business generated 25% of core earnings, playing an important role in diversifying our earnings and reducing volatility. Overall, this segment's benefit ratio of 37% continues to move toward our long-term expectation. Individual supplemental delivered record results with sales up nearly 40% year-over-year, reflecting strong demand, improved distribution reach and deeper customer engagement. Group Benefits also posted record sales up 33% over the prior year, supported by expanding distribution. Over the past year, we have meaningfully expanded our distribution organization and strengthen our marketing capabilities to support sustained profitable growth. A few highlights. Through disciplined increases in marketing investment, and thoughtful execution of strategic partnerships, we have significantly strengthened Horace Mann's brand awareness in our target market. Unaided brand awareness reached 35% in 2025, up from less than 10% a year ago. We are increasing recognition within the educator market through partnerships with trusted brands like Crayola. Recently, we partnered with Get Your Teach On, an organization that provides top professional development for teachers and school leaders. Through this partnership, we will reach a highly engaged audience of more than 800,000 educators through e-mail, social, live events and other channels. We continue to optimize our marketing programs to be more efficient and effective. New business customer interactions are up 37% in the fourth quarter, and we are realizing productivity gains from our spend. We continue to enhance our distribution channels to ensure educators can research, shop and purchase with us when, where and how they choose. We increased points of distribution by 15% across all channels. Upgrades to our website and an improved digital customer experience led to website traffic and online originated quotes more than doubling over the course of the year. We have also expanded our commitment to supporting the educational community. This week, we introduced the Horace Mann Club, a new platform that lets educators access financial wellness tools, classroom resources and educator-specific perks in 1 place. The club creates a strong foundation for delivering resources, services and programs that reward, celebrate and give back to educators. We will continue to expand the club over time, ensuring it meets the changing needs of educators and provides unique benefits to support them in and out of the classroom. In the fourth quarter, we donated $5 million to the Horace Mann Educators Foundation. Created in 2020, this charitable organization provides funding to support students and educators success. This includes grants to fund food and security programs, essential classroom supplies and educator professional development. Looking ahead to provide a clearer baseline to evaluate Horace Mann's strategic progress, we have included a normalized 2025 core earnings per share exhibit in our investor presentation. This excludes the earnings benefit from catastrophe losses that came in below our original guidance assumptions as well as other items not included in management guidance. This normalized view aligns with how management internally evaluates performance and represents the appropriate baseline to compare our 2026 guidance. While 2025 catastrophe losses were unusually favorable, driven by fewer catastrophe events and lower overall activity, we do not expect a similarly low level in 2026 or subsequent years. Against that normalized 2025 baseline, our 2026 core earnings per share guidance range of $4.20 to $4.50 represents progress consistent with the financial goals outlined at Investor Day. As a reminder, those goals include delivering a 10% average compound annual growth rate in core EPS and a sustainable 12% to 13% shareholder return on equity. To achieve these goals, we will continuously evaluate and balance growth initiatives and expense optimization. In times of outperformance, such as the record year we had in 2025, we may choose to accelerate investments in growth initiatives. Last year, we accelerated investments in marketing, infrastructure improvements for distribution force and product and distribution expansion in supplemental and Group Benefits. We will continue to thoughtfully invest in initiatives that expand our capabilities and support long-term growth. And we are confident that these actions, combined with ongoing operational efficiencies position us to achieve our targeted 100 to 150 basis point reduction in the expense ratio. While more of that improvement is expected to be realized towards the back half of our 3-year plan, we have a clear line of sight to the actions and execution required to deliver on that goal. Our balance sheet remains strong and well positioned to support strategic growth and shareholder returns. We continue to take a disciplined approach to capital allocation, balancing reinvestment in the business with returning capital to shareholders. In 2025, we deployed $21 million of capital to share repurchases, the highest annual level since 2022, and the Board's additional $50 million authorization in May underscores our commitment to using share repurchases as a meaningful lever for shareholder value creation. In closing, 2025 was a record year that underscores the strength of Horace Mann's value proposition for the educator market. By maintaining business profitability, delivering sustained profitable growth optimizing our enterprise spend and strategically investing in growth enablers, we will achieve our 3-year goals. We are operating from a position of strength. We have a strong competitive advantage and we have the confidence that we will deliver sustained market-leading growth and accelerate shareholder value creation. Thank you. And now I'll turn the call over to Ryan. Ryan Greenier: Thanks, Marita. I'll walk through how we think about normalized 2025 earnings, outline our 2026 outlook in key assumptions and then review full year 2025 performance by segment. 2025 was a record year for Horace Mann with core earnings of $196 million or $4.71 per share, an increase of 39% over the prior year. Trailing 12-month core return on equity increased to 12.4%, reflecting continued strong underlying profitability across the business. Total net premiums and contract charges earned increased 7% and with total revenues also up 7% year-over-year. As Marita discussed, 2025 benefited from a few favorable items that are not assumed in our planning framework, when we normalize for catastrophe losses that were more than one standard deviation below historic averages in 2025 as well as favorable prior year reserve development, opportunistic share repurchases and incremental strategic spend. normalized core earnings per share were approximately $3.95. This is in line with our original 2025 guidance range of $3.85 to $4.15 and represents the appropriate baseline to compare 2026. Importantly, even on a normalized basis, our businesses delivered strong underlying profitability with all segments in line or exceeding profitability targets and top line momentum continued across the board. Against that normalized baseline, we expect 2026 core earnings per share to be in the range of $4.20 to $4.50 and a nearly 10% increase consistent with the 3-year financial goals we outlined at Investor Day. Guidance includes total net investment income in the range of $485 million to $495 million. In our managed portfolio, we expect net investment income between $385 million to $395 million, which reflects the continued benefit of higher new money yields in our core fixed income portfolio. Commercial mortgage loan fund returns of 6.5% and limited partnership returns of 8%. Looking specifically at commercial mortgage loan funds, one fund, Sound Mark Partners is in runoff. And as I've mentioned before, we expect continued underperformance from this one fund, which will modestly pressure reported commercial mortgage loan fund yields. This impact is idiosyncratic, well understood and already reflected in our planning assumptions. Turning to catastrophe losses. Our full year assumption of approximately $90 million reflects our established planning framework which uses a blend of industry standard catastrophe model losses and our own historic experience. Our approach to setting guidance has not changed and continues to provide a consistent basis for managing variability across cycles. Now I'll turn to full year 2025 results by segment. In Property and Casualty, core earnings were $112 million, more than double the prior year. Net written premiums increased 7% to $830 million, driven by higher average premium. The reported combined ratio of 89.7% improved more than 8 points year-over-year, reflecting strong underlying results, lower catastrophe losses and favorable prior year development. The $19 million in favorable prior year development was driven primarily by lower-than-expected claim severity and continued improvements in claims handling across shorter tail property and auto coverages. As we've stated, prior year reserve development is not assumed in our guidance, and we continue to approach reserving with a prudent long-term view. Auto net written premiums increased to $502 million, the combined ratio improved nearly 2 points to 96.5% in line with our mid-90s profitability target. Household retention remains near 84% and continues to rank in the top quartile relative to industry benchmarks. Property net written premiums increased 14% to $328 million, reflecting rate actions and solid sales momentum. The combined ratio of 78.3% improved significantly primarily due to lower catastrophe losses, while retention remained strong, above 88%. We completed our 2026 reinsurance renewal in January with very favorable results, including a nearly 15% reduction in rate online, we use that improvement to increase the size of our property catastrophe tower. Purchasing $240 million of coverage while maintaining a $35 million attachment point consistent with the prior year. We purchased additional coverage to maintain our disciplined approach to risk and capital management which includes the recent update to air catastrophe models. Coverage at the top of the tower was attractively priced, and it was a prudent risk management decision. Importantly, even including the additional coverage, our total annual reinsurance spend remains flat year-over-year. In Life and Retirement, core earnings increased 13% to $61 million and net premiums written and contract deposits grew to $612 million, up 7% year-over-year. In the Life business, mortality experience for the year was modestly favorable relative to expectations. Life persistency remained strong, near 96%. In the retirement business, net annuity contract deposits increased by nearly 7% and persistency rose to 92%. Moving to supplemental Group Benefits. The segment contributed $59 million of core earnings and net written premiums rose to $267 million. Individual supplemental net written premiums increased 4% to $126 million. The benefit ratio of 26.8% reflects favorable policyholder utilization trends. Persistency remained steady over 89%. Group Benefits net written premiums increased 6% to $142 million. The benefits ratio of 45.8% moved closer to our longer-term expectations. Total net investment income on the managed portfolio increased more than 6% year-over-year, primarily driven by strong limited partnership returns and improved commercial mortgage loan fund results. Core fixed income performance remained strong with a full year new money yields of 5.51%. Sales performance was strong across the business with record results in both individual supplemental and group benefits. Individual supplemental sales increased 39% to $24 million and Group Benefits delivered record sales of more than $12 million, up 33% year-over-year. As Marita mentioned, 2025 was a year in which we deliberately reinvested to position Horace Mann for sustained profitable growth. At the same time, we took several targeted actions to optimize our cost structure and improve long-term efficiency. These included the termination of a legacy pension plan, the continued rollout of straight-through processing and automation initiatives and early productivity gains from technology investments. While some of these actions resulted in onetime costs in 2025, they are expected to generate meaningful ongoing run rate savings as we move forward. In addition, late in 2025, we introduced an early retirement offering as part of a broader proactive workforce planning effort. As we continue to invest in new technologies, automation and advanced capabilities, this program allows us to thoughtfully align our workforce with the skills and roles needed to support our long-term business strategy. The early retirement offering provides flexibility for eligible employees who may already be considering retirement or another life transition while allowing the company to manage workforce planning in a proactive and respectful way. Expenses associated with the early retirement offering will be treated as noncore and excluded from core earnings. This program is expected to generate run rate expense savings that will more meaningfully impact 2027. Stepping back, the combination of all of these expense optimization initiatives have resulted in more than $10 million of annualized savings, which we can both reinvest in the business and use to improve our expense ratio over time. Consistent with our Investor Day commentary, we expect the majority of our targeted 100 to 150 basis point expense ratio improvement to be realized in the later years of our 3-year plan as scale builds and these actions fully earn in. Roughly, that means a 25 basis point improvement in 2026. An additional 25 to 50 basis point improvement in 2027 and another 50 to 75 basis point improvement in 2028. Our balance sheet remains strong. and capital generation continues to support both strategic growth initiatives and consistent shareholder returns. In 2025, we repurchased nearly 0.5 million shares at a total cost of $21 million at an average price of $41.83. In 2026, we continue to buy back shares. And through January 30, we have repurchased approximately 140,000 shares at a total cost of $6 million at an average price of $43.36. We have about $49 million remaining on our current share repurchase authorization. Tangible book value per share increased more than 9% year-over-year, reflecting strong underlying earnings, disciplined capital management and the value of our diversified business model. In closing, our record 2025 results reflect the strength and stability of Horace Mann's earnings profile. We are entering 2026 from a position of strength with a clear growth strategy and strong momentum. We are confident in our ability to achieve our long-term financial targets, a 10% average compound annual growth rate in core earnings per share and a sustainable 12% to 13% core return on equity all while delivering sustained market-leading growth and accelerating shareholder value creation. Thank you. Operator, we are ready for questions. Operator: [Operator Instructions] First question comes from Jack Matten with BMO Capital Markets. Francis Matten: Question just on the distribution initiatives and the shift to more of a specialist model that you discussed in detail in the Investor Day last year. Just any perspective that you can share on how those initiatives are going so far, including the implementation? And then regarding the outlook for policy count growth, especially in the P&C business. I'm wondering if you think that trend line will start to improve more meaningfully as we head into 2026. Marita Zuraitis: Yes. Thanks for the question. From a distribution perspective, I think 2025 will probably go down as our strongest year. We have strong sales momentum across all the businesses, and that is really coming from the distribution efforts that I think we laid out pretty clearly at Investor Day. From a distribution perspective, our brand awareness up over 35%. Our website traffic up significantly with the increase in digital experience that we provided to our customers. Our quoting from that website traffic is more than double what it was last year. Significant partnership with companies like Crayola and other similar-minded companies in the educator space. Just a real concentrated effort, we are at record numbers in our agency force, up over 15% where we were last year across the board. Our traditional EAs selling our traditional products and then benefit specialists in the supplemental and group benefits space up record numbers as well. So more people selling the product, better support from a marketing and distribution perspective. And on all 3 of those growth levers that we outlined at Investor Day, we are really, I'd say, probably ahead of where we expected to be at this point, and you're seeing it come through in strong production momentum that we have across the board. Francis Matten: That's helpful. And maybe one just on the moving pieces regarding the EPS outlook for '26, which I know it implies double-digit growth on a normalized basis. And it sounds like you might expect that to then maybe accelerate into 2027 and beyond if you see CML returns closer to your long-term trend. And then you also mentioned some of the expense actions that you're taking to have more of an impact on 2027. I guess given those is it fair to expect kind of an accelerating growth trend over time, or are there other offsets that we should be thinking about? . Ryan Greenier: Jack, this is Ryan. Thank you for the question. Directionally, you're thinking about it the right way. When we laid out our financial targets at Investor Day, we said we would achieve a 10% annual earnings per share growth rate. And on a normalized basis, we're on track to do that this year. With that, we also said that we would expect accelerating top line growth as the investments we're making to generate increased sales and revenue growth come to fruition. And that revenue growth, we would expect to pick up over that 3-year period. And finally, we were -- I was pretty specific because we get a fair amount of questions around the timing of the expense initiatives earning in. And right now, we are using a lot of that savings to invest back in the business. We were very intentional about accelerating certain initiatives in 2025 to drive growth in all of our channels, and you're seeing signs of success there. And those savings I outlined for you kind of how to think about that in '27. Francis Matten: Great. If I could squeeze one more in, just on the catastrophe loss assumption in your guide, I think it implies to get a lower ratio as a percent of premiums than your prior expectation. Is that mostly reflecting the improvements to the reinsurance program that you've talked about? Or is there a meaningful kind of benefit from the kind of the terms and conditions changes that you've implemented in the property business as well? . Marita Zuraitis: Yes. I think it's before I turn it over to Ryan for a little more of the detailed color there. I think it's important for us to just reflect a little bit on the 2026 guidance that I think we were pretty clear in our scripted comments, but it was very important for us to normalize 2025 earnings, especially as you pointed out, the unusual level of low cap as well as prior year development, which management does not include in its guidance and why we wanted to add a new exhibit to our investor presentation to make that very clear. And on a normalized basis, it is a 10% increase over a pretty strong number that we had even last year. So I'll turn it over to Ryan to see if there's anything more specific to your question . Ryan Greenier: Sure. Let me dive into both of those, Jack. On the cat, our approach to setting a cat target, it's kind of like predicting the weather literally. You're probably going to be wrong. But you -- we take a consistent year-over-year approach. We look at industry modeling. We look at our current footprint from a property perspective. We look at our historical loss experience. But we don't assume or under or outperformance based on 1 year's individual results. So said another way, we are expecting kind of a consistent approach with the $90 million of cat guide for next year. . On prior year development, I just wanted to comment and be crystal clear, we do not include any prior year development favorable or adverse in our planning assumptions. We have a prudent quarterly approach. We call it like we see it. And while we understand that from a reserve perspective, the industry and us coming out of COVID had very unusual loss patterns to react to. And you saw the industry as a whole, increased reserves and over the last couple of years, you've seen us and the broader industry release. These large swings in reserves will normalize as we go back to a more normal loss trend, which is what we're seeing, we're confident that the reserve this outsized prior year reserve releases will begin to temper. I will say, when I look at the macro backdrop, there's a fair amount of uncertainty in terms of inflation trends, impact potentially from tariff and like other auto insurers, we do see the impact of social inflation in our numbers. We're insulated but not immune. Think about our policyholders, not super high limits compared to commercial auto or high net worth type of books. But we do see that impact. So we're being very prudent, particularly on the liability coverages. And I'll highlight that the majority of our release in '25 was related to shorter tail or physical damage type of coverages. So I hope that helps. The last thing I would say is if you look at where the Street is sitting from a consensus estimate for prior year development, if you back that out, you are right within the midpoint of our guidance range for this year. Operator: The next question comes from Matt Carletti with Citizens. Matthew Carletti: Marita, a question for you. I'm looking at your slides, Slide 13. It's where you kind of dice up the 8 million or so K-12 households into kind of where you are today, those you can currently access for those who don't have access to. And if I'm looking at kind of last quarter, right, there was a pretty big shift, almost 1 million households that kind of went from, you don't access to you currently access, kind of change that bucket. Can you talk a little bit about kind of what drove that? . Marita Zuraitis: Yes. Thanks for the question, Matt. It's really been multidimensional and across the board. We started last year, as you pointed out and the slide pointed out at about 1 million or so predominantly educator households and ended the year close to 1.1 million households. That's 100,000 household increase, if you will. And that's kind of how we think of the world. We're not a monoline auto provider. We're a niche marketer to a homogeneous set of customers. We understand the market dynamics of the auto line, and we posted our best P&C combined ratio at a very long time. For us, a lot of folks ask the auto-specific question. We do expect our risks in force to turn positive in the second half of this year. A little bit longer due to the competitive dynamics. Many of those auto customers we keep, we just placed them through the Horace Mann General Agency if we're not willing to go to the auto price that may be another competitor would set. So in 2025, we had strong sales momentum across the board in all businesses. We increased individual supplemental by 40%, Group by 33%. Life was, what, 8% and 21% in the fourth quarter. P&C was up 6% with auto being 5.5% of that. And that auto growth didn't come from customers where we reduced the auto rate to buy the business, if you will. Retirement deposits were up 7%. These are all new customers that have at least one product with Horace Mann that we can eventually cross-sell. So for us, it's really about the investments that we're making in marketing and distribution, which I've already talked about that have driven some of the numbers that I just answered and are included in the script. So we feel really, really good about the momentum. The strategic partnerships that we're pushing, the amount of brand awareness that we've gotten by joining forces with companies like Crayola. The foundation donation that we've put out there to help with professional development for educators, classroom supplies and other things have really helped that reputational brand awareness and the fact that 1 in 3 educators on an unaided basis know who we are and are beginning to engage with us is pretty powerful. The 3 levers that we outlined at Investor Day that are on that slide are the levers that our strategic priorities and the initiatives that support them are aligned to. We're getting better in the game that we're playing today, and you see that in the amount of agents that we have selling the product, the productivity of those agents, how quickly they get up to speed in that first layer in that second layer, entering new school districts where we've never been before by warming up that territory and using the things I talked about, so that when we put an agent in place, they know who Horace Mann is as opposed to that agent spending the first year building that brand awareness independently. It's really quite powerful. There may be sets of educators that are already engaging with Horace Mann electronically that now that agent can begin to wrap their coverages and build that relationship with Horace Mann around. And then that third lever, we haven't really talked a lot about but the work that we're doing with homeschoolers and seeing home school employees, not big numbers yet, but really like the early signs there. The work that we're doing with alumni and these are universities that are spitting out educators and have large colleges of education. Those numbers, they're not in the tens of thousands yet. But they're in the thousands and really good start of momentum in that area. All that is driving that increase in educator household count that's driving this kind of momentum across the board. And I appreciate the question because I think that's what it's all about. And I feel really good about the strong momentum that we're seeing. Matthew Carletti: Maybe a question for Ryan just a numbers question. I could be wrong here, but I kind of recall when thinking about retirement, kind of a long-term target of like net interest spread of kind of 220 to 230 basis points. Is that still the case? Or I guess, said another way, what is the long-term target for kind of net interest spread in retirement? . Ryan Greenier: Matt, yes, that's a good question. The target you're referring to is one that we've historically put out there, and it's for our fixed annuity block. So the fixed annuity block is the preponderance of our retirement assets. And we do target a 200 basis point spread on that block. What I will say is we are -- we were running behind that in 2025. A lot of that was driven by the commercial mortgage loan underperformance. The majority of our commercial mortgage loan investments are in the retirement block. In addition to that, when I think about limited partnerships, we had a very strong year, we had over 9% return on our LP strategies. The strategies that outperformed were private equity, in particular, and that is skewed more towards the P&C business. So P&C benefited from a very strong LP type of return. Longer term, we continue to target that 200 basis point for fixed. The overall profitability of the retirement business, we do have variable annuity as well as some fee-based retirement advantage products as well. And so those -- when I look totality of the product mix, we're comfortable in our at target profitability overall for that mix of business. And when I say target profitability, that's implying that we have returns in line or above our ROE targets. Operator: The next question comes from John Barnidge with Piper Sandler. John Barnidge: My question is focused on the first one on the early retirement offering to align the workforce how many -- as a percent of the employee base, how many employees took that opportunity. Marita Zuraitis: Yes. John, I think it's important first to mention the fact that it was only about 8% of our employees that would have been eligible for early retirement in the first place. We used a combination of tenure and age. So these were employees that would have naturally been considering retirement in the foreseeable future. So I think it's important to start with the purpose. The purpose of this was really to allow us to accelerate some workforce planning. As you know, when you think about the future, where we're going, what we've built. I think what we've laid out very strategically as far as our potential and you're seeing that in the momentum, the skills required the future ability of the place is going to require us to hire some of those more future skills, if you will, as we look forward. And this offering allowed us to accelerate some of the retirement plans of our more tenured individuals. We got a pretty nice participation rate. We're very pleased with the numbers that we're seeing from this, and we feel like the right people chose to opt in to that ERO program. I don't know if you have anything to add to that, Ryan. Ryan Greenier: No, I think Marita summed it up well, John. And as a reminder, any costs associated with it because it was onetime nonrecurring will be in non-core so below the line. Marita Zuraitis: And we're also excited by the fact that when we look at this, the result was twofold. We will be able to reinvest some of that spend in skills necessary for the next leg of the journey, if you will, but we'll also be able to use some of the savings to drop to the bottom line. We made a very clear commitment to improve that expense ratio. I think Ryan laid it out very specifically and clearly in the script and this, along with other, I think, very thoughtful strategic plans like the retirement of our legacy pension program and other larger things that we have underway help us meet the commitment that we laid out at Investor Day. And obviously, we knew about these plans when we laid that out, and some of the savings will drop right to the bottom line. John Barnidge: My second question seems like share repurchase, is there another lever to be opportunistic, not embedded in guidance. How should we be thinking about a run rate level of free cash flow conversion of operating earnings targeted in your Investor Day goals . Ryan Greenier: John, that's a great question. Thank you for that. For 2025, we achieved -- we exceeded our free cash flow targets. We came in about 80% on a free cash flow conversion perspective for 2025, we're targeting north of 75% for that. And if you think about the mix of businesses that we have and with the acceleration in sales for our more capital-efficient businesses, individual supplemental and group. That bodes very well for continued strong free cash flow conversion. And then if I sit back and think about uses of capital, you saw we've been quite active in the share buyback front. We've put $6 million of work in the month of January alone. And we do believe that is an attractive lever for us to continue to pull as we move through 2026, especially at current multiples given our confidence in our growth outlook. . Operator: Our next question comes from Wilma Burdis with Raymond James. Wilma Jackson Burdis: Could you talk about the investment in sub and Group segment and how Horace Mann see sales and margins playing out, especially after the favorable benefits year with respect to the 39% blended benefit ratio guidance. Does the benefit ratio continue to rise -- sorry, after a favorable year. I was asking if the benefit ratio has continued to rise. Yes, you got it. Marita Zuraitis: Thanks for that. I can start on the investment and growth side, and then I'll turn it over to Ryan to talk about the benefit ratio. I mean I got to tell you, we are very pleased with the progress that we're making in both individual supplemental and group benefits and the momentum is excellent. It is a smaller business for us, as you know. But excellent earnings diversification just as we had planned and a really good source of new educator households for eventual cross-sell like I said when I was addressing Matt's question. With individual supplemental sales up 40%, a record number of agents selling group momentum up 33%. On the group side, it is smaller for us. It is newer. It is lumpy. That's the nature of the longer sales cycle. And it is an even smaller business than the individual supplemental side for us, but it's building. And I think that the way to think about it is the way we thought about Horace Mann all along, go back to that PDI strategy. It's about building the product, making sure the products are relevant, including what we've done by adding the paid family medical leave portion to the product in states like Minnesota, it's -- we have all the products we need, both on the individual side and the group side and we evolve those products to make sure it's relevant to our market niche. And I feel good about the product development work we did and the fact that we built products that fit our niche, which are part of the -- why we feel strongly about these segments. From a distribution side, the amount of benefit specialists that are facing off with these products in the schools, the amount of districts that we're touching, those numbers are all going in the right direction, and we feel really good about our distribution efforts. I'd also say that the corporate branding, marketing, distribution work that we're doing also benefits this space as well. educators know who we are when we enter these schools, and that's very helpful in this space as well. And then lastly, on the infrastructure side, we are modernizing this space and improving the infrastructure and how we face off with these schools. Very early thought. We have now the ability to do straight-through processing on individual supplemental. We haven't done a lot yet. It's, like I said, in very small numbers. but we are starting to significantly modernize this space as well. So I think we took a very strategic approach to building the products that are relevant in our space, improving and expanding our distribution and improving our infrastructure. And I think that's why you see the early signs of success in this business. And as I said, the earnings diversification that we planned with these acquisitions. I don't know if you want to add anything to the benefits ratio . Ryan Greenier: Sure. I'll take the nuts and bolts, the numbers, Wilma. So on a blended basis, we target a benefit ratio for both businesses at about 39%. And individual supplemental runs lower than that and group runs higher than that. Both segments, if you look at the full year benefit ratio for 2025, the benefit ratio on the individual supplemental was in the high 20s. That's better than what we would expect on a long-term average that reflected favorable morbidity experience throughout the year. On the group side, we were in the mid-40s. Again, a little bit of favorability, but closer to what we would expect there. One thing I will comment on as I think about the longer-term target, on the individual supplemental product, in particular, utilization in early policy years typically is higher. And so if you think about that, during a period of high sales, which we're clearly seeing, you're going to see a little bit of an uptick, and we've factored that into the pullback towards the historic experience. We did see a decline in utilization post COVID that is beginning to normalize. So that kind of combo of more typical utilization combined with a return or an acceleration, I should say, of sales is going to move the individual supplemental product closer to those longer-term averages? I hope that's helpful. Wilma Jackson Burdis: That was very helpful. Second question, does softening of reinsurance pricing factor into the '26 margin outlook? And if so, give us some color there. Ryan Greenier: Sure. So Wilma, this is Ryan again. So in my script, I talked about some of the decisions that we made from a risk management perspective around the reinsurance tower. We did use the favorable reinsurance rate environment to add additional coverage at the top of our tower. There were some modeling updates from one of the P&C model tools. And as a result of that, we looked at that. We looked at the mix of all tools and decided it was prudent to increase the top of the tower. So our total spend was flat. So from a guidance perspective, we're spending dollar for dollar the same amount as last year. So it's incorporated, obviously, in our outlook. But we used some of that savings to buy a fair amount of cover at the top end. . Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rachael Luber for any closing remarks. Please go ahead. Rachael Luber: Thanks for joining us on the call today. If you have any follow-up questions or would like to schedule a meeting, please reach out. We will be at AIFA in March, and we'll be happy to look at schedules to find time. So thanks again. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Powell Industries Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] This event is being recorded. I would now like to turn the conference over to Ryan Coleman of Investor Relations. Please go ahead. Ryan Coleman: Thank you, operator, and good morning, everyone. Thank you for joining us for Powell Industries conference call today to review fiscal year 2026 1st quarter results. With me on the call are Brett Cope, Powell's Chairman and CEO; and Mike Metcalf, Powell's CFO. There will be a replay of today's call, and it will be available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until February 11. The information on how to access the replay was provided in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, February 4, 2026, and therefore, you are advised that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading. This conference call includes certain statements, including statements related to the company's expectations of its future operating results that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties and that actual results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include, but are not limited to, competition and competitive pressures, sensitivity to general economic and industry conditions, international, political and economic risks, availability and price of raw materials and execution of business strategies. For more information, please refer to the company's filings with the Securities and Exchange Commission. With that, I'll now turn the call over to Brett. Brett Cope: Thank you, Ryan. Good morning. Thank you for joining us today to review Powell's fiscal 2026 1st quarter results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. Our fiscal year is off to a strong start. As our first quarter results continue to demonstrate Powell's unique and advantaged position against a backdrop of what are secular and increasingly durable growth trends, the growing and broad investment in power generation and grid modernization to support data center and AI capacity growth, domestic manufacturing, electrification and the nationally important export of energy resources like LNG, are validating our now nearly decade-long strategic effort to transform Powell into a more diversified manufacturer of electrical distribution products and systems. During the first quarter, we saw revenue grow 4% compared to the prior year. And as a reminder, our first fiscal quarter typically exhibits some level of seasonal disruptions associated with fewer working days. While ongoing high levels of project execution drove improved profitability compared to the prior year. Gross profit expanded 20% to drive a gross margin of 28.4%, an improvement of 380 basis points year-over-year. We recorded $439 million of new orders, the highest quarterly total in over 2 years, as activity was widespread across oil and gas, specifically LNG, data centers and the electric utilities markets. Within our total bookings number, we were awarded a contract for a large LNG project that exceeds $100 million to support gas liquefaction and export along the U.S. Gulf Coast. As the permitting process for LNG restarted a year ago, activity in support of new greenfield and brownfield trains resumed and Powell has and continues to support this strategic market. We anticipate activity within the LNG market to continue in 2026 relative to the more modest activity levels throughout 2024 and most of 2025. Commercial dynamics within our commercial and other industrial markets have accelerated in recent quarters as we continue to see increased demand within the data center market. During the first quarter, our commercial and other industrial market accounted for nearly 1/2 of the order total and included our first mega project order for a single data center, which totaled roughly $75 million. Our commercial and other industrial market now comprises 22% of our backlog as of quarter end, with data centers accounting for roughly 15% of our total backlog, both of which are record levels for Powell. Over the past few quarters, we have continued to experience increasing levels of interest among a growing list of data center customers. The increasing power demand driving greater compute power and the desire to expedite construction time lines creates a value proposition that is well aligned to an increasing portfolio of Powell's electrical distribution products and automation solutions, including our first orders in the United States for our newest team members at Remsdaq Limited in the U.K. In response to the growing market demand, we continue to take measures to expand productive capacity, including adding additional leased facilities to support the expansion of production lines, increased inventory needs, broader collaboration with our supply base to ramp supply and improve cycle times as well as rebalancing and reallocating the manufacture of select products across our facilities in North America to further optimize capacity. Meanwhile, order trends in our Electric Utilities segment remained very encouraging as we experienced another solid quarter of award activity from this end market. Overall, the oil and gas and petrochemical business remains healthy. We are experiencing some degree of divergence across markets and geographies that we compete with some performing very well and others exhibiting softer activity levels in areas such as refineries and polyethylene and polypropylene facilities. We finished the quarter with a backlog of $1.6 billion which was sequential growth of 14% compared to the September quarter and is the highest in Powell's history. The growth in our backlog over the past year has been primarily driven by booking trends in the electric utility and commercial and other industrial markets as these 2 markets now account for the majority of our backlog for the first time ever. Overall, our backlog is well balanced across the markets we serve, and we continue to benefit from a healthy mix of large projects as well as small and medium-sized core projects that help maximize productivity across our manufacturing plants. We also benefit from project visibility that now extends into our fiscal 2028. The expansion of our Jacintoport facility is progressing on schedule and remains on track to be completed during the second half of our fiscal 2026. This incremental capacity will be critical to ensuring our ability to support all of our end markets, but specifically, our oil and gas customers as we anticipate the wave of LNG project development work that is projected to come to market over the next 3 to 5 years, and this investment ensures that we continue to advance our industry-leading role in the fabrication of engineered to order power distribution solutions for critical applications. We continue to actively review and evaluate our total manufacturing capacity to ensure the delivery and execution of our project backlog. This includes the potential for future investments in plant and equipment, along with actions noted earlier in my comments, where we are now adding lease properties to support near and midterm growth in our medium voltage distribution products. As we look ahead through the remainder of 2026, the commercial environment for each of our major end markets remains positive. We continue to have robust activity in support of the North American gas market. The fundamentals of the U.S. natural gas market continue to support investments in LNG and the funnel of projects that we are tracking compares favorably to past cycles in terms of the total number of projects moving forward. The outlook for our electric utility market remains robust and balanced across the customers and geographies that we serve. The growing wave of investment in electrical infrastructure to meet growing demand levels is broad and durable and we expect another strong year of activity in 2026. Lastly, we are increasingly encouraged by order trends and demand levels within our commercial and other industrial markets. The acceleration of order activity driven by data centers leaves us confident in our ability to continue to grow our presence in this dynamic market. Overall, we are very pleased with our first quarter performance and our outlook for fiscal 2026. Demand trends remain robust, and we are well positioned to execute our backlog and grow within our targeted markets. With that, I'd like to turn the call over to Mike to walk us through our financial results in greater detail. Michael Metcalf: Thank you, Brett, and good morning, everyone. In the first quarter of fiscal 2026, we reported net revenue of $251 million compared to $241 million or 4% higher versus the same period in fiscal 2025. New orders booked in the first fiscal quarter of 2026 were $439 million, which was 63% higher than the same period 1 year ago and included 2 mega orders. The first mega orders for a large domestic liquefied natural gas project valued at greater than $100 million, which is being constructed on the Gulf Coast. In addition to this LNG mega order, the business also secured a number of orders during the quarter, supporting the electrical infrastructure for various data center projects. Collectively, these data center orders totaled more than $100 million in the first quarter of fiscal 2026. These data center orders booked in our commercial and other industrial sector included a notable mega order for electrical distribution equipment and was valued at approximately $75 million that will be deployed at a single data center. Notwithstanding these significant wins, the orders cadence across most of our reported market sectors continues to be active, particularly across our domestic end markets. As a result of this commercial activity, the book-to-bill ratio in the period was 1.7x. Reported backlog at the end of the first quarter of fiscal 2026 was $1.6 billion, $219 million higher than 1 year ago and $191 million higher sequentially and continued strength across the oil and gas, utility and commercial and other industrial sectors. As we exited the first fiscal quarter, backlog across our oil and gas and utility sectors, each represent roughly 30% of the total backlog while the commercial and other industrial sector has grown to 22% of the backlog, increasing substantially on both a sequential and year-over-year basis. Compared to the first quarter of fiscal 2025, domestic revenues were slightly lower by 1% or $3 million to $195 million while international revenues were up 29% or $13 million to $44 million in the current fiscal quarter. The increase in our international revenues during the quarter was driven in large part through the projects that we're currently executing in the Middle East and Africa, Asia Pacific and Europe regions. From a market sector perspective, revenues across our utility sector marked the most substantial increase during the quarter, higher by 35% compared to the same period 1 year ago, while revenues from the oil and gas sector increased by 2%, offset to some degree by the petrochemical sector, lower by 31% versus the first quarter of fiscal 2025. Lower revenue in the petrochemical sector was mainly driven by the completion of a large project booked in fiscal 2023, coupled with softer commercial activity in this market. In addition, the commercial and other industrial sector was 8% lower on project timing, while the light rail traction power sector was 5% higher on a relatively small revenue base. Gross profit in the current period increased by $12 million to $71 million in the first fiscal quarter versus the same period 1 year ago. Gross profit as a percentage of revenue was higher by 380 basis points versus the same period 1 year ago at 28.4% of revenues primarily driven by strong project execution, generating a higher level of project closeouts versus the prior year. Sequentially, gross profit was lower by 300 basis points on the predicted seasonal softness. As we noted in our fourth quarter release, we anticipated a challenging sequential comparison considering that our first fiscal quarter is historically the softest quarter across our fiscal year due to the holiday period. Selling, general and administrative expenses were $25.2 million in the current period and were higher by $3.7 million on increased compensation expenses across the business versus the same period a year ago. SG&A as a percentage of revenue increased 110 basis points to 10% in the current fiscal quarter. In the first quarter of fiscal 2026, we reported net income of $41.4 million, generating $3.40 per diluted share which is a 19% increase compared to a net income of $34.8 million or $2.86 per diluted share in the same period of fiscal 2025. During the first quarter of fiscal 2026, we generated $43.6 million of operating cash flow on favorable income generation through the period. Investments in property, plant and equipment totaled $2 million in the quarter, with the capital deployed primarily to address capacity and productivity initiatives. At December 31, 2025, we had cash and short-term investments of $501 million compared to $476 million at September 30, 2025, and the company does not hold any debt. As we look ahead to the remainder of fiscal 2026, we remain encouraged by the commercial tailwinds across all of our end markets. Given the current market conditions, coupled with a stable pricing environment, we are optimistic that we can sustain the quantity and the quality of our backlog throughout fiscal 2026. Combined with our ongoing focus on optimizing margin levels, increasing product throughput and the overall strength of our balance sheet, Powell is well positioned to deliver strong revenue and earnings throughout the rest of fiscal 2026. At this point, we'll be happy to answer your questions. Operator: [Operator Instructions]. Our first question comes from John Franzreb with Sidoti & Company. John Franzreb: Congratulations on another great quarter. I'd like to start with the comments on the gross margin that you can -- that based on what your current backlog looks like that you can sustain the 2025 gross margin profile. I wonder, does that consider potential change orders or short-cycle business? Or is that just based on the backlog configuration? Michael Metcalf: John, this is Mike. I'll address that question. So we had a very strong quarter with respect to project closeouts as I noted in my prepared comments, 380 basis points overall on reported margin versus prior year. Of that $300 million was attributable to project closeouts, which was favorable to last year and that was really driven by strong execution and risk management and our ability to recover costs via change orders, et cetera, in the project environment. The remainder of that upside was just playing productivity and operating leverage across the business. As a barometer of level of margin levels over time, I would point to the trailing 12-month performance. If you took a look at the trailing 12 months in the business, our reported margins are running about 30% and of this, there's approximately 175 basis points of project closeout gains, again, which includes change orders and the like changes in estimates. So maintaining a base level margin in the upper 20s while continuing to drive for 150 to 200 basis point upside resulting from favorable closeouts is a reasonable assumption. And that reflects what we see that base assumption is what we see in our backlog. John Franzreb: Got it. Got it. That's very helpful, Mike. And I'm actually kind of curious about the record backlog, it's great to have. It's wonderful to see. But I'm wondering if there's any concerns that customers are just buying to get in line and that the backlog might not be firm in use past given maybe the new customer shift. And just any thoughts about that? Brett Cope: John, it's Brett. It's a good question. We've talked about that in the past, and we -- are we open to cancellations, what would that potentially do? I don't think -- yes, I think the 1.6% is very durable. Some of the new market growth in the commercial and other is, if you look at the timing and our understanding of the project, I feel very good about it. I think as we look out what's going on in that space, are people talking to us and others about reservations and locking capacity, yes, those conversations are happening. And Mike and I and the management team are discussing what that might look like in the next couple of quarters, the next couple of fiscal years as the demand looks like it continues how to best handle that risk potential. So that -- I think that's a future concern that's on our radar, and we're taking it quarter by quarter, but not currently in the backlog. I feel pretty good with what we've got here today. Operator: Our next question comes from Chip Moore with ROTH MKM. Alfred Moore: I wanted to ask drilling on data center, maybe a little bit more. I think you're talking about larger and more numerous opportunities and obviously, that megaproject great to see. Maybe just -- can you expand, Brett, maybe on cadence of deliveries in data center? And then I believe many of these facilities are being built in phases, just potential for follow-on orders at some of these sites. And capacity questions. You mentioned adding some leased facilities, just how quickly you can ramp and get the switchgear supply going up. Brett Cope: Yes, I could have probably done a whole script on the data centers when you look at us in the broader market out there that's involved in the space because we are admittedly learning a lot as it's growing quickly in Powell. First of all, on the cadence of the activity that's ongoing. There is an interesting dynamic. It is project work, but still, a lot of our backlog that we just shared in the prepared comments is still outside the data center, even this large mega project. It is a large amount of work for a project to handle a lot of the outside of the work. And it's a lot of design one, build many. So it is supporting more of a product strategy. It's a project as we look at it as Powell. And so -- but it's going to create a lot of -- a lot more flow down production lines. We think there is a lot of opportunity there that we're working through over the -- and we will be working through in the next couple of quarters about efficiency, productivity and delivery. So we spent a lot of time last quarter, quarter before, working on supply chain, doing the blocking and tackling on the production line. The prepared comment, we added a 50,000 lease square foot lease facility, which we're just taking ownership now. During the quarter to support this product line flow to store the inventory that needs to ramp to match. But it's going to be a lot of that repetitive product build down the line, and we anticipate more of that in the next quarter or 2. We're evaluating -- we're under evaluation right now, some additional facilities. We're challenging whether or not we should go larger and along with even investment in our model. We like to own our PPE. But right now, the lease makes sense. As we better understand and become more confident, we'll build out more permanent investments, I think, to match, not just this, but of course, the things we've been doing organically to drive growth in all of our 3 verticals. Alfred Moore: Very helpful. I appreciate the color there, Brett. And if I could ask one more. Supply-demand environment, I guess, more broadly to the point on margins, a lot of announcements around capacity expansion from a number of equipment suppliers floating out there? Just maybe it sounds like things are quite stable right now, but just how you think about the future several years out, what might take place? Brett Cope: Every quarter, I'm getting more confident. The -- notwithstanding John Franzreb's question about the concern on this massive demand environment. I mean the number of customers were having more thoughtful strategic discussions with is increasing, and they're engaging Powell in a way that fits us well. And so I talked early on, maybe a year ago about finding alignment with clients that meet well with what we do culturally and how we do it, we'll learn from that and we'll grow. So we're not going to stay static as to who we were. We want to build a part of the company that is quicker on the cycle, can meet the need. There is a lot of demand. We understand the urgency and the return on their capital. But at the same time, we want to make sure we're hitting the dates for all 3 verticals that we're serving. So the number of customers is increasing. It is going out further in time and the programmatic approach about your comment about phasing, yes, we see the initial on the initial design and the potential train -- I'll call it, train expansion, but the size of the data center potential that could be added on to it is definitely part of the conversation. So that fits our model, right? If we execute and deliver for our client. We absolutely want these relationships to be sticky, just like there are other verticals, and we're very open with them in that approach. And so we use that as a an early-on engagement sort of screening discussion of, hey, we'd like to help all of you, but we want to align with those that really match us well. Operator: Next question comes from Manish Somaiya with Cantor. Manish Somaiya: Michael and Brett, it's Manish Somaiya. Just a couple of questions. One is on pricing. Perhaps if you can just give us some comment on what you're seeing as far as pricing in your end markets, the intensity of competition pertaining to that? And then related, how should we think about raw material prices and how they get passed along and what you absorbed? Perhaps if you can just give us a sense as to how you protect yourself in this ad of rising commodity prices. Brett Cope: Manish, thank you for joining today. I'll take the first part of that. Mike can add some color and jump into the input cost side. On the pricing environment, we've been asked that last couple of quarters. No real change. I think everything is holding pretty steady in all our verticals in terms of the competitive status of the market, if you will. The one dynamic that I would point to that we are learning, and I touched on this with Chip in the last call -- last question a little bit, is that on these data center jobs, they are with how we price in the market. I would say, that said, the way we're going to build these lines, I anticipate we have some potential upside because in the long cycle project -- when we build a project and they're large full of products and integrated scope in their year, 2 years, 3 years, these have a much quicker cycle on average compared to some of those on their demand curve to meet the need. And so when we get up to speed and build these products over and over and over, I think that the efficiency factor, something that we don't largely do as Powell today, and we're building out that product side of the company. I think there's -- I think we'll see some potential upside in there. I don't know how much yet. But I do think that we see the potential for it. So that in a sense would be price. If you back calculate it in the next couple of quarters, I think that will become more apparent to our to our understanding. Michael Metcalf: And following on that, Manish, this is Mike. Regarding the input costs, clearly, we watch this very closely. We kind of bifurcate it into 2 buckets. The raw materials, as you noted, copper, steel, very volatile. The metals market is very, very volatile today. We do hedge our copper to some extent and any drastic increases that we see, we roll those into our pricing models internally. The second bucket, I would note, are we buy a lot of engineered components, things that we don't make, HVAC, fire systems, things of that nature. And as you know, our projects could range from 1 year to 3 years. So we lock those not those commodities, those engineered components, in when we signed the contract. So we're locked into the engineered components and we watch the commodities very closely and roll those into the pricing model. So that's how we manage those businesses -- those elements of the business to mitigate the risk. Manish Somaiya: And then just as a follow-up, how should we think about the lead times on specific components like switchgear, for example, obviously, you have a significant backlog at this moment. What are sort of the potential constraints on the component side that could impact revenues? Brett Cope: That's a discussion we have every day and along with per couple of comments on the capacity additions that we're working through. I think we're in a good spot. If you look at the mix of products that we make and if you just kind of go back to data centers, Manish, the power levels have increased coming off utility or if they're doing GTG, self-generation on site or any kind of multifuel, there's a lot going into the 38 kV line, and that is ramping quickly. That's a product that we're rarely adept at. It actually fits Powell really well. But when you look at the 5 and 15 different product levels, they're not as robust. We actually have capacity. And so some designs of data centers out there, if you look at how they're doing their data halls, not all of them are just massive 1 gigawatt or 3x 300 gigawatts. There's new designs coming out that are 90 or 100 or 150-megawatt data halls that we still have really good capacity running 35 to 40 weeks on gear, which is very competitive in the market for 15 kb. So when you get into the mix of how they're doing their power design, we are driving future capacity for those higher levels that are really under demand, but then there are other designs that we still have opportunity to fill out that will benefit the back half of this year and into the early part of '27. So those are the really thoughtful conversations we're having with those clients that engage us that way. We can fate, we can build, we can invest meet their needs and then we can phase our deliveries to really make a win for both parties. Operator: Our next question comes from John Braatz with Kansas City Capital. Jon Braatz: Brett, you've spoken a lot about doing things to increase capacity and product flow and so on and so forth. And I guess, 2 questions. Number one, how much might you have to ramp up your CapEx spending to achieve that? And then secondly, when you think about your capacity now and what you want to bring on board in the future, if your top line, if you could do, let's say, if your top line growth was x percent, what might that new capacity be able to drive revenue growth in the future? Are we talking about mid-teens then? Or what kind of new growth -- new top line expectations might there be with this new capacity? Brett Cope: Well, that's a really good question, John. First, on the CapEx side, yes, we've been evaluating for the better part of the year a new facility owned by Powell. A lot of that started off in support of our organic investment in R&D and some of the products we aspire to bring to market to pursue more share of wallet and utility spend. I really like the utility vertical for Powell long term, and we've done really well in there. And I really think the team is -- what we've done is really driving value for our client in the utility space and vice versa. And so we don't want to lose focus on that. So add to that what's going on in the market in this newer dynamic, we're considering right now something on the order of another $100 million type facility. We've not pulled the trigger on that. Really active discussions with the Board. Meanwhile, we saw an opportunity on the lease side. When you look at both in terms of how they could potentially drive revenue, yes, I think double digits is possible. We got to get a few more products organically out like I noted earlier, if we -- and maybe a little bit more -- I'd hedge a little to say when, given how many data center companies are engaging us get inside the data center, -- it will be a pretty chunky add. The low-voltage content, even on the AC designs that are going on now and the momentum that's built because there's a lot of talk on the future DC designs, which we're also involved with but it will be a step change. And some of that with that -- with the investment we did last year at the breaker plant here in Houston, the 50,000 square foot, we're already prepped for some of that. Well, we could quickly need some additional facilities beyond that just to hold the inventory. So we can see out there some potential nice steps to add to the growth of the company. Jon Braatz: Okay. And Brett, on the LNG market, obviously, it's a little bit different today than it was 3 years ago when sort of the initial construction rollout began. Is the competitive environment a little bit different today than 4 or 5 years ago? Brett Cope: It's different, but it's no less intense. And my color comment on that would be, if you go back 4 or 5 years ago and you look at the players that were in the market from the international people that we compete with, along with some of the local building makers and integrated partners at the -- our competition would use, there was a set of competitors that was x. If you look at today, 5 years on and you look at like in our investor deck, we present who we think about every day when we get up to compete on the electrical side. What's changed is their strategy, I think. Our core strategy around industrial oil and gas utility, which we've been working at for the better part of a dozen years. And now this latest piece, we're not going to forget who we are in these first 2 verticals. And we really enjoy that complex industrial hard to do job. And so there's still competition, it's still intense, but there are some new players because of changes on the other side that happened from 5 years ago, maybe the focus is different, I don't know. You have to listen to their calls. But for us, we're still focused on that. And we really like that business, and we're very engaged on it. And the investment we've made in offshore is built for that, and we're out trying to earn all that business that's potentially coming through FID in the next couple of quarters. Jon Braatz: Okay. So Brett, if you -- when you look at the margin that you achieved a couple of years ago on the new projects, new LNG projects, do you think you can see similar margins going forward? Brett Cope: I think so. I mean, there's -- all the segments, that's the one that is given the size of the capital investment in these facilities. There's still a lot of focus on the return of the facilities. And so it's good, but I -- you got to be careful to be fair and what you're really looking to do. And so if there's something that's unique or there's time elements that we can provide, that's unique to our model, for instance, using our offshore facility for large single piece that will help reduce cost at site. We just asked a rare value in return for that for the site, but not to be silly about it. Operator: Our next question comes from John Franzreb from Sidoti & Company. John Franzreb: Brett, I'm just curious about the opportunity pipeline. It seems phenomenal. I wanted to kind of look at it and say, listen, we're going to have an exit book-to-bill ratio of above 1 point for the next coming 2 years. Is that something reasonable to expect? Brett Cope: I think it's reasonable, John. I mean there's no guarantee of future results. You know the phrase -- the amount of conversations we're having across all 3 verticals. I think it's a reasonable expectation, which is why we had chats with the Board, and we had the change in some of the metrics that we're driving the company for. And so the volume potential is definitely there. And as a team, we've got to solve that. And I feel good that we've got the right team and the right environment to make that happen for all the stakeholders. John Franzreb: Got it. And I was wondering, has the Board considered a stock spread at this level? I mean, compared to historic levels, it's fairly impressive. Brett Cope: Yes. We have -- some of the color on that really is more, if you think about our team and the growth of the employees as just critical to the success of all the stakeholders' interests using equity within our structure has become very much more of the forefront discussion with the Board and Mike and I and our CHRO. And so yes, the stock split from a math standpoint about making sure it's a tool that we use for our team to support their engagement in the process here is definitely very active. John Franzreb: Got it. And I guess kind of just one last one. How should we think about the cash on the balance sheet, over $500 million when does that number start to get drawn down a little bit as you use more working capital as these larger projects come on board? Brett Cope: Well, let me just make a couple of comments there and let Mike jump in. As I noted, already this morning, I definitely think we're thinking about allocating some of that to some new facilities. I can't really pin down the timing yet. We've got a board here, 2 weeks. It will be in the discussion -- and then we're not slowing down on the M&A side, even though we did the one with Remsdaq in last summer. There are still some ideas out there that when we can get out in the market and do the strategic work. There's still some really nice potential out there. So there's that. And then I think the capital needs, Mike. Michael Metcalf: Yes. As a follow-up on that, John. From a working capital perspective, roughly 40% to 50% of that balance will be deployed at some point in the future to that $1.6 billion backlog number. But that said, when you look at what's the free cash available for the capital deployment in some way, shape or form, it's probably $200 million to $225 million mentioned that we're thinking about capacity requirements across the business. So I'm sure some of it will get deployed in that fashion. Operator: Our next question comes from Chip Moore with ROTH MKM. Alfred Moore: Just one more for me on Remsdaq, I think you called out getting some traction here in the U.S. So just an update there now that you've had them for not too long, but a little longer -- and then service more opportunity, I guess, more specifically around data center, in particular, just talk to that. Brett Cope: Well, thank you for the question. Yes, Remsdaq, great strategic add, great set of folks in the U.K. We -- when you have these dynamic times in the market, Chip, you -- every market has an approved approach, the way they bring in technology. Remsdaq was so experienced in their market in the utility space. That was one of the things that attracted us to them initially plus their technology road map. The data center market, the commercial and other industrial has definitely opened the door to allow us to get that technology in quicker than we anticipated into the U.S. market. So we've had some technical meetings with some of the customers that have come to us on applying this technology to the powertrain that speeds in the data center for some protective and control logic and it's opened the door. And it's created new opportunities for us even on the high-voltage side. We just took our first order for a high-voltage control protection substation the utility connect, if you will, the high voltage into the medium voltage, which would be a new space for Powell. And again, that was underscored by our ability with having Remsdaq and their technology as an enabler. So super exciting time. I have high expectation for the growth of this business. It is accretive to margin significantly, and Powell has a long history of success here. Service. yes. Thank you, Mike. On the service piece, yes, there is clearly opportunity on the data center front, the commercial and industrial. We haven't taken anything significant yet. But over the last quarter I've been involved myself in some of the discussions where we do see an opportunity for service to come in. On the build side, quite frankly, initially, we've not entered on the OpEx side after. I think that will come. Still a new market for us. And as these assets get installed, I think we'll see some installation and long-term support work. But we right now are developing some ideas with clients on how our team can help the constructability, the timing, given our know-how on the skid and the integration of the mechanical side of these solutions with how they're trying to speed up the time line. And so our service team is engaged and we're actually out providing some quotes for what we think we can do. We haven't closed anything yet, but it would be -- we do see it as a big opportunity as we go forward. Operator: Our next question comes from Manish Somaiya with Cantor. Manish Somaiya: Mike, I'm not sure if you mentioned the next 12 months backlog. Would you mind giving that to us? Michael Metcalf: Manish, you'll see that in the Q that we submit later today. Of the $1.6 billion backlog, roughly 60% of that is convertible over the next 12 months , I think in the Q, you'll see $933 million. And on top of that, we refresh what the book and bill rates been on average over the last 12 months. And that's running $65 million to $70 million cadence every quarter. So those are 2 of the key metrics as you look forward. Manish Somaiya: Okay. Wonderful. And then, Brett, you talked about strong demand across the board, strong activity, strong backlog my big question is the shortage of skilled labor in this country. And is that going to be a constraint as far as your growth ambitions are concerned? Brett Cope: Well, it's always a concern, Manish. It has been the entire 15 years I've been at Powell through any cycle. Is it a concern today? Absolutely. The management team discusses it routinely. On the variable side, there's always a time where there's a skill set within the company that has a need. On the variable side, we're doing fairly well. In fact, I'd say in the last couple of quarters, we've solved some problems. As I sit here today on the fixed side, we do have some needs that are challenging us with this step change in -- especially on the commercial side. The growth in this segment is challenging some growth needs today on engineering. So that's a problem that we're out working and I feel confident in the next 90 days or so, we'll figure out how to solve that one. But it's not unique or new to us. We -- because we are a long-cycle project company by historical sense, we've been here before, and I'm confident the team will find a way to solve the need. But given the growth of the backlog, yes, we've got some needs right now, and we're going to go out and solve them. Manish Somaiya: Well, thank you again, and congrats on the quarter. Operator: This concludes our question-and-answer session. I would like to turn the call back over to Brett Cope, CEO, for any closing remarks. Brett Cope: Thank you, Bailey. Our first quarter delivered solid performance with improvements in our top and bottom line. Powell's employees consistently embrace the challenge while keeping our core focus on executing the most complex of industrial electrical distribution projects, our team is responding to meet new and growing market opportunities, which underscore our ability to secure future business and drive new strategies to improve productivity and profitability. I would like to thank our valued customers and our supplier partners for their continued trust and support Apollo. We're very pleased with our first quarter, and we expect another strong year for Powell. Mike and I look forward to updating you all next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the ATS Corporation Third Quarter Conference Call and Webcast. This call is being recorded on February 4, 2026, at 8:30 a.m. Eastern Time. [Operator Instructions] I'd now like to turn the call over to David Ocampo, Head of Investor Relations at ATS. David Ocampo: Thank you, operator, and good morning, everyone. On the call today are Doug Wright, Chief Executive Officer; Ryan McLeod, Chief Financial Officer; and Anne Cybulski, Vice President, Corporate Controller. Please note, our remarks today are accompanied by a slide deck, which can be viewed via our webcast and available at atsautomation.com. We caution that the statements made on the webcast and conference call may contain forward-looking information and our cautionary statement regarding such information, including the material factors that could cause actual results to differ materially from the statements and the material factors or assumptions applied in making the statements are detailed in Slide 3 of the slide deck. As many of you know, this is Doug's first conference call as CEO of ATS. We're very pleased to welcome Doug as the new leader of our organization. With that, it's my pleasure to turn the call over to Doug. Doug, over to you. Douglas Wright: Thank you, David, and good morning, everyone. I'm pleased to be with you here today. As you know, I joined ATS in mid-January. While it's still early in my tenure, my focus has been on rapidly translating learning into action, particularly around execution discipline, margin performance and capital allocation. This focus has included spending time with our teams across the organization, building a deeper understanding of the business and our day-to-day operations. I've also participated in our President's Kaizen Events, listening to and meeting with teams, including at our Cambridge, Ontario head office. What stood out from this year's group of Kaizens was the depth and breadth of our people's technical capabilities and the high-performance nature of our culture anchored by the ATS business model. During my career, I've had the opportunity to serve several organizations in different parts of the world, focusing on automation and diversified industrial technologies. In bringing an analytical lens rooted in my engineering background and applied in multiple general management and CEO roles, one key takeaway for me is that companies built in a strong lean operating system are better positioned to execute and deliver sustained results. That lean culture is deeply embedded at ATS through the ABM and our focus will only get sharper going forward. These fundamentals, along with our attractive market positions in growing end markets and our high-quality customer base have reinforced my decision to join this organization. Importantly, that foundation is supported by a deep and capable leadership bench, positioning us well to execute on our strategic priorities. In Q3, we welcomed Sarah Moore as our new Life Sciences Group Executive. Sarah brings over 20 years of experience across Healthcare Diagnostics, Medical Devices and Life Sciences, along with a deep sector expertise and a strong operations background to lead our presence in one of our key end markets. We also recently appointed Simon Roberts, a long-tenured ATS leader to lead our Packaging & Food Technology business. This brings a leader with strong operational background to this key end market. This appointment coincided with our decision to embed our growing Services business within our operating units. This change strengthens accountability, improves customer alignment and allows each business to manage services as a recurring margin-enhancing component of their solution offering. Our focus on people and leadership continues to be acknowledged externally. Our U.S. operations recently received a certificate of recognition from the Top Employers Institute, and we were once again named a top employer in the Waterloo area. From an operating standpoint, I expect we can continue to build on the systems, rigor and accountability required to build long-term value with an emphasis on driving margin expansion across the portfolio. There are meaningful opportunities ahead through increased asset utilization and operating leverage, improved mix and continued advancement of the ATS business model. That same discipline also guides our capital investment decisions across the portfolio. Our focus remains on allocating capital where it generates attractive risk-adjusted returns and enhances long-term shareholder value. We continue to evaluate opportunities that support growth and profitability, reinforce our core capabilities and remain consistent with our leverage framework. This approach aligns with ATS' long-term capital allocation strategy and the priorities of our Board. Before I move on, I want to recognize Ryan McLeod for his contributions to ATS. Ryan has played an important role in strengthening ATS' financial foundation and building a strong finance team. We thank him for his leadership and wish him continued success in his new chapter. Ryan's transition is orderly and planned. Anne Cybulski, a trusted member of our leadership team, will resume as interim CFO and provide the continuity. Our finance organization has been built by Ryan and Anne and is stable and capable. As I continue to deepen my understanding of the business, I'll provide additional perspectives as appropriate. With that, I'll turn the call over to Ryan to walk through our third quarter performance and outlook. Ryan McLeod: Thank you, Doug, and good morning, everyone. Before moving to the quarter, I would like to welcome Doug to ATS. Doug brings a proven track record in lean operations and a disciplined approach to capital allocation. I'm confident that under his leadership, ATS will build on its strong foundation and continue to drive value creation for shareholders. Turning to the quarter. I'll start with a brief overview of our Q3 performance before providing an update on our end markets. Anne will provide additional financial details in her remarks. Starting with our financial value drivers. Order bookings were $821 million, up almost 12% sequentially, supported by activity across multiple end markets. Q3 revenues were $761 million, up almost 17% from Q3 last year, driven primarily by organic growth, including continued momentum in services. From a profitability standpoint, adjusted earnings from operations in Q3 were $80 million, in line with our expectations. Moving to our outlook. We ended the quarter with an order backlog of approximately $2.1 billion. Our backlog reflects a well-balanced mix across end markets and geographies. Looking ahead, our funnel remains healthy and diversified. Within Life Sciences, order backlog was $1.1 billion, and revenues for the quarter were $391 million, the second highest in ATS' history. Demand remains constructive in our end markets with ATS' global scale supporting consistent execution in multiple regions and multisite customer programs. Radiopharma led by our Comecer business remains a key growth market supported by strong customer relationships and expanded services footprint and a proven track record. Our unique capabilities in this market are driving engagement with both established and emerging customers across the development and commercial phases of radiopharmaceutical programs. Within GLP-1 auto-injectors, ATS is executing against a healthy backlog and partnering with customers as they scale production. As device requirements evolve and new therapeutic applications emerge, our teams continue to support customers throughout the product lifecycle. In Food & Beverage, quarter end order backlog was $203 million. Funnel activity in Food & Beverage remains strong, driven by brand recognition in core processing markets, including tomato and other fresh fruit applications. In Energy, order backlog was a record $296 million, up 87% over Q3 last year, driven by refurbishment and life extension projects for nuclear reactors. These refurbishment programs are longer cycle in nature and include service components that support both execution and ongoing operational requirements. Alongside refurbishment work, activity continues to progress in new build programs, including both large-scale reactors and SMRs. ATS is engaged early in the project lifecycle, supporting front-end design, engineering and prototyping activities. This work spans fuel production, fuel handling and modular fabrication across multiple reactor technologies. Within Consumer Products, backlog reached a record $321 million, supported by a large enterprise warehouse packaging automation program that leverages ATS' global manufacturing and aftermarket capabilities. Consumer Products funnel remains steady with ongoing opportunities across warehouse automation and packaging. In Transportation, the funnel continues to reflect smaller scale opportunities in both commercial and traditional vehicle platforms. In summary, quarter reflects steady execution across our priorities, supported by a strong order backlog and diversified end markets. Before we move to the financial review, I want to take a moment to express my confidence in the depth, capability and professionalism of the organization I've had the privilege to lead. I've worked closely with Anne for many years, and I've seen firsthand the strength of her leadership and that of the broader team. I'll be moving on knowing the business is in very capable hands, supported by a strong leadership team and an organization deeply committed to operational excellence and disciplined execution. I also want to convey my sincere appreciation to the entire ATS team for their dedication and unwavering commitment to the company's success. With this continuity in place, ATS remains firmly focused on the business and well positioned to deliver long-term value for shareholders. Now I'll turn the call over to Anne. Anne, over to you. Michael Anne Cybulski: Thank you, Ryan. The entire team and I wish you success in your next chapter. I share your confidence in ATS' experienced leadership and finance teams. I also echo both David's and Ryan's words of welcome to Doug. Doug, we're happy to have you on board. On to our operating results for the quarter. Order bookings were $821 million, down 7% compared to Q3 last year due to the expected lower run rate in Transportation and the inclusion of several larger enterprise bookings in Life Sciences and Food & Beverage last year. Notably, our trailing 12-month book-to-bill ratio at the end of Q3 remained healthy at 1.06:1. Revenues for the third quarter were $761 million, up 16.7% compared to last year, including organic growth of 12.6%, along with a 4.1% benefit from foreign exchange translation. Of note, revenue increased in all market verticals, except for Transportation as expected. Moving to earnings. Third quarter adjusted earnings from operations were $79.9 million, a 21.6% increase from Q3 last year, primarily on higher revenue volumes. Gross margin for Q3 was 29.6%, a 111 basis point decrease from last year, mainly due to program mix. Put another way, the decrease is a reflection of timing of programs being executed across our market verticals, which have different gross margin profiles. On SG&A, excluding acquisition-related amortization and transaction costs, expenses in the third quarter totaled $141.9 million, an $11.3 million increase over the prior year, mainly due to foreign exchange translation and, to a lesser extent, increased employee costs and professional fees. Excluding the mark-to-market impact related to changes in our share price, stock-based compensation expense was $3.1 million in Q3. Earnings per share were $0.48 on an adjusted basis. Moving to our outlook. We ended the quarter with an order backlog of approximately $2.1 billion. Q4 revenues are expected to be in the range of $710 million to $750 million. As a reminder, this assessment is updated every quarter, taking into account revenue expectations from current order backlog and new orders booked and billed within the quarter. During the quarter, we incurred $5.5 million of restructuring costs under the program we disclosed last quarter. As we identified additional opportunities to further realign our cost structure, total costs under the program are now expected to be approximately $20 million. The associated payback period remains unchanged. We do expect some reinvestment in strategic growth areas while also supporting our operating leverage, mainly as we move into fiscal '27. As we head into the last quarter of this fiscal year, we are pleased with our overall revenue growth of 13.6% on a year-to-date basis, including approximately 8% organic growth. Adjusted earnings from operations are up 14% on a year-to-date basis. ABM discipline and tools will continue to support focused execution across all of our value drivers, supported by the strong lean pedigree amongst our leadership team. In addition, Doug's experience and focus on lean discipline is clear. While the macro environment remains dynamic amid geopolitical and trade uncertainty, once again, we can confirm that we have not been materially impacted by tariffs across our different geographies. Most of our exports from Canada to the U.S. continue to be covered under the USMCA. Our global decentralized operating model positions ATS well to adapt and serve customers where capital is being deployed. As a result, we continue to execute, maintain leadership in our key submarkets and advance our growth priorities. Moving to the balance sheet. In Q3, cash flows from operating activities were $115 million. Our noncash working capital as a percentage of revenues was 16.4%, an improvement sequentially and also from Q3 last year. As a result, we moved closer to our targeted working capital value of less than 15% of revenues as we received some larger milestone payments before the end of the quarter. As always, payment timing can affect this ratio around period ends, but our goal is to continue to sharpen our working capital efficiency and more broadly, overall asset efficiency. During the quarter, we invested $16.6 million in CapEx and intangible assets, supporting innovation and the continued strengthening of our capabilities. For fiscal '26, we expect our CapEx and intangible investment to be between $70 million and $90 million, slightly lower than the previously disclosed range. On leverage, our net debt to adjusted EBITDA ratio was 3x, reflecting continued progress towards the top end of our target range of 2 to 3x as expected and previously disclosed. In summary, the third quarter results were in line with our expectations, supported by a strong order backlog and diversified end market exposure. Our leadership team and global employee base remain focused on leveraging our opportunities for margin expansion and capital efficiency across our business to drive shareholder value. Now we will open the call to questions from our analysts. Operator, could you please provide instructions. Thank you. Operator: [Operator Instructions] Your first question today comes from the line of Maxim Sytchev from National Bank Financial. Maxim Sytchev: Doug, congratulations on joining the company. And maybe the first question, if I may, for you. Do you mind maybe talking about your maybe 90-day and kind of 6 months priorities in terms of what's going to be on your slate? Douglas Wright: Sure. Thanks, Maxim. So while it's early, I do have a few observations that I'll share with the group. First, I believe that we're aligned to strong and growing end markets in the portfolio. And growth has been strong. And while there's a few areas that need some improvement, our focus will be on -- continuing to focus on those core end markets that we're in today. So we're not -- I wouldn't say that my appointment brings any outlook change in terms of the end markets that we're focused on. Secondly, we recognize that margin expansion potential has not been realized. And I think we have a lot of runway in front of us. And while I'm not ready to establish a new target for the organization yet, our team knows that we need to do better. There's opportunity in both ABM type improvement, which are a great set of tools that we just need to drive harder at executing as well as commercial actions to get more value for the important work that our teams do. And third, as our leverage ratios are now back into our targeted range, we will deploy capital with a high level of discipline as usual, but with an emphasis on improving our margins, our aftermarket mix and bringing in new technologies that complement our portfolio within our existing end-market framework. So those are some of the key observations I would make today, and you can kind of convert that into what I'm focused on in the early days, both with the executive team, our operating units as well as with our Board. And I really remain very optimistic for the outlook for ATS. Maxim Sytchev: That's excellent. And one quick question for Ryan. And Ryan, obviously, all the best, and it's been a pleasure. If I may, do you mind maybe connecting a little bit the improvement in margins that you were telegraphing at the beginning of the year and how that correlates to the gross margin change in the mix perspective and how I guess we should be thinking about modeling the rest of the year? Ryan McLeod: Yes. Thanks, Maxim. I appreciate it. I'm going to let Anne walk through the margin dynamics. Michael Anne Cybulski: Thanks, Ryan. So Max, I would say from a gross margin perspective, we talked about mix, and it really is reflective of the -- what we're seeing the -- what we've got in our backlog and what we're executing on. I wouldn't call it anything unusual there. We've been pretty consistent in terms of performance there and in line with our expectations. We still -- as Doug said, we still got opportunities across the board, but specifically on gross margin through some of our levers that we'll continue to pull, including the usual standardization, supply chain, operational excellence initiatives. So overall, I think some of the work we've got in our backlog right now is more -- you've seen nuclear bumping up, and we've talked about that being, generally speaking, lower gross margin, but accretive to the bottom line. So I don't think there's anything unusual, but there are some dynamics there and then the levers that we have available to us remain available, and we'll continue to focus on them. Operator: Your next question comes from the line of Sabahat Khan from RBC Capital Markets. Sabahat Khan: Great. Just maybe starting at a high level on the revenue side. Obviously, you provided a bit of color on the outlook for each of the segments in your release. So maybe if you could just dig a little bit more into the nuclear, the Energy side and the Life Sciences side. One, were you just sort of expecting the nuclear side numbers to be that big? Are there new orders that came through the year that drove sort of that size growth in nuclear? And then on the Life Sciences side, if you can maybe just talk about what you're seeing on the outlook there in terms of maybe things that could drive mid- to high single-digit type growth that segment seen times in the past? Michael Anne Cybulski: Yes. So maybe, Saba, I'll start with the numbers and then Doug can chime in on the outlook. So from an Energy perspective, as we've talked about, the majority of the work that we have in our backlog right now is focused on life extension projects, and those tend to run out over 18 to 24 months, in some cases, from a top line standpoint. That said, we also have good backlog that we're continuing to generate in terms of our participation in new builds, both SMR and traditional reactors. And an example in the quarter, we did have an order for new build reactor for fuel fabrication. So good participation there and not specific to any one technology. So I think a good demonstration of our team's capabilities beyond the [ CANDU ] technology that is the majority of the life extension work. From a Life Sciences standpoint, we've continued to build out that part of the business. And of course, we have the custom integration piece of the business, but we've also got a good portfolio from a products and services standpoint that we'll continue to focus on driving the business forward from a top line standpoint. So Doug, go ahead. Douglas Wright: Sure. So I would just add in terms of the outlook, Saba, that the -- we've obviously -- in the nuclear side, we've obviously had a very long-standing relationship with a number of customers on the CANDU platforms, and we're really pleased that we're continuing to support those life extension and refurb programs. But inside of our pipeline and kind of looking forward, we are also active on, I would call it, a handful -- a full handful of SMR customers in the early-stage activities in both modular fabrication and fuel handling. And we do expect that over time, these customer relationships will expand as projects gain traction and evolve into operations. Obviously, this is a long-term investment for the company to get involved early. And we have to obviously be prudent in how we manage uncertainty that comes with new technology and new regulatory frameworks, but we feel like ATS is in a strong position to support those evolving technologies as they go forward. I would say on the Life Sciences side of things, we really are pleased with the improvement in the diversity in the -- at the application layer within the pipeline and the backlog in Life Sciences. We're really excited about some of the new innovations that our customers are working on around radiopharma, visual inspection, other med tech applications, including things like mail order pharmacy. So we believe that we have a pretty good stable of new applications coming in that portion of our business that will allow us to help continue to support those great innovations that are happening with our customers. Sabahat Khan: Great. And then just for my follow-up, I guess, a bit more on the capital side, leverage moved in the right direction. And if you can just maybe comment a little bit on sort of the working capital target that you guys have, any initial plans there? And then understanding it's early days, but just your views on where M&A ranks in capital allocation as the leverage moves further in the right direction. Douglas Wright: Sure. So it's a little premature for us to set new financial targets in terms of the working capital ratio, but you can be sure that in future calls with you, we will be reviewing those targets and coming forward with an updated framework. I think the team did make a lot of progress here in the last quarter on working capital. And that's -- honestly, improving working capital is actually quite hard operationally. So I think it shows a good level of execution by the team. And of course, my job is to keep pushing to make it even better than it has been. So you can count on that. I think in terms of capital allocation models, I would think about it like this. We're not going to change our level of discipline and focus and our committed leverage architecture that we've communicated to investors. We recognize that there's a view that as our leverage ratio gets back into our targeted zone that we can become more thoughtful about deploying M&A capital, and you can be confident that internally we are doing that. We have a pretty rich pipeline that across a number of our end markets that we are continuing to evolve. And as I'm meeting with our business unit leaders and our corporate development team and getting an understanding of what's in their pipeline, I'm pretty confident that we've got the ideas to utilize to deploy capital. But obviously, as I said, we will remain quite disciplined in how we do that, but you should expect us to favor deploying capital toward M&A going forward. Operator: Your next question comes from the line of Patrick Sullivan from TD Cowen. Patrick Sullivan: Like everyone said, good luck, Ryan, and then Doug, welcome to the call. I guess first question I had was, it looks like there's a specific line -- kind of aligning opportunities outside of GLP-1 in the Life Sciences sector. So I guess, has there been any updates to customer plans within that market for you guys? Is there still significant capacity that needs to be constructed? Or have advancements in other oral therapies kind of influenced capital expenditure plans more recently? Douglas Wright: Sure. I would say, obviously, Patrick, the GLP-1 ecosystem has a lot of dynamics involved in terms of both the ramp-up of capacity that we're participating in now as we're shifting into the delivery phase of the great upfront capacity partnerships that we entered a while back. But there's still a significant amount of new therapies around GLP-1s, new delivery form factors such as multi-use devices or more sustainable concepts in the devices themselves as well as new trials and customer activities around continuing to deploy new therapies around these therapeutics. So I would say that the long term, the auto-injector market for us with respect to GLP-1s, it will -- it's obviously going to go through its lumpiness in the order cycle. But from a revenue perspective, we still see a pretty strong pipeline of incremental opportunities to continue to support those therapies. Now being prudent, we obviously have to improve the diversity of our pipeline for other types of therapies we mentioned in our prepared remarks. There's a lot of excitement around radiopharma, oncology and other activities that we think will -- well, we're not -- we don't think it is diversifying our pipeline, and that will start to diversify our revenue footprint as time goes on. So we're committed to continuing to work with our GLP-1 and auto-injector customers. We recognize that there's a lot of press now about different companies guiding different views on utilization of orals and other traditional and new therapies around GLP-1s. And I would say that from our perspective, our customers are still being pretty consistent that there's a lot of long-term opportunity in GLP-1s that we'll continue to support over time, recognizing that we have to diversify the portfolio to make sure that we can keep the machine running. Michael Anne Cybulski: And just a small bit of extra color on the quarter. Within the quarter, we saw good examples of that diversification that Doug is referring to. Outside of GLP-1, we had orders in radiopharma and other areas of med device, which are a good demonstration of our team's capability and our capacity to execute across those submarkets. So just hopefully, that adds a little bit extra color for you there. Patrick Sullivan: Yes, that's great. If I could ask one more. ATS often talks about cultivating assets as it relates to acquisition targets, sometimes over many years. Doug, is that approach consistent with your experience? Was that part of your mandate in previous roles? I guess any experience you can elaborate on with respect to that strategy would be great. Douglas Wright: Yes. Thanks for the question, Patrick. I think the answer is very simple. I am very committed to the idea that I have a role and my executive team have a role in working with innovators, founders, sometimes families and other -- we work in a universe of strong levels of innovation that often start as small businesses and then evolve into opportunities to join a larger organization like ATS. That does require a lot of kind of pick and shovel activity on the ground to cultivate those relationships. And it is something that I have a lot of experience in. And I think we'll continue to have a pretty -- a very tactical focus on getting out and meeting partners and working with them over the long term to put us in a better position to make those acquired companies feel at home inside ATS. Operator: Your next question comes from the line of Justin Keywood from Stifel. Justin Keywood: Just following up on the outlook for Life Sciences. We've seen some substantial CapEx investments over the last 6 to 8 months. By our math, about $480 billion has been announced, much of which are ATS' customers. And this is in part to potentially sidestep tariffs and reshore with U.S. manufacturing. I'm wondering if that narrative is leading to increased business for ATS? Or is it just a regular business as it goes as far as new CapEx and if you have any additional color there? Douglas Wright: So Justin, I think specifically, we probably -- I think at a high level, we certainly are aware that there's a lot of discussion within the broader sort of Healthcare and Life Sciences space around reshoring and tariff mitigations. And we certainly are probably seeing some benefit from that in our own pipeline. But I can't -- I think at the end of the day, most of our customers are being very balanced in being close to their large markets as they build out their capacity. So I wouldn't say that it's necessarily dependent on tariff dynamics. I think it's related to just the dramatic increase in demand for these therapeutics and just needing raw capacity. And if you're doing -- if you're adding new capacity in an environment where tariffs and geopolitical items are volatile, it's kind of rational to spread your capacity out among different geographies. I think that's common across a lot of the industrial tech landscape as well among our peers. So I think that's kind of a natural outcome. And -- but you're correct that there is still a significant amount of capacity in the pipeline. And our job is to be able to serve that whatever geography the customer decides to land in. Justin Keywood: Understood. That's very helpful. And then for the Transportation or EV segment, we saw continued pressure this quarter. Our expectation was it was near bottom levels last quarter. Are we at that range where we should see some stabilization going forward? And also, how strategic is the EV or Transportation segment to the overall business going forward? Douglas Wright: Sure. So I think we look at Transportation holistically, the way we look at all of our end markets through a long-term value creation lens. And part of that specific to Transportation is we recognize that we have a lot of technology and value to bring to the EV ecosystem. But it's frankly going to be more targeted than it has been historically. I think we recognize that pursuing mega projects in the, call it, the broad Transportation sector has -- carries a lot of risk that we're not comfortable with. But within sort of niches, within the Transportation segment, maybe it's assembly of batteries or hybrid engines or other sort of unique targeted areas where our technology can bring value and we can be rewarded appropriately for it. We still have a significant amount of pipeline in transportation, but we're going to be more cautious in how we go after the shiny objects. We're going to be more disciplined in how we pursue those projects. So it's still a market that we feel optimistic about. But on a relative scale, it will -- relative to our larger segments that we're participating in now, I think it will stay kind of in its current range. Michael Anne Cybulski: And Justin, just to add, I mean, that's -- what Doug said is reflective of what we see in the backlog and also in bookings in the quarter as well as the funnel. So -- and I think that's a fair reflection of what we'd expect going forward. Operator: [Operator Instructions] Your next question comes from the line of Patrick Baumann from JPMorgan. Patrick Baumann: I know it's been a couple of months already, but we haven't spoken yet. So I wanted to say congrats to Doug on the new role. And also, thanks to Ryan for all the help and guidance while we've been following the company and best of luck in your new role. I had a couple of questions. First on sales. So generally, like when I look at the quarterly -- I know you guys don't like to talk about quarterly, but when I look at the quarters over time, you see a growth rate from third quarter to fourth quarter like in the mid-single-digit range sequentially. Can you help me understand why that might not happen this year? Is it -- was there some sales pulled ahead to the third quarter maybe? Any color on that would be helpful. Michael Anne Cybulski: Yes. Patrick, I can take that one. So from a -- on a full year basis, we're still expecting what we talked about before in terms of high single-digit growth, and we're happy with where we are from an organic growth perspective on a year-to-date basis, especially given some of the market dynamics. The Q3 number, I mean, there was some benefit from scope adjustments and things that just timing of execution of the program. So what we have in our guide for Q4 leaves us consistent with what we would have expected on a full year basis. And I don't think there's anything unusual that I'd call out. Patrick Baumann: Okay. That's helpful. And then the second one is on backlog. And so I guess I just wanted to understand the sequential decline in context of the positive book-to-bill. It looked to me like maybe in Transport, there was a rescoping or something of that nature. Is that right? And if you could provide any color on that, that would be helpful. And then also on the orders front, like consumer looked like it had a big order in there. Could you provide any color on that? Michael Anne Cybulski: Yes, I'd be happy to. So just with respect to the backlog, I mean, just -- about half of our business, roughly half is products and services. So as that portfolio continues to grow, I mean, we kind of look at a number of metrics across the board. So in our guide, we look at the shorter-term businesses. We kind of look at where we are from an execution standpoint on our larger projects. So there's some timing stuff in there. But I would say we're happy with the book-to-bill staying above 1. And even if it does dip below 1 in any particular market or period on an individual quarter or trailing 12-month basis, if we're executing off of a healthy backlog that doesn't give us cause for concern. So I think -- and then your question on consumer, we did have -- we have had some strength in that area, again, reflective of the capabilities of the team. So that work will get executed over a normal time frame, consistent with the other work in our backlog, we typically say 12 to 18 months. Operator: Your next question comes from the line of Jonathan Goldman from Scotiabank. Jonathan Goldman: Maybe just the first one, circling back on the bookings. What are you guys thinking in terms of bookings growth this year? I'm just -- if you can give us any help parsing all the different puts and takes on funnel commentary, the strong revenue this quarter. You're lapping the enterprise orders last year, the timing as well. But how are you thinking about the full year cadence of bookings? Michael Anne Cybulski: So from a -- you mean -- sorry, Jonathan, just to clarify for this year? Or what do you... Jonathan Goldman: Yes for this year? Michael Anne Cybulski: Yes. I mean we're -- we'll continue to -- there's -- obviously, in our Custom Integration business, there's some timing things that may impact the number. But on a full year basis, we're happy with where we've come in from a year-to-date perspective, and the funnel is healthy across the board, as we've talked about. And even if -- and as auto-injector orders modulate based on where customers are in their buying cycles, the funnels in the rest of the submarkets remain healthy. If there's anything, Doug, you'd like to add, go ahead. Douglas Wright: No, I think it's -- I think we've got a great pipeline, and there's obviously some economic uncertainty that we live with every day. And I think the team has calibrated the orders outlook effectively. That's why we provide a range. And -- but I think it's -- the pipeline is robust, and we've got, I think, a pretty good opportunity to continue to deliver the type of growth that we've delivered in Q3. And obviously, our job is to beat those expectations. Jonathan Goldman: Okay. That's helpful. Maybe switching to SG&A. You upsized the restructuring charges this quarter. I think you talked about maybe reinvesting some of that in strategic areas. What sort of areas are you planning to reinvest those savings in? And if we're thinking about kind of payback on restructuring, is this more of a top line payback or a cost payback at this point? Michael Anne Cybulski: So yes, I mean, I would expect that it will be a mix. So we've -- the bump up in the range is basically just associated with some additional opportunities we've identified for efficiency across the program, including with -- associated with our services shift. I think some margin protection measures in a few parts of the business that have seen lower volumes, but nothing that I would call out that's material. From a reinvestment standpoint, I mean, we've had a history of investing in innovation, and that's been critical to our success and will continue to be going forward. So that would be where some of the reinvestment would be as well as in areas of growth, we've talked about nuclear, which is a People business. So there, for example, in other areas -- other market focus areas, including Life Sciences. And as we work through the timing of some of this from a bottom line perspective, the piece that would flow through to operating -- to help with operating leverage would primarily be into fiscal '27 just based on the timing of the execution of the program. Douglas Wright: Yes. And I think, Jonathan, one of the things that I'm -- as I've gotten around to meet our division leaders and talk to some of our innovators, these new therapies that are evolving in Life Sciences and these new kind of energy form factors that we're seeing evolve in our Energy business are very exciting, and I think create -- it's a great alignment between the technology that we have in-house and the needs that these customers have to support their evolution of their product as they kind of bring, in some cases, game-changing new technologies to the marketplace. So I think it's a very prudent action for us to take our restructuring savings and redeploy investments in those growth areas. So when we talk about diversifying our pipeline and making early-stage investments in these new technologies, that's generally the destination for any incremental investment dollars that we get. And that's, I think, a pattern you'll see us repeat. Jonathan Goldman: Okay. That's fulsome color. And maybe just one housekeeping one. The sequential increase in the SG&A, how much of that was due to FX? Michael Anne Cybulski: It would be relatively in line from a proportionate standpoint to what we saw from the top line perspective. But we can follow up with you, Jonathan, on the specific values. Operator: Your next question comes from the line of Michael Glen from Raymond James. Michael Glen: Doug, maybe to start, we've heard a focus on margin expansion mentioned a few times. Are you able to speak to some of your prior roles, any of the margin initiatives you implemented in those roles and maybe highlight some of the success you realized in expanding margins in prior roles. Douglas Wright: Nice to meet you, Michael. Sure. I think I kind of categorize the margin improvement opportunities in 3 areas, all of which I've had extensive experience in my prior roles. So first is amplifying the deployment of our ABM tools to find productivity opportunities. This could be reducing cost, improving lead times, which helps us drive market share. The tool set that we have inside ATS is very strong. They're very familiar tools to my prior roles that I -- companies I've served. And I think there's just a need within the team to drive more focus in executing them, perhaps being prioritizing a little differently. So I'm pretty comfortable that we actually have the tools in mind, but we'll be working harder to more effectively deploy them where we can move the needle on margins. And it could be looking at 80/20 pricing. It could be looking at low-cost country supply chain. It could be on finding labor productivity through value stream mapping exercises at the shop floor level. All up and down the architecture of the company, we have opportunities to deploy ABM to drive more efficiency. And I'm confident that we'll be able to accelerate that. The second area is around focusing our R&D and commercial efforts on applications within our current end markets, but that require more advanced technology and application knowledge that we have inside ATS. And that then brings us the opportunity to enjoy improved gross margins. Some of the new applications that we talked about in our pipeline and emerging into our backlog around Life Sciences, nuclear, the examples that we talked about earlier, these are all areas where the physics challenges of creating something for our customers is quite a big challenge, and we bring technology to the table to help them solve those problems, and that gives us the opportunity to have a better yield and share in that value creation. And then the third area, which has been a focus of the company, but I think has further opportunities is in increasing our mix of aftermarket. I think being -- having a significant portion of our business being in the CapEx cycle, we recognize that from an earnings volatility standpoint, having a higher share of aftermarket can both improve our margin profile as well as smooth out the natural ebbs and flows that come with the CapEx side of the company, as one of the reasons that I supported the decision that the team made to move the services teams into the business units to provide more of an end-to-end model with our end users from -- all the way from conceptual engineering through lifetime service and support. I think that's very logical, and it will start to allow us to pursue organic strategies to expand our service potential. And even in our capital deployment discussions, one of the criteria that we talk about is the same things. We talk about, is there a potential to employ ABM to improve the target company's performance? Do we have the ability to use the technology to create something new for our customers? And does it improve our aftermarket mix. So both in the internal work that we're doing as well as in our capital deployment work, those are kind of the themes that I've seen work in other enterprises similar to ATS, and that's what the team and I are going to be working through. And we'll -- once we have a more definitive framework about what that's going to mean to the economic, we'll come and share that with you. Michael Glen: Okay. That's a great amount of detail. And then just my second question, kind of plays off the first one, but you did see quite a move higher in the run rate on your services bucket revenue in the quarter. And are you able to give some context as to where that move higher did come from? Michael Anne Cybulski: I can cover that one, Michael. So there's -- included in our service revenues, we have some refurbishment work that is ongoing. And so a good chunk of the increase in the quarter came from that work. And beyond that, though, the service -- the rest of the services deliverables are tight, streams of revenue continue to perform well, but the majority of the increase was from refurbishment work, which is being executed. Michael Glen: And would that -- we would expect that to continue in future quarters as well? Michael Anne Cybulski: So that specific refurbishment program is ongoing, although nearing completion, but we -- refurbishment is an important part of our services portfolio in addition to other areas like spares, on-site support, asset management, those types of offerings. Operator: And we have reached the end of our question-and-answer session. I will now turn the call back over to Mr. Wright for closing remarks. Douglas Wright: Thank you, operator, and thank you, everyone, for joining us today. I'm excited to be part of the team here at ATS, and we look forward to speaking with you further on our Q4 call in May. Operator: This concludes today's conference call. We thank you for your participation. You may now disconnect.